October 2017

Who’s Holiday! Parody of How the Grinch Stole Christmas! is Found to be Fair Use

Takeaway: A crude play depicting the well-known children’s story “How the Grinch Stole Christmas!” was found to be fair use of the original work.

Plaintiff Matthew Lombardo, the author of Who’s Holiday!, a play that makes fun of and parodies the Dr. Seuss book, How the Grinch Stole Christmas!, brought a declaratory judgement action that his play was fair use and does not infringe upon defendant Dr. Seuss Enterprises, L.P.’s copyrights.

Over Defendant’s objections, the matter was resolved on a motion for judgment on the pleadings. The court determined that current precedent allowed for the matter to be decided before discovery because a side-by-side comparison of the works at issue was sufficient to decide the merits of the case.

The court found that the stark contrast between the character Cindy Lou from the original work and that of the character depicted in the play was a key factor in determining whether the play was a parody. Because the character was depicted so comically different as opposed to being merely exploitative of the original work to avoid the drudgery in working up something fresh, the court found there to be parody in the play. The play depicted Cindy Lou in an adult context with themes of poverty, teen-age pregnancy, drug and alcohol abuse, prison culture, and murder. On the other hand, the original work depicted a young innocent child that contrasted the darkness of the Grinch. Because of the stark comical contrast between the characters, the court found the play to be a parody, and therefore, was a transformative work.

The court pointed out that under parody, a secondary user is entitled to more extensive use of the original work than might otherwise be permissible, given that a parody must be able to conjure up at least enough of the original to make the object of its critical wit recognizable. The court found that the two works were sufficiently different. For example, the Grinch did not appear in the play, the setting was on a silver bullet train, which differs from the original setting, the plot was completely different, and the play did not copy or quote any language from the original work. For these reasons the court found that the amount of the copyrighted work that was used was reasonable in proportion to what was necessary to create a parody.

Mavrix Photographs, LLC v. LiveJournal, Inc.

Takeaway: A common law agency theory analysis applies to the safe harbor defense under the Digital Millennium Copyright Act.

In Mavrix Photographs, LLC v. LiveJournal, Inc., a new issue was presented under the Digital Millennium Copyright Act’s (“DMCA”) safe harbor protection provision 17 U.S.C. § 512(c). The issue was whether common law agency theories apply to the safe harbor defense under the DMCA. Mavrix brought this suit for copyright infringement because LiveJournal published 20 of Mavrix’s photos on their website.

The district court held that the DMCA safe harbor provision protected LiveJournal because Mavrix’s photos were stored at the discretion of the user and that the common law theories of agency did not apply to a safe harbor analysis. The Ninth Circuit Court of Appeals disagreed, stating that common law agency theories do apply to the DMCA analysis and that the issues surrounding the agency status of the moderators on LiveJournal’s site should be remanded for trial.

The Ninth Circuit determined that the trial court was focused on § 512(a) when they should have focused on § 512(c). The difference here was determinative in this appeal because § 512(a) is directed to the issue of infringing material that is passively and temporarily placed on a computer server whereas § 512(c) is focused on the service provider’s role in making material stored by a user publicly accessible on its site. The court said that public accessibility was important because the inquiry here turned to the role of the moderators in screening and posting user submissions of content.

The reason the Ninth Circuit determined that the rules of agency apply in this situation is because the Supreme Court has applied common law involving federal copyright law and the DMCA. The Ninth Circuit and other courts have applied agency law to determine things like whether a service provider was responsible under the DMCA for copyright infringement by its employees, whether a service provider was responsible under the DMCA for copyright infringement by its contractors, and whether a service provider is responsible under the DMCA for acts by its moderators.

For these reasons, the Ninth Circuit determined that there was a genuine issue of material fact as to whether the moderators were LiveJournal’s agents.

Federal Circuit Rejects Judge Gilstrap’s Patent Venue Rules

In In re TC Heartland, the U.S. Supreme Court restricted venue choices for patent infringement plaintiffs by holding that 28 U.S.C. § 1400(b) was the exclusive patent venue statute. 28 U.S.C. § 1400(b) states:

“[a]ny civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.”

The statute has two “prongs” by for proper venue: (1) residence in the judicial district, OR (2) having a regular and established place of business in the judicial district and committing acts of infringement in the district. In re TC Heartland addressed the first prong – residence – and said that a corporation “resides” for purposes of venue in patent cases in its state of incorporation (“a domestic corporation “resides” only in its State of incorporation for purposes of the patent venue statute.”).

The Supreme Court’s holding that 28 U.S.C. § 1400(b) was the exclusive patent venue statute was in contrast to case law since 1990, which broadly allowed patent infringement plaintiffs to sue in any judicial district in which the defendant was subject to personal jurisdiction.

In the first, or one of the first, decisions looking at venue post-TC Heartland, Judge Rodney Gilstrap of the Eastern District of Texas denied a motion to transfer venue. Raytheon Corp. v. Cray, Inc., Case No. 2:15-CV-01554-JRG (E.D. Tex. June 29, 2017). In the ruling, Judge Gilstrap thoughtfully articulated a set of factors to consider regarding what constitutes a “regular and established place of business,” which corresponds to the second prong of 28 U.S.C. § 1400(b) for proper venue. These factors included: (1) physical presence in the district; (2) defendant’s representations regarding a presence in the district; (3) benefits received from its presence in the district; and (4) targeted interactions with persons or entities in the district.

Factually, Judge Gilstrap predicated his ruling denying a transfer on the activities of a sales representative for the accused products in the Eastern District even though the defendant itself did not have any facilities in the district.

Judge Gilstrap’s June 29, 2017 ruling was promptly challenged by Cray via a writ of mandamus to the Federal Circuit, requesting an order that the case be transferred to a different venue. On September 21, 2017, the Federal Circuit granted the writ of mandamus, finding that venue was improper in the Eastern District of Texas, and that Judge Gilstrap abused his discretion by denying venue transfer. In the process, the Federal Circuit announced a new standard for what constitutes a “regular and established place of business,” by stating:

“The statutory language we need to interpret is “where the defendant . . . has a regular and established place of business.” 28 U.S.C. § 1400(b). The noun in this phrase is “place,” and “regular” and “established” are adjectives modifying the noun “place.” The following words, “of business,” indicate the nature and purpose of the “place,” and the preceding words, “the defendant,” indicate that it must be that of the defendant. Thus, § 1400(b) requires that “a defendant has” a “place of business” that is “regular” and “established.” All of these requirements must be present. The district court’s four-factor test is not sufficiently tethered to this statutory language and thus it fails to inform each of the necessary requirements of the statute.”

The Federal Circuit then articulated the standard for what constitutes a “regular and established place of business” under the patent venue statute 28 U.S.C. § 1400(b):

“our analysis of the case law and statute reveal three general requirements relevant to the inquiry: (1) there must be a physical place in the district; (2) it must be a regular and established place of business; and (3) it must be the place of the defendant. If any statutory requirement is not satisfied, venue is improper under § 1400(b).”

In sum, the Federal Circuit provided some clarity as to what a “regular and established place of business” is under the patent venue statute. Looking forward, it would appear that venue choices for patent infringement plaintiffs are shrinking, and also that the Eastern District of Texas may lose its status as the number one federal judicial district for patent litigation in the U.S.

DRK Photo v. McGraw-Hill

Takeaway: In the world of intellectual property licensing it is important to obtain the proper intellectual property interest in the works that you are licensing or you may not have standing to sue.

DRK Photo is a stock photography agency that markets and licenses images created by others. One of the entities they licensed images to was McGraw-Hill, the defendant in this action. DRK Photo brought this suit for copyright infringement because McGraw-Hill overprinted the images that were licensed to them by DRK Photo in a book that McGraw-Hill published.

The main issue of this case was whether DRK Photo actually had standing to sue under the Copyright Act of 1976. The court explained that it has been established that either an assignment or an exclusive license will transfer a right in copyright for the purposes of standing to sue. On the other hand, a nonexclusive license does not constitute a transfer of copyright ownership and therefore cannot confer standing to assert an infringement claim.

DRK Photo obtains licenses of the photos on its website through representation agreements which take two forms: (1) agreements appointing DRK Photo as the “sole and exclusive agent” to license and sell the covered photographs, and (2) agreements appointing DRK Photo as a nonexclusive agent to license and sell the covered photographs.

The only type of agreement that is at issue in this case is the second form, which only grants a nonexclusive right to license and sell the images. These nonexclusive representation agreements give the original photographer the ability to have other agents sell and license their photos for them as well.

In addition to the representation agreements, DRK Photo also sought an assignment agreement for the purpose of obtaining copyrights in the photos they sell for the photographers. The intent of this second agreement seemed to be for the sole purpose of obtaining standing to sue for infringement. The court found evidence through the assignment language itself and communications between DRK Photo and the photographers that the intent of this agreement was not for any ownership interest but rather only for the purpose of suing for infringement.

The issue then became whether the assignment of the copyright after the infringement occurred was enough to obtain standing. The court did not believe that it was. They found support for their decision in Silvers v. Sony Pictures Entertainment, 402 F.3d 881 (9th Cir. 2005) (en banc), and later in Righthaven LLC v. Hoehn, 716 F.3d 1166, 1169-70 (9th Cir. 2013). In those decisions, the court found that an assignee who holds an accrued claim for copyright infringement, but who has no legal or beneficial interest in the copyright itself, may not institute an action for infringement. In other words, the purported transfer of legal title coupled with the transfer of accrued claims does not confer standing when the transaction, in substance and effect, merely transfers a right to sue. Therefore, because the overall intent here seemed to be for the purpose of obtaining a right to sue, rather than a legitimate copyright in the images, the court found that DRK Photo still did not have standing to sue.

PTAB Creates Rule for Multiple Challenges to the Same Patent

Takeaway: The PTAB takes a step toward deterring multiple challenges to the same patent by laying out seven factors that will be considered in future PTAB proceedings.

In a petition by General Plastic Industrial Co., Ltd. (“General Plastic”) for inter partes review, the PTAB has laid out an informative set of factors that will be considered when deciding whether to institute review of patents that have been challenged multiple times.

General Plastic Industrial Co., Ltd. previously petitioned the same patents that were at issue here for inter partes review. All of the petitions for inter partes review were originally denied on the merits and additionally denied in this opinion.

In this petition, the Board relied on seven factors from the decision in NVIDIA Corp v. Samsung Elec. Co., Case IPR2016-00134 (PTAB May 4, 2016). The factors that the PTAB relied on when deciding whether to institute inter partes review for a petition on previously petitioned patents are:

(1) whether the same petitioner previously filed a petition directed to the same claims of the same patent;
(2) whether at the time of filing of the first petition the petitioner knew of the prior art asserted in the second petition or should have known of it;
(3) whether at the time of filing of the second petition the petitioner already received the patent owner’s preliminary response to the first petition or received the Board’s decision on whether to institute review in the first petition;
(4) the length of time that elapsed between the time the petitioner learned of the prior art asserted in the second petition and the filing of the second petition;
(5) whether the petitioner provides adequate explanation for the time elapsed between the filings for multiple petitions directed to the same claims of the same patent;
(6) the finite resources of the Board; and
(7) the requirement under 35 U.S.C. § 316(a)(11) to issue a final determination not later than 1 year after the date on which the Director notices institution of review.

Even though this opinion was originally non-binding, the decision has now been designated as informative, which means that these factors will be used by the PTAB moving forward to evaluate multiple petitions on the same patents.

The subject of multiple petitions on the same patent has been a hot issue lately. The reason this decision may be a step in the right direction is because we do not want petitioners to have two bites at the same apple. This decision may be an effort by the PTAB to prevent petitioners from dragging on litigation through multiple challenges to the PTAB, district court, and the ITC. Patent owners should not be required to litigate the same issues over and over again while the petitioner hopes to get a better decision somewhere else or have the patent owner roll over because they cannot afford to litigate so many repetitive issues.

Another major issue to consider is the burden on the PTAB and the courts due to repetitive litigation. This decision may help discourage frivolous petitions to the PTAB, which we can only hope will free up the Board to review more legitimate patent challenges.

Partner Jeffry G. Sheldon’s New 2nd Edition of The Manager’s Guide To Intellectual Property is Coming Soon

We are proud to announce that Cislo & Thomas’ partner Jeffrey Sheldon, Esq. is publishing the second edition to his book The Manager’s Guide to Intellectual Property. This publication is designed to help business executives and entrepreneurs understand the basics concepts of intellectual property and know when to call in the intellectual property attorneys to assist. Whether you are seeking a patent, registering a trademark or negotiating a license, quickly gain the information you need to know to protect your company’s ideas and, just as importantly, avoid infringing on the exclusive rights of others.

One use of this book could save you thousands, even millions, in lost opportunities and costly lawsuits. If you’re starting a new business, considering a new product line, purchasing a business, checking the health of your company or investing in research and development, make The Manager’s Guide to Intellectual Property your starting point. You will not find the minutiae of the law covered here. Rather, you will find easy-to-understand explanations of U.S. laws and how the U.S. legal system works along with practical tools and checklists you can apply in your day-to-day operation. Keep this handy book on your desk for quick and current coverage of the key problem areas in intellectual property. You can find the first edition of The Manager’s Guide to Intellectual Property at
https://www.amazon.com/Managers-Guide-Intellectual-Property/dp/1610142918, or, next time you come by the office, we will have a second edition copy available for you.

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