Supreme Court Term Promises to Be IP Blockbuster

“Yes” recommendations on those would mean a high likelihood of certiorari. Even when the solicitor general turns thumbs down, those cases are still statistically more likely than most to get cert, according to Kirkland & Ellis partner John O'Quinn.

The 2016 docket “shows that the Supreme Court continues to recognize that intellectual property disputes are important disputes,” O'Quinn says. “They're important to the nation's economy.”

And then there's the case that Quinn and others believe is the No. 1 IP candidate for certiorari this fall: Lee v. Tam, 15-1293, in which the U.S. Court of Appeals for the Federal Circuit held that the Lanham Act's ban on “disparaging” trademarks violates the First Amendment.

Also headed toward votes on certiorari is a dispute over fair-use protection for copyrighted recordings on YouTube and two constitutional challenges to the inter partes review process created by the America Invents Act (AIA) ' including one that's getting support from Latham & Watkins.

So far, the abusive practices associated with some non-practicing entities seem to be a nonissue this term. The cases the court has accepted or referred to the solicitor general are all competitor cases. But patent reformers are spoiling for the justices to take one more case that could further squeeze the non-practicing entities business model: an obscure venue challenge that could sharply reduce filings in the Eastern District of Texas.

That case, says Stanford law professor Mark Lemley, could “remake modern patent law.”

Profiting By Design

There will be plenty of attention Oct. 11, when Quinn Emanuel Urquhart & Sullivan partner Kathleen Sullivan and Wilmer Cutler Pickering Hale and Dorr partner Seth Waxman are scheduled to square off in the appeal from the “trial of the century.”

That's how Apple v. Samsung was billed when it was tried before U.S. District Judge Lucy Koh of San Jose in 2012. Following two trials, Apple obtained a judgment of about $930 million. The U.S. Court of Appeals for the Federal Circuit struck a compromise on appeal, upholding $399 million in design patent damages and $150 million for utility patents, but throwing out about $380 million for trade dress dilution.

That $399 million is all of the profit Samsung made from 11 smartphones that infringed Apple's design. Section 289 of the Patent Act specifies that design patent infringers “shall be liable to the owner to the extent of his total profit,” rather than just a reasonable royalty.

Samsung says the law ' inspired by an 1885 Supreme Court decision on rug design ' no longer makes sense in a world of complex electronic devices where design may be one of hundreds of thousands of features. Because the law protects “an article of manufacture,” the lost profits should be limited to the components of the phone covered by Apple's design patents, such as the rounded corners and grid of colorful icons, Samsung argues.

Lemley, author of a brief for amici law professors supporting Samsung, says Apple has “a pretty straightforward 'Hey, the words of the statute require this result' argument.'” But, he adds, “there's not even a pass-the-straight-face argument that it's a reasonable result.” However valuable the iPhone design might be, it cannot possibly be the only valuable feature of the phone, he says.

Apple's amicus support ranges from shoe maker Crocs Inc. to Tiffany & Co., who says the total profit rule is needed to fight design piracy. The government's amicus brief has something for both sides: It agrees with Samsung that design patent damages should be subject to apportionment but suggests it should only happen when a design patent applies to a discrete component of a product, such as the latch on a refrigerator. The solicitor general questions whether Samsung presented enough evidence to support a jury instruction for apportionment. Judge Koh should decide whether a new trial is warranted, the solicitor general says. (For more on Apple v. Samsung, see, “App-portionment in the Supreme Court in Apple v. Samsung,” in the June 2016 issue of The Intellectual Property Strategist'.)

Design protection is also at stake in Star Athletica v. Varsity Brand, 15-866. The court will decide whether the chevrons, zigzags and color blocks on cheerleader outfits are copyrightable designs or conceptually inseparable from the functional aspects of the garment itself and therefore unprotectable. A decision affirming the U.S. Court of Appeals for the Sixth Circuit could launch a wave of copyright suits in the fashion industry, “designer against designer, designer against knockoff,” Lemley says.

But it's not just the fashion industry that's watching. Four different 3-D printing companies have joined as amici curiae, asking the court to set a high bar on copyrighting utilitarian items. Public Knowledge's Charles Duan offers the poignant example of a 10-year-old boy who used a 3-D printer to design and manufacture his own prosthetic hand. That kind of DIY innovation could be “thwarted by an overbroad rule of copyright,” Duan writes.

Approaching a Limit

The Supreme Court and the Federal Circuit have not been seeing eye-to-eye the last several years. In the 2014 term, the High Court took a record six patent cases and reversed five unanimously. The end of that term coincided with the resignation of Federal Circuit Chief Judge Randall Rader, who has been succeeded by Sharon Prost.

The scrutiny since then has been less intense. The High Court has taken only two patent cases each of the last two terms, though three ended in reversals. A common pattern throughout has been the high court eliminating bright-line rules established by the Federal Circuit and conferring more discretion on trial judges. Durie Tangri partner Clement Roberts wonders if the 2016 term will see “a continued unraveling of the Federal Circuit's authority to impose structure.” The resulting ambiguity in the law is “driving a lot of litigation,” he says.

This doesn't look like the term where the Federal Circuit's reversal rate starts improving. With the government backing apportionment, Samsung appears poised to win a reversal against Apple.

Scholars also foresee reversal in Life Technologies v. Promega, 14-1538, in which the Federal Circuit held that supplying a single component from the United States for a multicomponent invention manufactured abroad can give rise to induced infringement. Emory University law professor Timothy Holbrook, who has contributed an amicus brief in the case , says he expects a reversal but “the impact is going to be minimal.”

In SCA Hygiene Products v. First Quality Baby Products, 15-927, the Federal Circuit ruled en banc that the equitable defense of laches, or unreasonable delay in bringing a claim, applies in patent cases. The Supreme Court has already hinted where it stands ' two years ago it ruled in Petrella v. Metro-Goldwyn-Mayer, 12-1315 (May 19, 2014), that laches is not available in copyright cases.

Lemley says Petrella has encouraged litigants to dust off ancient copyrights and file infringement suits that no one would have dreamed of filing three years ago. “I'm wary that we're going to see more of that in patent law if laches is thrown out,” he says.

Impression Products v. Lexmark, 15-1189, one of the cases where the Supreme Court has asked for the solicitor general's views, follows a similar pattern. The High Court ruled in 2013 that the sale of a copyrighted item abroad exhausts the exclusive right to distribute the item in United States. See, Kirtsaeng v. Wiley, 11-697 (March 19, 2013). After considering the patent statutes, the en banc Federal Circuit stuck with its case law that says the “first sale” of a patented item abroad does not necessarily exhaust the patent holder's rights.

But if the High Court takes the other case before the solicitor general, Amgen v. Sandoz, 15-1195, at least one Federal Circuit judge will be vindicated. That's because the court split 1-1-1 over how to interpret the Biologics Price Competition and Innovation Act, a part of the Affordable Care Act that established a complicated “patent dance” for fast-track approval of biosimilar drugs. See, “Circuit Sets Rules for Biosimilar 'Patent Dance',” The Recorder.

“If the solicitor general says take it, they'll take it,” Holbrook says. “It would be the court's first chance to address that act.”

Taking Aim at the PTAB

Were the High Court to take the two cases where it sought input from the solicitor general, it might “dramatically reduce” the chance of adding more patent cases this term, Holbrook says. That would give the court five patent cases, and it's never taken more than six in one term. But there are plenty of intriguing possibilities already on the court's certiorari docket.

Two small nonpracticing entities are challenging Congress' constitutional authority to move patent validity litigation out of district court and before the Patent Trial and Appeal Board (PTAB). MCM Portfolio LLC is represented by Supreme Court specialist Thomas Goldstein of Goldstein & Russell and is getting amicus support from two high-end non-practicing entities, Tessera Technologies Inc. and Interdigital Inc. “They have experienced firsthand the perverse and destabilizing effects of the Patent Trial and Appeal Board's ability to invalidate patents, depriving patentees of an Article III forum and their Seventh Amendment rights to a jury trial,” states the amicus brief filed by Latham partner Richard Bress.

The High Court has requested briefs in opposition in MCM Portfolio v. Hewlett Packard, 15-1330 and Cooper v. Lee, 15-955, and is expected to decide on certiorari on each this fall. MCM seeks an end to inter partes review. J. Carl Cooper, who is bringing the other challenge, wants to limit the PTAB to making recommendations about patent validity to district judges. Cooper is represented by Robert Greenspoon of Flachsbart & Greenspoon.

Finnegan Henderson Farabow Garrett & Dunner partner Erika Arner, the vice-president of the newly minted PTAB Bar Association (ptabbar.org), says she doesn't anticipate the High Court taking either case. (Arner was previously involved in the Cooper case on behalf of real party Square Inc. before the PTAB.)

Neither does Emory's Holbrook. The Court just approved key regulations implementing inter partes review last summer in Cuozzo v. Lee, 15-446 (June 20, 2016). While the court has to take each case as it comes, he would be surprised if the justices said, “Everything we just talked about in Cuozzo is dead.” (For more on Cuozzo, see, “Cuozzo Upholds PTAB Authority,” in the August 2016 issue of The Intellectual Property Strategist.)

Patent reformers hope the Court will have room for one more case: the venue dispute TC Heartland v. Kraft Foods. Big technology companies see it as a chance to clamp down on nonpracticing entity suits in the Eastern District of Texas, where more than 40% of the country's patent cases were filed last year.

The Federal Circuit rejected TC Heartland's argument that 2011 amendments to the federal venue statute changed the rules for patent filings. See, “Patent Venue Rule Remains the Same ' For Now,” in the June 2016 issue of The Intellectual Property Strategist. Before the Supreme Court, Hughes Hubbard & Reed partner James Dabney argues that the Federal Circuit is wrong now, and that it was wrong in 1990 when it first opened up patent venue and unleashed “a plague of forum shopping.”'

The Sure Bet

Even if the Court's patent plate gets full, the justices might find it hard to resist some of the other intellectual property cases heading its way. At the top of everyone's list is the trademark case Lee v. Tam , where the U.S. Patent & Trademark Office refused to register the name of the dance band The Slants on the ground it would offend some Asian-Americans. The Federal Circuit ruled that the Lanham Act's ban on disparaging trademarks is an unconstitutional content-based restriction on speech.

“First and foremost, the government is the petitioner” in Tam, notes O'Quinn. “When the government is the petitioner, the Court takes these cases at a very high rate.”

“That's going,” Holbrook agrees. “They have to take it because the Federal Circuit invalidated a federal statute as unconstitutional.”

The Washington Redskins football team, whose similar challenge is scheduled for argument at the Fourth Circuit in December, has asked the Supreme Court to take its case immediately if the court takes Tam, calling it “a necessary and ideal companion to Tam.” See, Pro Football, Inc. v. Blackhorse, 15-1311.

Meanwhile, the doctrine of nominative fair use, introduced to trademark law 24 years ago by Ninth Circuit Judge Alex Kozinski in a case involving another dance band, could be headed for its first Supreme Court review.

Nominative fair use excuses the use of another's mark when there's no other way to refer to the product or service. In Kozinski's case, it was a newspaper poll that sought to determine the “hottest” member of New Kids on the Block. See, New Kids on the Block v. News America Publishing, et al., 971 F.2d 302 (July 24, 1992). Kozinski ruled that use of the band's name was fair because it was the only way to identify the band, it was used no more than necessary, and the newspaper did nothing to suggest New Kids sponsored or endorsed the poll.

The nominative fair use doctrine or variations of it have been adopted by the First, Third and Fifth circuits. But last spring the Second Circuit decided to stick with its eight-factor Polaroid test for determining the likelihood for consumer confusion, while mixing in the nominative fair use factors as well. See, International Information Systems Security Certification Consortium Inc v. Security University LLC, No. 14'3456'cv (2d Cir. May 18, 2016), citing Polaroid Corp. v. Polarad Electronics Corp., 287 F.2d 492 (2d Cir. 1961).

This rendered Security University LLC potentially liable for advertising information security classes taught by its “master CISSP instructor.” The company that administers the CISSP exam says the university can use “CISSP,” but objects to adding “master” because it recognizes no such designation.

Orrick, Herrington & Sutcliffe partner E. Joshua Rosenkranz argues in a cert petition filed Sept. 15 that the case would already be over in the Ninth or Third circuit. “Nominative fair use protects a host of beneficial activities, like comparative advertising, product review, criticism, and parody,” he writes. “The doctrine is more important now than ever before.”

Rules for Online Videos

Stephanie Lenz's children have been dancing their way across YouTube and the federal court decisions for nearly a decade. In 2007 Lenz sued Universal Music for instructing YouTube to take down a 29-second video of her kids dancing to Prince's “Let's Go Crazy.”

The Ninth Circuit ruled last year that Universal and other copyright holders must consider the defense of fair use before filing takedown notices under the Digital Millennium Copyright Act (DMCA). But the court also ruled that the copyright holder's own subjective belief that a use isn't fair meets the standard. See, “Crazy for Fair Use,” in the November 2015 issue of The Intellectual Property Strategist.

Both sides are asking the Supreme Court to review the Ninth Circuit's ruling. Lenz, who is represented by the Electronic Frontier Foundation and Keker & Van Nest, says the ruling “gives a free pass to the censorship of online speech.”'

Universal, which is represented by Sidley Austin and Munger, Tolles & Olson, argues that a takedown notice doesn't require a fair use assessment. It also argues that Lenz never had standing to bring her suit because her video was restored to YouTube long before she went to court. Lenz “seeks only a symbolic vindication of a bare statutory right,” Sidley's Mark Haddad wrote in Universal's petition.

EFF staff attorney Daniel Nazer scoffs at that argument in an interview. “It's obvious our client has experienced a concrete, particularized harm,” he says. “She had her video taken down. It's particular to her; it's not a generalized abstract grievance.”

Lenz and Universal could have company soon in the Supreme Court cert pool. In June, the Second Circuit ruled that the DMCA's safe harbor provision protected Vimeo.com from a copyright suit by numerous record labels. The facts of that case appear more favorable for the recording industry ' when Vimeo users inquired about adding copyrighted music to their videos, one Vimeo employee told them they have a “don't ask, don't tell” policy. Another said the company's “official policy” was to follow applicable law, but the “off-the-record answer” was to “go ahead and post it.”

That wasn't enough to prove that Vimeo had actual knowledge of specific infringement. “Employees of service providers cannot be assumed to have expertise in the laws of copyright,” Second Circuit Judge Pierre Leval wrote in Capitol Records v. Vimeo, 14-1048 (2d Cir. 2016). No cert petition has been filed yet, but the case was argued by Quinn Emanuel's Sullivan for Vimeo and Sidley's Carter Phillips for the record labels, two advocates who know their way around the Supreme Court.

“I can imagine the court is going to take a DMCA case at some point,” says Stanford's Lemley. But it's less likely, he says, “with the circuits mostly in line on these issues.”

Scott Graham writes for The Recorder, the San Francisco-based ALM sibling of The Intellectual Property Strategist.'He can be reached at [email protected].