On June 21, 2013, Wendy’s filed a lawsuit against United Dairy Farmers, Inc. alleging infringement of Wendy’s well-known Frosty trademark along with infringement of its red and yellow trade dress used on its Frosty cups. Wendy’s asserts that the Frosty trademark is famous and that sales of products identified by the Frosty trademark have exceeded tens of millions of dollars. Also, Wendy’s asserts that its yellow and red trade dress is famous and that there is widespread consumer recognition of the trade dress as designating the source of its desserts. Wendy’s alleges that United Dairy Farmers’ marketing of its products as “Frosties” and “Frosty Malts” is a complete knock-off of Wendy’s signature Frosty dessert. According to a Wendy’s spokesman, Wendy’s filed this suit to protect its iconic brand and to avoid consumer confusion.
The lawsuit has been filed in the United States District Court for the Southern District of Ohio Eastern Division, No. 2:13-cv-596. Wendy’s is seeking compensatory and punitive damages and is seeking an injunction barring United Dairy Farmers from selling its products and requiring it to destroy its packaging.
In an en banc decision in Robert Bosch, LLC v. Pylon Manufacturing Corp., No. 2011-1363, -1364, the Federal Circuit held that it has jurisdiction under 28 U.S.C. § 1292(c)(2) to hear an appeal of a jury’s determination of infringement even though the issues of damages and willful infringement have not been decided. Judge Prost was joined by Chief Judge Rader and Judges Newman, Lourie, and Dyk. Judges Moore and Reyna concurred with respect to an appeal where just the damages determination has not been made, but dissented with respect to appeals where the willful infringement determination has not been made. Judges O’Malley and Wallach dissented as to both.
The case had a rather unusual procedural path. In 2008, Robert Bosch sued Pylon Manufacturing for infringing its patents relating to wiper blades. Pylon moved the district court to bifurcate the issue of infringement from the issues of damages and willful infringement. The court granted the motion and stayed discovery with respect to both damages and willful infringement. The court entered partial summary judgment on some issues in favor of both parties, but found jury questions relating to some of the infringement and invalidity claims. The jury found that Pylon infringed the claims of the patents and that the patents were not invalid. The court denied Bosch’s motion for a permanent injunction. Bosch appealed, and the Federal Circuit, in an opinion written by Judge O’Malley and joined by Judge Reyna, reversed and remanded. The parties also appealed the infringement and invalidity decisions. After oral argument, the Federal Circuit, sua sponte, granted a rehearing en banc to determine whether the Court had jurisdiction to hear the appeal in the first place because the damages and willful infringement issues had not been decided.
Under 28 U.S.C. § 1292(c)(2), the Federal Circuit has jurisdiction to hear appeals “from a judgment in a civil action for patent infringement which would otherwise be appealable . . . and is final except for an accounting.” Thus, the question was whether the damages and willful infringement determinations fall within the rubric of an “accounting.”
In analyzing the history of the statute and the understanding of the term “accounting,” the Court determined that an accounting was “a proceeding that includes the determination of both profits and damages.” The Court further noted that historically such accountings were made by special masters, but that this limitation no longer applied, especially after the merger of law and equity occurred in the courts.
With respect to willful infringement, the Court found that historically the issue of enhancement of damages was determined as part of an accounting. Thus, the Court found that it had jurisdiction to hear appeals when the issues of both damages and willful infringement remain outstanding. The Court then returned the case to the panel to decide the appeal on its merits.
The dissent reached a different conclusion, finding that the historical precedent made clear that the term accounting in the statute did not apply to either the damage or willful infringement determinations. Judge O’Malley noted that “[i]n all other circuits and all other types of cases, the finality requirement plainly applies to outstanding damages determinations.” She cautioned that there was no justification for treating patent cases any differently.
Today, the United States Supreme Court in a 5-3 decision authored by Justice Breyer in Federal Trade Commission v. Actavis, Inc., No. 12-416, held that reverse payments by a patent holder to an accused infringer to settle a patent infringement lawsuit may implicate antitrust concerns and may be actionable. The Court declined to find that such payments are either per se actionable or immune from the antitrust laws. Instead, such payments must be analyzed under a “rule of reason” approach.
The case arose out of a “paragraph IV” patent infringement lawsuit brought by a pharmaceutical manufacture (Solvay Pharmaceuticals) against a generic manufacturer (Actavis). Solvay filed a New Drug Application in 1999 for a brand-name drug called AndroGel that is used in testosterone replacement therapy. In 2003, Solvay obtained a patent covering the drug, which was disclosed to the FDA. Later in 2003, Actavis filed an Abbreviated New Drug Application for a generic equivalent to AndroGel, and asserted, under paragraph IV of the Hatch-Waxman Act, that it did not infringe Solvay’s patent because the patent was invalid and it did not infringe. Solvay promptly filed suit alleging infringement under 35 U.S.C. § 271(e)(2)(A).
In 2006, the parties settled the litigation. Actavis agreed to not bring its generic drug to market until 2015 (which was 65 months prior to the expiration of Solvay’s patent) and to promote AndroGel to urologists. In return, Solvay agreed to pay Actavis $19–$30 million annually for nine years. Solvay reached similar agreements with other generic manufacturers.
The Federal Trade Commission found that the settlements were designed primarily to limit competition in the marketplace. In essence, Solvay was simply paying the generic manufacturers to stay out of the marketplace, which would have the side effect of increasing prices for consumers. The FTC then brought an antitrust lawsuit against the drug manufacturers.
The District Court found that the FTC’s allegations did not state a claim under the antitrust laws and dismissed the case. The Eleventh Circuit affirmed. They held that absent an allegation of sham litigation, it was not an antitrust violation to reach these kinds of settlements when the restrictions expired prior to the expiration of the patent in question.
Justice Breyer, writing for the majority, disagreed with the Eleventh Circuit’s blanket rule based on the expiration date of the patent. Instead, the Court held that courts must use a “rule of reason” approach and consider the purpose behind the settlement before they can determine whether the settlements run afoul of the antitrust laws.
In reaching this conclusion, the Court considered that the patent may, in fact, not be valid, and there is a strong public interest in removing invalid patents that is frustrated if these kinds of settlements are allowed. The Court also considered the unusual nature of these settlements—where a patent holder pays substantial amounts to the accused infringer. This was not a case where the two parties met in the middle on a settlement figure or where the accused infringer had more valuable counterclaims. Finally, the legislative history behind the Hatch-Waxman Act suggested that Congress was not attempting to justify settlements like these.
The Court also considered the countervailing interest of encouraging settlements and allowing parties to reach mutually-agreeable resolutions. Despite that important interest, the Court was not willing to create blanket immunity for these kinds of settlements. It was concerned that these settlements have a very real potential to hinder competition.
The Court will also quick to note that it would not hold such reverse payment settlements as per se violations. It recognized that some reverse payments may be justified because they save litigation costs, allow for increased distribution of the drug, or will help develop new markets. In the end, the relevant question for antitrust purposes is why did the parties enter the agreement? “If the basic reason is a desire to maintain and to share patent-generated monopoly profits, then, in the absence of some other justification, the antitrust laws are likely to forbid the arrangement.”
The Court then remanded the case back for further proceedings. Justices Breyer wrote the opinion of the Court and was joined by Justices Kennedy, Ginsburg, Sotomayor, and Kagan. Chief Roberts dissented and was joined by Justices Scalia and Thomas. Justice Alito took no part in the decision.
Today, the United States Supreme Court unanimously ruled in Association for Molecular Pathology v. Myriad Genetics, Inc.,No. 12-398, that a naturally-occurring DNA segment (or gene) is not patent eligible even if it has been isolated from a genome (reversing the Federal Circuit). The Court also ruled that cDNA (complementary DNA) is patent eligible because it is not naturally occurring (affirming the Federal Circuit). Justice Thomas wrote the opinion for the unanimous Court, and Justice Scalia wrote a short concurrence. We have been following this case for some time (see here, here, and here).
The Court began by restating its position that laws of nature, natural phenomena, and abstract ideas are not patentable subject matter under 35 U.S.C. § 101. The question for the Court was whether Myriad’s patents claimed any new and useful composition of matter.
To answer this question, the Court looked at what Myriad claimed. With respect to the DNA claims, Myriad claimed the DNA segment it found in nature, and it did not change or alter any of the genetic information in that segment. Because it claimed something naturally found in nature, it was not patent eligible subject matter.
With respect to the cDNA claims, the Court reached a different result. The cDNA is not found in nature, but is created in the laboratory. This key difference meant that it was patent eligible subject matter. The Court did not address whether these claims met the other requirements of the patent statute, such as §§ 102, 103, and 112.
The Court was also very clear on what it was not deciding in this case. There were no method claims at issue, such as an innovative method for manipulating genes. Similarly, there were no claims directed to how this new knowledge might be applied to achieve some useful result. The Court suggested (without holding) that those types of claims would be patent eligible. Finally, it noted that the claims were not directed to naturally occurring genetic code that had been altered to create some new and not natural DNA. The Court refused to suggest how it might address claims like those.
In the end, the Court stated that “[w]e merely hold that genes and the information they encode are not patent eligible under § 101 simply because they have been isolated from the surrounding genetic material.”
In what appears to be the conclusion to the saga that was the Righthaven LLC copyright troll experiment (see past posts here), the Ninth Circuit affirmed the District Court’s determination that Righthaven lacked standing to sue for copyright infringement in Righthaven LLC v. Hoehn, No. 11-16751. As the Ninth Circuit confirmed, a plaintiff must have more than a bare right to sue in order to have standing.
As we discussed two years ago, Righthaven LLC was set up to acquire copyrights from various entities and then sue alleged infringers who used any or all of the copyrighted works. In particular, Righthaven purported to obtain assignments from the Las Vegas Review-Journal. However, these assignments were nothing more than a bare right to sue with restrictions. Righthaven obtained no right to exploit the copyrights or obtain any royalties. Instead, the paper retained essentially every meaningful right associated with the copyright, including an exclusive license, the right to veto any potential copyright litigation, the right to receive proceeds from any litigation, and the right to revert ownership back to itself should it choose.
Nonetheless, Righthaven proceeded to sue hundreds of individuals who used some or all of these copyrighted works. Eventually, as the result of discovery and inquiries by the Court, the true nature of Righthaven’s rights became apparent. At that point, the District Court determined that Righthaven was not, in fact, the true owner of the copyright and dismissed Righthaven’s copyright claims. Righthaven appealed this determination to the Ninth Circuit, which affirmed.
Under the Copyright Act, only the “legal or beneficial owner of an exclusive right under a copyright” has standing to sue for infringement. 17 U.S.C. § 501(b). An assignment of a bare right to sue is not sufficient to confer standing. To determine whether a party has sufficient exclusive rights, courts are to look at the substance and effect of any contract purporting to assign ownership, rather than the words or labels given by the parties.
In this case, the Ninth Circuit found that Righthaven held none of the exclusive rights typically associated with a copyright owner. Instead, it only had a bare right to sue, which was insufficient to confer standing.
With this finding, it appears that the Righthaven experiment in copyright trolling is over. It will be interesting to see if others take up the mantle or whether this was a fleeting experiment.