IP Law Alert : Intellectual Property Lawyers & Attorneys : Gibbons Law Firm : Copyrights, Patent Infringement, Unfair Competition

IP practitioners should read and heed Judge Martini’s recent decision in Medidata Solutions, Inc. v. DATATRAK Int’l, Inc., 2-12-cv-04748 (D.N.J. May 13, 2013, Docket 33), which addresses considerations for declaratory judgment jurisdiction in a patent dispute.

The case involved two patents owned by DATATRAK, the “parent” ‘087 patent, and the “child” ‘294 patent, which issued from a continuation application.

In March 2011, DATATRAK sued Medidata in the Northern District of Ohio for patent infringement of the ‘087 patent. That case was stayed in December 2011 pending reexamination of the ‘087 patent. At the end of December 2011, and then again at the end of March 2012, DATATRAK made public statements indicating it would vigorously prosecute its claims against Medidata as soon as reexamination by the USPTO was complete.

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This Spring has been fruitful for seed giant, Monsanto. We reported earlier that Monsanto and rival DuPont entered into technology licensing agreements, ending nearly four years of patent and antitrust litigation. On Monday, May 13, Monsanto’s cornucopia arrived, with the Supreme Court ruling unanimously in its favor.

This case revolved around the question of whether the doctrine of patent exhaustion allowed a farmer who bought patented seeds to, without permission, reproduce the seeds through planting and harvesting. The seeds in question were glyphosate herbicide-resistant soybean seeds, covered under two patents issued to Monsanto. The glyphosate resistance is an inheritable trait that is passed on from generation to generation. Monsanto sold these seeds under special licensing agreements that allowed end users to plant the seeds in one season. The end user was authorized to consume or sell the resulting crops, but under agreement, was prohibited from planting the seeds from this second generation. Subsequent plantings would require subsequent purchases of the seeds. Therefore, an end user, not complying with the terms of the licensing agreement, could, through planting and harvesting, generate an infinite number of herbicide resistant soybean plants (and seeds) from a single seed. This would effectively end run a patent holder’s exclusionary rights to the invention.

Petitioner Vernon Bowman, an Indiana farmer, purchased the patented seeds each year for his first crop of planting seasons. However, for his late-season plantings starting in 1999, Bowman purchased seeds, normally intended for livestock feed or human consumption, from a grain elevator. Due to the widespread use of the Monsanto-patented seeds, it was reasonable to anticipate that some of the seeds purchased from the grain elevator would also have the patented herbicide-resistance. These late-season plantings were treated with glyphosate herbicide, and seeds from the surviving plants (presumably with the patented herbicide-resistance) were saved for future plantings. This process was repeated for a total of eight generations of soybean crops.

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We previously reported on the interplay between the Judicial Panel on Multi-District Litigation (“MDL”) under 28 U.S.C. § 1407(a) and the joinder rules under 35 USC § 299 of the America Invents Act (“AIA”).

In Unified Messaging Solutions, LLC v. United Online, Inc., et. al., 1-13-cv-00343 (N.D. Il. May 3, 2013) Judge Lefkow recently denied defendants’ motion to sever plaintiff’s infringement claims against them from pretrial consolidation in an MDL case, and rejected their argument that § 299 had been violated.

The Court held, inter alia, that Section 299’s prohibition on joinder did not “obviate a transferee court’s discretionary ability to order pretrial consolidation in multidistrict litigation. . . . The coordination that [defendants] advocate would thwart the court’s ability to manage the present litigation by transforming each case into an individual action circumventing the uniform rulings and judicial efficiency that the [MDL] intended . . . .” The Court also found that its order of pretrial consolidation did not implicate Section 299’s prohibition on consolidation of trials because “‘Section 1407 applies to pretrial proceedings’ while ‘Section 299 itself is silent as to the conduct of pretrial proceedings, nor does it mention Section 1407.’” (citing In re Bear Creek Tech., Inc., Patent Litig., 858 F. Supp. 2d 1375, 1377 (J.P.M.L. 2012). And, because the consolidated actions will ultimately be remanded to the trial courts from which they originated after the pretrial proceedings, the Court rejected movant’s argument.

Accordingly, practitioners can continue to expect consolidation of related litigations under 28 U.S.C. § 1407(a), where appropriate, despite the procedural transformations under the AIA.

Ralph A. Dengler is a Director in the Gibbons Intellectual Property Department. Todd M. Nosher, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

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Since March 16, 2013, the United States has been under a first-inventor to-file patent system. Although it has always been good scientific practice for inventors to keep and maintain laboratory notebooks, it was all the more important in a first-to-invent patent system. In light of the recent changes in U.S. patent law, will keeping and maintaining a laboratory notebook have any importance for patent applications filed under the new system?

Previously, if there was a dispute as to which independent party was first-to-invent, laboratory notebook records, among other materials, were routinely accepted in interference proceedings (priority proceedings before the patent office) as evidence of conception, reduction to practice, and diligence. However, under the current system, an independent inventor who fails to file first has little recourse.

As such, are laboratory notebooks still relevant at all, in terms of U.S. patent law? Certainly. Although interference proceedings are no longer available, inventors (petitioners) may request a derivation proceeding with the USPTO. These are available in the limited circumstances where it can be proved that the first-to-file party derived the invention from the true inventor and did so without authorization. It is the petitioner’s burden to show, with substantial evidence and at least one affidavit, that communication of the invention to the alleged deriver, and an unauthorized filing of a patent application occurred. A properly maintained laboratory notebook, as well as other means, documenting such communications would be helpful in providing much of the substantial evidence required.

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A recent non-published case from the District Court of New Jersey serves as a reminder that navigating the damages phase of patent infringement is just as important as proving liability.

In Unicom Monitoring, LLC v. Cencom, Inc., Judge Cooper court denied the patent owner damages despite the fact that it succeeded in proving infringement. The patent at issue covered a device for rerouting alarm reports through a telephone line. Defendant Cencom was found to infringe claim 1 of the patent. Before the trial on Unicom’s damages, Cencom moved for summary judgment to dismiss Unicom’s damages claim because it failed to present expert evidence. Cencom also moved for summary judgment on injunctive relief because Unicom failed to establish its burden under the factors articulated by the Supreme Court in eBay Inc. v. MercExchange, LLC. Cencom argued that the only proof Unicom provided supporting Unicom’s reasonable royalty position was attorney argument, Cencom’s sales records, and statements from Unicom’s owners. The Court held that while expert testimony is not required to prove reasonable royalties, it agreed with Cencom that Unicom failed to establish competent proof to support its claim.

A factfinder cannot be asked to speculate from numbers unsupported by law and divorced from expert guidance but rather the factfinder needs either clear guidance from an expert about how to apply complex calculations or simple factual proofs about what this patentee has previously accepted in factually analogous licensing situations.

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On April 12, United States District Judge Ellis of the Eastern District of Virginia excluded the testimony of patentee Suffolk’s damages expert directed to a reasonable royalty based on the Nash Bargaining Solution, a kind of negotiation model. Suffolk’s expert used the Nash Bargaining Solution to determine that damages should be based on a 50/50 split of incremental profits. The Court struck this analysis, finding that the 50/50 split was analogous to the 25% rule previously rejected by the Federal Circuit in Uniloc v. Microsoft. (See infra).

As a matter of law, a patent owner is entitled to no less than a reasonable royalty for the use made of the invention by the infringer. The amount of the reasonable royalty is determined based on a hypothetical negotiation between a willing licensor and a willing licensee at the time that infringement began. Prior to 2011, one traditional method for determining a reasonable royalty was the 25% rule, which operated under the presumption that the licensee was entitled to 25% of the infringer’s gross profits on the accused device or process. This number would then be adjusted up or down based on the 15 factor test set forth in Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970). In the past, such method may have been relied upon by an expert facing a situation where the patent owner had not licensed the patent in suit and there were no known license agreements covering the relevant technology of that patent.

Despite its long-standing use, the Federal Circuit in Uniloc v. Microsoft, 632 F.3d 1292 (Fed. Cir. 2011) struck down this approach -- holding that “the 25 percent rule of thumb is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation..., because it fails to tie a reasonable royalty base to the facts of the case at issue.” Id. at 1315.

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Kolon USA, Inc., the U.S. subsidiary of South Korea-based Kolon Industries Inc. (“Kolon”), recently was ordered by New Jersey District Court Judge Esther Salas to turn over its property to DuPont as part of DuPont’s efforts to enforce the $920 million damages award that DuPont won against Kolon during a 2011 trade secrets litigation in the Eastern District of Virginia.

This case, E.I. du Pont De Nemours & Co. v. Kolon Indus., Inc. a/ka/ Kolon Corp., has an interesting history: in 2009, DuPont sued Kolon in EDVA, including five of its executives, for allegedly stealing confidential information related to making Kevlar, an anti-ballistic fiber commonly used in body armor, military helmets, ropes, cables and tires. DuPont has been selling this fiber since 1965 and has spent more than $500 million in its marketing and production. Kevlar and Nomex, a fiber used in firefighting gear, together accounted for $1.5 billion of DuPont’s $38 billion in sales for 2011. Kolon began making the Heracrone line of fibers, its own version of DuPont’s Kevlar, in 2005.

In 2006, Kolon hired Michael Mitchell as a consultant to improve Kolon’s Heracrone products. Mitchell previously worked at DuPont for twenty-five (25) years as an engineer and as a marketing executive for DuPont’s Kevlar. Mitchell later was charged and pled guilty to trade secrets theft and obstruction of justice relating to his work while at Kolon, and stemming from his DuPont background. In March of 2010, he was sentenced to eighteen (18) months in prison. Although Mitchell pled guilty to stealing DuPont’s trade secrets, that did not release Kolon from liability. In September 2011, a federal jury in Virginia found Kolon and its U.S. subsidiary guilty for wrongfully obtaining DuPont’s proprietary information about Kevlar and granted a $920 million judgment against Kolon. The five individual executives at Kolon who were originally sued in 2009 still worked for Kolon in South Korea. Unfortunately for DuPont, the ruling from the Court in Virginia cannot itself prevent Kolon from selling its Heracrone fibers.

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Owners of books and music in physical media form need not fear if ever they decide to sell, rent, or otherwise dispose of these copyright-protected materials. The first-sale doctrine permits such activities by extinguishing a copyright owner’s exclusive right of distribution of copyrighted items that have been lawfully sold or transferred. However, according to a recent federal court ruling, Capitol Records, LLC. v. ReDigi Inc., No. 12 Civ. 95 (S.D.N.Y. March 30, 2012) owners of digital versions of the same works may find it more difficult to sell, rent, or otherwise dispose of their digital files.

ReDigi Inc. (“ReDigi”) is a marketplace for buyers and sellers of “used” digital music files. Users can sell their legally purchased digital music by installing ReDigi’s “Media Manager” software. This software scans the user’s hard drive for digital music files purchased from iTunes, and will mark these as being eligible for sale. To avoid the possibility of copyright infringement, the Media Manager software considers all other digital music files, e.g. files downloaded from CDs or from other file-sharing websites, as ineligible for sale. The seller can then upload the eligible files onto ReDigi’s server. The Media Manager software monitors the seller’s computer to ensure that the uploaded files have not been retained. Other users can then purchase the digital music by downloading the files from the server.

In January 2012, Capitol Records, LLC (“Capitol”) brought suit against ReDigi, accusing ReDigi of violating Capitol’s exclusive rights of reproduction and distribution of many of its sound recordings. In his March 30 ruling, Southern District of New York District Court Judge Richard J. Sullivan agreed with Capitol, granting its summary judgment motion “on its claims for ReDigi’s direct, contributory, and vicarious infringement of [Capitol’s] distribution and reproduction rights.”

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Yesterday’s Federal Register included a public notice indicating the U.S. International Trade Commission’s (“ITC”) intention to solicit input from complainants who obtained exclusion orders from the ITC following proceedings under 19 U.S.C. § 1337 (“Section 337”).

Section 337 addresses unfair practices in the import trade, and especially, for enforcing U.S. intellectual property rights at the border. An exclusion order may be “limited” or “general,” and it prevents articles found to be infringing from being imported into the U.S.

With this Notice, the ITC is seeking feedback, via a three-question survey of complainants with exclusion orders presently in place, regarding the effectiveness of exclusion orders to prevent certain imports. This effort is part of the ITC’s study to examine the efficacy of exclusion orders in blocking the importation of infringing products. As a formality, the ITC must first gain approval from the Office of Management and Budget to fund the survey.

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