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Bar News - June 21, 2017


Intellectual Property Law: IP Issues at the US Supreme Court: A Year in Review

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The US Supreme Court’s current term, which will come to a close at the end of this month, has been marked by oral arguments on several consequential intellectual property issues with significant implications for future practice. The Court has recently issued decisions on three intellectual property cases, and as of press time, two cases were still pending, with decisions expected before the end of the term.

Patent

In TC Heartland, LLC v. Kraft Foods Group Brands LLC, a highly anticipated case on patent venue shopping, the Supreme Court considered the prevalent interpretation of the federal patent venue statute, which provides that lawsuits alleging patent infringement should be brought in the judicial district where the defendant “resides.”

In a unanimous decision issued May 22, 2017, the Court reversed the Federal Circuit and held that the word “resides” in the patent venue statute, 28 USC Section 1400(b), “refers only to the State of incorporation” of the alleged infringer.

The case involved a suit brought by Kraft in the District of Delaware against TC Heartland for patent infringement of its calorie-free flavored drink mixes. TC Heartland, which is incorporated in Indiana, moved to dismiss the action for lack of personal jurisdiction and to transfer the case to the Southern District of Indiana. Following the district court’s denial of its motion, TC Heartland petitioned the Federal Circuit for a writ of mandamus to either dismiss or transfer the case. The Federal Circuit ruled in favor of Kraft, citing its decision in VE Holding Corp. v Johnson Gas Appliance Co. (1990), which expanded patent venue to any judicial district in which a corporation “is incorporated or licensed to do business or is doing business.”

The Supreme Court granted certiorari to determine whether the Federal Circuit had correctly interpreted Congress’s 1948 amendment to 28 USC Section1391(c) changing the meaning of 28 USC Section 1400(b).

The Court reversed the Federal Circuit and held that the patent statute is the sole and exclusive provision governing venue in patent infringement actions, and that the amendments to 28 USC Section 1391(c) did not modify the meaning of Section 1400(b) as interpreted in Fourco Glass Co. v. Transmirra Products Corp. (1957).

Justice Clarence Thomas, writing for the Court, cited Fourco explaining “this Court definitively and unambiguously held that the word ‘reside[nce]’… has a particular meaning as applied to domestic corporations: It refers only to the State of incorporation.”

The Court’s ruling in this case will have significant implications on the Eastern District of Texas, where 40 percent of patent suits were filed last year. It will also affect so-called patent trolls – companies that own patents but do not manufacture any products but exploit patent-friendly venues, forcing businesses to litigate or pay hefty license fees. While the outcome of this case will influence patent litigation strategy around the country, Delaware will likely see a surge in patent cases, as many companies are incorporated there due to its favorable corporate laws.

In SCA Hygiene Products Aktiebolag v. First Quality Baby Products LLC, the Court considered whether the equitable defense of laches can be invoked to bar recovery of damages in patent infringement lawsuits. In a 7-1 decision issued March 21, 2017, the court held that laches cannot be invoked as a defense against a claim for damages brought within the statute of limitations period of the Patent Act.

The case involved a dispute over patents for adult incontinence products and whether a patent holder who waits too long to defend its rights loses the option to challenge the alleged infringement of its patent rights.

In an October 2003 letter to First Quality, SCA initially alleged infringement of its patent. However, SCA did not file suit against First Quality until 2010. First Quality sought to have the case dismissed based on the defense of laches, since SCA waited almost seven years from its initial accusation of patent infringement to file suit. First Quality argued that SCA’s delay was prejudicial and that SCA’s claims of patent infringement should be barred based on the doctrine of laches.

SCA then sought en banc rehearing based on the Supreme Court’s 2014 ruling in Petrella v. Metro-Goldwyn-Mayer that laches is not a defense to a copyright infringement suit brought within the Copyright Act’s statutory limitations period. The Federal Circuit, however, distinguished Petrella from SCA, holding 6-5 that the defense of laches does bar legal relief in patent infringement claims accruing within the six-year statute of limitation period. The Federal Circuit found that unlike copyright law, Section 282(b)(1) of the Patent Act specifically allows for laches to be asserted as a defense.

The Supreme Court granted certiorari to determine whether the defense of laches may bar a claim for patent infringement brought within the six-year statute of limitations period of the Patent Act.

In a decision authored by Justice Samuel Alito, the court held that laches is a “gap-filling doctrine” and “where there is a statute of limitations, there is no gap to fill.” The Court acknowledged that the statute of limitation provisions under the Copyright Act and Patent Act were “worded differently” but held that its reasoning in the Petrella decision applied to the Patent Act. The Court stated that “[b]y the logic of Petrella, we infer that this provision represents a judgment by Congress that a patentee may recover damages for any infringement committed within six years of the filing of the claim.” The Court also observed that “it would be exceedingly unusual, if not unprecedented, if Congress chose to include in the Patent Act both a statute of limitations for damages and a laches provision applicable to a damages claim.”

Copyright

In Star Athletica v. Varsity Brands, the Court considered whether clothing designs could be protected under copyright law. On March 22, 2017, in a 6-2 decision, the court held that a feature incorporated into the design of a useful article is eligible for copyright protection under the Copyright Act of 1976.

The case involved a copyright infringement action filed by Varsity Brands, the world’s largest cheerleading apparel company, against its rival, Star Athletica. Varsity has more than 200 copyright registrations for two-dimensional designs, which consist of various colorful chevron patterns and stripes on its cheerleading uniforms.

The US Court of Appeals for the Sixth Circuit ruled in favor of Varsity and found its clothing and designs were not simply functional and were entitled to copyright protection. In asking the Supreme Court to take its case, Star Athletica was looking to the court to provide some uniformity in the law and clarify when a component feature of a useful article is entitled to copyright protection.

Rather than rely on one of the nine different “separability” tests noted by the 6th Circuit to determine whether a design is copyrightable, the Court clarified the applicability of “separability” with a two-prong test. In determining whether a feature incorporated into the design of a useful article is eligible for copyright protection, the feature must 1) be “perceived as a two- or three-dimensional work of art separate from the useful article,” and 2) qualify as protectable expression when “imagined separately from the useful article into which it is incorporated.”

The majority opinion, authored by Justice Clarence Thomas, was careful to limit its ruling: “To be clear, the only feature of the cheerleading uniform eligible for copyright in this case is the two-dimensional work of art… [Varsity has] no right to prohibit any person from manufacturing a cheerleading uniform of identical shape, cut and dimensions to the ones on which the decoration in this case appear.”

Up Next

At press time, two intellectual property cases were pending with decisions expected before the end of the term.

In Impression Products, Inc. v. Lexmark International, Inc., which was argued March 21, 2017, the Court is considering two questions related to patent exhaustion: 1) whether a “conditional sale” avoids patent exhaustion and allows a patent owner to impose post-sale restrictions on the use or resale of the patented article; and 2) whether patent exhaustion applies to sales that occur outside the United States in light of the court’s holding in Kirtsaeng v. John Wiley & Sons Inc. The court held in Kirtsaeng that a similar doctrine under copyright law prevented restraints on alienation for copyrighted works lawfully made abroad.

The Federal Circuit has held foreign sale of a patented product does not exhaust the patentee’s exclusionary right on importation of the patented product absent an express or implied license. The Federal Circuit also has taken the position that post-sale restrictions on patented items are permissible, provided that, at the time of the sale, the restrictions were communicated to the buyer.

A wide range of industries will be impacted if the Court reverses the Federal Circuit’s holding. However, if the Court affirms the Federal Circuit’s rules on patent exhaustion, patent owners will continue to be able to place post-sale restrictions on their patented products and sell their patented products abroad at lower prices.

Lastly, in Lee v. Tam, which was argued Jan. 18, 2017, the court will decide whether the Lanham Act, which prohibits trademark registration for “disparaging” trademarks, violates the Free Speech Clause of the First Amendment.

Since 1946, the US Patent and Trademark Office has refused trademark registration for trademarks that consist or comprise of “immoral, deceptive, or scandalous matter; or matter which may disparage... persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute.”

The Court will have to address three issues: 1) whether the First Amendment applies to trademark registrations; 2) whether the federal government can regulate what is discriminatory; and 3) whether trademark registration is limited to commercial speech and not political speech.

At least 30 amicus briefs were filed in this case, including one filed by the owners of the Washington Redskins in support of Tam, and several Native American organizations writing against Tam. The Court’s ruling in this case may have significant implications on the owners of the Washington Redskins whose case, Pro-Football Inc. v. Amanda Blackhorse, in the 4th Circuit Court of Appeals, is stayed until Tam is decided.


Lisa Thompson

Lisa N. Thompson, is an attorney with Hage Hodes in Manchester. Her practice focuses primarily on business law and intellectual property matters, including trademarks, copyrights, trade secrets, and Internet matters. She can be reached at by email.

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