The Roberts Court Gets Intellectual (Property)

The Roberts Court Gets Intellectual (Property)

This year brought an unusually active U.S. Supreme Court term for the law of intellectual property. The court heard ten IP cases—six patent, two copyright, and two Lanham Act—more than in any term since 1946.

Couple this historic high with the lowest number of merits cases decided in the same period—75 cases—and the proportion of the court’s docket devoted to IP skyrocketed beyond any previous peak.

This graph tells the story:

Courtesy of Winston & Strawn.

The subject matter of these cases varied widely, and the court did not simply take up issues on the periphery of substantive patent, copyright, and trademark law. It weighed in on core IP topics ranging from what makes a patent’s claims “indefinite” to who can invoke the Lanham Act to challenge FDA-regulated food and beverage labels as deceptive.

The court was closer to uniform, however, in ruling unanimously and in reversing the lower courts. Eight of its ten decisions were unanimous, and just two were affirmances. Moreover, all six patent decisions were unanimous, and all but one reversed the U.S. Court of Appeals for the Federal Circuit.

What follows is a summary of the Supreme Court’s IP decisions. (Editor’s Note: Because of a client conflict, this summary does not include the copyright case American Broadcasting Cos. Inc. v. Aereo.)

Patent Law—Nautilus v. Biosig Instruments

In Nautilus v. Biosig Instruments, the court addressed the law’s requirement that patents “particularly point out and distinctly claim” the claimed invention. Moreover, the court’s decision revamped the test governing whether patents are invalid for “indefiniteness.”

Nautilus involved a patent on a heart-rate monitor used on the handles of exercise machines. To distinguish between “true” signals from the heart and “false” signals from body movements, the invention used electrodes arranged “in a spaced relationship.” And in defending itself against Biosig’s claim of infringement, Nautilus argued that the term “spaced relationship” was indefinite.

The district court agreed, but the Federal Circuit reversed. Holding that a claim is not “indefinite” unless it is “insolubly ambiguous,” the court reasoned that the subject patent’s claim was “amenable to construction” because a skilled artisan could find the proper “spaced relationship” by “adjusting design variables” to eliminate false signals.

The Supreme Court reversed, unanimously rejecting the Federal Circuit’s standard in favor of a more rigorous test: The Patent Act “require[s] that a patent’s claims … inform those skilled in the art about the scope of the invention with reasonable certainty.” And while “absolute precision is unattainable,” a “patent must be precise enough to afford clear notice of what is claimed.” It may not create a “zone of uncertainty” that fails to “appris[e] the public of what is still open to them” without “risk of infringement claims.”

Nautilus effects a basic change in the law of indefiniteness. And recent district court decisions—including several that revisit prior claim construction rulings—confirm that it is now easier to raise, and win, claims of indefiniteness.

Medtronic, Inc. v. Mirowski Family Ventures, LLC

Medtronic v. Mirowski presented a question at the intersection of civil procedure and patent law: In declaratory judgment proceedings involving allegations of infringement, which party bears the burden of proof?

The Federal Circuit had ruled that, because the defendant brought the declaratory judgment action, it bore the burden of establishing noninfringement. But the Supreme Court unanimously reversed, holding that it makes no difference whether the infringement question arises in a declaratory judgment action or an ordinary infringement suit: The burden of proving infringement “remain[s] with the patentee.”

As Justice Stephen Breyer’s opinion for the court explained, the Declaratory Judgment Act is a procedural vehicle—it does not alter substantive rights, and the burden of proof is an issue of substantive patent law. Moreover, shifting the burden based on the “form of the action could create post-litigation uncertainty about the scope of the patent.” In theory, both parties could lose substantively identical cases where the only difference was who carried the burden. Such an infringement no-man’s land would undermine the core purpose of declaratory judgment suits—allowing parties to conclusively determine their rights.

Octane Fitness, LLC v. ICON Health & Fitness, Inc. and

Highmark Inc. v. Allcare Health Management System, Inc.

Octane Fitness v. ICON and Highmark v. Allcare pinned down two key aspects of the law governing the award of attorneys’ fees under Section 285 of the Patent Act.

In Octane, the court addressed what makes a case “exceptional”—the statutory standard for awarding fees. The Federal Circuit had limited fee awards to cases involving “clear and convincing” proof that there was “material inappropriate conduct” or that the case was both “objectively baseless” and “brought in subjective bad faith.” But in a unanimous opinion written by Justice Sonia Sotomayor, the court rejected that framework as “unduly rigid,” finding that “it impermissibly encumbers the statutory grant of discretion to district courts.”

The court’s ruling turned on the ordinary meaning of an “exceptional” case—one that “stands out from others” as to the “substantive strength of a party’s litigating position or the unreasonable manner in which the case was litigated.” Going forward, then, courts may award fees based on all the circumstances and under a preponderance standard—a lower bar than before.

Highmark v. Allcare, issued the same day, built on Octane and addressed the standard under which the Federal Circuit must review fee awards under Section 285. The Federal Circuit had reviewed such rulings de novo. But, drawing on precedents involving fee-shifting under Rule 11 and the Equal Access to Justice Act, the court held that fee awards in patent cases are governed by the same “abuse of discretion” standard that governs other “matters of discretion.”

Here too, there was no dissent. Together, Octane Fitness and Highmark may move fee awards in patent cases off of the Federal Circuit’s endangered species list.

Limelight Networks v. Akamai Technologies

In Limelight v. Akamai, the court asked whether a party may be liable for inducing patent infringement where no one has infringed directly. The court’s answer was a firm “no.”

The case involved Akamai’s method patent for delivering electronic data using a “content delivery network.” The method required that electronic content be designated for delivery by a process called “tagging.” While defendant Limelight carried out several steps of the patent, Limelight did not “tag” content—only its customers took that step.

The district court thus ruled for Limelight, vacating a $40 million verdict for Akamai, and a Federal Circuit panel affirmed. Sitting en banc, however, the full court reversed. It acknowledged that no one had infringed directly—since, under an earlier decision (Muniauction), doing so required that “a single party” either “perform every step of a claimed method” or “exercise[] ‘control or direction’ over the entire process.” Yet the court said a party could induce infringement by performing some steps of a method patent and encouraging others to perform the rest.

In a sharply worded opinion by Justice Samuel Alito Jr., the Supreme Court unanimously reversed. The court began from the undisputed premise that “liability for inducement must be predicated on direct infringement.” “One might think,” the court said, “that this simple truth is enough to dispose of this appeal.”

The court went on to explain that the Federal Circuit’s reasoning “fundamentally misunderstands what it means to infringe a method patent,” which “is not infringed unless all the [claimed] steps are carried out.” And holding a party “liable for inducing infringement that never came to pass,” the court continued, “would deprive § 271(b) of ascertainable standards” by permitting “inducement liability when fewer than all of a method’s steps have been performed.” This, in turn, “would require the courts to develop two parallel bodies of infringement law: one for liability for direct infringement, and one for liability for inducement.”

Going forward, then, there can be no induced infringement where performance of the patented steps is divided among two or more parties.

Alice Corporation Pty. Ltd. v. CLS Bank Int’l

In Alice Corp. v. CLS Bank, the court took up the requirements for patenting computer software—and tightened them.

Alice Corporation owned a patent on “a computer-implemented scheme for mitigating ‘settlement risk’”—the risk that another party to a financial transaction won’t hold up its end of the deal—“by using a third-party intermediary.” Alice’s patent allegedly covered, among other deals, sales of foreign currency. CLS Bank, which “operate[s] a global network that facilitates currency transactions,” said the patent improperly claimed an abstract idea. Alice responded that, although mitigating settlement risk by use of a trusted intermediary is itself an established idea, doing so with “[t]he computer itself [as] the intermediary” was patentable.

In a unanimous opinion by Justice Clarence Thomas, the court agreed with CLS Bank. Noting that “all inventions … embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas,” the court acknowledged the need to “tread carefully in construing this exclusionary principle lest it swallow all of patent law.” But “if a patent’s recitation of a computer amounts to a mere instruction to ‘implement[t]’ an abstract idea ‘on … a computer’”—or if the patent’s “system and media claims add nothing of substance to the underlying abstract idea”—it is “patent ineligible.” Otherwise, “an applicant could claim any principle of … [the] sciences by reciting a computer system configured to implement the relevant concept.”

CLS Bank built on the court’s decisions in Bilski v. Kappos, Mayo Collaborative Services v. Prometheus Labs., and Association for Molecular Pathology v. Myriad Genetics, and marked the fourth time since 2010 that the Supreme Court has invalidated patent claims based on judicial exceptions to patentability. The decision will make it harder to obtain and defend software patents, particularly where the patentee is taking an established technique and simply updating it by adding computerized techniques.

Copyright Law—Petrella v. Metro-Goldwyn-Mayer, Inc.

In Petrella v. MGM, the justices took up whether the Copyright Act’s three-year statute of limitations supplanted the equitable defense of laches. The court held that it did—as to claims for damages.

The dispute involved Raging Bull, a 1980 movie produced by MGM and starring Robert DeNiro, who won a Best Actor Oscar for his portrayal of boxing champion Jake LaMotta in the film. Eighteen years after renewing her deceased father’s copyright to a screenplay on which the movie was allegedly based, Petrella sued MGM for copyright infringement. MGM moved to dismiss, citing the equitable doctrine of laches. Petrella responded that, due to ongoing infringement, her claims were within the Copyright Act’s three-year limitations period.

The Ninth Circuit sided with MGM, but the Supreme Court reversed (6-3). As Justice Ruth Bader Ginsburg’s majority opinion explained, laches serves a “gap-filling” function, and its “principal application” is in “exceptional circumstances” to bar equitable relief. But as to legal relief within the Copyright Act’s limitations period, “courts are not at liberty to jettison Congress’ judgment on the timeliness of the suit.”

The court found “nothing untoward” in a copyright owner’s decision to await the impact of infringement before suing. Waiting allows the owner to determine if litigation will be “worth the candle.” But the court emphasized that estoppel may still bar all remedies if a copyright owner intentionally misleads a potential infringer to the infringer’s detriment. And courts in future cases will have to determine whether Petrella’s reasoning extends to other areas of law, as the court confined its holding to the Copyright Act.

Lanham ActLexmark Int’l v. Static Control Components

In Lexmark Int’l v. Static Control Components, the court clarified who can sue for false advertising under Section 43 of the Lanham Act.

The case arose when Static Control, which makes components to refurbish empty toner cartridges, accused Lexmark, which makes printers and new cartridges, of misleading consumers into believing that purchasing Static Control’s products was illegal—causing it to lose sales and harming its reputation. The district court dismissed the claim, reasoning that Static Control lacked “prudential standing.” The Sixth Circuit reversed, holding that a party has standing under Section 43 if it has “a reasonable interest to be protected against the false advertising” and “a reasonable basis for believing that the interest is likely to be damaged by [that] advertising.”

The Supreme Court unanimously affirmed, but on different grounds. To have standing, Justice Antonin Scalia’s opinion for the court explained, a plaintiff must simply allege that it falls within the “zone of interests” of Section 43 and that the defendant’s conduct proximately caused harm “to a commercial interest in reputation or sales.” In other words, a plaintiff must ordinarily allege an “economic or reputational injury flowing directly” from the defendant’s deceptive advertising, which “causes [] consumers to withhold trade from the plaintiff.” This may include not only direct competitors, but other parties, though aggrieved consumers will not typically have standing to sue.

While simplifying the standing test, Static Control did not clarify whether its new two-pronged test applies only to false advertising claims, or rather to all suits under Section 43(a), including traditional claims of trademark infringement. That issue remains for another day.

POM Wonderful LLC v. The Coca-Cola Company

In POM Wonderful v. Coca Cola, the court held that competitors in the food and beverage industry may use the Lanham Act to challenge FDA-regulated labels as deceptive—even when the labels appear consistent with the requirements Food, Drug & Cosmetic Act (FDCA). In so doing, the court endorsed a role for private enforcement actions and rejected the contention that such suits would impermissibly “undermine FDA authority.”

POM Wonderful, which makes pomegranate juice, brought a Lanham Act suit alleging that the labels on Coca-Cola’s Minute Maid brand misled consumers into believing that its “pomegranate blueberry” flavored juice blend consisted principally of pomegranate and blueberries, when in fact it contained 99.4% apple and grape juices. The lower courts found POM’s suit would “risk undercutting the FDA’s expert judgment and authority” in this heavily regulated area—and thus was precluded by the FDCA.

In an opinion by Justice Anthony Kennedy, the court unanimously reversed, holding that “food and beverage labels regulated by the FDCA are not, under the terms of either statute, off limits from Lanham Act claims.” As the court explained, the two laws “complement” each other. And by giving private parties an incentive to police one another, the Lanham Act offers “a means to implement a uniform policy to prohibit unfair competition.”

The court limited its holding to food and beverage labels, however, stressing that drug labels require the FDA’s express, prior approval before use. The court thus left for another day whether the FDCA and its implementing regulations displaces Lanham Act suits challenging drug labels.

Looking Forward

Only the court itself knows for certain whether this term’s ramped-up interest in IP is fad or fixture. But three of next term’s 39 already-docketed cases—one patent and two trademark disputes—involve IP.

Teva Pharmaceuticals USA v. Sandoz asks whether district courts’ factual findings in patent claim construction should be reviewed de novo or for clear error. Hana Financial v. Hana Bank asks whether judges or juries should determine if use of an older trademark may be tacked to a newer one. In B&B Hardware, Inc. v. Hargis Industries, Inc., the court confronts two issues—(1) whether the Trademark Trial and Appeal Board’s finding on the likelihood of confusion precludes a party from relitigating that issue in infringement litigation where likelihood of confusion is at issue; and (2) whether, if there is no issue preclusion, district courts are required to defer to the Board’s findings of likelihood of confusion absent strong evidence rebutting it?

Having taken three (of 39) cases involving IP, the court is already ahead of its pace for deciding IP cases at this point last year, when it had granted just two IP cases. And the statistics set out at the beginning of this article suggest that the court is at least trending toward a docket with more IP cases—which is not surprising given the importance of IP in our modern economy. But even if this term’s historic IP docket was more outlier than trend, the aftershocks of the court’s decisions should be felt for years to come.

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