Year Ahead: Five Key IP Cases To Watch In The United States In 2010

2010 could be a big year for intellectual property law in the United States. Five cases now working their way through the courts may bring major changes to the country’s patent and copyright laws, affect hundreds billions of dollars in commerce, and enable a revolutionary new use for the internet.

In Bilski v. Kappos, the US Supreme Court is considering the scope of patentable subject matter. The result could be a landmark ruling.

Based on the justices’ questions at oral argument, many experts believe the court will rule that Bernard Bilski’s invention – using hedge contracts to limit price fluctuations in commodities trading – is not patentable. It is unclear, however, how far the court will go in its ruling.

The court could decide the case narrowly, holding that Bilski’s invention is an abstract idea and is thus unpatentable under long-established legal standards. Or the court could go further and examine whether the invention needs to satisfy the “machine or transformation test.” This test was recently revived by the Federal Circuit Court of Appeals (often called the country’s “patent court”) in In re Bilski. Under this test,- a process or method is patentable only if it is either “tied to a machine” or “transforms a particular article into a different state or thing.”

If the Supreme Court endorses the machine or transformation test, its interpretation of the test could significantly alter the nation’s patent law. Depending on how closely a process or method must be “tied to a machine,” a wide variety of inventions may rendered unpatentable. Many existing business method patents, medical diagnostic patents, legal method patents, even software patents could be struck down.

“Everybody is eagerly awaiting the Supreme Court ruling [in Bilski] because it could affect a large number of patents, including patents in a significant number of lawsuits around the country,” said Jeffrey H. Dean, a patent litigator at Marshall, Gerstein & Borun in Chicago.

(For further discussion of this case, see the list of articles here. )

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The issue in Ariad Pharmaceuticals, Inc. v. Eli Lilly and Co. might seem rather persnickety: Must an inventor provide a satisfactory “written description” of its invention in order to obtain a patent? If the Federal Circuit answers this question in the affirmative, however, it will greatly harm those who make breakthrough inventions, according to some experts.

Section 112 of the US Patent Act mandates that, in order to obtain a patent, an applicant must disclose how to make and use the invention. But the courts have not traditionally interpreted this provision as imposing a separate “written description” requirement.

Requiring such a description would, according to some experts, impose a new, amorphous standard that many inventors will be unable to fully satisfy. Universities, start-up companies and small inventors that create breakthrough inventions would be particularly at risk. These entities lack the resources to research and detail all the potential uses of a breakthrough invention, so requiring them to satisfy a separate written description standard would effectively narrow the patent protection they would otherwise receive.

Conversely, many large companies – particularly large pharmaceutical companies – would benefit from a written description requirement. It would enable them to freely exploit many aspects of others’ most important inventions. Harold Wegner, a patent attorney in the Washington, DC office of Foley & Lardner, put it this way: Judicial recognition of the written description requirement would be “the capstone of the twenty year judicial career of a lifelong pharmaceutical executive who pioneered this policy-driven exercise in judicial legislation to conform to the perceived policy needs of the pharmaceutical industry.”

In April 2009, a three-judge panel of the Federal Circuit determined there is a separate written description requirement. The matter was reargued in December before the en banc court. Many observers expect the court to issue its decision before its current Chief Judge, Paul R. Michel, steps down at the end of May.

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Another case to watch in 2010 is Costco Wholesale Corp. v. Omega SA. The court ruling is likely to have a significant impact on US copyright and patent law – and affect billions of dollars of imports to the US.

Omega, the famed Swiss watch manufacturer, sells its goods at much lower prices in Europe than in the United States. This is not unusual; companies often price their products differently in different geographic regions. But these price differentials frequently lead to “grey market” imports – legitimate items are purchased in a low-priced market and resold at a profit in a high-price market. Manufacturers dislike these grey market goods because they cut into their sales in high-price (and high-profit) markets.

In this case, Omega is trying to use US copyright law to stop grey market watches from entering the US. The company has marked the underside of its watches with a tiny design that is copyrighted in the US. Omega is alleging that, by importing and distributing these watch designs in the US without authorization, the large discount retailer Costco is committing copyright infringement.

Ordinarily, in US law, a copyright owner’s right to control the distribution of any particular copy ends once there is an authorised sale of the copy. The purchaser of that copy can, under the first sale doctrine, resell the copy to whomever he or she wishes.

If the first sale doctrine applied in this case, Costco’s actions would not be infringing. Omega’s initial sale of its watches in Europe would terminate its right to control distribution of the copyrighted designs on the watches, so Costco could freely resell the watches in the US.

However, the first sale doctrine does not apply to copies made and initially sold outside the US, according to the 9th Circuit Court of Appeals. Thus, the court held that Costco could be sued for copyright infringement.

Costco asked the US Supreme Court to grant certiorari and review this decision. That court, in October, asked the US Department of Justice to file a brief on the case. Many experts view this as an indication the high court will eventually hear the case.

If the 9th Circuit ruling stands, companies will have a powerful new way to stop grey market goods from being imported and sold in the US. And because patent law has a doctrine similar to the first sale doctrine, many experts believe that this case will also determine whether US patent law can be used to stop grey market imports.

“Costco is a copyright case, but it has obvious patent implications as well,” Wegner said. “It is a blockbuster case if the Supreme Court grants certiorari.”

(For further discussion of this case, see IPW, Copyright, 23 December 2009.)

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The issue in Reed Elsevier v. Muchnick is whether a work must be registered with the US Copyright Office in order to be included in a copyright infringement suit or settlement.

The 2nd Circuit Court of Appeals has ruled that such registration is required by Section 411(a) of the Copyright Act. The court then threw out the class action settlement of a major copyright dispute which previously had gone up to the Supreme Court. Because the settlement covered unregistered copyrighted works and the courts have no subject matter jurisdiction over those works, the entire settlement had to be thrown out, the 2nd Circuit concluded.

This decision surprised many copyright experts. “In the last 200 years, no one has even suspected you can’t have a settlement covering unregistered copyrighted works,” said Robert Clarida, a copyright attorney in New York’s Cowan, Liebowitz & Latman.

“It has been fairly common for courts to issue injunctions that apply to registered and unregistered works, and sometimes to works not yet created,” said Jessica Litman, who teaches copyright law at the University of Michigan.

The Supreme Court agreed to review the 2nd Circuit’s decision. The justices heard oral argument in October.

If the high court upholds the 2nd Circuit’s interpretation of the Copyright Act, the ruling will impose a significant new procedural obstacle to the enforcement of copyright. It will also cast a cloud over many past copyright infringement settlements.

“If that [2nd Circuit ruling] holds up, I can’t tell you the number of settlement agreements that are suddenly unenforceable. That’s a big deal,” Clarida said.

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Muchnick isn’t the only case where a large class of copyright owners is suing a big company for infringement. Many authors and publishers are suing Google over the search giant’s plan to digitise books and display snippets of them in response to users’ searches. The copyright owners assert this is infringement, while Google asserts its actions are protected as fair use.

A proposed settlement was announced in late 2008, but it faced withering criticism from many fronts, including some writers’ organisations, large businesses (such as Amazon), European countries and the US Department of Justice. Google revised the settlement proposal and presented it in November to a federal district court in New York. The court is scheduled to hold a hearing on the proposed settlement in February.

Although Google made some significant concessions, the deal remains controversial. It is far from certain that the court will approve the settlement and thus enable Google to provide a huge new database of books to internet users.

“This is important for publishers, for the reading public, for the availability of these works online,” Clarida said. “If there is a settlement, it will be easier to gain access to these works. If there is not a settlement, there will be a continuing cloud of uncertainty over the use of digitised works.”

A court-approved settlement could bring huge benefits to society. “It may make a whole lot of material available to the public that is now practically unavailable. For instance, books not in print and not available at any price will be available and searchable online,” Litman said.

Making so many works readily accessible online could have dramatic effects. Said Litman, “It will change the world.”

It remains to be seen, however, whether US copyright law will allow this revolutionary change to occur.