Trolls, Smartphones, and Red Heels

Lisa Shuchman

Corporate Counsel

02-01-2013

Intellectual property kept its place in the public spotlight in 2012, with patent trolls running rampant and smartphone wars that seemed to never end.

These big stories, with their technology-based patents in dispute, naturally dominated the headlines. But battles over gadgets weren't the only actions in court. Companies skirmished over biomedical and life sciences patents, too. And other court battles featured copyrights and the definition of what constitutes "fair use" in an age of ever-changing technology.

The U.S. Supreme Court took an active interest in IP in 2012, issuing some important decisions and granting cert to several more. This was also the year in which the U.S. patent system underwent the second phase of the first major patent reform in half a century.

With IP growing in prominence and importance both to businesses and to the general public, it's difficult to single out the most important cases of 2012. But here, we present our view of the top IP litigation wins of the past year.

Prometheus Bound

The U.S. Supreme Court's decision in Mayo Collaborative Services v. Prometheus Laboratories Inc. sent shock waves through IP circles. In a unanimous ruling, the court struck down two patents that Prometheus, a unit of Nestle SA, had sought to enforce against Mayo Laboratories, concluding that the patent claims were directed to underlying laws of nature and therefore not eligible for patent protection.

The patents in question concerned a method for monitoring a patient's blood to determine the best drug dosage. Prometheus markets a diagnostic test that uses the technology covered by the two patents to help doctors monitor patients' with certain gastrointestinal disorders and autoimmune illnesses. A unit of the Mayo Clinic in Rochester, Minnesota, argued that the method used to determine dosage was a natural phenomenon and therefore not patentable. The justices agreed.

Many patent experts lamented the decision, saying it would lead to the demise of diagnostic-method patents and affect the profitability of personalized medicine. The patents' opponents, meanwhile, had argued that allowing the patent to stand would have hampered medical research.

Legal reverberations from Prometheus were almost immediate. Within a week of the decision, the Supreme Court sent a separate case concerning the patentability of human genes— The Association of Molecular Pathology v. Myriad Genetics Inc.— back to the Federal Circuit Court of Appeals for reevaluation in light of its decision in Prometheus . But in a move that illustrates the often-conflicting views of the Federal Circuit and the Supreme Court, the Federal Circuit once again ruled in the remanded case that an isolated piece of human genetic code can be patented.

The Myriad case concerns the Utah-based company's patents on genes that correlate with increased risk of hereditary breast and ovarian cancer. Scientists and doctors challenged the patents, saying they impede their ability to conduct research and help patients. The American Medical Association, AARP, and women's health groups all filed amicus briefs supporting the plaintiffs.

Now the Myriad case is back in the hands of the Supreme Court, which in December announced it would hear the case. The legal question the justices will answer is whether isolated genes are "products of nature" that may not be patented or "human-made inventions" eligible for patent protection.

The Endless Proxy War

Apple Inc. v. Samsung Electronics Co. has become synonymous with the seemingly endless smartphone wars dominating the patent litigation landscape. It was the first of a series of lawsuits being fought worldwide between Apple and Samsung regarding the applications and design of smartphones and tablets—a fight many believe boils down to a proxy war between Apple and Google, creator of the popular Android operating system.

In this highly publicized case, which The Wall Street Journal dubbed "The Patent Trial of the Century," Apple accused Samsung of infringing its utility and design patents, and Samsung countersued, claiming Apple infringed its patents. In August, after a three-week trial and three days of deliberations in federal district court in San Jose, California, the jury came back with its verdict. It found that Samsung's mobile devices infringed six of Apple's patents, and Apple's devices did not infringe any of Samsung's patents. It awarded Apple $1.05 billion in damages.

The case is far from over, however. Samsung has asked the San Jose judge to grant a new trial on various grounds. It also appealed the decision to the Federal Circuit requesting that Apple's victory be thrown out. Apple, meanwhile, has asked the judge in San Jose for supplemental damages of more than $500 million. Complicating matters, two months after the nine-person jury reached its verdict, the Patent and Trademark Office tentatively invalidated one of the patents the jury said Samsung's devices infringed.

In the high-stakes smartphone wars, this case is only the beginning: In patent battles filed in other countries, Samsung and Apple have each had their share of victories and defeats. They are now embroiled in dozens of lawsuits worldwide.

Seed Money

Big financial wins weren't limited to smartphone wars. A federal jury in St. Louis awarded Monsanto Company $1 billion in a patent infringement trial against rival E.I. du Pont de Nemours and Company. The verdict, reached by an eight-person jury after a four-week trial in July, was one of the largest jury awards in a patent trial in U.S. history. (The verdict in Apple v. Samsung , reached about a month later, was larger.)

The jury found that DuPont willfully infringed Monsanto's patent for herbicide-resistant seeds. The seeds, called "Roundup Ready," grow into plants that can withstand exposure to glyphosate, the active ingredient in Monsanto's popular Roundup weed killer—a major plus for farmers who need to kill weeds but do not want to damage their crops.

In the lawsuit, Monsanto Co. v. E.I. du Pont de Nemours & Co. , Monsanto alleged that DuPont infringed when it made its own glyphosate-tolerant soybean seeds by combining the Roundup Ready trait with a similar DuPont technology known as GAT. Wilmington-based DuPont had considered developing an alternative seed using the GAT technology but decided to combine that gene with the Roundup Ready gene, saying the combination, which it called the Optimum GAT seed, worked better. Eventually, the company abandoned plans for the Optimum GAT seed and never sold it.

While many seed companies, including DuPont, license Monsanto's technology, Monsanto said DuPont's license did not allow DuPont to combine the Roundup Ready trait with another trait for glyphosate tolerance. In a pretrial ruling, E. Richard Webber, the judge presiding over the case, ruled that DuPont could not combine the two. At trial, therefore, DuPont was left to argue that the Roundup Ready patent was invalid and unenforceable. It alleged that Monsanto had withheld information from the PTO that might have prevented issuance of the patent.

DuPont is appealing the decision and the size of the damages award, which it says is unjustified, given that it never sold the seeds. It also has filed a countersuit, in which it alleges that Monsanto wielded its patents in a way that violates antitrust laws. That case is scheduled to go to trial in 2013.

Talk to the Face

Apple Inc. may have prevailed in the California Samsung case, but it doesn't always win. In November a company called VirnetX Inc. won a $368.2 million judgment against Apple after a federal jury in Tyler, Texas, found that Apple's FaceTime function infringed four VirnetX patents.

The VirnetX patents in question in this case, VirnetX Inc. v. Apple Inc. , cover a domain-name service used to set up virtual private networks. This VPN connectivity is used in Apple's FaceTime video-calling feature, the company alleged. Apple claimed it used a different technology than that covered by the VirnetX patents.

VirnetX, which is based in Zephyr Cove, Nevada, won a $200 million settlement from Microsoft Corp. in 2010 over the same technology and has claims pending against Cisco Systems Inc., Avaya Inc., and Siemens Enterprise Communications GmbH. It also has a separate patent case pending against Apple at the U.S. International Trade Commission in Washington.

Although VirnetX had sought $708 million in damages in this case, the $368 million award was enough to embolden the company. A few days after the verdict, VirnetX filed another lawsuit against Apple using the same patents—this time claiming the iPhone 5, iPad 3, iPad mini, and all Apple computers running Mountain Lion, are violating the four patents. These latest IOS devices were not included in the previous lawsuit.

Trolls Do Win . . .

The little guy prevailed in another highly publicized case, too.

In this lawsuit, a federal jury in Norfolk, Virginia, awarded Vringo Inc., a small mobile technology company that owns a few patents, about $30 million in damages, plus future royalties, after hearing a patent suit the company brought against Google Inc., AOL Inc., and a handful of other technology companies. Vringo alleged the companies were infringing two of its patents that are used to select and position advertising on Internet-search results.

Vringo, which had bought the two patents it asserted to help boost its video ring-tone business, is these days perceived primarily as a patent assertion entity (or disparaging as a patent troll), although it does still have a ring-tone business. The asserted patents and others it bought had originated at one of the early search engine companies—Lycos. The inventor behind them, Ken Lang, cofounded Lycos and was its chief technology officer. He is now Vringo's CTO. Vringo set up a company it called I/P Engine Inc. (a.k.a. Innovate/Protect) to acquire the patents. Then it filed its suit against Google, AOL, and others.

To be sure, the $30 million damages award was considerably less than the $493 million Vringo sought during trial. But AOL had earlier settled a portion of the suit for another $100,000, and after analyzing the verdict, the general consensus was that the company had indeed prevailed.

The Virginia jury found that Vringo's patents were valid, opening up the possibility of future lawsuits. In addition, the jury ruled that Google and each of its codefendants had infringed all 14 separate patent claims asserted by Vringo. More importantly, the jury determined that Vringo's royalty damages should be based on a running royalty, and adopted the 3.5 percent running royalty rate the company sought. Estimates put the value of those future royalties at between $500 million and $600 million until the patents expire in 2016.

. . . But Not All the Time

Amazon Inc., Yahoo! Inc., Google Inc., Adobe Systems, and a slew of other technology companies claimed a big victory in February when a federal jury in the Eastern District of Texas found that patent assertion entity Eolas Technologies Inc. and the University of California did not, as they had presumed, rule the Web.

Eolas, founded by former University of California biologist Michael Doyle, and the University of California, which owned the patents in question, went after the companies—a veritable "who's who" of Internet giants—for almost $1 billion, alleging they infringed their patents. They claimed their patents covered virtually every way of interacting with "objects" on websites, so that anytime someone opened mail in Yahoo, or clicked on an interactive ad, or used a product previewer to look at products on Amazon.com, for example, its patents were infringed. The inventor of the World Wide Web, Tim Berners-Lee, and other technology luminaries, flew down to East Texas to testify for the defense.

The victory was all the more significant, because the Eolas patents had been reexamined and reconfirmed by the Patent and Trademark Office, because the patents had been broadly licensed to sophisticated tech companies, and because Eolas previously had litigated against Microsoft and secured a $500 million verdict (which later was set aside on appeal).

Bringin' it All Back Home

The U.S. Supreme Court weighed in on a copyright case early in the year, with its decision in Golan v. Holder . That case, originally filed in 2001, challenged the constitutionality of a law that sought to equalize copyright protection on an international basis. In the United States, the law, which enacted a treaty called the Uruguay Round Agreements Act, restored copyright status to foreign works previously in the public domain. The 1994 law affected possibly millions of works published overseas mainly between 1923 and 1989 that had earlier not been eligible for copyright protection under American law. These included films by Alfred Hitchcock, books by C.S. Lewis and Virginia Woolf, symphonies by Prokofiev and Stravinsky, and paintings by Picasso.

The plaintiffs, who included teachers, orchestra conductors, and film archivists, said they relied on the free availability of these foreign works and argued that the law violated the copyright clause of the Constitution and their First Amendment rights.

But in a 6-to-2 decision (Justice Kagan did not participate in the case), the court rejected arguments based on the First Amendment and the Constitution's copyright clause. This means works that were once in the public domain are now protected by copyright, requiring someone wishing to use them to seek permission from the copyright holder.

Seeing Red

On the trademark front, no one ended up seeing red when the U.S. Court of Appeals for the Second Circuit issued its decision in Christian Louboutin SA v. Yves Saint Laurent America Inc. Both parties walked away claiming a win.

The court held that Christian Louboutin, maker of the famous high heels with the Chinese Red soles, had a valid and enforceable trademark for the use of those red outsoles. But the trademark protection would only hold when the rest of the shoe was a contrasting color, because this look is what gave the brand its "distinctiveness," the court said.

The ruling stemmed from a decision in which a federal district court judge in Manhattan refused to grant a preliminary injunction against Yves Saint Laurent for selling red high-heeled shoes that Louboutin claimed infringed its trademarked design. The YSL shoes at issue were entirely red, from the insole to the outsole, to the heel and the "upper" part of the shoe. U.S. District Judge Victor Marrero acknowledged the popularity of the Louboutin shoe but said under the law, a single color can never serve as a trademark in the fashion industry.

Not so, the appeals court said. It found that the district court judge misinterpreted the "doctrine of aesthetic functionality" and ruled that the Louboutin brand could trademark its red sole. It also ruled, however, that Yves Saint Laurent would not be infringing if it sold its monochrome red shoes, which allowed both sides to walk away kicking up their red high heels.