The Top Legal IP Issues In The United States In 2011

The year 2010 was a turbulent year for intellectual property law in the United States, and 2011 promises more of the same. The following are some of the top US IP developments to watch in the coming year.

1) Microsoft Corp. v. i4i Ltd. – According to most experts, the US Supreme Court will use this case to overturn the longstanding rule that any challenge to a patent’s validity must be proved by “clear and convincing evidence.” The court is expected to significantly reduce the burden on challengers, allowing them to overturn a patent with just a “preponderance of evidence” – at least if such evidence was not previously considered by the patent office.

“That would have a dramatic effect on patent litigation,” said Lance Reich, a partner in Woodcock Washburn. The ruling could also make patent prosecutions more costly and time-consuming – and increase the backlog at the USPTO – if applicants provide many more prior art references in order to insulate their resulting patents from attack.

2) First Sale Doctrine. US law recognises that a copyright owner’s right to control a copy of its work ends when that copy is sold, but the US courts have been struggling to determine when this First Sale Doctrine applies. Two controversial 9th Circuit decisions in 2010, Vernor v. Autodesk, Inc. [pdf] and MDY Indus. v. Blizzard Entertainment Inc., held that that copyrighted software isn’t sold if a contract accompanying the software properly specifies that the software is merely licensed. Another case presenting this issue, Universal Music Group v. Augusto, is before a different 9th Circuit panel, and it is unclear how that case will come out.

“Especially on internet issues, 9th Circuit panels tend to flip-flop pretty quickly,” said Eric Goldman, associate professor at Santa Clara University School of Law.

In a December ruling, Costco Wholesale Corp. v. Omega, SA, [pdf] the US Supreme Court upheld, on a 4-4 tie, a lower court decision limiting the extraterritorial application of the First Sale Doctrine. This allows a copyright owner to make and sell copies of a work outside the US, but to treat any unauthorised resales into the US as copyright infringement. This interpretation of copyright law can be a powerful tool to stop grey market imports into the US. But this interpretation remains contested because the Supreme Court’s evenly divided ruling has no precedential value. (The ninth and tie-breaking justice, Elena Kagan, recused herself.) Experts widely anticipate this restricted interpretation of the First Sale Doctrine will continue to be challenged – and may wind up back at the Supreme Court.

3) Global-Tech Appliances v. SEB. This case now before the US Supreme Court may redraw the scope of secondary liability for patent infringement. At issue is whether a defendant can be liable for inducing patent infringement even if there is no proof the defendant intentionally encouraged others to commit infringement. Is it sufficient to prove a defendant acted with “deliberate indifference” to a “known risk” that its behaviour would cause others to infringe?

If deliberate indifference does not create liability, this could be exploited by businesses outside the US. A foreign company could copy products patented in the US and sell them overseas to firms which then import the products into the US. The importers would face liability for direct infringement, but the overseas manufacturer could escape secondary liability by the expedient of not investigating whether its product might infringe under US law – and so act with deliberate indifference to the risk of infringement.

“This loophole will be exploited largely by overseas companies,” said James Dabney, a partner in Fried, Frank, Harris, Shriver & Jacobson.

4) Secondary Liability for Copyright Infringement. In their continuing battle against online infringement, copyright owners in the US will keep trying to get around the Digital Millennium Copyright Act and hold a variety of online business liable for their users’ infringing actions. The heavyweight litigation in this area is Viacom International, Inc. v. YouTube, Inc., where media giant Viacom is suing YouTube and its parent Google for $1 billion. A federal district court held in June that the DMCA protected YouTube against all Viacom’s claims of direct and indirect copyright infringement. That decision has been appealed to the US 2nd Circuit Court of Appeals.

5) Association of Molecular Pathology v. U.S. Patent and Trademark Office. Another high profile case before the 2nd Circuit Court of Appeals, this lawsuit raises two major questions concerning patentable subject matter. “The first is whether isolated DNA sequences are patentable. The second is whether one can patent the process of using a gene sequence to diagnose vulnerability to an inheritable disease,” says Rochelle Dreyfuss, Professor at New York University School of Law. The case could have a huge impact on both the biotech and medical diagnostic industries.

6) Therasense Inc. v. Becton Dickinson & Co. Failing to provide truthful information to the USPTO during the prosecution of a patent can lead to the resulting patent being struck down on the basis of inequitable conduct. But not every misstatement or omission in a patent application rises to the level of inequitable conduct. Where to draw the line has been a vexed question. In Therasense, the en banc Federal Circuit Court of Appeals (often called the nation’s “patent court”) is tackling this issue head on. The decision may bring much needed clarity that could simplify both patent litigation and prosecution.

“It could have a dramatic impact on prosecution of US patents and, at a minimum, lower the costs for prosecution due a lesser need to submit all potential art (including office actions from other cases) to the USPTO for review,” Reich of Woodcock and Washburn said.

7) Patent Marking Trolls. The Federal Circuit’s ruling in Forest Group Inc. v. Bon Tool Co. [pdf] greatly increased the possible fines for falsely marking products as patented, and this sparked an explosion of false patent marking suits in 2010. Many suits were brought by so-called “patent marking trolls” who do not compete with the manufacturers of falsely marked goods, but who sue simply to get half of any fines recovered – which in some cases potentially run in the trillions of dollars.

Many businesses and their legal counsel will carefully watch the courts in 2011 to see how the judiciary construes the requirements for false marking and determines the amount of fines for false marking. Businesses are also pressuring Congress to get involved. As a result, the legislature might modify the false patent marking statute in order to curtail false marking suits.

8) The Next Register of Copyrights. On 31 December, Marybeth Peters retired as Register of Copyrights. She had headed the US Copyright Office for sixteen years, playing an important role in creating and implementing the nation’s copyright law. Her replacement is likely to be named in 2011.

“The next Register may potentially influence the shape of copyright law and copyright enforcement in important ways and for many years to come,” said Prof. Jessica Litman of the University of Michigan Law School.