After A Tough 2012, IP Owners In US Face An Uncertain 2013

Intellectual property owners in the United States may be happy to see the end of 2012. Among the notable setbacks they suffered last year: Congress refused to expand remedies against online infringement, the Supreme Court raised the bar for patentable inventions, and lower courts repeatedly denied injunctions against patent infringement. It is unclear, however, if IP owners will fare better in 2013.

2012 seemed to begin well for IP owners. Congress was moving swiftly to enact a law giving copyright owners powerful new remedies against websites that host infringing content. At the 11th hour, however, a campaign by online civil liberties groups and large internet firms created a huge public outcry against the SOPA/PIPA bills. Congress abandoned the controversial legislation in late January.

In March, the Supreme Court narrowed the scope of patentable subject matter. The ruling in Mayo Collaborative Services v. Prometheus Labs. [pdf] made it harder to patent methods of medical diagnosis or treatment, and put many such existing patents under a cloud.

As the year progressed, lower courts continued making it harder and harder for patentees to stop infringements. Prominent jurist Richard Posner, for instance, held in June that injunctions can’t ordinarily be used to stop infringements of standards-essential patents (SEPs), if the patentees previously promised to licence these patents on a reasonable and non-discriminatory (RAND) basis.

In December, Federal District Court Judge Lucy Koh refused to grant Apple an injunction against Samsung, despite a finding that Samsung had wilfully committed numerous infringements. Because there was no evidence that these infringements drove consumers to buy the infringing smartphones, Judge Koh held an injunction would be inappropriate. This standard – which other courts have espoused – may make it virtually impossible for patentees to stop sales of infringing IT products, where the infringements are almost always a tiny part of an extremely complex product.

The march against patent injunctions appears likely to continue in 2013. The International Trade Commision (ITC), a US administrative agency that forbids the import of infringing products, is contemplating a significant change in its enforcement behavior: routinely allowing the import of products that infringe RAND-encumbered SEPs. The Justice Department and the US Patent and Trademark Office (USPTO) are encouraging this change. They issued a joint statement [pdf] on 8 January that cautioned against granting injunctive-type relief for infringements of RAND-encumbered SEPs and said such relief should be available only in unusual circumstances, such as when an infringer has refused to negotiate in good faith for a patent licence. This position is similar to Judge Posner’s. And if it is adopted by the ITC and the courts, it will defang a fair amount of the ongoing smartphone wars; companies (such as Google) could no longer threaten to pull rivals’ products off the shelves simply because those products infringe RAND-encumbered SEPs.

Another familiar IP issue will be prominent in 2013: what are the limits of patent-eligible subject matter? One aspect of that question – are isolated human genes patent-eligible – will be addressed by the Supreme Court in Association for Molecular Pathology v. Myriad Genetics. Most experts predict the high court will reverse the Federal Circuit and hold that at least some isolated human genes are unpatentable “products of nature.” Depending on the scope of the ruling, tens of thousands of existing gene-related patents could be in trouble.

This year could also bring a new US position on the patenting of software. For several decades, the nation’s courts and the USPTO have taken an expansive view of when software can be patented. Recently, however, a growing chorus of US academics and business leaders has argued that much software should not receive patent protection. This argument now seems to be persuading the US government to act. In February, the USPTO will hold two public roundtables on reining in certain software patents, with the public invited to offer other software patent issues for future discussions. And in the closely-watched case of CLS Bank Int’l v. Alice Corp. [pdf], the full Federal Circuit will take a new look at what test to use in determining if a computer-implemented invention is a patent-ineligible “abstract idea.” This case has the potential to drastically curtail the patent-eligibility of software.

Exhausting Cases

Two major cases pending before the US Supreme Court raise a third familiar issue: When are IP rights exhausted?

US law holds that when a patent owner sells a copy of its patented product, the patent owner exhausts its rights in that copy. The buyer is free to resell or otherwise use the copy without the patentee’s consent. But does this rule of patent exhaustion apply to patented seeds and other self-replicating technologies? That’s what the Supreme Court will decide in Bowman v. Monsanto Co.

Vernon Bowman is a farmer who purchased some of Monsanto’s patented genetically-modified soybean seeds. He planted the seeds, harvested the resulting crop, then used seeds from his crop to plant a second generation of genetically-modified soybean plants. Monsanto asserts that Bowman infringed the company’s patents by planting the second generation of soybeans. Bowman asserts that once he purchased the seeds, Monsanto’s patent rights in the seeds was exhausted, so he was free to use those seeds to produce future generations of seeds. The Supreme Court is scheduled to hear oral argument in this case on 19 February.

US copyright law, like its patent law, holds that an IP owner’s rights in an particular item end once the item is lawfully sold. But does exhaustion ever apply to US copyrighted works that are manufactured outside the US (and subsequently imported into the US)? That’s what the US Supreme Court will decide in Kirtsaeng v. John Wiley & Sons, Inc.

The US Copyright Act states that copyright exhaustion applies only to copies “lawfully made under” the statute. The issue in Kirtsaeng: Can a copy manufactured outside the US nevertheless be “made under” the US copyright statute? If such foreign copies are not “made under” the statute, the US copyrights in these works can’t be exhausted. US copyright owners could import these foreign copies into the US and use copyright to restrict how they are used by purchasers (and subsequent repurchasers). This could produce dire consequences for many sectors of the US economy, including second-hand book sellers, used car dealers, and museums. On the other hand, if the Supreme Court holds that foreign-manufactured copies are “made under” the US copyright statute, this could have harmful consequences for many film, music and other content companies.

The Supreme Court heard oral argument in Kirtsaeng back on 29 October. A decision is expected before the end of the June, when the court’s term concludes.

Just possibly, by the time 2013 ends, US IP owners may think of 2012 as the good old days.