Year Ahead: Big IP Developments Loom For US Law In 2015

2014 brought major changes to the United States intellectual property system, particularly in the area of patent law. 2015 promises more of the same, as the new Supreme Court ruling in Teva Pharmaceuticals USA v. Sandoz attests. Here’s a discussion of Teva and other key cases and developments to watch this year.

Defining “patent-eligible subject matter.” This was the biggest US IP law development in 2014. It is likely to remain so in 2015, as the US deals with the ramifications of last year’s major Supreme Court decision in Alice Corp v. CLS Bank Int’l [pdf].

Alice dramatically toughened the requirements for business methods and software to be deemed patent-eligible subject matter. In the wake of that ruling, both the courts and the US Patent and Trademark Office (USPTO) have been striking down existing software and business method patents with abandon. The USPTO also has been rejecting a large percentage of patent applications covering software or business methods.

However, the Supreme Court’s ruling in Alice created a lot of uncertainty in this area of the law. “It didn’t define precisely what is patent-eligible subject matter,” said Eugene J. Bernard, a partner in the Denver office of Kilpatrick Townsend & Stockton, a law firm. As a result, he added, “some decisions last year and more this year will attempt to define what the standard is.”

One important case to watch is DDR Holdings v. Hotels.com [pdf]. In that case, the Federal Circuit Court of Appeals (often called the country’s “patent court”) recently upheld a software patent against a challenge that it claimed patent-ineligible subject matter. But that 2-1 ruling may not end the matter. Many patent experts are waiting to see if the decision will be reviewed by the Federal Circuit en banc or perhaps by the Supreme Court. Such a higher-level review could provide much needed guidance on when, if ever, software or business methods will be deemed patent-eligible subject matter.

 

Teva Pharmaceuticals USA v. Sandoz. This decision [pdf], issued 20 January by the US Supreme Court, determined how much deference the Federal Circuit must give to trial courts’ patent claim constructions. Before the ruling, the Federal Circuit gave no deference at all and reviewed claim construction de novo.

The Supreme Court overturned this standard and required the Federal Circuit to defer to the trial courts’ factual determinations, overturning them only if a trial court made a “clear error.” This significantly changes US patent litigation, weakening the power of the Federal Circuit and making it tougher for the losing party in a patent infringement case to overturn the trial court’s verdict.

There will likely be fewer appeals now, but trials will probably become longer and more costly. Prior to the high court’s ruling, claim construction hearings were largely done on paper. Now, “district courts will move towards hearing more testimony. We will see a trend back towards mini-bench trials on claim construction. That will potentially slow down the claim construction process,” said John B. Sganga, Jr., a partner in the law firm of Knobbe, Martens, Olson & Bear, LLP, in its Irvine, California office.

 

B&B Hardware v. v. Hargis Industries. This Supreme Court case, like Teva v. Sandoz, focuses on how much deference the courts should give to USPTO determinations. But this case, unlike Teva, concerns trademark law.

The issue in B&B Hardware is this: When the USPTO determines that a mark cannot be registered because it is confusingly similar to another mark, does this determination subsequently bind a trial court? Or can the court decide on its own whether or not the marks are confusingly similar?

Many experts predict the Supreme Court will seek a middle course, reflecting the fact that USPTO proceedings are more abbreviated than court proceedings and do not address all the facts and issues that arise in litigation.

“I think the Supreme Court will decide that there should be some deference to USPTO decisions, but not always. If the facts and the analysis are same in the USPTO proceeding and the court proceeding, there would be some preclusive effects. If not, there would be no preclusion,” said Joanne Ludovici, a partner in McDermott Will & Emery, who works in the law firm’s Washington, DC office.

Should the Supreme Court approve some sort of preclusion, a good deal of trademark litigation will become faster and cheaper. “This will narrow the issues that get to court and reduce costs of litigation,” said Ludovici.

 

Patent reform legislation. The last session of Congress almost enacted major patent reform. The House of Representatives passed the Innovation Act by a lopsided margin of 325 to 91, but thanks to opposition from pharmaceutical and biotech firms, the bill never received a vote in the Senate.

This year promises to be different. Now that the Republicans have taken control the Senate, many observers expect the reforms found in the Innovation Act will be passed by both houses of Congress in the US Congress and signed into law by President Obama. The reforms include:

• limiting discovery in patent infringement suits;
• requiring the losing party in a patent infringement suit to pay the winner’s costs, unless the loser behaved reasonably in bringing and conducting the lawsuit; and
• allowing vendors to protect their customers against infringement suits, when these suits are based on the customers’ using the vendors’ allegedly infringing goods or services.

These changes would make life much harder for those seeking to exploit dubious patents, particularly so-called “patent trolls.” But the effects of patent reform could go much further, depending on the precise terms of the legislation, many experts warn.

“The challenge is to legislate in such a way that you address the enforcement of bad patents without stifling the enforcement of good patents,” said Natasha H. Moffitt, a partner in Atlanta office of the law firm of King & Spalding.

 

Inter partes review goes on trial. Since it became available on 16 September 2012, inter partes review (IPR) has become an extremely popular way to challenge the validity of issued patents. This administrative procedure before the USPTO allows challengers to quickly and cheaply attack patents using prior art that was disclosed in earlier patents and printed publications.

“People have been filing IPRs left and right,” said Bernard. “It is much cheaper than patent litigation in district courts, maybe 1/5 to 1/10 the cost.”

Now, however, these IPR decisions are coming under judicial scrutiny. That could have profound consequences.

“In the past several months, the Federal Circuit has begun hearing appeals from IPR decisions. When those [appellate rulings] come down, we will know a lot more about how the Federal Circuit views those IPR procedures, whether the court accepts the rules and procedures the USPTO has been using. And we will know how much deference the Federal Circuit will give to IPR decisions. We will know a lot more about the long-term prospects of IPRs,” said Charles T. Steenburg, a partner in the Boston law firm of Wolf, Greenfield & Sacks.

 

Rudderless USPTO. The USPTO has been without a director for two years, since David Kappos left at the end of January 2013. This has hurt the agency’s performance. “The USPTO has been slow to address a lot of recent changes, such as court rulings on patent-eligible subject matter, and it has had trouble implementing programs to issue patents faster. That’s because there has been no top person at the USPTO to push things through the bureaucracy,” said Bernard.

Finding a replacement for Kappos has been difficult because powerful business interests strongly disagree about how the USPTO should treat patents. Silicon Valley firms, which fret about patent trolls and a plethora of overly broad patents, want the USPTO to make it harder to get patents and easier to challenge them. Pharmaceutical and biotech firms want the opposite. Because their fortunes often are based on a small number of patents, pharma and biotech companies want to easily patent their lucrative discoveries and strongly protect these patents against legal challenges.

Experts are waiting to see if 2015 brings an end to the political deadlock.

 

Trade secret legislation. Because US patent law has changed in recent years, making it difficult or impossible to patent certain inventions, a growing number of companies have been using an alternative means to protect their inventions. They have been keeping the details of their inventions under wraps and claiming the protection of state trade secret laws.

But there is a problem with current trade secret laws. They vary a great deal from state to state, creating problems for companies that do business throughout the US.

Thus, there has been a push to enact a federal trade secrets law. “This was proposed in the last Congress, but there was little activity on it. With the Republicans now controlling both houses of Congress, I think there is much more likelihood that this will get passed,” said Christopher K. Larus, a partner in the Minneapolis office of law firm Robins Kaplan. He added, “This has broad support across the business community. There is a significant likelihood that trade secret law will become federalized.”

 

Restatement of Copyright Law. There are two basic sources of copyright law in the US: Congress and the courts. There may soon be a third source, a Restatement of Copyright Law.

The respected American Law Institute (ALI) has produced Restatements on many aspects of US law, including contract law, tort law, and property law. Each Restatement attempts to clarify one area of the law by setting out black letter rules, explaining the principles behind the law, and suggesting some ways in which the law should develop in the future.

These Restatements are secondary authorities that have only persuasive effect. However, because they are painstakingly created by eminent legal scholars, the Restatements are often quite persuasive. Courts, government agencies, and legislative bodies regularly rely on the Restatements to explain what the law is and should be.

In 2015, the ALI will begin work on a Restatement of Copyright Law. It will address some of the most contentious issues in copyright law, including the scope of copyright protection, the circumvention of copyright protection systems, and fair use.

This Restatement may promote a better version of copyright law, one that is less influenced by large content providers and that provides greater fairness to users of copyrighted works. “This opens a new arena for how copyright should work, one that isn’t Congress or the courts. It will be more balanced than what goes on in Congress,” said Prof. Jessica Litman of University of Michigan Law School.

Meanwhile, last year, a series of congressional hearings on the review of copyright law were held, following the 2013 US Copyright Office call for copyright reform. It remains to be seen how this will be taken forward under the new Congress.