Pennsylvania Superior Court Rules Employer Owes No Duty to Protect Employee Data

 Kelly WilliamsKelly A. Williams, a shareholder at the Pittsburgh law firm of Picadio Sneath Miller & Norton, P.C.

In an apparent case of first impression, a divided three-judge panel of the Pennsylvania Superior Court recently held that an employer does not owe a legal duty to its employees to protect the employees’ electronically stored personal and financial information.  In Dittman v. UPMC, decided on January 12, 2017 (docket no. 971 WDA 2015), the Superior Court affirmed an opinion of the Court of Common Pleas of Allegheny County, PA (opinion by the Honorable R. Stanton Wettick, Jr.), sustaining defendant University of Pittsburgh Medical Center’s (“UPMC”) preliminary objections to an employee class action suit.  The suit arose from a data breach of the employees’ personal information, which was provided to UPMC as a condition of employment.

The employees sued UPMC for negligence and breach of contract after their names, birth dates, social security numbers, tax information, addresses, salaries and bank information were stolen due to the data breach. Specifically, they alleged that UPMC failed to properly encrypt data, establish adequate firewalls and implement adequate authentication protocols to protect the information in its computer network.  All of UPMC’s 62,000 employees and former employees were affected by the breach.  Appellants consisted of two separate but overlapping classes.  One class alleged that the stolen information had already been used to file fraudulent tax returns and steal the tax refunds of certain employees.  The other class consisted of those who had not suffered this harm but alleged that they were at increased and imminent risk of becoming victims of identity theft crimes, fraud and abuse.

security-breach-image-2To determine whether a duty of care exists, the Pennsylvania courts look to five factors, none of which are determinative alone. Seebold v. Prison Health Servs., Inc., 57 A.3d 1232, 1243 (Pa. 2012); Althaus ex. rel. Althaus v. Cohen, 756 A.2d 1166, 1169 (Pa. 2000).  The five factors are:

  1. the relationship between the parties;
  2. the social utility of the actor’s conduct;
  3. the nature of the risk imposed and foreseeability of the harm incurred;
  4. the consequences of imposing a duty upon the actor; and
  5. the overall public interest in the proposed solution.

In Dittman, the court found that the first factor weighed in favor of finding a duty because the employer-employee relationship gives rise to duties on the employer.  The court next weighed the second factor against the third:  the need of employers to collect and store personal information about their employees against the risk of storing information electronically and the foreseeability of data breaches.  The court concluded:

While a data breach (and its ensuing harm) is generally foreseeable, we do not believe that this possibility outweighs the social utility of electronically storing employee information. In the modern era, more and more information is stored electronically and the days of keeping documents in file cabinets are long gone. Without doubt, employees and consumers alike derive substantial benefits from efficiencies resulting from the transfer and storage of electronic data. Although breaches of electronically stored data are a potential risk, this generalized risk does not outweigh the social utility of maintaining electronically stored information. We note here that Appellants do not allege that UPMC encountered a specific threat of intrusion into its computer systems.

Analysis of the fourth factor looks to the consequences of imposing a duty.  In this situation, the court considered that data breaches are widespread and that there is no safe harbor for entities storing confidential information.  It was also the court’s opinion that no judicially created duty of care is needed to incentivize companies to protect confidential employee information because other statutes and safeguards are in place to prevent employers from disclosing confidential information.  Thus, the court concluded that “it unnecessary to require employers to incur potentially significant costs to increase security measures when there is no true way to prevent data breaches altogether. Employers strive to run their businesses efficiently and they have an incentive to protect employee information and prevent these types of occurrences.”

Finally, the fifth factor looks to whether there is a public interest in imposing a duty.  The Superior Court found persuasive the reasoning of the trial court that imposing a duty here would greatly expend judicial resources and would result in judicial activism.  The Superior Court agreed with the trial court that the Pennsylvania legislature has considered the same issues and chose only to impose a duty of notification of a data breach.  “It is not for the courts to alter the direction of the General Assembly because public policy is a matter for the legislature.”

Weighing all five factors, the court held that the factors weighed against imposing a duty.  Judge Stabile filed a concurring opinion, which Judge Olson, the writer for the majority opinion, joined.  Judge Stabile agreed with the ruling but emphasized that the law in this area is quickly changing and that the ruling was based on the facts pled in that particular case.  One of the key facts for Judge Stabile was the fact that the employees had not alleged that UPMC was on notice of any specific security threat.  In a dissenting opinion, Judge Musmanno concluded that  allegations that UPMC failed to properly encrypt data, establish adequate fire walls and implement appropriate authentication protocols was sufficient to allege that UPMC knew or should have known that there was a likelihood data would be stolen.  Judge Musmanno also disagreed with the majority’s assumption that employers are sufficiently incentivized to protect employee data without a duty imposed upon them to do so.

The employees filed a motion for reconsideration and reargument on January 26, 2017.  Thus, the Superior Court’s January 2017 opinion may not be the final word on the issue.

security-breach-imageDittman is interesting in the world of data breach lawsuits because it does not address standing.  Many data breach defendants have relied upon the theory that plaintiffs lack standing to bring claims for data breaches where plaintiffs cannot prove actual harm from the breach.  Proof of actual harm can be challenging because evidence regarding the use of the stolen information may be difficult to find.  Here, standing was not discussed by the Superior Court.  In the trial court below, UPMC had argued that the claims against it should be dismissed on the grounds that the employees lacked standing to assert claims on behalf of employees who had not yet been injured.  UPMC also asserted that the employees’ negligence and breach of implied contract claims failed as a matter of law.  After oral argument on these issues, the trial court ordered both parties to file supplemental briefs on the issue of whether UPMC owed a duty to its employees with respect to the handling of their personal and financial data.  This ultimately proved to be the issue that the trial court and the Superior Court found to be determinative.

The Dittman v. UPMC opinion may be found at:  http://scholar.google.com/scholar_case?case=17833965968674892500&q=dittman+v.+upmc&hl=en&as_sdt=6,39&as_vis=1.

Fed Circuit Reverses Finding of Indefiniteness of “Visually Negligible” Term

by: Robert Wagner, intellectual property attorney at the Pittsburgh law firm of Picadio Sneath Miller & Norton, P.C. ()

Inventors often use generalized language in patent claims when they are dealing with concepts that are not easy to quantify. This generalized language can create issues in litigation, when a defendant argues that the claims are so imprecise as to be indefinite. The Federal Circuit recently addressed such an issue in Sonic Technologies Co., Ltd. v. Publications International, Ltd. (Case No. 2016-1449). In that decision, the Court, in a unanimous opinion written by Judge Lourie, held that the trial court erred when it concluded that the term “visually negligible” rendered the claim indefinite.

Background

Sonic Technologies owned a patent that described a system and method for using a “graphical indicator” to encode information on the surface of an object that could be read by an “optical device.” Sonic recognized that such a general concept was not new–for example bar code readers have been in existence for decades–but the novel twist was that the “graphical indicator” was essentially imperceptible to the naked eye. The claims required that the “graphical indicator” be “visually negligible.”

16-1449-opinion-1-3-2017-1

Defendants argued that the term “visually negligible” was too subjective and did not provide reasonable guidance on its meaning. Sonix argued that the term was sufficiently definite in light of the specification, which discussed how the “graphical indicator” did not interfere with an observer’s view of item, in contrast with a bar code, which obscures the content below it.

The trial court agreed with defendants and found that the term “visually negligible” was indefinite and the claims were invalid. Sonic appealed to the Federal Circuit, which reversed, finding that the term was sufficiently definite.

indefiniteness standard

Under 35 U.S.C. § 112, ¶ 2, the claims of a patent must particularly point out and distinctly claim the subject matter of the invention. Supreme Court precedent requires that “a patent’s claims, viewed in light of the specification and prosecution history, inform those skilled in the art about the scope of the invention with reasonable certainty.” (citing Nautilus v. Biosig Instruments, Inc., 134 S.Ct. 2120 (2014)) Because, absolute precision is not required to meet this standard, courts frequently have allowed more generalized language, especially where the specification provides guidance in interpreting the language.

The Federal Circuit looked at the prior cases and concluded that “visually negligible” was not so uncertain as to render the claims indefinite. It contrasted other cases that dealt with terms that were purely subjective, such as “aesthetically pleasing,” with this one. The specification indicated that an indicator was “visually negligible” when it could not readily be seen by the naked eye and provided examples of such indicators. This specificity was sufficient in the Federal Circuit eyes. Moreover, the Court looked to the extension prosecution history (with multiple reexaminations), which indicated that the Patent Office was able to determine the meaning and scope of the term without issue.

The Court ultimately concluded:

Our holding in this case does not mean that the existence of examples in the written description will always render a claim definite, or that listing requirements always provide sufficient certainty. Neither does the fact that an expert has applied a contested claim term without difficulty render a claim immune from an indefiniteness challenge. As always, whether a claim is indefinite must be judged “in light of the specification and prosecution history” of the patent in which it appears. . . . We simply hold that “visually negligible” is not a purely subjective term and that, on this record, the written description and prosecution history provide sufficient support to inform with reasonable certainty those skilled in the art of the scope of the invention. The examiner’s knowing allowance of claims based on the term that is now questioned, plus the acceptance of the term by both parties’ experts, force us to the conclusion that the term “visually negligible” is not indefinite. Accordingly, we reverse the district court’s conclusion that the asserted claims are invalid as indefinite.

En Banc Federal Circuit Clarifies On Sale Bar Standard

by: Robert Wagner, intellectual property attorney at the Pittsburgh law firm of Picadio Sneath Miller & Norton, P.C. ()

Federal CircuitIn The Medicines Co. v. Hospira, Inc. (Nos. 2014-1469 and 2014-1504), the Federal Circuit issued an en banc decision clarifying when a product made pursuant to a “product-by-process” claim is on sale for purposes of 35 U.S.C. § 102(b) under the pre-AIA standards. In a decision written by Judge O’Malley, the Court held that to be on-sale, the product must have been the subject of a commercial sale or offer for sale that bears the “general hallmarks” of a sale under § 2-106 of the UCC.

Background

The case involved an Abbreviated New Drug Application in which Hospira sought FDA approval to sell a generic drug before expiration of two of the patents-in-suit, which claim pH-adjusted pharmaceutical batches of a drug product used to prevent blood from clotting. The patents arose out research involving a similar drug not covered by the patents.

In late 2006 MedCo paid a company (Ben Venue) to manufacture three batches of the drug according to the patented process. The three batches were manufactured by the end of 2006 and had a value of over $20 million (even though it cost substantially less to manufacture them). The three batches were placed in quarantine pending FDA approval. The batches were finally released from quarantine in August 2007, which was after the July 27, 2007 critical date.

Hospira claimed that the patents were invalid under § 102(b) for being on-sale prior to the critical date because of the contract between MedCo and Ben Venue to manufacture the three batches. The district court disagreed, finding that the MedCo-Ben Venue sale was a contract for manufacturing services, and not a commercial sale under § 102(b).

The three-judge panel of the Federal Circuit reversed, finding that the contract did trigger the on-sale bar. The entire Federal Circuit then took up the issue en banc to clarify the on-sale bar standard. The en banc Federal Circuit determined that there was no invalidating prior sale for purposes of § 102(b).

Federal Circuit Clarifies On-Sale Bar Standard

Whether the on-sale bar applies is a question of law based on factual findings, so the lower court’s factual findings were reviewed with deference, but the ultimate legal question was reviewed de novo by the Federal Circuit.

The Court traced the history of the on-sale bar and how it was first codified in the Patent Act of 1836, before its final incarnation (for purposes of these patents) in the Patent Act of 1952. Under § 102(b) an inventor is not entitled to a patent if the invention was on sale in the United States more than one year prior to the date of the patent application.

In Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998), the Supreme Court clarified the proper analysis of the on-sale bar, and held that courts should employ a two-part test: (1) was the claimed invention the subject of a commercial offer for sale, and (2) was it ready for patenting at that time? Ready for patenting means either it was reduced to practice or there were sufficient drawings or descriptions to allow one or ordinary skill in the art to practice the invention.

The en banc Federal Circuit focused on the first prong of the Pfaff test–was the invention the subject of a commercial offer for sale? The Court determined that it must answer this question by looking what those in the commercial community would understand as being a sale or offer for sale, and that the UCC was a good resource for answering that question.

Under the UCC, “[a] sale is a contract between parties to give and to pass rights of property for consideration which the buyer pays or promises to pay the seller for the thing bought or sold.” Under this standard, the Federal Circuit did not consider MedCo’s contract with Ben Venue to be a commercial sale because (1) only manufacturing services were sold to MedCo, not the invention, (2) the inventor retained title to the invention and Ben Venue was not entitled to sell the product to others, and (3) stockpiling standing alone does not trigger the on-sale bar.

Here, the patents claimed a product by process, not the process itself. So, the contract to manufacturing the drug was not a contract to purchase the product itself. The Court also found meaningful that Ben Venue lacked title to the batches–MedCo always maintained title in them. Without a transfer a title, the Court was disinclined to find that a sale of a product had occurred. In addition, MedCo and Ben Venue had a confidentiality agreement. While not conclusive, this factor also weighed in favor of the Court finding that a sale had not occurred. Finally, the Court did not find that stockpiling a product was sufficient activity to trigger the on-sale bar because that activity fell into the category of actions that amount to preparations for sales.

Conclusion

Taken together, the Federal Circuit found that there was no commercial offer for sale or sale for purposes of § 102(b) under the pre-AIA standard. This decision will provide some additional clarity and direction for what constitutes a potentially invalidating sale of goods.

SCOTUS Gives Guidance Regarding Attorney Fee Awards in Copyright Cases

by: Kelly A. Williams, a shareholder at Picadio Sneath Miller & Norton, P.C.

SupremeCourtImage_1On June 16, 2016, the U.S. Supreme Court issued an opinion on awarding attorneys’ fees in copyright cases for the first time in two decades and issued the first copyright case in two years. The case is Kirtsaeng v. John Wiley & Sons Inc., case number 15-375.  Section 505 of the Copyright Act provides that a district court “may  . . . award a reasonable attorney’s fee to the prevailing  party.”  The issue presented to the Supreme Court was whether a court, in exercising that authority, should give substantial weight to the objective reasonableness of the losing party’s position.  The court held that it should but that courts must also give due consideration to all other circumstances relevant to granting fees.  It further held that the district courts retain discretion, in light of those factors, to make an award of attorneys’ fees even when the losing party advanced a reasonable claim or defense.

Kirtsaeng, who was from Thailand, came to the U.S. to go to Cornell University.  While there, he discovered John Wiley & Sons, an academic publishing company, sold virtually identical, English language textbooks in the U.S. and Thailand, but sold them at a much cheaper price in Thailand.  He had family and friends in Thailand buy the books, ship them to him in the U.S. and sold them at a profit.

Wiley sued Kirtsaeng for copyright infringement, claiming Kirtsaeng’s sale of the books violated its exclusive right to distribute its textbooks.  Kirtsaeng invoked the “first sale doctrine” as a defense, which enables the lawful owner of a book (or other work) to resell or otherwise dispose of it as he or she wishes.  Wiley countered that the first sale doctrine did not apply to books manufactured abroad.  The circuit courts were split on the issue, and the issue went up to the Supreme Court.  The Supreme Court agreed with Kirtsaeng and held that the first sale doctrine does allow the resale of foreign made books.

Kirtsaeng went back to the district court and sought $2 million in attorneys’ fees as the prevailing party pursuant to section 505.  The District Court denied the motion, relying on Second Circuit precedent that gave “substantial weight” to the “objective reasonableness” of Wiley’s infringement claim.  The rational for that approach was that the imposition of a fee award against a copyright holder with an objectively reasonable—although unsuccessful—litigation position will generally not promote the purposes of the Copyright Act.  The District Court and the Second Circuit, on appeal, agreed that Wiley’s position was reasonable.  They also found that the other factors to be considered did not outweigh the reasonableness finding.   These non-exclusive factors were set forth in Fogerty v. Fantasy Inc., 510 U.S. 517 (1994).  In that case, the Supreme Court identified the non-exclusive factors as the frivolousness of the case, the loser’s motivation, the objective unreasonableness of their case, and considerations of compensation and deterrence, all of which are to be applied in a manner that’s faithful to the purposes of the Copyright Act.

In Kirstaeng, the Supreme Court explained that objective reasonableness can be only an important factor in assessing fee applications—not the controlling one.  District courts must take into account a range of considerations beyond the reasonableness of litigating positions.  Thus, a court may award fees even though the losing party offered reasonable arguments.  The Supreme Court cited as an example the situation where a court orders fee-shifting because of a party’s litigation misconduct, or the court decides to deter repeated instances of copyright infringement (i.e. copyright infringement “trolls”).  “Although objective reasonableness carries significant weight, courts must view all the circumstances of a case on their own terms, in light of the Copyright Act’s essential goals” (for instance—enriching the general public through access to creative works).

The Supreme Court concluded that the Kirstaeng matter should be remanded to the District Court because it appeared that the court had put too much emphasis on the “reasonableness” question.  Thus, the Supreme Court ordered the remand to ensure that the District Court evaluates the motion consistent with the analysis that it set forth—giving substantial weight to the reasonableness of Wiley’s litigating position, but also taking into account all other relevant factors.

Supreme Court Again Rewrites Patent Law on Enhanced Damages

by: Robert Wagner, intellectual property attorney at the Pittsburgh law firm of Picadio Sneath Miller & Norton, P.C. ()

SupremeCourtImage_1In a continuing trend of rejecting bright-line rules and multi-faceted tests created by the Federal Circuit, the Supreme Court last week issued an opinion in Halo Electronics, Inc. v. Pulse Electronics, Inc., (No. 14-1513) in which the Court unanimously vacated and remanded the Federal Circuit’s decision affirming the District Court’s decision not to award enhanced damages under the Federal Circuit’s precedent in In re Seagate Technology, LLC, 497 F.ed 1360 (Fed. Cir. 2007) (en banc). The Court found that the Seagate test was too rigid and did not give trial courts sufficient discretion to award enhanced damages under 35 U.S.C. § 284. Chief Justice Roberts wrote the decision for the Court.

Background

The Patent Act provides that the Court “the court may increase the damages up to three times the amount found or assessed.” 35 U.S.C. § 284. In response to this language, the Federal Circuit has created various tests for courts and litigants to following, culminating with its most recent pronouncement in Seagate. Under the Seagate test, “a patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent,”without regard to “[t]he state of mind of the accused infringer.” This objective prong is not satisfied if the accused infringer later developed a reasonably defense at trial, even if that defense was not known or relied on during the time of the infringing conduct.

If the patentee can demonstrate objective recklessness, it must show by clear and convincing evidence that the risk of infringement “was either known or so obvious that it should have been known to the accused infringer.” If the patentee meets this subjective prong, the court is entitled to award enhanced damages.

The Supreme Court Rejects this 2-step Process

While initially recognizing that “[t]he Seagate test reflects, in many respects, a sound recognition that enhanced damages are generally appropriate under § 284 only in egregious cases,” it found that the test “is unduly rigid, and it impermissibly encumbers the statutory grant of discretion to district courts.”

In particular, the Court was troubled by the fact that an accused infringer could avoid enhanced damages in cases where it intentionally ignored the patentee’s patent if its lawyers could later develop a reasonable defense during litigation that was never relied on previously. Under the Seagate test, a patentee could never get past the first objective prong.

Having said that, the Court also stressed that enhanced damages should still be the exception, and not the rule. It traced the history of enhanced damages and noted that they were typically reserved for egregious cases and were “vindictive or punitive” in nature. The Court cautioned that a trial court’s discretion to grant enhanced damages is not boundless and that the Federal Circuit is in a unique position to evaluate the exercise of that discretion based on its long history of dealing with patent cases.

Finally, the Court rejected a clear and convincing evidentiary standard for proving entitlement to enhanced damages. Under § 284, only a preponderance of the evidence is necessary to obtain enhanced damages.

The Court concluded by stating:

Section 284 gives district courts the discretion to award enhanced damages against those guilty of patent infringement. In applying this discretion, district courts are “to be guided by [the] sound legal principles” developed over nearly two centuries of application and interpretation of the Patent Act. . . . Those principles channel the exercise of discretion, limiting the award of enhanced damages to egregious cases of misconduct beyond typical infringement. The Seagate test, in contrast, unduly confines the ability of district courts to exercise the discretion conferred on them. Because both cases before us were decided under the Seagate framework, we vacate the judgments of the Federal Circuit and remand the cases for proceedings consistent with this opinion.

Justice Breyer’s Concurrence

While agreeing with the majority’s opinion, Justice Breyer wrote separately to caution that awards of enhanced damages should be made only in egregious circumstances.

He also noted that an award of enhanced damages requires conduct beyond simple knowledge of a patent by the infringer. Justice Breyer explained that there are several legitimate reasons why an infringer may be aware of a patent that do not rise to the level of willful misconduct required. He also noted that opinions of counsel of non-infringement or invalidity are not required to defeat a claim for enhanced damages. For one thing, they can be extremely expensive and can deter legitimate innovation or otherwise upset the proper balance between the patent laws and promoting the progress of the science and useful arts.

Finally, he noted that enhanced damages are not a mechanism for compensating patentees for litigation expenses or other infringement-related costs. There are difference statutory provisions that address those concerns.

Conclusion

This is yet another case in which the Supreme Court has struck down a bright-line rule or multi-faceted test developed by the Federal Circuit. The Federal Circuit has tended to create these rules and tests in an effort to provide more clarity and certainty in the patent arena, even if these rules and tests lack a strong statutory basis. In contrast, the Supreme Court seems less concerned about clarity and certainty, and is more concerned in treating the patent laws like any other area of the law. It has repeatedly rejected efforts by the Federal Circuit to treat the patent laws as somehow different than other laws or not bound by the same rules and procedures. The Halo decision is another decision that brings the patent laws closer to the rest of the law.

DTSA Cases Being Filed: Defend Trade Secrets Act 2016

Posted by: DTSALAW.Com and DefendTradeSecretsAct.Lawyer Henry M. Sneath, Esq. – Chair of the Intellectual Property Practice Group at Pittsburgh, Pa. law firm Picadio Sneath Miller & Norton, P.C. (PSMN® and PSMNLaw®). Mr. Sneath is also an Adjunct Professor of Law at the Duquesne University School of Law teaching Trade Secret Law, Trademark Law and the Law of Unfair Competition. He may be contacted at hsneath@psmn.com or 412-288-4013. See Websites www.psmn.com or www.DTSALaw.com.

The new DTSA federal civil remedy statute is already generating lawsuits being filed in Federal Courts. Two suits were recently filed in the Southern District of Florida with jurisdiction being claimed pursuant to the Defend Trade Secrets Act 2016 (DTSA). One case was also filed in the Northern District of Texas. See links to the cases below. In each Florida case, the plaintiff not only claimed trade secret misappropriation under the DTSA, but also under the Florida UTSA state statute (FUTSA). The Texas case brings claims under DTSA and the TUTSA along with pendent state law claims. This may become the trend as the DTSA and state statutes modeled after the Uniform Trade Secret Act describe trade secrets and misappropriation somewhat differently and provide, in some cases, different remedies. The differences in “definitions” between DTSA and the UTSA are not major, but they may make a difference if either is left out of a complaint filed in federal court.  We will monitor this trend and post in the future on new filings.

Interestingly, while both Florida cases seek injunctive relief in the complaint’s claims for relief, neither docket shows the filing of a separate Motion for TRO, Preliminary Injunction or motion for other injunctive relief. The Dean case brings only trade secret misappropriation claims under the DTSA and the FUTSA state statute. The Bonamar case brings claims under DTSA and FUTSA and a number of pendent State Law claims that you would expect to see in an employment related, non-disclosure, breach of covenants/contract case. In the Texas case, the plaintiff has filed an emergency motion for TRO under both state and federal law and a hearing is set for May 26, 2016. The motion and brief are linked below. Here are links to the cases on our website.

Florida Cases: Bonamar v. Turkin and Supreme Crab ; Dean V. City of Miami Beach et al

Texas Case: UPS v. Thornburg (Complaint) ; UPS v. Thornburg (Emergency Motion for TRO) ; UPS v. Thornburg (Brief in Support of Motion for TRO)

Sneath, Henry 2012 headshot

Henry M. Sneath, Esq. 412-288-4013 hsneath@psmn.com

Judge Determines That Star Trek Copyright Suit Against Fan Film Anaxar Can Proceed

by: Robert Wagner, intellectual property attorney at the Pittsburgh law firm of Picadio Sneath Miller & Norton, P.C. ()

Last week, Judge Klausner from the US District Court for the Central District of California denied a fan film producer’s motion to dismiss a copyright infringement lawsuit brought by Paramount Pictures and CBS Studio, which own the copyrights in the Star Trek franchise. The case present some interesting issues regarding the interplay between copyright holders and fans that attempt to create works inspired by or based off of more famous works. The case is pending in Los Angeles and is captioned Paramount Pictures Corp. v. Axanar Productions, Inc. (No. 2:15-cv-09938-RGK-E).

Background

Star Trek is one of the most successful science fiction creations of the last fifty years. Created by Gene Roddenberry and first aired on television in 1966, Star Trek chronicles the adventures of humans and aliens in the future as they venture through space. The original television series has spawned numerous feature Enterprisefilms and television series, in addition to creating a huge and devoted fan base. The fan base is noted, in particular, for recreating and reenacting characters and scenes from the franchise, as well as creating new works based on the characters and events portrayed in the television series and movies. This lawsuit arose out of one such effort by a group of fans to create a movie based on a scene from the original television series when Captain Kirk meets one of his heroes, Garth of Izar, and discusses Garth’s victory against the Klingons in the battle of Axanar. Defendants created a script, received funding through various sources, and released a short film based on the Battle of Axanar that is a preview of their anticipated longer film. Plaintiffs filed suit claiming that Defendants’ efforts violated numerous copyrights that they own in the Star Trek franchise.

Plaintiffs’ Amended Complaint

In plaintiffs’ amended complaint, they set forth numerous examples of what they contend are infringing features or elements of defendants’ work, which include such things as various characters, alien races, costumes, settings, starships, logos, plot points, dialogue, and themes, some of which are shown below (Anaxar on the left, and plaintiffs’ on the right).

Uniform Comparison

Klingon Comparison

Starship Comparison

Defendants’ Motion to Dismiss

Defendants moved to dismiss the lawsuit on various grounds–that plaintiffs had failed to provide sufficient notice of what actions constituted infringement, that Paramount lacked standing to sue, that the allegations were not sufficient under the Twombly standard, that the various elements identified by plaintiffs were not protectable, that the claims were premature because the film had not been released, and that plaintiffs’ efforts amount to impermissible prior restraint.

Klingon Ship Comparison

The Court rejected all of these arguments at this procedural stage, noting (with a nod to the Star Trek franchise) that “[a]lthough the Court declines to address whether Plaintiffs’ Claims will prosper at this time, the Court does find Plaintiffs’ claims will live long enough to survive Defendants’ Motion to Dismiss.”

Klingon Amicus Brief

One of the more interesting aspects to this case was an amicus brief filed by the Language Creation Society. In its amended complaint, plaintiffs asserted that the Klingon language itself was protected by copyright. The Language Creation Society argued that the copyright laws do not protect a language itself. The Judge did not address this point in the opinion on the motion to dismiss, but this issue is an interesting one presented in a novel form. The amicus brief is a particularly good read, as it is interspersed with quotes and phrases in the Klingon language.Klingon Quote

Conclusion

The case is far from over, but it is an interesting window into the difficulties (both legal and otherwise) that a successful copyright owner faces in trying to creatively and economically control its works.

 

Defend Trade Secrets Act (DTSA) Seminar in Pittsburgh Jun 22, 2016

Posted by Henry M. Sneath, Esq. – Chair of the Intellectual Property Practice Group at Pittsburgh, Pa. law firm Picadio Sneath Miller & Norton, P.C. (PSMN® and PSMNLaw®). Mr. Sneath is also an Adjunct Professor of Law at the Duquesne University School of Law teaching Trade Secret Law, Trademark Law and the Law of Unfair Competition. He may be contacted at hsneath@psmn.com or 412-288-4013. Website www.psmn.com or www.psmn.law

See copy of my Tweet from earlier today: “I’m pleased to be a part of the Federal Bar Association seminar set for Pittsburgh on the new Defend Trade Secrets Act  https://twitter.com/hashtag/DTSA?src=hash   on June 22, 2016. Co-Hosted by the Pittsburgh Intellectual Property Law Association (PIPLA) and the Duquesne University School of Law, where I teach Trade Secret Law as an adjunct Professor of Law. Register at FBA link: http://tinyurl.com/gm8nudj and see my Tweet at
https://twitter.com/PicadioSneath/status/730450574148149248
This is biggest Federal expansion of  #IP  Law since the Lanham Act and when signed by the President (today it appears) – it will provide immediate jurisdiction for  #tradesecret  actions in Federal Court.”

Big IP NEWS: Defend Trade Secrets Act 2016 (DTSA) Passes Congress – President to sign

EnrolledTitle_114Posted by Henry M. Sneath, Esq. – Chair of the Intellectual Property Practice Group at Pittsburgh, Pa. law firm Picadio Sneath Miller & Norton, P.C. (PSMN® and PSMNLaw®). Mr. Sneath is also an Adjunct Professor of Law at the Duquesne University School of Law teaching Trade Secret Law, Trademark Law and the Law of Unfair Competition. He may be contacted at hsneath@psmn.com or 412-288-4013. Website www.psmn.com or www.psmn.law

The US Congress has passed the landmark Defend Trade Secrets Act of 2016 (DTSA) and it is set for the President’s signature. It will soon be law. See Link to DTSA Legislation here: https://www.congress.gov/bill/114th-congress/senate-bill/1890/text    Trade Secret law has long been the province of the States, more or less exclusively, and except for criminal protections against trade secret theft and economic espionage, there has been no Federal civil law providing a federal damages remedy for such theft.  Amended will be Crimes and Criminal Procedures – Title 18, Chapter 90, Section 1836 and the key provision is as follows:

“(1) IN GENERAL.—An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.”

Congress has now added a civil remedy provision to Federal protection of Trade Secrets wherein prior Federal law only provided criminal sanctions. This has been described as a major new development in Federal IP law and will provide federal jurisdiction for Trade Secret Misappropriation cases. The law will NOT preempt nor change State laws and therefore actions will be brought in both federal and state court jurisdictions. Most states (48) have adopted a form of the Uniform Trade Secrets Act (UTSA) and actions can still be brought under those state statutes, but those statutes vary to some degree. The DTSA is very similar to the UTSA based state court statutes, but there will be differences depending on the state jurisdiction from which cases are brought or removed. DTSA will apply to any acts of trade secret misappropriation that take place AFTER the act is signed into law (not retroactive). The Statute of Limitations will be 3 years according to the actual text linked above, but some commentators have stated that it is 5 years (we will need to check to get accurate information on the SOL and will follow up).

The DTSA contains an important and somewhat controversial “Civil Seizure” provision which renders it different from most state laws and which reads:

“(i) APPLICATION.—Based on an affidavit or verified complaint satisfying the requirements of this paragraph, the court may, upon ex parte application but only in extraordinary circumstances, issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.”

This provision is controversial because it can be ordered by a court ex-parte. By amendment, the words “but only in extraordinary circumstances” were added to attempt to mollify some critics of this provision. However, there are some strict limitations to the ex-parte injunctions and a couple of them are below:

“(ii) REQUIREMENTS FOR ISSUING ORDER.—The court may not grant an application under clause (i) unless the court finds that it clearly appears from specific facts that—

“(I) an order issued pursuant to Rule 65 of the Federal Rules of Civil Procedure or another form of equitable relief would be inadequate to achieve the purpose of this paragraph because the party to which the order would be issued would evade, avoid, or otherwise not comply with such an order;

“(II) an immediate and irreparable injury will occur if such seizure is not ordered.”

Such ex-parte injunctions must be very specific and the court must go to great lengths not to overreach or to punish through publicity an accused wrongdoer during the period of seizure. There are other typical requirements for injunctions like posting of security and careful management of the seized materials, and the accused wrongdoer has a right of action back against the claimant if the seizure turns out to be wrongful or excessive.

In an action for misappropriation, a court may order injunctive relief and may

“(B) award—

“(i) (I) damages for actual loss caused by the misappropriation of the trade secret; and

“(II) damages for any unjust enrichment caused by the misappropriation of the trade secret that is not addressed in computing damages for actual loss; or

“(ii) in lieu of damages measured by any other methods, the damages caused by the misappropriation measured by imposition of liability for a reasonable royalty for the misappropriator’s unauthorized disclosure or use of the trade secret;

“(C) if the trade secret is willfully and maliciously misappropriated, award exemplary damages in an amount not more than 2 times the amount of the damages awarded under subparagraph (B); and

“(D) if a claim of the misappropriation is made in bad faith, which may be established by circumstantial evidence, a motion to terminate an injunction is made or opposed in bad faith, or the trade secret was willfully and maliciously misappropriated, award reasonable attorney’s fees to the prevailing party.”

It is unclear as to how this bill will be enforced against foreign Trade Secret theft, or if there will even be jurisdiction under this act for such claims. We will follow up on that issue in future posts. See the Senate and House reports below which contain a substantial amount of background legislative history and commentary. Contact us for additional information. We will continue to study this new law and report to our readers.

Here is a link to the US Senate report on the bill: https://www.congress.gov/congressional-report/114th-congress/senate-report/220/1

Here is a link to the US House report on the bill: https://www.congress.gov/congressional-report/114th-congress/house-report/529/1

Sneath, Henry 2012 headshot

Henry M. Sneath, Esquire – 412-288-4013 or hsneath@psmn.com

Follow me on Twitter @picadiosneath and on Google+: http://tinyurl.com/ktfwrah

 

 

Federal Circuit Reverses Design Patent Claim Construction

by: Robert Wagner, intellectual property attorney at the Pittsburgh law firm of Picadio Sneath Miller & Norton, P.C. ()

In the wake of the Apple v. Samsung cases, the importance of design patents has become more visible. Whether a product infringes a design patent can sometimes be difficult to determine because design patents only protect the ornamental aspects of a design, and not the functional aspects. The Federal Circuit, in Sport Dimension, Inc. v. The Coleman Company, Inc. (No. 2015-1553) recently considered the interplay between ornamentation and functionality in a design patent.

Background

Coleman sells a variety of outdoor sporting equipment, including personal flotation devices. One of its products,  a flotation device with two arm bands and a torso piece, is protected by US Design Patent No. D623,714.

Flotation DeviceSport Dimension also sells personal flotation devices, including its line of Body Glove products that also have two armbands and a torso section.

Body GloveColeman brought suit against Sport Dimension, alleging infringement of the ‘714 patent.

The trial court adopted Sport Dimension’s claim construction, which expressly excluded the arm bands and side torso tapering as elements of the claim, because functional elements not protected by the patent. Coleman then moved for entry of a judgment of non-infringement in favor of Sport Dimension so that it could appeal the claim construction ruling.

The Federal Circuit reversed the claim construction, vacated the judgment of non-infringement, and remanded.

Analysis

The Federal Circuit began by noting that it is often difficult to use words to describe a design, which is why illustrations are an important part of design patents. Despite the limitations of words, the Court noted that it is often constructive for courts to construe design patents in order to guide the fact finder in determining infringement.

The Court then noted the law of infringement of design patents–a design patent cannot protect purely functional designs, but it can protect designs that are not primarily functional even if certain elements have functional purposes. Thus, design patents can be used with products that have elements that are both functional and non-functional, but the design patent will only protect the non-functional elements that are shown in the patent. Of particular interest to design patent litigators, the Court reviewed the key cases in the design patent arena.

In analyzing the patent in dispute and the trial court’s claim construction, the Federal Circuit found that the trial court went too far in excluding entirely the arm bands and tapered side torso from the scope of the patent. The Court agreed that these elements had functional aspects, but concluded it was improper to entirely exclude these elements. The test for infringement of a design patent is not an element-by-element comparison. Instead, infringement is to be assessed based on the overall design, excluding the functional aspects of certain elements (as opposed to excluding the elements entirely).

Based on this faulty claim construction, the Federal Circuit vacated and remanded.

Conclusion

This case highlights the difficulty that design patents present for courts and fact finders. Sometimes, the functional/ornamental aspects are difficult to distinguish and apply. Nonetheless, design patents are still an important piece of intellectual property for many companies and should not be discounted lightly.