The value of technology-driven startup companies is often heavily dependent on a company’s ownership of intellectual property and the value associated with that intellectual property.  Blockchains can serve an important role in proving ownership, usage, and ultimately the value of intellectual property.

Blockchains are a revolutionary technology that use a distributed network of computers (nodes) solving complex cryptography to securely record data and transactions on a ledger.  The ledger can be monitored in real time by all nodes in the network, and can only be edited with the combined efforts of at least 51% of the nodes in the network.  This makes the information stored on blockchains with a substantial number of independent (e.g., peer-to-peer) nodes highly reliable and transparent.  Blockchains will underlay the next generation of data storage and management, and will affect intellectual property in three important ways:

  1. Proving Ownership

Once copyrightable, trademarkable, or patentable work is added to a blockchain, the blockchain will forever provide an auditable record of ownership of the underlying intellectual property – down to the original party that added the intellectual property to the blockchain.  This will facilitate audits of the rights to specific intellectual property, and reduce or entirely remove the need for associated insurance.

  1. Proving value

Blockchains may be programmed to record every time intellectual property is accessed for things such as trademark or patent applications.  They can also record every time intellectual property is accessed by a party other than the owner, which can provide an accurate record of use of the intellectual property that can be efficiently analyzed, assigned a value, and monetized.  This will streamline the ability to accurately value intellectual property in the context of funding rounds, or mergers and acquisitions.

  1. Smart Contracts

Blockchains may be programed to execute complex software and computer codes in a way that ensures every executed line of code is accurately recorded and auditable.  Agreements for intellectual property rights can be coded into and automatically executed by a blockchain.  For example, an agreement whereby one party licenses the rights to use a trademark to another party for monthly payments can be coded into a blockchain, and the blockchain will execute smart contracts to automatically release the appropriate amount of funds each month.  Additionally, the blockchain may monitor the use of the trademark, and automatically revoke the license or increase payments owed if misappropriation of the trademark is detected or the underlying agreement is otherwise violated.

Ultimately, startup companies with significant intellectual property will find blockchains integral in proving ownership and value of their intellectual property, and should consult professionals regarding recording their intellectual property on a blockchain.

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).

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.

Under United States law, the holder of a patent on a brand-name, FDA-approved drug can bring suit for patent infringement against a generic drug manufacturer even before the generic manufacturer brings the drug to market.  That right to sue is triggered by the generic manufacturer’s filing of the short-cut application to the FDA to sell the drug known as an Abbreviated New Drug Application, or “ANDA.”  On March 18, 2016, the Federal Circuit Court of Appeals held that a generic drug manufacturer’s intent to manufacture and market drugs in a particular state – even before they start selling there – is enough to sue the generic manufacturer in the federal court in that state.  The decision will go a long way in cementing “home field advantage” for branded drug companies that traditionally bring suit in their home state before the generic drug is ever actually manufactured or marketed there.

The decision came in the context of two separate actions brought in Delaware against generic drug manufacturer Mylan Pharmaceuticals Inc.  In both cases, the plaintiffs sought to halt Mylan’s efforts to manufacture and market allegedly infringing generic drugs described in Mylan’s ANDA’s filed with the FDA.  Mylan moved to dismiss both cases on the basis that Delaware could not exercise jurisdiction over Mylan because Mylan lacked sufficient “minimum contacts” with Delaware as required under the United States Constitution.  The Federal Circuit held that Mylan’s efforts to obtain FDA approval to manufacture and/or sell its generic drugs in Delaware, along with Mylan’s established distribution channels, satisfied the minimum-contacts standard.  Although fairness and undue burden should always be considered, generally speaking, the courts need not wait for a product to be manufactured or sold within a particular state before hearing a case in which the propriety of such future, potentially infringing conduct is considered.

It has become commonplace for branded drug companies to bring ANDA-related lawsuits in their home states, most commonly New Jersey and Delaware, with the generic manufacturer vigorously fighting to dismiss and/or remove the case to another state (such as the generic company’s state of incorporation) based on jurisdictional arguments.  Barring an appeal to the United States Supreme Court, the Federal Circuit’s decision should greatly reduce the number of such disputes, with the majority of cases remaining in New Jersey and Delaware, where the sheer volume of ANDA cases has resulted in a familiarity and expertise among the judiciary that remains largely unmatched throughout the country.