Now that the US Supreme Court has finished its year, and some of its IP decisions have had some time to “season,” I thought it would be a good time to round-up a few of the big IP based rulings (quoting extensively from the opinions themselves):
Association for Molecular Pathology v. Myriad Genetics, Inc. (2013) __ US __ (patentability of human DNA sequences)
Respondent Myriad Genetics, Inc. (Myriad), discovered the precise location and sequence of two human genes, mutations of which can substantially increase the risks of breast and ovarian cancer. Myriad obtained a number of patents based upon its discovery. This case involved claims from three of them and required the Court to resolve whether a naturally occurring segment of deoxyribonucleic acid (DNA) is patent eligible under 35 U. S. C. §101 by virtue of its isolation from the rest of the human genome. The Court also addressed the patent eligibility of synthetically created DNA known as complementary DNA (cDNA), which contains the same protein-coding information found in a segment of natural DNA but omits portions within the DNA segment that do not code for proteins.
Had Myriad created an innovative method of manipulating genes while searching for the BRCA1 and BRCA2 genes, it could possibly have sought a method patent. But the processes used by Myriad to isolate DNA were well understood by geneticists at the time of Myriad’s patents “were well understood, widely used, and fairly uniform insofar as any scientist engaged in the search for a gene would likely have utilized a similar approach,” 702 F. Supp. 2d, at 202-203, and are not at issue in this case.
Given that the method of gene isolation was not patentable, once Myriad found the location and sequence of the BRCA1 and BRCA2 genes, Myriad sought and obtained a number of patents that in relevant part: 1) asserted a patent claim on the DNA code; or 2) asserted a patent on the cDNA code. Myriad’s patents would, if valid, give it the exclusive right to isolate an individual’s BRCA1 and BRCA2 genes (or any strand of 15 or more nucleotides within the genes) by breaking the covalent bonds that connect the DNA to the rest of the individual’s genome.
However, laws of nature, natural phenomena, and abstract ideas are not patentable.” Mayo Collaborative Services v. Prometheus Laboratories, Inc. (2012) 566 U.S. ___, 132 S.Ct. 1289, ___ L.Ed.2d ___ (2012) (slip op., at 1). Rather, “`they are the basic tools of scientific and technological work’” that lie beyond the domain of patent protection. Id., at ___ (slip op., at 2). As the Court has explained, without this exception, there would be considerable danger that the grant of patents would “tie up” the use of such tools and thereby “inhibit future innovation premised upon them.” Id., at ___ (slip op., at 17). This would be at odds with the very point of patents, which exist to promote creation. Diamond v. Chakrabarty, 447 U. S. 303, 309 (1980) (Products of nature are not created, and “`manifestations . . . of nature [are] free to all men and reserved exclusively to none’”).
The Court held that a naturally occurring DNA segment is a product of nature and not patent eligible merely because it has been isolated, but that cDNA is patent eligible because it is not naturally occurring, rather it is man-made. As a result, Myriad lost its patent claims related to DNA, but kept its claims related to cDNA.
As a result of this ruling, on June 13, 2013 a company by the name of Ambry Genetics issued a press release that it would begin testing for the BRCA1 & 2 genes. However, Myriad has been quick to jump on this. On July 9, 2013, Myriad sued Ambry alleging infringement of claims that survived the Supreme Court ruling in ten different patents.
Bowman v. Monsanto Company (2013) __ US __ (patent exhaustion in second generation of genetically modified seeds)
Under the doctrine of patent exhaustion, the authorized sale of a patented article gives the purchaser, or any subsequent owner, a right to use or resell that article. Such a sale, however, does not allow the purchaser to make new copies of the patented invention. The question in this case is whether a farmer who buys patented seeds may reproduce them through planting and harvesting without the patent holder’s permission.
Respondent Monsanto invented a genetic modification that enables soybean plants to survive exposure to glyphosate, the active ingredient in many herbicides (including Monsanto’s own Roundup). Two patents issued to Monsanto cover various aspects of its Roundup Ready technology, including a seed incorporating the genetic alteration. See Supp. App. SA1-21 (U. S. Patent Nos. 5,352,605 and RE39,247E); see also 657 F. 3d 1341, 1343-1344 (CA Fed. 2011).
Monsanto sells, and allows other companies to sell, Roundup Ready soybean seeds to growers who assent to a special licensing agreement. That agreement permits a grower to plant the purchased seeds in one (and only one) season. The farmer may not save any of the harvested soybeans for replanting, nor may he supply them to anyone else for that purpose. The agreement’s terms prevent the farmer from co-opting the patented genetic process to produce his own Roundup Ready seeds, forcing him instead to buy from Monsanto each season.
Petitioner Vernon Bowman is a farmer in Indiana who purchased a mixed bag of seeds that contained some of the seeds covered by the patents. He killed the plants that were not covered by the patents, and grew others. Monsanto sued Bowman for infringing its patents on Roundup Ready seed.
Bowman raised patent exhaustion as a defense, arguing that Monsanto could not control his use of the soybeans because they were the subject of a prior authorized sale (from local farmers to the grain elevator). The District Court rejected that argument, and awarded damages to Monsanto of $84,456.
The Federal Circuit affirmed. It reasoned that patent exhaustion did not protect Bowman because he had “created a newly infringing article.” The “right to use” a patented article following an authorized sale, the court explained, “does not include the right to construct an essentially new article on the template of the original, for the right to make the article remains with the patentee.”
The Supreme Court agreed. Accordingly, Bowman could not “`replicate’ Monsanto’s patented technology by planting it in the ground to create newly infringing genetic material, seeds, and plants.”
The doctrine of patent exhaustion limits a patentee’s right to control what others can do with an article embodying or containing an invention. Under the doctrine, “the initial authorized sale of a patented item terminates all patent rights to that item.” Quanta Computer, Inc. v. LG Electronics, Inc., 553 U. S. 617, 625 (2008). And by “exhaust[ing] the [patentee's] monopoly” in that item, the sale confers on the purchaser, or any subsequent owner, “the right to use [or] sell” the thing as he sees fit. United States v. Univis Lens Co., 316 U. S. 241, 249-250 (1942). The court has explained the basis for the doctrine as follows: “[T]he purpose of the patent law is fulfilled with respect to any particular article when the patentee has received his reward . . . by the sale of the article”; once that “purpose is realized the patent law affords no basis for restraining the use and enjoyment of the thing sold.” Id., at 251.
Consistent with that rationale, the doctrine restricts a patentee’s rights only as to the “particular article” sold, ibid.; it leaves untouched the patentee’s ability to prevent a buyer from making new copies of the patented item. “[T]he purchaser of the [patented] machine . . . does not acquire any right to construct another machine either for his own use or to be vended to another.” Mitchell v. Hawley, 16 Wall. 544, 548 (1873); see Wilbur-Ellis Co. v. Kuther, 377 U. S. 422, 424 (1964) (holding that a purchaser’s “reconstruction” of a patented machine “would impinge on the patentee’s right `to exclude others from making’. . . the article” (quoting 35 U. S. C. §154 (1964 ed.))). Rather, “a second creation” of the patented item “call[s] the monopoly, conferred by the patent grant, into play for a second time.” Aro Mfg. Co. v. Convertible Top Replacement Co., 365 U. S. 336, 346 (1961). That is because the patent holder has “received his reward” only for the actual article sold, and not for subsequent recreations of it. Univis, 316 U. S., at 251. If the purchaser of that article could make and sell endless copies, the patent would effectively protect the invention for just a single sale.
Unfortunately for Bowman, that principle decided this case against him.
While there are strong opinions attached to this case, they are for the most part not directly related to the issue presented to the Court – which was “replication” of the technology. Most who believe in the protection of IP rights would agree that the right to make and control copies of IP rests with the owner of the IP. In the end, you have no more right to copy a patented seed for financial gain, than you have to copy a copyrighted CD for financial gain.
Kirtsaeng v. John Wiley & Sons, Inc. (2013) WL 1104736, 568 US __, 133 S. Ct. 1351 (international copyright exhaustion)
Quoting in large part the Supreme Court’s decision, the Court was asked whether the “first sale” doctrine applies to protect a buyer or other lawful owner of a copy (of a copyrighted work) lawfully manufactured abroad. Can that buyer bring that copy into the United States (and sell it or give it away) without obtaining permission to do so from the copyright owner? Can, for example, someone who purchases, say at a used bookstore, a book printed abroad subsequently resell it without the copyright owner’s permission?
Respondent, John Wiley & Sons, Inc., publishes academic textbooks, and was the relevant American copyright owner. Wiley often assigns to its wholly owned foreign subsidiary, John Wiley & Sons (Asia) Pte Ltd., rights to publish, print, and sell Wiley’s English language textbooks abroad.
Petitioner, Supap Kirtsaeng, a citizen of Thailand, moved to the United States in 1997 to study mathematics at Cornell University. While he was studying in the United States, Kirtsaeng asked his friends and family in Thailand to buy copies of foreign edition English language textbooks at Thai book shops, including Wiley’s books, where they sold at low prices, and mail them to him in the United States. Kirtsaeng would then sell them, reimburse his family and friends, and keep the profit.
However, each copy of a Wiley Asia foreign edition will likely contain language making clear that the copy is to be sold only in a particular country or geographical region outside the United States.
Section 106 of the Copyright Act grants “the owner of copyright under this title” certain “exclusive rights,” including the right “to distribute copies . . . of the copyrighted work to the public by sale or other transfer of ownership.” 17 U. S. C. §106(3). These rights are qualified, however, by the application of various limitations set forth in the next several sections of the Act, §§107 through 122. Those sections, typically entitled “Limitations on exclusive rights,” include, for example, the principle of “fair use” (§107), permission for limited library archival reproduction, (§108), and the doctrine at issue here, the “first sale” doctrine (§109).
Section 109(a) sets forth the “first sale” doctrine as follows:
“Notwithstanding the provisions of section 106(3) [the section that grants the owner exclusive distribution rights], the owner of a particular copy or phonorecord lawfully made under this title . . . is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.” (Emphasis added.)
Thus, even though §106(3) forbids distribution of a copy of, say, the copyrighted novel “Herzog” without the copyright owner’s permission, §109(a) adds that, once a copy of Herzog has been lawfully sold (or its ownership otherwise lawfully transferred), the buyer of that copy and subsequent owners are free to dispose of it as they wish. In copyright jargon, the “first sale” has “exhausted” the copyright owner’s §106(3) exclusive distribution right.
What, however, if the copy of Herzog was printed abroad and then initially sold with the copyright owner’s permission? Does the “first sale” doctrine still apply? Is the buyer, like the buyer of a domestically manufactured copy, free to bring the copy into the United States and dispose of it as he or she wishes?
To put the matter technically, an “importation” provision, §602(a)(1), says that
“[i]mportation into the United States, without the authority of the owner of copyright under this title, of copies . . . of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies . . . under section 106 . . . .” 17 U. S. C. §602(a)(1) (2006 ed., Supp. V) (emphasis added).
Thus §602(a)(1) makes clear that importing a copy without permission violates the owner’s exclusive distribution right. But in doing so, §602(a)(1) refers explicitly to the §106(3) exclusive distribution right. As we have just said, §106 is by its terms “[s]ubject to” the various doctrines and principles contained in §§107 through 122, including §109(a)’s “first sale” limitation. Do those same modifications apply—in particular, does the “first sale” modification apply—when considering whether §602(a)(1) prohibits importing a copy?
In Quality King Distributors, Inc. v. L’anza Research Int’l, Inc., 523 U. S. 135, 145 (1998), the Court held that §602(a)(1)’s reference to §106(3)’s exclusive distribution right incorporates the later subsections’ limitations, including, in particular, the “first sale” doctrine of §109. Thus, it might seem that, §602(a)(1) notwithstanding, one who buys a copy abroad can freely import that copy into the United States and dispose of it, just as he could had he bought the copy in the United States.
But Quality King considered an instance in which the copy, though purchased abroad, was initially manufactured in the United States (and then sent abroad and sold). This case is like Quality King but for one important fact. The copies at issue here were manufactured abroad. That fact is important because §109(a) says that the “first sale” doctrine applies to “a particular copy or phonorecord lawfully made under this title.” And the Court must decide here whether the five words, “lawfully made under this title,” make a critical legal difference.
In the Court’s view, the answers to these questions were, yes. The Court held that the “first sale” doctrine applies to copies of a copyrighted work lawfully made abroad. Thus, Kirtsaeng was free to sell the books printed in Thailand in the US.
The effect of this ruling was immediately felt in the 2nd Circuit where judgments against defendants similarly situated to Kirtsaeng were all reversed. Pearson Educ., Inc. v. Kumar, et al. Court of Appeals, 2nd Cir. June 20, 2013. Further, the District Courts have already been applying the ruling. AFL Telecommunications, LLC V. Surpluseq.com Incorporated, Ariz. Dist. Court, May 20, 2013. Note however, that it is limited to materials first made and sold outside the United States. This will not apply to materials first manufactured in the US. As a result, we could see more domestic production of US materials which would be a boon to US based printers.
Already, LLC v. Nike, Inc. (2013) __ US __ (impact of covenant-not-to-sue on declaratory judgment jurisdiction in trademark cases)
The question is whether a covenant not to enforce a trademark against a competitor’s existing products and any future “colorable imitations” moots the competitor’s action to have the trademark declared invalid.
Respondent Nike designs, manufactures, and sells athletic footwear, including a line of shoes known as Air Force 1s. Petitioner Already also designs and markets athletic footwear, including shoe lines known as “Sugars” and “Soulja Boys.” The parties had a dispute over whether Nike’s trademark for Air Force 1s was valid and infringed by Already.
In March 2010, Nike issued a “Covenant Not to Sue.” Its preamble stated that “Already’s actions … no longer infringe or dilute the NIKE Mark at a level sufficient to warrant the substantial time and expense of continued litigation.” The covenant promised that Nike would not raise against Already or any affiliated entity any trademark or unfair competition claim based on any of Already’s existing footwear designs, or any future Already designs that constituted a “colorable imitation” of Already’s current products.
However, Already sought to continue to pursue a declaratory relief action seeking a judgment that Already did not infringe Nike’s trademark because the trademark was invalid. Nike sought to dismiss the case because Already was no longer in jeopardy of being sued by Nike due to the Covenant Not to Sue. The district court agreed with Nike, dismissed the suit, and the Second Circuit affirmed.
Central to the Supreme Court’s analysis, Nike’s covenant now allows Already to produce all of its existing footwear designs — including the Sugar and Soulja Boy — and any “colorable imitation” of those designs. Thus, “it is hard to imagine a scenario that would potentially infringe [Nike's trademark] and yet not fall under the Covenant.” Related, Already did not assert any intent to design or market a shoe that would expose it to any prospect of infringement liability.
Thus the correct analysis as to whether a covenant not to sue “eliminates a justiciable case or controversy,” is based on the totality of the circumstances, including “(1) the language of the covenant, (2) whether the covenant covers future, as well as past, activity and products, and (3) evidence of intention … on the part of the party asserting jurisdiction” to engage in conduct not covered by the covenant.
In the present case, the justiciable case or controversy was eliminated, and Already had no further claim for declaratory relief.
The effect of this case has been interesting. The courts in the Eastern District of Arkansas and the District of New Jersey refused to dismiss cases even though there was a covenant not to compete finding that the covenant was no unconditional and irrevocable. Perfectvision Manufacturing, Inc. V. PPC Broadband, Inc., Case No. 4:12CV00623 JLH (EDArk., June 10, 2013); Astrazeneca LP v. Breath Limited, Consolidated Civil Action. No. 08-1512 (RMB/AMD), Member Case No. 09-1518, No. 09-4115., 10-5785, 11-3626 (DNJ May 31, 2013).
As a result, it appears the covenant not to compete must be broad and airtight in order to withstand this test.
Finally, it is worthy to note that several courts – including the Supreme Court itself – have cited this ruling for the holding that an “actual controversy” persist throughout all stages of litigation, and thus it appears this ruling will be used extensively for said proposition. Hollingsworth v. Perry (June 26, 2013) __ US __.
FTC v. Actavis, Inc. (2013) __ US __ (reverse payments to settle patent litigation)
Company A sues Company B for patent infringement. The two companies settle under terms that require (1) Company B, the claimed infringer, not to produce the patented product until the patent’s term expires, and (2) Company A, the patentee, to pay B many millions of dollars. Because the settlement requires the patentee to pay the alleged infringer, rather than the other way around, this kind of settlement agreement is often called a “reverse payment” settlement agreement. And the basic question here is whether such an agreement can sometimes unreasonably diminish competition in violation of the antitrust laws. See, e.g., 15 U. S. C. §1 (Sherman Act prohibition of “restraint[s] of trade or commerce”). Cf. Palmer v. BRG of Ga., Inc., 498 U. S. 46 (1990) (per curiam) (invalidating agreement not to compete).
In this case, the Eleventh Circuit dismissed a Federal Trade Commission (FTC) complaint claiming that a particular reverse payment settlement agreement violated the antitrust laws. In doing so, the Circuit stated that a reverse payment settlement agreement generally is “immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent.” FTC v. Watson Pharmaceuticals, Inc., 677 F. 3d 1298, 1312 (2012). And since the alleged infringer’s promise not to enter the patentee’s market expired before the patent’s term ended, the Circuit found the agreement legal and dismissed the FTC complaint. Id., at 1315.
The Supreme Court disagreed.
First, the specific restraint at issue has the “potential for genuine adverse effects on competition.” Indiana Federation of Dentists, 476 U. S., at 460-461 (citing 7 Areeda ¶1511, at 429 (1986)). The payment in effect amounts to a purchase by the patentee of the exclusive right to sell its product, a right it already claims but would lose if the patent litigation were to continue and the patent were held invalid or not infringed by the generic product. Suppose, for example, that the exclusive right to sell produces $50 million in supracompetitive profits per year for the patentee. And suppose further that the patent has 10 more years to run. Continued litigation, if it results in patent invalidation or a finding of noninfringement, could cost the patentee $500 million in lost revenues, a sum that then would flow in large part to consumers in the form of lower prices.
Second, these anticompetitive consequences will at least sometimes prove unjustified. See 7 id., ¶1504, at 410-415 (3d ed. 2010); California Dental Assn. v. FTC, 526 U. S., 756, 786-787 (1999) (BREYER, J., concurring in part and dissenting in part). But that possibility does not justify dismissing a complaint. An antitrust defendant may show in the antitrust proceeding that legitimate justifications are present, thereby explaining the presence of the challenged term and showing the lawfulness of that term under the rule of reason. See, e.g., Indiana Federation of Dentists, supra, at 459; 7 Areeda ¶¶1504a-1504b, at 401-404 (3d ed. 2010).
Third, where a reverse payment threatens to work unjustified anticompetitive harm, the patentee likely possesses the power to bring that harm about in practice. See id., ¶1503, at 392-393. At least, the “size of the payment from a branded drug manufacturer to a prospective generic is itself a strong indicator of power”—namely, the power to charge prices higher than the competitive level. 12 id., ¶2046, at 351.
Fourth, an antitrust action is likely to prove more feasible administratively than the Eleventh Circuit believed. The Circuit’s holding does avoid the need to litigate the patent’s validity (and also, any question of infringement). But to do so, it throws the baby out with the bath water, and there is no need to take that drastic step. An unexplained large reverse payment itself would normally suggest that the patentee has serious doubts about the patent’s survival. And that fact, in turn, suggests that the payment’s objective is to maintain supracompetitive prices to be shared among the patentee and the challenger rather than face what might have been a competitive market—the very anticompetitive consequence that underlies the claim of antitrust unlawfulness.
Fifth, the fact that a large, unjustified reverse payment risks antitrust liability does not prevent litigating parties from settling their lawsuit. The relevant antitrust question is: What are the reasons for settlement? If the basic reason is a desire to maintain and to share patent-generated monopoly profits, then, in the absence of some other justification, the antitrust laws are likely to forbid the arrangement.
In sum, a reverse payment, where large and unjustified, can bring with it the risk of significant anticompetitive effects; one who makes such a payment may be unable to explain and to justify it; such a firm or individual may well possess market power derived from the patent; a court, by examining the size of the payment, may well be able to assess its likely anticompetitive effects along with its potential justifications without litigating the validity of the patent; and parties may well find ways to settle patent disputes without the use of reverse payments.
Thus the Supreme Court held, these considerations, taken together, outweigh the single strong consideration—the desirability of settlements—that led the Eleventh Circuit to provide near-automatic antitrust immunity to reverse payment settlements.
The effect of this ruling has had an immediate effect. On June 24, 2013, the Supreme Court vacated and remanded Merck & Co., Inc. v. LA Wholesale Drug Co. to the United States Court of Appeals for the Third Circuit for a ruling consistent with Actavis. Now the courts will be forced to examine the settlement agreement to determine whether it is anticompetitive, rather than simply applying immunity, and as a result, like it or not, this will take more time.