US IP Law – Big Developments On The Horizon In 2019

The US started 2019 with a bang. Its Supreme Court has just announced a major patent decision, and more big developments could arrive in the coming months. Here are some of the top issues to watch this year.

Patent law: When an invention is sold privately and the purchaser is obligated to keep the invention secret, does this sale count as “prior art” that would prevent subsequent patenting of the invention? On 22 January, the US Supreme Court answered this question in Helsinn Healthcare v. Teva Pharmaceuticals USA [pdf]. The court ruled that such a private sale is indeed prior art that prevents later patenting of the invention.

The ruling avoids a major change in the patent system. Had the court ruled that private sales are not prior art, the “decision might have encouraged pre-patent commercialization,” said Prof. Dmitry Karshtedt of George Washington University Law School. That, in turn, would have impaired one of the goals of the patent system. “The patent system encourages disclosure as early as possible,” said Karshtedt, so that others can learn from the invention and create new technological improvements.

Copyright Law: Can embedding an image on a web page constitute infringement? According to one federal district court, the answer is “yes.” The Southern District of New York ruled last year, in Goldman v Breitbart News Network [pdf], that web pages can infringe simply by embedding a copyrighted image without authorization.

That ruling, however, conflicts with the 9th Circuit’s interpretation of the Copyright Act, which holds that a defendant’s web page is displaying an image only if a copy of the image is stored on the defendant’s servers. If the defendant’s page merely links to the image, the image itself doesn’t appear on the page, so there’s no infringement.

But embedding is different than merely linking, the SDNY court found. Linking does not directly display content; it merely allows users to click through to another web page where the content resides. Embedding directly displays content from the other site where the content resides.

The district court’s ruling in Goldman threatens to undermine the internet as we know it, according to some experts. The decision is “hugely important, because the basic assumption on the internet is that so long as it is not on my server, I can do this. Viral memes and many other online communications depend on the ability of people to forward content by doing things like embedding,” said Prof. Tyler T. Ochoa of Santa Clara Law School.

The district court is unlikely to have the last word on this issue. Should the defendants be found guilty of infringement at trial, there will almost certainly be an appeal to the Second Circuit. And if there is a circuit split, the case could even reach the Supreme Court.

Trademark law: Does the statutory ban on the registration of “immoral” or “scandalous” marks violate the First Amendment? That’s the question facing the US Supreme Court in Iancu v. Brunetti.

The high court previously struck down [PDF] a statutory ban on the federal registration of marks that “may disparage … persons, living or dead,” holding that this ban violated the First Amendment’s guarantee of free speech. The reasoning in that case appears decisive in Brunetti, according to many experts. “I expect [the Supreme Court] will hold that if you have a First Amendment right that protects disparaging marks, you have a similar right that protects vulgar marks as well,” said Bryan K. Wheelock, a principal in the law firm of Harness, Dickey & Pierce.

Should the Supreme Court strike down the ban on immoral and scandalous marks, that will put the US at odds with most nations. The majority of jurisdictions forbid the registration of any marks, including vulgar marks, that are “contrary to morality or public order.”

Copyright law: Will the Justice Department end the consent decree restricting ASCAP and BMI? For over 75 years, an antitrust settlement has restricted the behavior of two large US collecting societies, the American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music, Inc. (BMI). These organizations, which represent songwriters and music publishers, issue licenses for the public performance of musical compositions. Radio stations, bars, and other entities that play music for the public must purchase such licenses if they wish to avoid liability for copyright infringement.

The 1941 settlement requires ASCAP and BMI to license their entire catalog to anyone who asks, for a fee that’s either mutually agreed upon by the parties or determined by a federal judge in a “rate court.” For many years, however, ASCAP, BMI, and the copyright owners they represent have complained that the court set royalty rates too low. They have become particularly upset about the rates for online music streaming.

The settlement might soon unravel. Some major artists have created a new organization to license their compositions. This organization, Global Music Rights (GMR), is not subject to the consent decree, so it can demand higher royalty rates from streaming companies, radio stations, and others. ASCAP and BMI say this is unfair; since they now have competition, they, too, should be freed from the consent decree’s limits.

The Department of Justice is considering the request. “If the DOJ decides to get rid of the consent decree, that will be a big hairy deal,” said Ochoa. He added, “If the DOJ doesn’t get rid of the consent decree, will the DOJ try to seek antitrust limits on GMR?”

Patent law: Will the Supreme Court expand the extraterritorial reach of US patents? Last year, the Supreme Court ruled that when a patent infringement occurs in the US, the patent owner can collect damages based on all the infringer’s subsequent sales of infringing products – including sales made outside the US. That ruling, in WesternGeco LLC v. ION Geophysical Corp. [pdf], was a “pretty dramatic expansion of extraterritoriality,” said Prof. Arti Rai of Duke Law School.

This year, the Supreme Court may extend such extraterritoriality further. In Texas Advanced Optoelectronic Solutions, Inc. v. Renesas Electronics America, the alleged infringer sold the infringing product outside the US, but the offer of sale was made in the US.

The Federal Circuit ruled in this case that the infringement did not occur in the US because the contemplated sale was outside the US. Texas Advanced asked the Supreme Court to review the ruling. The high court asked the Justice Department to offer its opinion on the case, which typically suggests the court will hear the case.

If the Supreme Court grants certiorari and rules in favor of Texas Advanced, that “opens the door to potential damages outside the US,” said Prof. Timothy R. Holbrook of Emory University School of Law. In addition, he said, the case could “help articulate a broader framework for analyzing extraterritorial issues.”

Copyright law: How will the Copyright Office implement the Music Modernization Act? Passed by Congress in October of last year, the Music Modernization Act (MMA) is a long and complicated piece of legislation that is supposed to provide more revenues to those creating music. The reality, however, may be somewhat different.

The MMA “has lots of goodies allowing major music publishers and record labels to collect rents at the expense of authors and recording artists. It’s a money grab by Big Music,” said Prof. Jessica Litman of University of Michigan Law School.

She pointed, as an example, to one part of the MAA that creates a collective to determine who owns the mechanical rights in songs. (Those who want to record a musical composition and distribute the recorded song for private use must pay mechanical rights royalties to the authors of the musical composition.) After determining who owns the mechanical rights in recorded songs, the new collective will gather mechanical rights royalties for the recordings and divvy up the royalties.

This sounds unobjectionable, but there’s a catch. “After three years, if the collective can’t find the appropriate author, the author’s royalties go to the biggest music publishers,” said Litman. That creates a potential conflict for the collective. If, as anticipated, the collective must enjoy the support of the major music publishers, the collective will wish to please those publishers – and thus will have no real incentive to locate any hard-to-find authors.

The Copyright Office could prevent this conflict of interest through its implementation of the MMA. The Office could select a collective that represents the majority of musical composers, instead of one that represents the majority of mechanical rights royalties (i.e., the major music companies). The former collective would represent many small composers and would have an incentive to locate all to whom royalties are due.

“The Copyright Office has the opportunity to blunt some of the worst provisions of the MMA,” said Litman. “It will be really interesting to see whether the Office will use this opportunity.”

Patent law: Will the US ease limits on patent-eligible inventions? For over a decade, there was a widespread view in the US that too many dubious patents were being granted. Congress, the USPTO, and the Supreme Court all pushed to toughen the requirements of Section 101 of the Patent Act, which restricts the types of inventions eligible to be patented.

This year, there may be a push in the opposite direction. “The general take has been the pendulum has swung too far in terms of finding things ineligible. It has become a real concern, particularly in the life sciences and diagnostics industries,” said Holbrook.

In Congress, Senators Chris Coons (D-Delaware) and Tom Tillis (R-North Carolina) are expected to continue working on legislation this year to ease Section 101’s requirements.

The USPTO has recently proposed guidelines for its examiners that would make it easier for some inventions to be found patent-eligible. The guidelines can be seen here and here [both pdf].

The Supreme Court may get in on the act, too. The court appears poised to grant certiorari in HP Inc. v. Berkheimer, which could revise the test for determining patent eligibility.

The court established the current two-step test in Mayo Collaborative Servs. v. Prometheus Labs. [pdf]. The first step is to determine whether the claim at issue is directed to a patent-ineligible concept, such as an abstract idea or law of nature. If the claim is so directed, the second step is to determine whether the claim asserts an “inventive concept” that transforms the claim into a patent-eligible invention.

Berkheimer asks whether the second part of this test is a question of law or of fact. If it is a question of law, as the Federal Circuit has held, a judge can rule on this matter without a trial. If it is a question of fact, requiring an examination of the state of the art at the time of the patent, the matter would be decided at trial by a jury.

Should the Supreme Court overturn the Federal Circuit and hold that the second step in Mayo involves a question of fact, that would substantially undermine the effectiveness of using patent-ineligiblity as a defense.

“Section 101 would be a more difficult defense to use,” said Rai. The accused infringer could no longer get out on a motion for summary judgment and would instead have to fight the case through trial. That would increase the defendant’s litigation costs and expose it to the risk of being held liable at trial. That, in turn, would increase pressure on accused infringers to settle, whether or not the accusations of infringement are well merited.