The U.S. Copyright Act permits, but does not require, registration of copyright-protected works with the U.S. Copyright Office.  Nevertheless, under the U.S. Copyright Act, registration by the Copyright Office (or ruling by the Copyright Office refusing to register) is, among other things, a prerequisite to bringing a copyright infringement action.  The federal courts have long disagreed about whether an application for registration satisfies the rule.  In other words, does the copyright owner have to wait for the Copyright Office to rule on the registration application before suing?

The United States Supreme Court has now agreed to hear a case that could resolve this long-disputed issue.  Fourth Estate Public Benefit Corporation v. Wall-Street.com, LLC., Case No. 17-571.  The appeal is from the Eleventh Circuit Court of Appeals, which held – recognizing the disagreement among the courts – that a registration application is insufficient to sue.

Whichever way the Supreme Court rules, early registration has distinct advantages for the copyright owner.  Advantages includes easier proofs at trial on liability and damages and the possibility of collecting attorneys’ fees for registration applications filed before infringement begins or, for published works, within three months of publication.

In the globalized economy, it can be hard for businesses to know what country’s laws apply.  The stakes can be especially high in patent cases, which often involve millions and even billions of dollars.

The United States Supreme Court gave patent owners a victory on one aspect of this controversy last week. In Westerngeco LLC v. Ion Geophysical Corp., Slip Op. No. 16-1011 (June 22, 2018), the Court held that an owner of a United States patent can be awarded lost profits that a competitor earns outside the United States.

Westerngeco owned U.S.  patents for a system used to survey the ocean floor.  A competitor, ION Geophysical Corp., began selling competing systems.  ION made some of those competing systems in the United States; they were found to infringe Westerngeco’s patents, and a trial jury awarded Westerngeco $12.5 million in royalties.  That award was not at issue before the Supreme Court.

What the Supreme Court did consider was the jury’s additional award of $93.4 million in lost profits for sales outside the U.S.  ION made some specialized components inside the U.S. and then shipped them overseas, where there were assembled into systems that would infringe Westerngeco’s U.S. patents if made or sold in the U.S.  ION sold these systems to foreign customers who, presumably, would otherwise have purchased from Westerngeco.

Patents are issued on a jurisdiction-by-jurisdiction basis.  Generally, an owner of a U.S. patent cannot recover for conduct in a foreign country, even if that conduct would infringe the U.S. patent.  In other words, conduct outside the U.S. generally cannot infringe a U.S. patent because the U.S. patent owner’s rights are limited to the U.S.  To recover for conduct in a foreign country, that conduct generally must infringe a valid patent issued in that foreign country and the patent owner must sue the infringing party in that foreign country.

The Patent Act, however, has a section that arguably gives U.S. patents “extraterritorial” effects in specific circumstances. One of those circumstances is when someone “especially make[s] or especially adapt[s]” components of a U.S.-patented invention “for use in the invention” knowing it will be used overseas in a way that would infringe the U.S. patent if made or used on U.S. soil.  35 U.S.C. § 271(f)(2).  Under this provision, a person who makes a specially designed component in the U.S. with the intention that it be used outside the U.S. in a way that would infringe the U.S. patent is an infringer of the U.S. patent.  That is what the jury found ION did.

The question before the Supreme Court was whether Westerngeco could recover lost profits that the infringer, ION, earned from sales abroad.  The Supreme Court held that it can.  The Court reasoned that the infringing activity – the manufacture of the specially-made components on U.S. soil – was a domestic, not a foreign, act.  The Court held the statute permitted recovery of lost overseas profits for that domestic act of infringement.  The Court therefore affirmed a $93.4 million foreign lost profits award that dwarfed the $12.5 million in royalties awarded for ION’s sales on U.S. soil.

The Supreme Court’s decision was arguably narrow.  It turned on a particular section of the Patent Act that seeks to redress clear efforts to evade U.S. patent law.  It remains to be seen whether the decision will be given a wider interpretation.  Nonetheless, as Westerngeco  itself shows, the dollar consequences of splitting otherwise infringing conduct among multiple jurisdictions can be substantial.

One little-publicized part of the new tax law (Tax Cuts and Jobs Act of 2017) may negatively affect the value of some patents and other intellectual property.  It does so by changing the tax treatment of income from sales of “patents, models and secret formulas or processes” from capital gains to ordinary income.

Prior to the amendment of Tax Code Section 1221(a)(3), income from sales of (1) “patents, models and secret formulas or processes,” (2) held by the IP creator, (3) for more than one year, was taxed at the capital gains rate.  This resulted in lower tax than the ordinary income tax rate that applied to other types of IP, such as copyrights, literary, musical, and artistic compositions.  Congress has now taken this tax advantage away.

The change in the law affects those that sell or license IP in the “primary market” only —in other words, the original creators of the IP.  It generally does not affect those that have paid to own the IP, including the IP creators’ employers.

There still remains an exception under Tax Code Section 1235 providing for lower tax on sales and licensing of all rights to patents, secret formulas and trade names (but only these types of IP).  For other types of IP, adjustments in sale prices and license royalties will need to compensate for the higher tax under the new law.

Our tax and IP groups can help you assess the new law’s impact on these valuable assets.

For a number of years, patent owners have had broad discretion to bring patent infringement lawsuits in court locations, or “venues,” based on perceived strategic advantages and their own convenience.  A federal district court in eastern Texas, for example, has – for several reasons – been one of the favorite venues for patent owners.  Another favored jurisdiction, perceived as “plaintiff-friendly,” is the District of Delaware.

Courts have upheld patent plaintiffs’ choices of venue even when the alleged infringer’s only connection to the chosen locale was that the defendant sold some allegedly infringing products there.  The inconvenience of litigating in a jurisdiction far from the defendants’ home, along with other perceived plaintiff-friendly aspects of certain courts, has often provided significant leverage to patent plaintiffs.

No longer.  In TC Heartland LLC v. Kraft Foods Group Brands, LLC, No. 16-341, the United States Supreme Court limited patent plaintiffs to filing suit where the defendant is incorporated or where the defendant both has a “regular and established place of business” and also infringed the patent at issue.

In TC Heartland, Kraft alleged that TC Heartland – a manufacturer of flavored drink mixes – infringed one of Kraft’s patents.  Kraft sued TC Heartland for patent infringement in federal court in Delaware.  TC Heartland was an Indiana company headquartered in Indiana.  Its only connection to Delaware was that it sold product there.

Under the patent venue statute, a patent infringement case may be brought in a district where the defendant “resides” or where the defendant has infringed the patent and has a “regular and established place of business.”  Kraft did not contend that TC Heartland had a regular and established place of business in the District of Delaware.  Instead, Kraft argued that “resides” means anywhere the defendant is subject to personal jurisdiction.  Kraft relied on the federal statute that provides the general rule for venue choices in non-patent cases.  In an 8-0 decision delivered by Justice Thomas, the Supreme Court rejected the argument that the general venue statute should be used to interpret the patent venue statute and held that the word “resides” in the patent venue statute, as applied to U.S. corporations, means only the state where they are incorporated.

After TC Heartland, patent holders will be limited to filing suit: (1) in the state of the alleged infringer’s incorporation; or (2) the state where the infringer committed an infringing act and has a regular, established place of business.  The decision removes one of the tools in a patent plaintiff’s shed to bring additional pressure against alleged infringers, and plaintiffs will have to refrain from filing lawsuit in state’s that have a tangential relationship to the defendant’s home jurisdictions.

In what some perceive as a major shift from decades of precedent, the United States Supreme Court held last week that laches – unreasonable delay – is no longer a valid defense against a claim for patent infringement so long as the patent owner brings suit  within the 6-year look-back limitation period prescribed in 35 U.S.C. § 286.

In SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC, SCA, held a patent concerning the manufacture and sale of certain adult incontinence products.  In October 2003, SCA sent a letter to First Quality asserting that First Quality was infringing SCA’s patent rights.  In response, First Quality maintained that the patent at issue was invalid and could not support an infringement claim.  SCA took no further action until July 2004 when, without notifying First Quality, asked the Patent and Trademark Office (PTO) to initiate a reexamination proceeding to determine whether the relevant patent was valid in light of certain pre-existing patents.  Three years later, in March 2007, the PTO issued a certificate confirming the validity of the relevant patent.

Over three years later, in August 2010, SCA filed a lawsuit for patent infringement against First Quality.  First Quality moved for summary judgment based on laches and equitable estoppel, and the District Court granted the motion on both grounds.  SCA appealed to the Federal Circuit, which affirmed the District Court’s holding that laches can be asserted to defeat a claim for damages incurred within the 6-year period set out in the patent statute.

On appeal, the Supreme Court reversed, in part, basing its decision on the plain language of the statute, which it found evinced a judgment by Congress that a patentee may recover damages for any infringement committed within six years of the filing of the claim.  The Court went on to find that it “would be exceedingly unusual, if not unprecedented, if Congress chose to include in the Patent Act both a statute of limitations for damages and a laches provision applicable to a damages claim.”  Thus, the Court held, that the doctrine of laches cannot bar an otherwise timely claim for damages under the patent statute.  The Supreme Court did note, however, that the doctrine of equitable estoppel can still provide protection against some of the problems that may arise when patentees induce potential targets of infringement suits to invest in the production of arguable infringing products.

In view of this decision, parties accused of patent infringement should be cognizant that they are potentially liable for six (6) years from the time of alleged infringement, regardless of how diligent the patent owner is in pursuing its claim.