IP News

Bad Faith Not Determinative in Deciding Fair Use

In NXVIM Corp. v The Ross Institute, 364 F.3d 471 (2d Cir. 2004), the Second Circuit denied plaintiff's request for a preliminary injunction on “fair use” grounds, even though it was clear that bad faith was present.

Plaintiff NXVIM provided a business-training program called “Executive Success” and developed training material and manuals for the course. The materials had a multitude of copyright notices, and students were required to sign nondisclosure agreements regarding the same. Defendant Rick Ross runs nonprofit Web sites in connection with his work as a cult de-programmer and often provides information to the public about groups that were accused of practicing mind control. Ross commissioned a critique of NXVIM's material, which he received improperly from a past participant in Executive Success. Despite the copyright notices on the manuals, Ross published the critique, which included quotes and sections from the copyrighted manuals. NXVIM sued for infringement, and Ross claimed fair use.

In examining the factors of fair use, the court held that as far as the “propriety of the [the] defendant's conduct” factor was concerned, it was clear the defendant exhibited bad faith with regard to using to the copyrighted manual. However, the court held that bad faith did not foreclose fair use by itself. Citing Supreme Court precedent, the court went on to explain that all fair use factors must be weighed together, and the analysis did not stop after one factor. The court held that the defendant's transformative use of the manual in the criticism, as well as other factors considered in fair use, outweighed the bad faith factor and denied the preliminary injunction.

Tests to Establish Safety of Drug Bar Patentability

In SmithKline Beecham Corporation v. Apotex Corp., CV 03-1285, 1313, 2004 WL 868425 (Fed. Cir. Apr. 23, 2004), the Federal Circuit ruled that the testing of a claimed product to establish the safety and efficacy of the drug more than 1 year prior to filing a patent application was not subject to the experimental exception and, thus, such testing was a bar to patentability under 35 U.S.C. '102(b).

The claim at issue recited the structure and form of paroxetine hydrochloride hemihydrate. On appeal, the Federal Circuit rejected the district court's construction, which included commercial limitations. Agreeing with the argument advanced by SKB, the court held that the claim, on its face, only recited the drug and that commercial embodiments from the specification could not be imported into the claim.

With this claim construction, the court proceeded to attack the testing that had been performed publicly more than 1 year before the patent application's filing date. The plaintiff argued that the testing fell under the experimental exception to the patent bar for public use. The court held that the experimental exception only applies when testing the claimed features of the claim. Since the claim recited only the drug and not medicinal use or treatment, experiments that tested the safety and medicinal use of the drug were not subject to the experimental use exception. The court stated that “a patentee should understand that testing the properties, uses and commercial significance of a compound claimed solely in structural terms may start the clock under '102(b) for filing a claim that is not limited by any property, commercially significant amount or other use of the compound.” The court also refuted the assertion that the purpose of the testing was to establish the utility of the invention because the invention had already been reduced to practice before the testing. “[A]fter the invention is reduced to practice, further testing will not qualify as experimental use for the purposes of negating a bar under '102(b).”

USTR Annual Report Designates Problem Countries for IP Protection

The Office of the U.S. Trade Representative (“USTR”) released its annual 301 report on May 3, 2004, announcing problem IP protection countries. The report places countries in several categories. For instance, Priority Foreign Countries are those countries the USTR believes have the most onerous and egregious policies with the greatest adverse effect on U.S. IP holders. The only country categorized as a Priority Foreign Country was the Ukraine. Priority Watch List (“PWL”) countries do not provide an adequate level of IP protection or enforcement by USTR standards. PWL countries included: Turkey, Russia, Korea, Brazil and the European Union. China and Paraguay merited special attention in the report due to their serious IP problems. The USTR will investigate these countries further to determine if they are working toward the goals set in previous agreements with the United States. The USTR also remarked positively on the progress of Poland and the Philippines for their recent legislation to combat optical media piracy, and noted favorably that Lebanon, Malaysia, Poland and Taiwan have increased enforcement measures. The report can be found at www.ustr.gov/reports/2004-301/special301.htm.

Rambus Sues Memory Chip Makers in Antitrust Suit

In the latest battle in the memory chip war, Rambus brought charges against four memory chip makers  Hynix Semiconductor, Infineon Technologies, Micron Technologies and Siemens AG ' accusing them of violating state antitrust and unfair competition laws. Many of the defendants were Rambus licensees, and Rambus alleged that the defendants, tired of paying royalties, engaged in a cohesive effort to prevent Rambus' technology from succeeding in the market.

There has already been a torrent of litigation involving these parties. Previously, Rambus filed an infringement suit and the defendants sued for fraud. The Federal Circuit reversed a jury decision, finding Rambus innocent of fraud in obtaining patents for chip designs that were being developed by the Joint Electron Device Engineering Council (JEDEC), a standards setting group. Last November, the Supreme Court declined to hear arguments to overturn the Federal Circuit's decision, and sent the case back to the district court for a new trial. The Supreme Court's decision allowed Rambus to proceed with its infringement lawsuits on the patents that could affect 85% to 90% of the computer memory chip market.

Further, the Federal Trade Commission (FTC) filed an antitrust lawsuit against Rambus in 2002. The FTC accused Rambus of committing fraud while participating in the JEDEC because Rambus did not reveal that it had patents on the very technology adopted as the group's industry standard. The FTC also sought to have Rambus' patents ruled unenforceable. On Feb. 18, 2004, an administrative judge dismissed the government's antitrust suit, ruling that the government “failed to sustain its burden of proving Rambus committed fraud.” Interestingly, Rambus' latest antitrust complaint uses much of the evidence obtained through the FTC proceeding as proof of the antitrust allegations against the defendants.

In another development, the Department of Justice has opened an investigation regarding price fixing allegations against defendant, Micron, guaranteeing that the litigation surrounding these parties is far from over.

Bad Faith Not Determinative in Deciding Fair Use

In NXVIM Corp. v The Ross Institute, 364 F.3d 471 (2d Cir. 2004), the Second Circuit denied plaintiff's request for a preliminary injunction on “fair use” grounds, even though it was clear that bad faith was present.

Plaintiff NXVIM provided a business-training program called “Executive Success” and developed training material and manuals for the course. The materials had a multitude of copyright notices, and students were required to sign nondisclosure agreements regarding the same. Defendant Rick Ross runs nonprofit Web sites in connection with his work as a cult de-programmer and often provides information to the public about groups that were accused of practicing mind control. Ross commissioned a critique of NXVIM's material, which he received improperly from a past participant in Executive Success. Despite the copyright notices on the manuals, Ross published the critique, which included quotes and sections from the copyrighted manuals. NXVIM sued for infringement, and Ross claimed fair use.

In examining the factors of fair use, the court held that as far as the “propriety of the [the] defendant's conduct” factor was concerned, it was clear the defendant exhibited bad faith with regard to using to the copyrighted manual. However, the court held that bad faith did not foreclose fair use by itself. Citing Supreme Court precedent, the court went on to explain that all fair use factors must be weighed together, and the analysis did not stop after one factor. The court held that the defendant's transformative use of the manual in the criticism, as well as other factors considered in fair use, outweighed the bad faith factor and denied the preliminary injunction.

Tests to Establish Safety of Drug Bar Patentability

In SmithKline Beecham Corporation v. Apotex Corp., CV 03-1285, 1313, 2004 WL 868425 (Fed. Cir. Apr. 23, 2004), the Federal Circuit ruled that the testing of a claimed product to establish the safety and efficacy of the drug more than 1 year prior to filing a patent application was not subject to the experimental exception and, thus, such testing was a bar to patentability under 35 U.S.C. '102(b).

The claim at issue recited the structure and form of paroxetine hydrochloride hemihydrate. On appeal, the Federal Circuit rejected the district court's construction, which included commercial limitations. Agreeing with the argument advanced by SKB, the court held that the claim, on its face, only recited the drug and that commercial embodiments from the specification could not be imported into the claim.

With this claim construction, the court proceeded to attack the testing that had been performed publicly more than 1 year before the patent application's filing date. The plaintiff argued that the testing fell under the experimental exception to the patent bar for public use. The court held that the experimental exception only applies when testing the claimed features of the claim. Since the claim recited only the drug and not medicinal use or treatment, experiments that tested the safety and medicinal use of the drug were not subject to the experimental use exception. The court stated that “a patentee should understand that testing the properties, uses and commercial significance of a compound claimed solely in structural terms may start the clock under '102(b) for filing a claim that is not limited by any property, commercially significant amount or other use of the compound.” The court also refuted the assertion that the purpose of the testing was to establish the utility of the invention because the invention had already been reduced to practice before the testing. “[A]fter the invention is reduced to practice, further testing will not qualify as experimental use for the purposes of negating a bar under '102(b).”

USTR Annual Report Designates Problem Countries for IP Protection

The Office of the U.S. Trade Representative (“USTR”) released its annual 301 report on May 3, 2004, announcing problem IP protection countries. The report places countries in several categories. For instance, Priority Foreign Countries are those countries the USTR believes have the most onerous and egregious policies with the greatest adverse effect on U.S. IP holders. The only country categorized as a Priority Foreign Country was the Ukraine. Priority Watch List (“PWL”) countries do not provide an adequate level of IP protection or enforcement by USTR standards. PWL countries included: Turkey, Russia, Korea, Brazil and the European Union. China and Paraguay merited special attention in the report due to their serious IP problems. The USTR will investigate these countries further to determine if they are working toward the goals set in previous agreements with the United States. The USTR also remarked positively on the progress of Poland and the Philippines for their recent legislation to combat optical media piracy, and noted favorably that Lebanon, Malaysia, Poland and Taiwan have increased enforcement measures. The report can be found at www.ustr.gov/reports/2004-301/special301.htm.

Rambus Sues Memory Chip Makers in Antitrust Suit

In the latest battle in the memory chip war, Rambus brought charges against four memory chip makers  Hynix Semiconductor, Infineon Technologies, Micron Technologies and Siemens AG ' accusing them of violating state antitrust and unfair competition laws. Many of the defendants were Rambus licensees, and Rambus alleged that the defendants, tired of paying royalties, engaged in a cohesive effort to prevent Rambus' technology from succeeding in the market.

There has already been a torrent of litigation involving these parties. Previously, Rambus filed an infringement suit and the defendants sued for fraud. The Federal Circuit reversed a jury decision, finding Rambus innocent of fraud in obtaining patents for chip designs that were being developed by the Joint Electron Device Engineering Council (JEDEC), a standards setting group. Last November, the Supreme Court declined to hear arguments to overturn the Federal Circuit's decision, and sent the case back to the district court for a new trial. The Supreme Court's decision allowed Rambus to proceed with its infringement lawsuits on the patents that could affect 85% to 90% of the computer memory chip market.

Further, the Federal Trade Commission (FTC) filed an antitrust lawsuit against Rambus in 2002. The FTC accused Rambus of committing fraud while participating in the JEDEC because Rambus did not reveal that it had patents on the very technology adopted as the group's industry standard. The FTC also sought to have Rambus' patents ruled unenforceable. On Feb. 18, 2004, an administrative judge dismissed the government's antitrust suit, ruling that the government “failed to sustain its burden of proving Rambus committed fraud.” Interestingly, Rambus' latest antitrust complaint uses much of the evidence obtained through the FTC proceeding as proof of the antitrust allegations against the defendants.

In another development, the Department of Justice has opened an investigation regarding price fixing allegations against defendant, Micron, guaranteeing that the litigation surrounding these parties is far from over.