Intellectual Property

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The issue of intellectual property used within video games is in the news again. If you haven’t already heard, wildly popular video game Fortnite features a dance called “Swipe It” that is the center of a pending lawsuit. Brooklyn-based rapper 2 Milly is claiming he created the dance in 2015 and the game’s creators swiped it from him. 2 Milly, whose real name is Terrence Ferguson, filed the lawsuit in federal court in Los Angeles against Epic Games, the maker of Fortnite, alleging copyright infringement, right of publicity, and unfair competition claims.  Additionally, the lawsuit accuses Epic Games of appropriating several dances in Fortnite (“emotes”) without permission, including Alfonso Ribeiro’s “Carlton Dance” from “The Fresh Prince of Bel-Air” (renamed Fresh), Snoop Dogg’s 2004 dance from “Drop It Like It’s Hot” (retitled “Tidy”), and Donald Faison’s dance from the TV show “Scrubs,” (renamed “Dance Moves”).

2 Milly’s dance, dubbed the “Milly Rock,” consists of a left arm swing, a right arm swing, a circular motion of both arms, and simultaneous alternative hip swings – repeated over and over again.  But is it copyrightable?  To successfully state a copyright infringement claim and collect damages, 2 Milly will generally have to show that he owns a valid copyright to the dance and that Epic Games copied constituent elements of the dance that are original. There is also the question of whether Fortnite’s Swipe It dance infringes on 2 Milly’s brand as an artist. After all, 2 Milly became known and recognized for his Milly Rock dance and gained fame and popularity for it on a viral level. While the Fortnite avatars participating in the dances do not use 2 Milly’s name and do not appear to look like 2 Milly, there could be an argument that the use of Swipe It infringes on the rapper’s likeness and persona as an artist, who is particularly known for a particular dance. On top of all of this, Epic Games gains a commercial advantage by its use of Swipe It since gamers are prompted to pay approximately $9.50 to “unlock” the Swipe It emote on Fortnite.

While a dispute over the ownership of a dance move portrayed in a video game may seem novel, it is part of a long trend of similar past – and most likely future – disputes. Indeed, the 2 Milly lawsuit was followed shortly thereafter by a lawsuit from Alfonso Ribeiro. Copyright infringement lawsuits have been filed and some are currently pending from tattoo artists against video game studios over the reproduction of players’ tattoos in games. College athletes have battled over the unpaid use of their likenesses in college sports video games. Even Lindsay Lohan tried to sue Rockstar Games over the use of a character she says was based on her likeness.

As video games become more realistic and more intertwined with popular culture (and social media), the issues of intellectual property being used within other intellectual property will show their face again and again. This is especially true as game studios push virtual reality and as consumers expect to see their real worlds reproduced faithfully in video game format. Intellectual property licensing has been a part of the video game world for a long time. But as the content being incorporated into those games transitions from traditional properties like music and brands to more nebulous properties like dance moves and personal likenesses, creators on both sides of the divide need to be aware of their rights and need to be aware of where their properties are being used. In many circumstances, the law is unsettled or there are issues of first impression. Creators who sleep on their rights may miss out on potential revenue streams or may risk the loss of their rights to the public domain. Creators who utilize third-party works may face disruptions or event litigation as works they thought were in the public domain are claimed by their creators. Intellectual property licensing is here to stay in the video game world, and those who are aware of this fact and use it to their advantage are more likely to find themselves in the winner’s circle.

 

On October 23, 2018, the Patent Trial and Appeal Board (the “PTAB”) invalidated a design patent over the shape of an aircraft lavatory, because it had been on-sale prior to the filing date. U.S. Design Patent No. D764,031 S (“the ‘031 patent”) concerned the ornamental design of an aircraft lavatory where the walls were slightly recessed.

Whereas a utility patent covers the way an invention is used and how it works, a design patent solely protects the ornamental appearance of an invention.

The On-Sale Bar
Under 35 U.S.C.A. § 102(a)(1), an inventor is not entitled to a patent if the claimed invention was “described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention.” This is known as the “on-sale bar.” Here, the PTAB invalidated the ‘031 patent because the patent holder B/E Aerospace, Inc. (the “Patent Owner”) was selling the design prior to the filing date of the patent.

The patent challenger, C & D Zodiac, Inc., specifically pointed to a slide show presentation created by the Patent Owner, as evidence that the lavatory design was on sale and in public use prior to the date of filing. The Patent Owner’s presentation noted that it had received an $800 million contract to sell its lavatory design to Boeing. Photographic evidence showed the lavatory which was being sold to Boeing was virtually identical in design to the ‘031 patent.

Thus, the PTAB found, based on preponderance of the evidence, that the design claimed by the ‘031 patent was embodied by the product that the Patent Owner was already selling, prior to the filing date of the patent. Accordingly, the ‘031 patent was invalidated pursuant to the on-sale bar of 35 U.S.C.A. § 102(a)(1).

 

This article was originally published in the New York City Bar Association’s Aeronautics Committee Newsletter. The views expressed herein are those of the author and not necessarily of the City Bar.

The decision of the PTAB is available at: C&D Zodiac Inc. v. B/E Aerospace, Inc., No. PGR2017-00019, 2018 WL 5298631 (P.T.A.B. Oct. 23, 2018).

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.

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.