Federal Circuit Upholds Dismissal of Legal Malpractice Claim
Federal Circuit Grants En Banc Hearing in Hyatt v. Kappos
Fear of Lawsuit Not Sufficient to Justify Common-Interest Exception
But I Didn't Know I Was Infringing...
Medical Emergency! But Form Not "Original"
Postal Service's Use of Photo of Korean War Veterans Memorial on Postage Stamp Not a Fair Use
Enforceability of Covenants Not to Compete
Federal Circuit Upholds Dismissal of
Legal Malpractice Claim
Amol Parikh
Upholding a district court's grant of summary judgment, the U.S. Court of Appeals for the Federal Circuit held that conclusory expert witness testimony regarding the patentability of a lost or foregone patent right is insufficient to support the causation element of a legal malpractice claim. Davis v. Brouse McDowell, L.P.A., Case No. 09-1395 (Fed. Cir. Mar. 2, 2010) (Moore, J.).
The plaintiff, Heather Davis, is a solo inventor who developed a website, a search engine, social networking platform and business known as "The IP-Exchange." On January 20, 2006, the plaintiff filed with the United States Patent and Trademark Office (USPTO) two provisional patent applications relating to the IP-Exchange website and search engine. Under U.S. patent law, in order to retain the January 20, 2006 priority date, Davis was required to file a utility application and PCT application within one year—by Monday, January 22, 2007. On January 17, 2007, Davis contacted Daniel Thomson, an attorney employed by the defendant, and requested that he prepare and file utility and Patent Cooperation Treaty (PCT) applications claiming benefit to the provisional applications. On January 22, 2007, Thomson filed only a utility application, which he admitted contained a poorly drafted specification. Thomson claims he intended to repair the application at a later time. Although instructed to file a PCT application, Thompson failed to do so on that date, waiting until January 25, 2007. Therefore, the PCT applications could not claim priority to the provisional applications. Ultimately, the plaintiff's patent applications went abandoned.
The district court granted summary judgment in favor of the defendant, concluding that the plaintiff failed to establish a genuine issue of material fact as to the patentability of her inventions and therefore could not prevail on the causation element of her malpractice claim as a matter of law. Davis appealed.
On appeal, Davis argued that that the district court improperly granted the defendant's motion for summary judgment. The Federal Circuit held that the district court had properly granted summary judgment. The Court found that, to prevail on a claim for legal malpractice based on negligent representation, the plaintiff must establish that the attorney owed a duty to the plaintiff, the attorney breached that duty and failed to conform to the standard required by law and that there is a causal connection between the conduct complained of and the resulting damage or loss. The Court held that plaintiff failed to establish the third element—that Thomson's conduct actually caused her to lose any patent rights. Specifically, the Court found that plaintiff's expert failed to provide any factual support that plaintiff's inventions were patentable. Davis' expert had not performed any prior art searches or any patentability analysis, nor had he identified any particular patent claims that could be made for plaintiff's invention. Instead, the plaintiff's expert provided a conclusory opinion that, but for the defendants' legal malpractice, Davis would have been awarded a patent. The Court found that such an unsupported opinion does not create a genuine issue of material fact as to the patentability of plaintiff's inventions. Because Davis failed to establish a genuine issue of material fact as to the patentability of her inventions, the Court held that she could not prevail on the causation element of her malpractice claim as a matter of law. As a result, the Federal Circuit held that the district court had properly granted summary judgment to the defendant.
Practice Note: Although the Court held that plaintiff's expert had not provided any factual support to support his opinions, the court did provide guidelines of the types of proof a plaintiff could offer to support a claim for legal malpractice. The Court noted that the plaintiff's ultimate burden is to establish the likelihood that her inventions would have been held patentable on examination in the USPTO or any applicable national patent office, in accordance with the criteria of patentability applied during examination. This burden could be met by reviewing the prior art cited by the patent office and discussing its affect on patentability.
Federal Circuit Grants
En Banc Hearing in
Hyatt v. Kappos
Isaac Crum
In Chief Judge Rader's first en banc case as chief judge of the U.S. Court of Appeals for the Federal Circuit, the Court will consider the scope of admissible evidence in §145 proceedings. Hyatt v. Kappos, Case No. 07-1066 (Fed. Cir. February 17, 2010).
In granting the rehearing en banc, the Court vacated the three-judge panel's August 11, 2009 opinion and specifically requested briefing on three items: the Administrative Procedure Act's relationship to §145 proceedings, whether §145 provides for a de novo proceeding and what limitations exist on the presentation of new evidence before in a §145 proceeding.
Plaintiff-appellant Gilbert P. Hyatt appealed to the Court, en banc, following an adverse ruling from the three-judge panel on August 11, 2009. Hyatt v. Doll, (see IP Update, Vol. 12, No. 8 ). In that opinion, the Court affirmed the district court's grant of summary judgment in favor of the U.S. Patent and Trademark Office (USPTO). The district court's grant of summary judgment was a direct result of the court's decision to exclude a declaration because it was not submitted to the Board of Patent Appeals and Interferences (BPAI or the Board) during prosecution. The initial panel decision sidestepped the question of what standard governs admissibility of evidence in a §145 action, holding only that §145 actions are not truly de novo because of the requirements of the Administrative Procedures Act (APA). The panel explicitly "express[ed] no opinion as to admissibility of evidence in ... factual scenarios that may arise in the future," holding only that whether or not new evidence should be permitted must be answered in light of the patentee's actions before the USPTO.
Fear of Lawsuit Not Sufficient to
Justify Common-Interest Exception
Ulrika E. Mattsson
The U.S. Court of Appeals for the Seventh Circuit affirmed a district court decision rejecting attorney-client privilege arguments and ordering Whirlpool to disclose communications between is attorneys and its outside advertising agencies relating to allegedly false advertising. LG Electronics, Inc. v. Whirlpool Corp., Case Nos., 09-3777; -3795 (7th Cir. Mar. 3, 2010) (per curiam) (Easterbrook, C.J.; Wood, J., Evans, J.).
LG Electronics sued Whirlpool claiming that Whirlpool, in violation of the Lanham Act, made literally and implicitly false claims in advertising, i.e., that its dryers use steam to reduce wrinkles. When asked to produce communications between its attorneys and its outside advertising agencies relating to the allegedly false claims, Whirlpool refused, arguing that the communications were protected by the attorney-client privilege. Whirlpool argued that the advertising agents were not third parties to whom the privilege would usually not apply, but de facto employees of the company. Alternatively, Whirlpool argued that the communication should be kept confidential based on the theory that the advertising agencies shared with it a common legal interest in producing lawful advertisements. After the district court rejected these arguments and ordered the communications produced, Whirlpool sought mandamus.
In its petition for mandamus, Whirlpool argued that because of the unavailability of collateral appeal the court should relax the standards for issuing writs of mandamus. The Seventh Circuit rejected the argument, stating that a petitioner seeking a writ of mandamus must show both that the challenged district court order will be effectively unreviewable if the "petitioner is forced to wait until the end of the case and also that the order is patently erroneous or usurpative in character." Mandamus, as a remedy, is reserved for "extraordinary circumstances — i.e., when a disclosure order amounts to a judicial usurpation of power or a clear abuse of discretion, or otherwise works a manifest injustice."
Further, in the present circumstances, the court found that the cases Whirlpool cited failed to establish error in the district court's rejection of Whirlpool's common interest (between it and its advertising agency). Rather, the court noted that the only common legal interest shared by Whirlpool and its chosen advertiser, over whom it has control, is the "fear of lawsuit," a "fear that [does not] justify the common-interest exception" under Seventh Circuit law. Absent such error, the court determined that mandamus was inappropriate, regardless of whether Whirlpool has other opportunities for appellate review.
But I Didn't Know I Was
Infringing...
John C. Low, Ph.D.
In a strategic victory for the recording industry, the U.S. Court of Appeals for the Fifth Circuit reversed a denial of a motion for summary judgment finding that notwithstanding an alleged infringer's ignorance of the law, the "innocent infringer" defense under 17 U.S.C. § 504(c)(2), typically is not available as a matter of law if copyrighted materials are properly marked. Maverick Recording Co. et al. v. Whitney Harper, Case No. 08-51194 (5th Cir. Feb. 25, 2010) (Clement, J.).
The plaintiffs, five major record companies, solicited a third party to conduct online investigation of persons engaging in peer-to-peer file sharing of copyright-protected audio files on the Internet. In 2004, the investigators identified the sympathetic defendant, a teenage girl using a PC in her parent's home, as downloading files with copyrighted audio works and making the files available to others. The plaintiffs sued the defendant for copyright infringement for the documented reproduction and alleged distribution of the copyrighted audio files. The district court granted the plaintiffs' motion for summary judgment of infringement with respect to a portion of the downloaded files, but denied the plaintiffs' request for statutory damages of $750 for each infringed work. The district court held that there was a genuine issue of material fact as to whether the defendant was an "innocent infringer" under 17 U.S.C. § 504(c)(2), which states that "where the infringer sustains the burden of proving ... that such infringer was not aware and had no reason to believe that his or her acts constituted an infringement of copyright, the court in its discretion may reduce the award of statutory damages to a sum of not less than $200." The defendant maintained that "she did not understand the nature of the file-sharing programs and that she believed that listening to music from file-sharing networks was akin to listening to a non-infringing Internet radio station." The plaintiffs moved for entry of judgment in the amount of $200 for each infringed work. The court entered the judgment and both parties appealed.
On appeal, the Fifth Circuit affirmed the judgment of infringement and examined the innocent infringer defense. The court found that the defense is limited by 17 U.S.C. § 402(d), which states that when a proper copyright notice "appears on the published ... phonorecords to which a defendant ... had access, then no weight shall be given to such a defendant's interposition of a defense based on innocent infringement in mitigation of actual or statutory damages." The defendant did not dispute her "access" to properly marked physical copies of the recorded work, such as compact discs. Instead, the defendant maintained "that she was too young and naive to understand that the copyrights on published music applied to downloaded music." The court held that "Harper's reliance on her own understanding of copyright law—or lack thereof—is irrelevant in the context of § 402(d)" and that "[t]he plain language of the statute shows that the infringer's knowledge or intent does not affect its application." The court concluded that "[l]ack of legal sophistication cannot overcome a properly asserted § 402(d) limitation to the innocent infringer defense." The court awarded statutory damages of $750 per infringed work.
Practice Note: Infringement of properly marked, copyright-protected works is a strict liability tort that is subject to (sometimes harsh) statutory damages.
Medical Emergency! But Form Not
"Original"
Jeremy T. Elman
Addressing a copyright dispute involving the copyrightability of medical forms, the U.S. Court of Appeals for the Eleventh Circuit affirmed a summary judgment ruling that the medical forms were not copyrightable because the selection and arrangement of well-known medical terms was not sufficiently original. Utopia Provider Systems, Inc. v. Pro-Med Clinical Systems, LLC, 2010 U.S. App. LEXIS 3280 (11th Cir. Feb. 19, 2010) (Tjoflat, J.).
In 2001, a doctor and an administrator created a system of template medical forms for use in hospital emergency departments. They sought to license the form to defendant Pro-Med, a marketing agent. The doctor and administrator formed plaintiff Utopia for the purpose of marketing these forms. The parties entered into a five-year license agreement.
The system consisted of 56 paper templates to capture patient encounters, with each template consisting of a two- or three-page set of charts for documenting a patient's symptoms, the doctor's conclusions and directions to the patient. Utopia received a copyright registration for the system. Pro-Med began selling the templates and making royalty payments to Utopia. In 2006, after the license expired, Pro-Med, on its own, began marketing its own electronic version of the forms, a version that had been developed during and under the earlier license agreement with Utopia. After Utopia sued for breach and copyright infringement, Pro-Med filed a summary judgment motion seeking a ruling that the Utopia forms were not copyrightable. After the district court granted summary judgment it sua sponte dismissed the rest of the case as raising only state law claims. Utopia appealed.
The Eleventh Circuit affirmed, explaining that "blank forms which do not convey information or contain original pictorial expressions are not copyrightable." While some courts, such as the Ninth Circuit, have taken a bright-line approach that blank forms can never be copyrightable, the Eleventh Circuit reaffirmed its rule that blank forms are copyrightable only if they "convey information."
In this case, the court found that the only information conveyed by the forms at issue was the selection of questions to be asked by doctors about a patient's symptoms. The Eleventh Circuit reasoned that the forms lacked origination in that they only conveyed questions that any doctor would have asked a patient and were therefore not copyrightable. The court also dismissed the contention that the selection and arrangement of the questions were copyrightable, finding that such selection does not convey information to render a blank form copyrightable. The court explained that if an action is well established in a profession (e.g., a doctor asking questions), the description of how to perform that action is not original and thus not copyrightable. The court concluded that the forms did not tell a doctor how to perform his or her job and thus did not "convey information."
Finally, turning to the district court's sua sponte dismissal of the state claims, the Eleventh Circuit noted that while the state contract claims were not pre-empted by the Copyright Act, neither was the district court's decision not to exercise supplemental jurisdiction an abuse of discretion.
Practice Note: In most circuits, blank forms cannot be copyrightable unless they convey original information to the user.
Postal Service's Use of Photo of
Korean War Veterans Memorial on Postage Stamp Not a Fair
Use
Rita Weeks
Considering whether the U.S. government is liable for copyright infringement, the U.S. Court of Appeals for the Federal Circuit reversed the decision of the U.S. Court of Federal Claims and answered in the affirmative, holding that the U.S. Postal Service's use of a photograph depicting a national memorial was not a fair use of the underlying sculptural works. Gaylord v. United States, Case No. 09-5044 (Fed. Cir. Feb. 25, 2010) (Moore, J.) (Newman, J., dissenting).
In 1986, Congress enacted legislation to erect the Korean War Veterans Memorial (Memorial) in Washington, D.C. The architectural firm Cooper-Lecky Architects, P.C. was selected as the primary contractor; it then selected Frank Gaylord as the sculptor for the project. Gaylord created 19 stainless steel statues of soldiers to represent a platoon of foot soldiers, which were arranged in a formation referred to as The Column. During his work on the project, Gaylord made certain revisions to his original statute designs based on suggestions from Cooper-Lecky and members of the Korean War Veterans Memorial Advisory Board (VAB) and Commission on Fine Arts (CFA). Gaylord applied for and received five copyright registrations relating to the soldier sculptures, all of which list Gaylord as the sole author. The Memorial was dedicated in May 1995.
In 1996, John Alli photographed the Memorial just after a snowstorm. Alli decided to sell prints of his photograph and sought permission from the copyright owner of the underlying work. Alli located William Lecky of Cooper-Lecky, who represented that he was the outright owner of the copyright. Alli agreed to pay royalties to Lecky, who did not notify Gaylord of the agreement.
In 2002, the U.S. Postal Service commissioned a postage stamp to commemorate the 50th anniversary of the armistice of the Korean War. The Postal Service selected Alli's photograph and paid Alli $1,500 for its use. Alli informed the Postal Service that it would need to secure permission of the underlying copyright owner, Lecky. The Postal Service issued the stamp featuring Alli's photograph, depicting 14 of the 19 soldier statues in The Column. The Postal Service produced approximately 86.8 million of the stamps and earned over $17 million from sales of the stamps and related items before retiring it. The Postal Service did not seek or obtain Gaylord's permission to feature the soldier statutes in the stamp or on any related goods.
Gaylord sued the U.S. government for copyright infringement in the Court of Federal Claims in July 2006. During trial, the government argued that the stamp made fair use of the work. The government also argued that it possessed rights to the work as a joint author due to contributions from governmental entities VAB and CFA (which would have given the government an unlimited license in the work). The government also argued that the stamp fell under the exclusion from copyright infringement liability for architectural works. The Claims Court held that Gaylord was the sole copyright owner because the evidence did not show that Gaylord and the governmental entities intended the work to be a joint work, and the suggestions of the governmental entities did not rise to the level of protectable expression such that they could be considered joint authors. The Claims Court also held that The Column did not qualify as an architectural work. Ultimately, however, the Claims Court held that the government was not liable for copyright infringement because the Postal Service's use of The Column in its stamp was fair use. The fair use determination was largely based on the Claim Court's finding that the stamp was transformative, as Alli's photograph and the Postal Service's stylistic changes transformed the underlying work. Gaylord appealed.
The Federal Circuit upheld the determinations that Gaylord was the sole author of The Column and that it did not qualify as an architectural work, However, the Federal Circuit disagreed with the determination that the Postal Service's use of the work in its stamp was fair use, finding three out of the four factors of the fair use test weighed against a finding of fair use—purpose and character of the infringing use; the nature of the copyrighted work; and the amount and substantiality of the portion of the work used.
The Federal Circuit disagreed with the Claims Court finding that the use was transformative, noting that the inquiry must focus on the purpose and character of the stamp, rather than that of Alli's photograph. The Court held that because both the stamp and the photograph shared the common purpose of honoring Korean War veterans, the stamp did not transform the character of the work. The stamp's commercial purpose, shown by its commercial success, also weighed against fair use. Concerning the nature of the work, the Federal Circuit found that the expressive and creative nature of the work weighed against fair use. Finally, the substantiality of the work used weighed against fair use because the stamp depicted nearly all of the underlying work—14 of the 19 soldier statutes.
On the remaining fair use factor, the Federal Circuit agreed with the Claims Court that the stamp had no negative impact on the value of the work or the market for derivative works. Therefore, this factor weighed in favor of fair use. Weighing the factors together, however, the Federal Circuit ultimately concluded that the Postal Service's use of the work in its stamp was not a fair use, explaining that, "Even thought the stamp did not harm the market for derivative works, allowing the government to commercially exploit a creative and expressive work will not advance the purposes of copyright in this case."
Enforceability of Covenants Not to
Compete
Hasan Rashid
While conceding the case was a close one, the U.S. Court of Appeals for the First Circuit could not say that the court below abused its discretion in denying an employer a preliminary injunction to prohibit its ex-employee from working for its competitor. ANSYS, Inc. v. Computational Dynamics N. America, Ltd., Case No. 09-2634 (1st Cir. Feb. 12, 2010) (Lynch, J.).
Dr. Doru Caraeni's employment agreement with ANSYS included the following "poorly drafted" clause: "I agree that for a period of one (1) year following termination of my employment with [ANSYS], I will not become an employee ... or in any way engage in or contribute my knowledge to a competitor of [ANSYS]." Shortly after leaving ANSYS, Dr. Caraeni joined Computational Dynamics North America, Ltd. (CDNA), with which ANSYS shares 80 percent of the market for a type of simulation software.
ANSYS sued Dr. Caraeni and CDNA, seeking a preliminary injunction to enforce the non-competition clause. After the district court denied the preliminary injunction, ANSYS lodged an expedited appeal. The First Circuit upheld the district court's denial of preliminary injunction, explaining that in order to demonstrate a likelihood of success on the merits, a factor to consider when deciding motions for preliminary injunction, ANSYS had argued that Dr. Caraeni's subsequent employment was a breach of contract and that this breach was sufficient to demonstrate irreparable harm (i.e.,, another preliminary injunction factor that must be considered).
However, the First Circuit explained that these assertions presuppose that the clause is enforceable. The court sidestepped the argument that requiring ANSYS to show more than a breach of the clause would "effectively eliminate" the non-competition clause from the contract, forcing ANSYS to resort solely to common law trade secret protections. Instead, the court focused on New Hampshire's general public policy disfavoring covenants not to compete. Although it identified the test for measuring the enforceability of such provisions, the court noted the lack of guidance in the law to decide this particular case. Without any guidance, the court was unable to reverse the denial of the motion below and could not find that ANSYS clearly demonstrated a likelihood of success as to breach of contract.
As to irreparable injury, the court also could not set aside the district court's finding that Dr. Caraeni was unlikely to use ANSYS's confidential information, presuming he acquired any, in his new employment. There was no clear error in the lower court's finding credible CDNA's general manager's statements that CDNA prevents its employees, including Dr. Caraeni, from using confidential and trade secret information potentially acquired elsewhere.
Practice Note: To ensure the enforceability of noncompetition and confidentiality clauses in employment contracts, employers must ensure that their provisions are consistent with the relevant state public policy considerations in terms of duration, scope, etc.
Patent Reform Redeux
Paul Devinsky and Rita Weeks
On March 4, 2010, just a few weeks after Senator Leahy (D-Vt.) announced a bipartisan agreement on a patent reform bill, the Senate Judiciary Committee introduced a new U.S. patent bill, S.515, directed toward resolving legislative differences and making U.S. patent law more compatible with international laws.
According to Sen. Leahy and other managers of the legislation, the new bill preserves the following essential features of the 2009 patent reform bill.
- It transitions the United States to a first-inventor-to-file system.
- It permits third parties to comment on pending patent applications and to explain to the U.S. Patent and Trademark Office (USPTO) why certain prior art is relevant and by establishing a first-window (now reduced to nine months) post-grant review proceeding to weed out a patent that should not have issued during the first year after the patent is granted
- It permits administrative challengers at the USPTO throughout the life of the patent by transitioning from a reexamination model to an opposition model that the USPTO should complete in 12 months.
- It provides a procedural, gate keeping role for district courts to assess the legal basis for a specific damages theory and jury instructions sought by the parties, including instructions regarding willful infringement.
However, according to background materials circulated by the sponsoring senators, the bill includes the following changes from the 2009 version of the patent reform bill:
- First-window post-grant review: Shortens the window from 12 months to 9 months, and raises the threshold for instituting a proceeding to a showing that it is "more likely than not" that at least one claim is unpatentable.
- Inter partes review: Slightly raises the threshold for instituting an IPR to a "reasonable likelihood" that the challenger would prevail in invalidating a claim of the patent; creates additional safeguards to prevent a challenger from using the administrative process to harass patent owners; and inserts "reasonably could have raised" estoppel, preventing a challenger from raising in court an argument that reasonably could have been raised during an inter partes review that the challenger instituted.
- Best mode: Eliminates best mode as a separate requirement (from written description).
- Willfulness: Codifies the recent case law on willfulness In re Seagate (see IP Update, Vol. 10, No 8 ) which requires willfulness to be demonstrated by clear and convincing evidence that the infringer acted with objective recklessness. It also adds substantive and procedural safeguards for alleged infringers, including requiring willfulness to be pled with particularity; preventing mere knowledge of the patent to support a finding of willfulness; requiring specificity in pre-suit notification; upon motion, prohibiting increasing damages if there is a determination that a "close case" on infringement, validity or enforceability exists; permitting a party to request the damages and willfulness phases be sequenced to occur after the infringement stage; and providing that not obtaining advice of counsel may not be used to show willfulness or inducement.
- Interlocutory appeals: Removes the provision that would have required the Federal Circuit to accept interlocutory appeals of claim construction determinations.
- USPTO funding: Requires that the USPTO to reduce fees by 50 percent for small entities and 75 percent for the new classification of "micro-entities" created by the bill.
- Supplemental examinations: Permits a patent holder to provide additional, potentially material prior art regarding the patent to the USPTO. If the USPTO considers the information and determines it has no effect on patentability, that additional information cannot serve as the basis for an inequitable conduct claim later in court. The information must be presented to the USPTO and any re-examination must be completed prior to litigation.
- Patent marking: In apparent response to the Federal Circuit's recent ruling in Bon Tool Co., (see IP Update, Vol. 13, No. 1 ) limits false marking actions under 35 U.S.C. § 292 to persons who have "suffered a competitive injury."
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