Weekly IP Takeaways

Prepared by Cislo & Thomas LLP Attorney Mark D. Nielsen, Ph.D.

1. The Second Circuit Court of Appeals affirmed a portion of a counterfeiting verdict against a landlord that took “insufficient steps to root out the counterfeiting it knew or should have known was occurring.” A jury in the Southern District of New York had awarded Omega, the watchmaker, $1.1 million damages for counterfeiting against a landlord of the entity that was actually selling the counterfeit products, and the Second Circuit found that where the landlord had sufficient indication that there were sales of counterfeit items on the property, it could not avoid liability for trademark infringement by simply ignoring the issue. While this may appear promising for rights owners that are victims of counterfeiting against potentially “fly-by-night” counterfeiters, unique “facts” in this case include that the landlord was not oblivious to previous counterfeiting issues on the property, and that the landlord apparently failed to monitor for counterfeiting activity on the property as it may have been required to do under a previous consent injunction. The takeaway here for landlords is that if you are aware of counterfeiting activities taking place on your property, you should take steps to stop it; otherwise, you may be secondarily liable for trademark infringement.

2. The Federal Circuit Court of Appeals recently affirmed a Section 101 decision by Judge Carter in the Central District of California in a patent infringement case brought against Netflix. The technology was directed to a system that could receive audio and video information from one source and provide such audio and video information in a different format at a second source. Judge Carter dismissed the infringement claim under Rule 12(b)(6) based on Section 101/Alice. The Federal Circuit affirmed, finding that collecting information and transcoding it into multiple formats was an abstract idea of format conversion. The Court noted that the focus of the claims was “not any specific advance in coding or other techniques for implementing that idea.” This led to the Federal Circuit also affirming that there was nothing in the claims or specification that was unconventional. The plaintiff argued that the USPTO’s novelty and non-obviousness determinations supported a finding of subject matter eligibility, which was rejected by the Federal Circuit based on the Chamberlain v. Techtronic case. While, in this instance, this may have been the correct decision, the notion that “what the patent asserts to be the focus of the claimed advance over the prior art” is a significant part of the Step 1 inquiry under Alice is troubling, as it continues to blur the line between Section 101 and Sections 102 and 103 of the Patent Act. It is also troubling that the Federal Circuit (at least this panel) would then downplay the importance of Sections 102 and 103 to the eligibility inquiry under Section 101. The Federal Circuit’s Section 101 jurisprudence is muddled and confused. The takeaway here is that patent prosecutors should obviously attempt to include any technological advances in software technology in great detail in patent applications. Because the USPTO currently follows a different Section 101 standard than the courts (although this could change in the new administration), even if one secures a patent, enforceability is a different question. Thus, consulting with knowledgeable patent counsel throughout the process is critical.

3. In another recent Federal Circuit decision, the Court affirmed Eastern District of Texas Judge Gilstrap’s granting of a fee motion. The decision is noteworthy because it awarded fees against a losing plaintiff that failed to conduct an adequate pre-filing investigation. The losing plaintiff argued that it should be entitled to rely on the presumption of validity afforded all issued patents. The Federal Circuit found that the district court did not fail to account for the presumption of validity, but awarded fees because the case was frivolous and that the frivolousness of the case could have easily been foreseen with an adequate pre-suit investigation. Because it was undisputed that the accused product was prior art to the asserted patent, the plaintiff could not bring a successful suit. The Federal Circuit did not say that a pre-filing investigation into patent validity is necessary in every case. Rather, it said that if the plaintiff develops knowledge of potentially invalidating prior art before filing, it must then evaluate the situation before bringing suit, and a failure to do so make the case exceptional such that fees can be awarded. The takeaway here is that patent owners thinking about suing cannot bury their heads in the sand when it comes of awareness of prior art. If there is an awareness of potentially applicable prior art, it should be analyzed.