Infringement

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For years, copyright owners have faced uncertainty as to when they could file a copyright infringement claim. Title 17 U.S.C. § 411(a) states that “no civil action for infringement of the copyright in any United States work shall be instituted until … registration of the copyright claim has been made in accordance with this title.” Courts had been split as to whether this required an issued registration before suit (the “registration approach”), or whether just the act of filing a copyright application satisfied this requirement (the “application approach”).

Last week, the U.S. Supreme Court resolved that question, holding that “registration” occurs, and a copyright claimant may commence an infringement suit, when the Copyright Office registers a copyright. This can mean long delays before filing, as the current administrative backlog at the Copyright Office has resulted in processing times of seven months on average. It also has encouraged many current litigants to withdraw pending lawsuits that had been based on the application approach precedent – including for example the wave of copyright infringement lawsuits filed against the video games Fortnite and NBA2K over dances included in those games.

The most important takeaway from this decision is for copyright owners to register their works early. Expedited application processing is still available through the “special handling” process, but only in certain situations and at a cost of $800 per claim. The Supreme Court also made a point to highlight that the “registration approach” would not deprive owners of substantive rights, because they can still recover damages for infringement that occurred both before and after registration. Early registration can avoid both of these issues and ensure a copyright owner’s ability to promptly bring litigation when the need arises.

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.

In 2015, a California jury decided that the mega-hit “Blurred Lines” by Pharrell Williams, Robin Thicke, and Clifford Harris (a/k/a “T.I.”) infringed the copyright in Marvin Gaye’s song, “Got To Give It Up.”  The jury awarded Gaye’s heirs $7.4 million.  Last week, a panel of the federal court of appeals in San Francisco affirmed the judgment in 2-1 split decision.  Williams v. Gaye, No. 15-56880 (9th Cir. March 21, 2018).

The appeals court decision confirmed what this blog argued just after the 2015 jury verdict:  that the most significant part of the “Blurred Lines” case is that a jury – not a judge – made the call.

That is somewhat unusual in a copyright case, especially a case involving music.  In copyright law, the question whether one work infringes another often turns on whether the allegedly infringing work is “substantially similar” to the previous work.  Courts often view the “substantial similarity” question as so clear or one-sided that there is no need for a jury to decide the issue (for our lawyer-readers:  i.e., summary judgment).  The main question in Williams v. Gaye was whether “Blurred Lines” was “substantially similar” to “Got To Give It Up.”  Unusually, the trial judge held a jury trial where the jury was presented with audio and expert testimony concerning the purported similarities/dissimilarities between the two works.  The jury ruled for the Gayes.

Courts hesitate to overturn jury verdicts, and this case proved no exception: the appeals court deferred to the jury’s findings without stating its own opinion whether “Blurred Lines” actually infringed Gaye’s composition, while providing little new legal guidance on the question of infringement of musical works.

This decision may not be the end of the case.  A strident dissenting opinion believed the case never should have gone to a jury and that the Gayes’ claim should have been rejected as a legal matter, and it is possible the entire court of appeals or the Supreme Court could review the case.  Failing further review, however, the “Blurred Lines” case heralds more jury decision-making in these “blurry” disputes.

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.