Patents / Claim Construction
Erroneous Claim Construction Sends Case Back
Sans Invalidity Counterclaims
Mark R. Anderson
Reversing a district court's grant of summary judgment, the U.S. Court of Appeals for the Federal Circuit in Judge Rader's first opinion as chief judge, held that two of three contested claim limitations were erroneously construed and that invalidity counterclaims had been waived. Silicon Graphics, Inc. v. ATI Techs., Inc., Case Nos. 08-1334, -1353 (Fed. Cir., June 4, 2010) (Rader, C.J.).
Silicon Graphics brought a patent infringement action against ATI tied to a computer graphics system that produces three-dimensional images and includes a rasterization process that utilizes a floating point format. The district court granted summary judgment of non-infringement for ATI, ruling that the claim construction precluded infringement. The court also held a jury trial on the patent's validity and the jury concluded that certain claims were not proved to be invalid.
The Federal Circuit began its review with the claim construction of three contested claim limitations. The Court found that the district court had misconstrued two of the three terms and had improperly imported limitations into the claims from embodiments in the specification in contradiction of Philips. The Court found that the specification did not indicate the patentee's intent to make the embodiments coextensive with the claims, but only included a specific example as an optimal format. Hence, the district court committed a reversible error with its construction of the claims.
The Federal Circuit also ruled that ATI had waived its invalidity counterclaims on any patent claims ATI did not litigate through trial. After the district court issued its summary judgment ruling, Silicon Graphics dismissed its remaining infringement case and asked the court to dismiss ATI's counterclaims. ATI fought to keep its counterclaims in place through a trial, and the district court held a trial on invalidity. During the trial, ATI only argued the invalidity of claims that were not subject to the summary judgment decision. Following the trial, the district court entered judgment that all claims and counterclaims had been addressed, withdrawn or abandoned. ATI requested that this reference to waiver and abandonment be struck with respect to its invalidity counterclaims not pursued at trial, but the district court denied the request. The Federal Circuit affirmed the district court's decision, as ATI did not make clear that it wished to reserve the right to pursue the invalidity case on the other claims by dismissing them without prejudice.
Practice Note: It is imperative to seek the dismissal without prejudice of any invalidity counterclaims to preserve the right to present an invalidity case at a later date should summary judgment of non-infringement be overturned by the Federal Circuit.
Patents / Claim Construction
Federal Circuit Refuses to Ignore a Drafting Error
Hasan Rashid
Construing a claim in a manner "yield[ing] an absurdity," the U.S. Court of Appeals for the Federal Circuit declined an invitation to "redraft" the claim, favoring instead the claim's literal meaning. Haemonetics Corp. v. Baxter Healthcare Corp., No. 09-1557 (Fed. Cir., June 2, 2010) (Lourie, J.).
The patent-at-issue relates to continuous blood centrifuges, which contain a spinning vessel for separating heavier components from blood and a number of tubes for adding and removing liquid from the vessel. The case turned on the construction "centrifugal unit" in claim 16. That claim's preamble recites a "centrifugal unit comprising a centrifugal component and a plurality of tubes." The body of claim 16 includes two more recitations of "the centrifugal unit," including one in the context of the unit's dimensions, but omits recitation of the remainder of the preamble phrase.
The district court issued a claim construction order and construed the term "centrifugal unit" as used in claim 16. The district court held, and the parties agreed, that "centrifugal unit" as used in the claim's first line means "the combination of both the vessel and the tubing." However, the claim's remaining two references to "centrifugal unit," including the final one in the context of the "height" and "radius" limitations, were construed to mean only the vessel. The district court relied on claim 16's use of identical dimensions to the patent's other independent claims, which the parties agreed used "centrifugal unit" to refer exclusively to the vessel. The district court reasoned that, because the vessel and the tubing together are always larger than the vessel alone, giving "centrifugal unit" a construction that includes the tubing in the context of the dimensional limitations "would yield an absurdity."
On appeal, the Federal Circuit overturned the district court. The Court focused on the notice function of patent claims. Patent claims, according to the Court, "function to delineate the precise scope of a claimed invention and to give notice ... of the patentee's right to exclude." Consequently, claims must be construed "with an eye toward giving effect to all of their terms, even if it renders the claims inoperable or invalid." For courts to give a patent holder the benefit of the doubt in claim construction would be to extend its patent protection beyond what it had clearly claimed and beyond the scope of the notice provided to its competitors. To protect this notice function, the Court expressly declined redrafting claims to contradict their plain language in order to avoid a nonsensical result. Thus, the Court held that "centrifugal unit" should, for the purposes of Claim 16, be construed literally, without regard to any indications otherwise.
Practice Note: This decision demonstrates the potentially high price of claim-drafting errors, even when the patent specification is drafted correctly.
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Patents / Summary Judgment
Two Strykes Result in Instruction to Reassign Case to
Different Judge
Tyler J. Woods
Having previously remanded this patent dispute on claim construction and infringement questions, the U.S. Court of Appeals for the Federal Circuit again reversed a district court for issuing an order that simply adopted a defendant's version of facts and conclusions of law in support of its motion for summary judgment of invalidity based on obviousness. TriMed Inc. v. Stryker Corp., Case No. 09-1423 (Fed. Cir., June 9, 2010) (Linn, J.).
TriMed sued Stryker for infringement of a patent that covers an implantable device used to set bone fractures. After completion of discovery, the district court granted Stryker's motion for summary judgment of non-infringement by simply signing Stryker's Statement of Uncontested Facts and Conclusions of Law. TriMed appealed. In that appeal, the Federal Circuit reversed and remanded on the basis that the district court incorrectly construed a claim term.
On remand, Stryker moved for summary judgment on the grounds of anticipation and obviousness in light of two prior art references. In response, TriMed filed a memorandum contesting nearly every aspect of Stryker's motion and specifically Stryker's arguments of obviousness, by arguing that the claimed invention was not a "logical, commonsense solution to a known problem, nor were the results achieved by the invention predictable" from the two prior art references. The district court disregarded TriMed's arguments and the factual disputes on nearly every issue of Stryker's motion for summary judgment and, instead, granted Stryker's motion for summary judgment by simply signing Stryker's Statement of Uncontested Facts and Conclusions of Law without any changes except for crossing out the anticipation section. TriMed appealed again.
In this appeal, the TriMed argued that the district court improperly resolved a number of material factual disputes regarding obviousness when it granted Stryker's motion for summary judgment. The Federal Circuit agreed and noted that "[w]hen determining whether a patent claiming a combination of known elements would have been obvious, we 'must ask whether the improvement is more than the predictable use of prior art elements according to their established functions.' ... This inquiry is factual in nature." The Federal Circuit noted that the inquiry into whether a combination of known elements would have been obvious entails a consideration of the interrelated teachings of multiple patents, the effects of demands known to the design community or present in the marketplace and the background knowledge possessed by a person having ordinary skill in the art—all questions reserved for the finder of fact. Applying these rules of law to TriMed's appeal, the Federal Circuit deemed that many of these factual inquiries are in dispute and not ripe for summary adjudication.
In an attempt to circumvent these various factual issues, Stryker suggested that the claimed invention would have been obvious because it is a commonsense solution to a known problem. The district court, however, sabotaged Stryker's ability to pursue this argument on appeal by failing to provide any reasoning for granting Stryker's motion for summary judgment based on obviousness. The Federal Circuit noted that in order for a district court to invoke "common sense or any other basis for extrapolating from prior art to a conclusion of obviousness" as a basis for granting or denying a motion for summary judgment, it must state in its order its reasoning for finding obviousness. According to the Court, both the record and order granting Stryker's second motion for summary judgment lack any such reasoning. The Court similarly found the lack of an explanation in the record and order as to why the district court dismissed the evidence of secondary considerations of non-obviousness to be a direct violation of the Federal Circuit's repeated holdings that evidence of secondary considerations must be considered if present.
In the end, the Federal Circuit reversed the district court's grant of summary judgment, but did not stop there. The Federal Circuit also remanded the case to the district's chief judge to determine reassignment to a different district judge to "preserve the appearance of justice" in view of the district court having been reversed twice for simply signing Stryker's proposed statement of law and facts, a disfavored practice in the Ninth Circuit.
Patents / Rule 11 Sanctions
Claims for Patent Prosecution Malpractice Appropriate
for Federal District Court
Charles J. Hawkins
The U.S. Court of Appeals for the Federal Circuit ruled that federal law is a necessary element for a claim for breach of a patent prosecuting attorney's fiduciary duty under the Code of Federal Regulations (CFR) and Manual of Patent Examination Procedure (MPEP) in prosecuting a patent application, and, thus, that it was not frivolous to bring such a claim in a United States district court. Carter v. ALK Holdings, Inc., Case No. 08-1168 (Fed. Cir., May 24, 2010) (Dyk, J.) (Newman, J., concurring-in-part, dissenting-in-part).
A purported inventor filed suit in district court against his former employer, a named co-inventor on the patent application and his patent prosecution attorney alleging a variety of federal and state law claims, including breach of the prosecuting attorney's fiduciary duties "in violation of 35 U.S.C. et seq., 37 CFR et seq., and the Manual of Patent Examination Procedure (MPEP)." The district court dismissed the federal claims for failure to state a claim and declined to exercise supplemental jurisdiction over the state law claims. The district court then found sua sponte that three of the federal claims, including the one against the patent attorney for breach of fiduciary duty were frivolous, and issued a show cause order. The district court ultimately imposed sanctions under Rule 11 against the purported inventor's counsel and counsel appealed.
The Federal Circuit considered the question of whether the district court erred in finding that the three federal claims were frivolous under Eleventh Circuit's Rule 11 jurisprudence. With regard to the breach of the prosecuting attorney's fiduciary duty, the Federal Circuit considered whether the claim arose under 28 U.S.C. § 1338(a), which provides that district courts have original jurisdiction of any civil action arising under any act of Congress relating to patents.
The Federal Circuit considered those issues under the guidance of the Supreme Court's directive in Christianson that Section 1338(a) "extend[s] only to those cases in which a well-pleaded complaint establishes either that federal patent law creates the cause of action or that the plaintiff's right to relief necessarily depends on the resolution of a substantial question of federal patent law, in that patent law is a necessary element of one of the well-pleaded claims."
The Federal Circuit found that the claim in question alleged that the patent prosecuting attorney breached his fiduciary duties under the patent laws and regulations, including the CFR and the MPEP, by representing two inventors with conflicting interests. The standards for practice before the U.S. Patent and Trademark Office (USPTO) that govern such allegations—codified in both the CFR and MPEP—are governed by federal law, as both the Supreme Court and the Federal Circuit have previously recognized. The Court concluded that the determination of the prosecuting attorney's compliance with the MPEP and the CFR is a necessary element of any claim of malpractice.
Patents / Damages
Contributory Infringement Missed in the Fog
Michael J. Keller
The U.S. Court of Appeals for the Eleventh Circuit upheld a jury award of attorneys' fees and interest of $4.4 million in a malicious prosecution case. Mee Industries v. Dow Chemical Company, Case No. 08-16747 (11th Cir., June 15, 2010) (Anderson, J.).
Appellant Mee won an infringement suit filed by Dow and then sued Dow for malicious prosecution. On appeal Mee argued the lower court erred by granting Dow's motion excluding punitive damages and excluding evidence of Mee's loss of goodwill. Dow's cross appeal argued that the court erred by denying Dow's motions on the issues of lack of probable cause and its advice of counsel defense.
Dow's patents in the underlying infringement suit claimed methods of using nebulized water particles to increase the output of gas turbines. Dow met with Mee seeking to license the patents. Mee provided Dow with information on Mee's fogging systems for use in the power generating field, including a user's manual and information on Mee's installations. Dow's in-house counsel opined that Mee's system infringed under certain conditions. The matter was subsequently referred to outside counsel who formally opined on infringement before filing suit.
At the initial trial, the district court ruled that representative claims of both patents were obvious and that the claims were not infringed either directly or via contributory infringement. This ruling was upheld in part by the Federal Circuit in finding certain claims of Dow's patents obvious, but overruling the trial court with respect to invalidity and infringement for two dependent claims. [Dow Chem. Co. v. Mee Indus, Inc., 341 F.3d 1370, 1376 (Fed. Cir. 2003).] On remand, Dow failed to introduce evidence that Mee's customers infringed any claims. Central to these two cases is the concept that method claims can only be infringed by the party actually performing the method, in this case Mee's customers.
Mee's malicious prosecution case alleged that Dow knew that Mee could not directly infringe the patents and therefore lacked a reasonable basis to sue for infringement. Mee sought damages for a failed sale of the company, attorneys' fees and punitive damages. During its pretrial statement, Mee asked for the loss of goodwill resulting from the patent litigation. Dow had conceded in the infringement case the need to prove that Mee's customers were infringing and that Mee either induced or contributorily infringed. The central issue in the malicious prosecution case was whether Dow lacked a reasonable basis for pursuing claims against Mee. While Dow, through counsel, construed the claims and evaluated whether Mee's equipment could perform the claimed method, counsel failed to assert that any of Mee's customers were infringing. The Federal Circuit affirmed on this issue finding there were material issues of fact properly left for a jury to decide. Absent an explicit statement finding infringement by Mee's customers, the jury had support to find Dow lacked reasonable suspicion that Mee's customers were infringing.
As to Dow's advice of counsel defense, the Court held that since Dow's opinion of counsel did not address any theory of indirect infringement (a required element of its case), a jury could find that Dow did not rely on the opinion. Dow argued that teaching the steps of a method is sufficient to state a claim for inducement of infringement. Because there were issues of fact, this was properly for a jury to decide and the Court affirmed the jury. With respect to punitive damages, the grant of Dow's motion excluding punitive damages was affirmed, finding the issues were close enough to put to a jury and as such could not allow a jury to find liability for punitive damages under a higher clear and convincing standard. With respect to Mee's claim for goodwill, Mee failed to timely advise of its claim as required by the statute.
Trademarks
Trademarks / Grey Market
ITC Commits Error in "All Or Substantially
All" Analysis
Christina A. Ondrick
The U.S. Court of Appeals for the Federal Circuit vacated a remand determination by the U.S. International Trade Commission (ITC) that sales in the United States of an European-version of a harvester was not an act of unfair competition under §337, finding that the ITC incorrectly applied the "all or substantially all" test, which prohibits a trademark owner from seeking any remedy for trademark infringement unless "all or substantially all" of the goods sold by the trademark holder in the United States are an identifiable U.S. version. Deere & Co. v. International Trade Commission, Case No. 09-1016 (Fed. Cir., May 26, 2010) (Lourie, J.) (Newman, J., concurring-in-part, dissenting-in-part).
Deere authorized the sales of a European version of harvesters, the same goods it sought to exclude from the U.S. market as being grey market. The ITC determined Deere had authorized the sale of European-version harvesters by its official dealers through an "apparent authority" theory, even though Deere never expressly authorized such sales. In its analysis, the ITC distinguished Deere authorized dealers from independent dealers for which John Deere has no control. Apparent authority was found on the basis of an "informational" website that allowed authorized dealers to advertise European-version harvesters for sale in the United States and to finance them through a Deere subsidiary. After the ITC refused to issue any importation remedy, Deere appealed.
On appeal, the Federal Circuit determined that "substantial evidence" supported the ITC's determination that Deere condoned sales of the European harvesters in the U.S. by authorized dealers. The Federal Circuit further noted that "apparent authority" was properly applied here because such authority "arises from buyer's reasonable beliefs" and trademark infringement law serves to prevent consumer confusion.
However, the Federal Circuit found that the ITC misapplied the "all or substantially all" test because the ITC limited its analysis to comparing the number of authorized European-version harvester sales to the total number of European-version harvester sales in the United States, which resulted in a finding that Deere authorized the sale of 96.6 percent to 96.9 percent of the grey-market goods. Rather, the Court explained, the ITC should have compared the number of authorized European-version harvester sales to the total number of authorized sales (of both North-American-version harvesters and European-version harvesters). If the ITC had performed the proper calculation, it would have concluded that Deere's European version harvesters represented only a little more than 3 percent of the total authorized U.S. sales. The Court (again) remanded the case to the ITC for a determination of whether this percentage was "insubstantial."
In a separate opinion, Judge Newman concurred in the remand but
dissented as to the Court's "concocted" ruling that
Deere authorized the sales of certain European-version harvesters.
Judge Newman wrote that the "apparent authority" theory
conflicted with the Supreme Court 1923 decision in A. Bourjois
& Co. v. Katzel, holding that a U.S. trademark owner
"has the right to exclude authentic foreign goods bearing an
authentic foreign mark, even where there is no consumer confusion
as to the origin of the goods."
Trademarks / Dilution
Ninth Circuit Affirms Likelihood of Dilution, Enjoins
"eVISA" Trademark
Elisabeth (Bess) Malis
The U.S. Court of Appeals for the Ninth Circuit affirmed a ruling enjoining an internet business from using the term "eVisa" as a business and domain name on the basis that it was likely to dilute the plaintiff's famous VISA trademark. Visa International Service Association v. JSL Corp., Case No. 08-15206 (9th Cir., June 28, 2010) (Kozinski, J.).
JSL operates an internet business offering multilingual education services under the domain name eVisa.com. JSL asserts that the eVisa name derived from the name "Eikaiwa Visa," a tutoring service JSL's owner founded in Japan. Visa International (VISA) sued JSL claiming that the eVisa mark is likely to dilute its VISA trademark. The district court granted summary judgment in favor of VISA. JSL appealed.
As JSL did not dispute that the VISA trademark is famous and distinctive or that JSL began using eVisa in commerce after the VISA mark became famous and distinctive, the only issue before the Ninth Circuit was whether eVisa was likely to dilute the VISA mark by blurring.
The Ninth Circuit first analyzed the similarity of the marks and determined that eVisa and VISA are virtually identical. The court then considered the distinctiveness and recognition of the plaintiff's mark and held that VISA is a strong and distinctive mark because the association between travel visas and credit cards is sufficiently remote such that consumers would not associate the word "visa" with credit cards but for the VISA brand. The court rejected JSL's argument that the VISA mark is descriptive or suggestive of an essential attribute of the credit cards, finding that the VISA trademark only "plays weakly" off the dictionary meaning of "visa" and the significant factor for purposes of dilution is whether the way the word is used in a particular context is unique enough to warrant trademark protection. In this case, the prevalence of a non-trademark use of the word "VISA" did not undermine the distinctiveness of the VISA trademark.
JSL offered no evidence to rebut the likelihood of dilution due to the similarity and strength of the marks other than its intention not to dilute the visa mark. JSL attempted to argue that it should be allowed to continue use of the eVisa mark because it was using the word pursuant to its literal dictionary definition in order to "connote the ability to travel, both linguistically and physically, through the English-speaking world." However, the Ninth Circuit rejected this assertion and held that JSL intended to create a novel meaning for the word as a "multilingual educational and information business." This creation of new meaning, according to the court, is precisely the type of use that constitutes trademark dilution by blurring because it results in the word "visa" being associated with more than one product, even if both products use the term in a manner that is weakly suggestive of the word's literal meaning.
Practice Note: Although in a markedly different context, the Ninth Circuit now joins the Sixth Circuit, which recently applied the dilution statute to enjoin use of the mark "Victor's Little Secret" as a dilutive of the famous "Victoria's Secret" mark. (See IP Update, Vol. 13, No. 6.)
Trademarks /Bankruptcy
Trademark Licensing Agreement Is Not Subject to
Rejection in Bankruptcy
Megan Heller
Reversing both the bankruptcy court and the district court, the U.S. Court of Appeals for the Third Circuit held that a trademark licensing agreement had been substantially performed and was therefore not subject to rejection under §365(a) of the Bankruptcy Code. In re Exide Technologies, Case No. 08-1872 (3d Cir., June 1, 2010) (Roth, J.) (Ambro, J., concurring).
The case stemmed initially from a June 1991 licensing agreement between Exide Technologies and EnerSys connected with Exide's concurrent sale of its industrial battery business to EnerSys. In 2002, Exide filed a voluntary bankruptcy petition under Chapter 11 of the Bankruptcy Code and sought to reject several of the agreements it had with EnerSys under 11 U.S.C. §365(a). The agreements in question concerned a perpetual, exclusive, royalty-free license granted to EnerSys to use Exide's trademark in its manufacturing and production of industrial batteries.
The bankruptcy court entered an order granting Exide's motion to reject the licensing agreement as an executory contract under 11 U.S.C. §365(a). The district court affirmed. EnerSys appealed to the Third Circuit, arguing that the district court erred in holding that the agreement was an executory contract, as well as in holding that rejection terminated EnerSys' rights under the agreement.
The Third Circuit agreed, reversing the lower courts. As explained by the Third Circuit, while "executory contract" is not defined in the Bankruptcy Code, the legislative history indicates the term is intended to mean a contract so underperformed by both parties as to constitute a breach if either party should fail to complete performance. Under New York law, where the agreement took place, a material breach is one that is so substantial as to defeat the purpose of the entire transaction.
The Third Circuit found that the bankruptcy court failed to properly measure whether either party had substantially performed and determined that EnerSys' performance rendered thus far outweighed what remained. EnerSys paid the full $135 million purchase price and assumed Exide's liabilities. The court found that the remaining obligations—concerning a use restriction to industrial batteries and a vague quality-standards provision—were largely conditions subsequent and did not relate to the purpose of the agreement. Thus, the court found that the performance under the agreement was largely completed and that EnerSys therefore maintained the right to use the Exide trademark.
In a concurrence focusing on intellectual property aspects of the case, Judge Ambro noted his belief that "a trademark licensor's rejection of a trademark agreement under §365 does not necessarily deprive the trademark licensee of its rights in the licensed mark." He pointed to §365(n) of the statute, which makes clear that the rights of an intellectual property licensee cannot be unilaterally cut off as a result of the rejection of the license pursuant to §365. Judge Ambro noted that trademarks are not included within the relevant statutory definition of "intellectual property" and that courts in other circuits reasoned by negative inference that Congress intended rejection to deprive a licensee of the right to use a trademark. In Judge Ambro's view, the reasoning runs against the legislative history, which demonstrates that Congress intended the bankruptcy courts to develop equitable treatment of executory trademark licenses in light of certain control issues that arise in connection with such licenses. To allow a licensor to take back trademark rights it bargained away, he noted, makes bankruptcy "more a sword than a shield."
Copyright
Copyright / URAA
§514 of URAA Survives First Amendment
Challenge
Jonathon R. Campion
Addressing for the first time whether §514 of the Uruguay Round Agreements Act violates the freedom of expression of reliance parties, the U.S. Court of Appeals for the Tenth Circuit upheld the constitutionality of §514 under the First Amendment. Golan v. Holder, Case Nos. 09-1234, -1261 (10th Cir., June 21, 2010) (Briscoe, C.J.).
Section 514 of the Uruguay Round Agreements Act (URAA) restores copyrights in foreign works that were previously in the public domain in the United States for three specific reasons: failure to comply with formalities, lack of subject-matter protection or lack of national eligibility. The Act was implemented to comply with the Article 18 of the Berne Convention, which was implemented by TRIPs. Reliance owners, i.e., parties who exploited the works prior to the restoration of the copyrights, were granted some protections under §514. Reliance owners have a 12-month grace period from notice of restoration against liability for copyright infringement. Reliance parties who created derivative works (works based on a restored work) are allowed to continue to exploit the derivative work for the duration of the restored copyright if they paid the owner reasonable compensation.
The plaintiffs, a group that performed, distributed and sold public domain works, brought a lawsuit challenging §514 of URAA under the First Amendment. After the district court found in favor of the plaintiffs, the United States appealed. On appeal, the Tenth Circuit determined the statute was a content-neutral regulation of speech and that therefore intermediate scrutiny should apply. Under intermediate scrutiny, a statute is only sustained under the First Amendment if it advances an important governmental interest and does not burden substantially more speech than is necessary to further those interests.
The government identified three important interests it argued were served by this statute: attaining indisputable compliance with international treaties and multilateral agreements, obtaining legal protections for American copyright holders' interests abroad and remedying past inequities of foreign authors who lost or never obtained copyrights in the United States. The plaintiffs, on the other hand, maintained that the United States did not have an important interest in a "reallocation of speech interests" between American reliance parties and American copyright holders.
The Tenth Circuit, citing the First Amendment interests of American copyright holders abroad, found that the government had sufficiently demonstrated a substantial interest to support the limited burden on speech the statute imposed. The court also noted its deference to Congress's decisions regarding foreign affairs and the substantial evidence presented before Congress supporting the statute's enactment.
Arguing against the statute, the plaintiffs and the district court relied on the availability of alternative approaches to implementing the Berne Convention, specifically the model of the United Kingdom, which provided stronger protections to reliance parties. The court rejected this argument, noting that a statute "need not be the least restrictive or least intrusive means" to serve the government's interest and found that §514 was sufficiently narrowly tailored to further the government's interest of beneficiary American copyright holders.
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Copyright / Litigation
Bad Faith Copyright Infringement Lawsuit Leads to
Sanctions
Brian Park
The U.S. Court of Appeals for the Ninth Circuit upheld a district court's $250,000 sanction against an attorney for bringing a frivolous copyright infringement claim. The sanctioned attorney argued that the district court erred because it did not apply a clear and convincing evidence standard to its finding of bad faith. The Ninth Circuit refused to address the burden of proof issue, finding the matter moot because there was clear and convincing evidence that the attorney acted in bad faith. Lahiri v. Universal Music and Video, et al., Case No. 09-55111 (9th Cir., June 7, 2010) (Conlon, Dist. J., sitting by designation).
In 1981, Saregama India Ltd.'s (Saregama) predecessor hired composer Bappi Lahiri to write the song "Thoda" for the Bollywood movie "Jyoti." Nearly 21 years later, hip-hop producer Dr. Dre sampled portions of "Thoda" for the song "Addictive," by Truth-Hurts. Lahiri and Saregama sued Dr. Dre and his production companies (the defendants) for violations of the Lanham Act and a parallel California unfair competition law, alleging failure to credit Lahiri's authorship of Addictive—essentially, a false designation claim. All of the parties in Lahiri's suit agreed that Indian copyright law controlled ownership over "Thoda." Lahiri and Saregama had agreed to split the recovery of any damages from the lawsuit.
During the lawsuit, the U.S. Supreme Court granted certiorari in another case, Dastar Corp. v. Twentieth Century Fox Film Corp., resulting in a ruling that limited the Lanham Act's false designation protections to producers of tangible goods and excluded protection for authors of ideas, concepts or communications embodied in goods, essentially vitiating Lahiri's claim. Prior to the Dastar ruling, Lahiri's attorney Kornarens registered a copyright in "Thoda" with the U.S. Copyright Office and amended Lahiri's complaint to add copyright infringement.
In light of Dastar, the district court granted summary judgment as to Lahiri and Saregama's false designation claims. But, based on Kornarens' mischaracterization of Lahiri and Saregama's damages agreement as evidencing Lahiri's copyright interest in "Thoda" under Indian law, the district court denied summary judgment as to the copyright infringement claim.
Three years later, the defendants renewed their motion for summary judgment against Lahiri. This time, the district court ruled that Lahiri did not have a copyright interest under Indian law. The district court further found that Kornarens' pursuit of the copyright infringement claim was brought in bad faith and imposed sanctions more than $250,000 on Kornarens for unreasonably and vexatiously "multipl[ing] the proceedings." Kornarens appealed.
On appeal, the court found that Indian copyright law and the leading Indian case on the subject (written in English) was clear: copyright in a movie score composed for compensation rests with the film company. The court also found that Kornarens deliberately misrepresented Indian law to the district court by repeatedly misquoting Indian case law and citing immaterial sections from a concurring opinion. The court also found that Indian law was generally in accord with U.S. law, whereby a composer who creates a film score for hire forfeits a copyright interest in his work. Finally, the court found that Kornarens mischaracterized the Lahiri-Saregama damages agreement to mislead the district court as to Lahiri's copyright interest. Based on these findings, the court found that Kornarens' conduct unreasonably protracted a costly litigation over a frivolous copyright claim and constituted clear and convincing evidence of bad faith.
The appellate court found that the sanctions were reasonable in that they were based on a thorough analysis and reduced in an amount to reflect only the attorneys' fees and costs associated with responding to the copyright infringement claim.
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