IP Owners Face Tough Legal Issues In United States In 2009

By Steven Seidenberg for Intellectual Property Watch

2009 could be a bad year for IP owners in the United States.

For patent owners, it may be particularly tough. The US courts are likely to continue their recent trend of cutting back on patent rights, according to many experts. The question is: what rights may be cut back and by how much?

Copyright and trademark owners in the United States face a different set of troubles. They are struggling to protect their rights in the digital world, and it is far from certain how they will fare.

Patentability Pending

This year, the biggest issue in US patent law may be: what types of inventions are patentable? The US Supreme Court and the US Patent and Trademark Office (USPTO) have toughened their stance on this issue in recent years, narrowing the scope of patentable inventions. The US Federal Circuit Court of Appeals – often called the nation’s “patent court” – apparently joined this trend in the second half of 2008 with a series of rulings, the most important of which was In re Bilski.

In Bilski, an en banc Federal Circuit repudiated a test the court had laid out ten years before in its seminal decision, State Street Bank & Trust Co. v. Signature Financial Group Inc. – that a process was patentable if it produces a “useful, concrete and tangible result.” The Bilski court replaced that test with an older, stricter standard that had been repeatedly enunciated by the Supreme Court: a process is patentable if “(1) it is tied to a particular machine … or (2) it transforms a particular article into a different state or thing.”

But Bilski failed to state how closely a patentable process must be tied to a machine. Is it sufficient if one tiny step of the process uses a general purpose computer? How about if several steps make use of a computer?

“We’ll see the federal district courts and the [USPTO’s] Board of Patent Appeals and Interferences drawing the line on this in 2009, then it will go to Federal Circuit,” said James Myers, a partner in the Washington, DC office of Ropes & Gray. “This issue will have a major effect on the scope of patent protection and will affect a wide variety of industries.”

Depending on how this issue is resolved, thousands of existing US patents could be wiped out, including many business method patents.

Lots of other patents could be put into jeopardy when the Federal Circuit issues its ruling in In re Kubin. The case raises the possibility that many human gene sequences will no longer be patentable because they are “obvious to try.”

This issue was supposedly settled by the Federal Circuit in its 1995 ruling, In re Deuel. The court held that DNA sequences are not “made obvious by mere knowledge of a desired protein sequence and methods for generating the DNA that encodes that protein.”

Twelve years later, however, the US Supreme Court issued its ruling in KSR Int’l Co. v. Teleflex Inc., and the legal ground shifted. The high court indicated that certain inventions may indeed be unpatentable if they are “obvious to try.” Specifically, the Supreme Court said:

When there is a design need or market pressure to solve a problem and there are a finite number of identified, predictable solutions, a person of ordinary skill has good reason to pursue the known options within his or her technical grasp. …In that instance the fact that a combination was obvious to try might show that it was obvious [and thus unpatentable]….

The key facts in Kubin seem similar to those in Deuel. A desirable protein sequence was known, and the inventor claimed exclusive patent rights to the DNA sequence that encoded that protein. But in the wake of KSR, the USPTO rejected Kubin’s patent application because the invention was obvious to try.

The Federal Circuit has recently heard oral argument in Kubin, and many in the biotech industry are anxiously awaiting the court’s decision. “If the [USPTO] decision is upheld, it would have far-reaching effects,” said Astrid Spain, a partner in the San Diego office of McDermott Will & Emery.

The ruling could make it much harder to patent DNA sequences, and might even jeopardise many existing patents. “If the Federal Circuit overturns Deuel, that would call into question a lot of [biotech] patents that have been issued, especially recently issued patents,” Spain said. “We could see a lot of legal challenges to patents.”

Copyright Issues

Copyright owners have been struggling for years with digital technology. They have been trying to hold back the tsunami of unauthorised online copying and distribution of their works. They have had, at best, limited success. Some of their key legal battles in 2009 will centre on copyright owners’ attempts to hold technology companies liable for infringements committed by their users.

In Viacom Int’l Inc v. YouTube Inc, entertainment giant Viacom is suing YouTube, claiming that 150,000 unauthorised clips of Viacom programmes were posted to the video-sharing website. YouTube allegedly failed to take reasonable steps to prevent this massive infringement and is therefore liable for direct and secondary copyright infringement, according to Viacom.

The case, which is currently being litigated in a federal district court in New York City, has garnered a lot of attention. If the court accepts Viacom’s argument, a large percentage of online service providers and websites that host user-generated content will be forced to shut down, according to many experts. If the court rejects Viacom’s argument, copyright owners will be forced to keep trying to remove, one at time, the thousands of unauthorised music and video clips that are posted online each day.

Last year, the Second Circuit Court of Appeals rejected a slightly different attempt to hold an intermediary liable for copyright infringement. The court held in The Cartoon Network LP v. CSC Holdings, Inc that a cable TV company could legally copy cable programmes at the direction of its subscribers and play the copies back to its subscribers upon demand. But the Second Circuit may not have the final say in this matter, and many copyright experts will be watching this year as the battle moves to the US Supreme Court, under the name Cable News Network, et al., v. CSC Holdings, Inc.

CSC Holdings owns Cablevision, which wanted to start a remote storage digital video recorder service (RS-DVR). The RS-DVR would act just like a customer’s own DVR, but instead of recording programmes on a box that was physically located in a customer’s home, the RS-DVR would record the programmes on Cablevision’s servers.

Cablevision was prevented from rolling out its service, however, when it was sued by various television and movie producers, including NBC, Disney, Universal, and 20th Century Fox. The content companies alleged that Cablevision’s RS-DVR service was direct copyright infringement.

The Second Circuit rejected this argument. It held, among other things, that a party can be liable for direct infringement only if its “volitional conduct” created an infringing copy. In this case, the court found, Cablevision had no such volitional activity; its RS-DVR system would automatically carry out customers’ instructions. Any infringing volitional conduct would be committed by Cablevision’s customers, because they would be consciously deciding to record programmes.

The ruling was a major win for technology companies, giving them great latitude to make products and services that allow customers to record and time-shift copyrighted works, according to Robert Clarida, a partner in the New York law firm of Cowan, Liebowitz & Latman. The decision was, conversely, a big disappointment for a large number of copyright owners, who wanted to limit such copying technologies.

The movie and TV companies haven’t given up, however. They have asked the US Supreme Court to review the decision, and the court is seriously considering this request. The high court recently requested the US Department of Justice for its opinion on the matter.

Trademarks Online

Trademark owners in 2009 are expected to continue their fight to control the use of their marks online. One closely watched case in this area is Rescuecom Corp. v. Google, Inc., which is now on appeal to the Second Circuit. Depending on how the appellate court rules, the case could either exacerbate or resolve a split in US law over a major issue of trademark law.

The issue before the court: If a search engine uses another’s trademark as a keyword to trigger paid ads, can the trademark owner sue for infringement? “No,” ruled the district court in Rescuecom. The court held that using a mark to trigger online ads was not a “use in commerce,” and thus was outside the reach of federal trademark protection.

Two other district courts – in California and Texas – have come out the other way, according to David Steele, special counsel at Christie Parker & Hale in Newport Beach, California. Both of those courts found using a mark to trigger keyword ads was using the mark in commerce.

Unless the Second Circuit reverses the lower court’s ruling in Rescuecom, there will be a clear split in US courts over this important issue of trademark law, and that would “set the stage for a classic appeal to the Supreme Court,” Steele said.

2009 also is expected to bring a wave of new top-level domain names (TLDs) as new rules at the Internet Corporation for Assigned Names and Numbers (ICANN) will allow companies to register almost any word or phrase as a top level domain. No longer will companies be limited to a handful of TLDs, such as .com or .org. Now business will be able to claim a plethora of new TLDs, such as .ibm or .prius or .cars.

It’s a great branding opportunity, but it has made a lot of trademark owners nervous because they fear the new TLDs will create huge new opportunities for cybersquatting. And with an almost unlimited number of possible new TLDs, trademark owners cannot afford to purchase all the TLDs relating to their marks. For instance, even if Toyota buys up obvious TLDs such as .toyota, .prius, and .camry, there will still be many available variants, such as .toyotacars, .prius-car, and .camryhybrid.

To make matters worse, every new TLD will have subdomains whose names could contain another’s trademarks. For instance, the .cars TLD could have www.toyota.cars, www.prius.cars, www.camryparts.cars, and many, many others.

“Trademark owners will need to take a measured approach,” Steele said. “They must keep informed of new and proposed TLDs, be aware of how customers find them online, and figure out how adding new domain names will fit in with their business plans.”

Thus Marriott Hotels might want to buy the .Marriott TLD; and if someone establishes a .hotels TLD, Marriott may want to buy the subdomain www.marriott.hotels. But the company probably won’t want to buy www.marriott.hobby or www.marriott.farming, because potential customers are unlikely to look for Marriott hotels in those domains.

Potential customers might not even bother with the new TLDs. They might stick to typing in a desired company name or product followed by .com; or customers might rely on search engines to find desired sites. In either case, customers would not be using a new TLD to help locate a desired product or service, so there would be little reason for a trademark owner to purchase anything in the new TLDs.

For now, trademark owners and their counsel are uncertain how much they should invest in the new TLDs. This uncertainty could be resolved soon. “By end of 2009,” Steele said, “we may see if the new TLDs will change the way consumers navigate the Net or find companies online.”

Steven Seidenberg may be reached at info@ip-watch.ch.