Nikolai & Mersereau P.A. Attorneys At Law


Supreme Court Overturns Patent Exhaustion Ruling

June 06, 2017 By: Peter Nikolai Category: nm_news

The Supreme Court last week held any sale by a patent owner, irrespective of location or resale restrictions, exhausts the patent owner’s patent rights related to the specific products sold.  Previously, the the Court of Appeals for the Federal Circuit held that infringement of a patent occurred if products sold overseas by the patent owner were imported into the U.S. without the patent owner’s permission, or if products sold by the patent owner in the U.S. subject to resale restrictions were resold knowingly in violation of those restrictions.

The case involved printer cartridges sold by Lexmark that were refilled and resold by Impression Products without Lexmark’s consent.  Some of the Lexmark cartridges were sold by Lexmark at a discount as part of its “Return Program”.  To receive the discount, the original purchaser agreed not to resell or refill the cartridges and to return the empty cartridges to Lexmark.  Impression Products was fully aware of these restrictions on refilling and resale, yet acquired such cartridges, refilled them and resold them.  Other Lexmark cartridges were sold overseas and Lexmark never gave anyone permission to import those cartridges into the U.S.  Yet, Impression Products imported cartridges into the U.S., refilled them and resold them.  Lexmark sued for infringement.

The Court of Appeals predicated its finding of infringement on 35 U.S. § 271 which provides “whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.”  The Court of Appeals held that Impression Products did not have permission to resell the Lexmark products that were subject to the resell restrictions and did not have permission to import into the U.S. those products sold overseas.  As such, both types of sales infringed.  The Court of Appeals also held that the patent exhaustion doctrine did not apply to either type of sale.

In overruling the Court of Appeals, the Supreme Court said, “We conclude that a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose or the location of the sale.”

With respect to the cartridges sold by Lexmark under the resale restrictions, the Supreme Court said, “We conclude that Lexmark exhausted its patent rights in these cartridges the moment it sold them. The single-use/no-resale restrictions in Lexmark’s contracts with customers may have been clear and enforceable under contract law, but they do not entitle Lexmark to retain patent rights in an item that it has elected to sell.”  The Supreme Court continued:

For over 160 years, the doctrine of patent exhaustion has imposed a limit on that right to exclude. See Bloomer v. McQuewan, 14 How. 539 (1853). The limit functions automatically:  When a patentee chooses to sell an item, that product “is no longer within the limits of the monopoly” and instead becomes the “private, individual property” of the purchaser, with the rights and benefits that come along with ownership. Id., at 549–550.   A patentee is free to set the price and negotiate contracts with purchasers, but may not, “by virtue of his patent, control the use or disposition” of the product after ownership passes to the purchaser. United States v. Univis Lens Co., 316 U. S. 241, 250 (1942) (emphasis added). The sale “terminates all patent rights to that item.” Quanta Computer, Inc. v. LG Electronics, Inc., 553 U. S. 617, 625 (2008).

The Supreme Court suggested that to hold otherwise “would clog the channels of commerce, with little benefit from the extra control that the patentees retain. And advances in technology, along with increasingly complex supply chains, magnify the problem.”

The Supreme Court then addressed the importation of the Lexmark cartridges sold overseas.  According to the Supreme Court, “Applying patent exhaustion to foreign sales is just as straightforward.”  The Supreme Court continued:

“Instead, exhaustion occurs because, in a sale, the patentee elects to give up title to an item in exchange for payment. Allowing patent rights to stick remora-like to that item as it flows through the market would violate the principle against restraints on alienation. Exhaustion does not depend on whether the patentee receives a premium for selling in the United States, or the type of rights that buyers expect to receive. As a result, restrictions and location are irrelevant; what matters is the patentee’s decision to make a sale.”

Justice Ginsburg disagreed with the other Justices on the Supreme Court with respect to the cartridges sold by Lexmark overseas.  She wrote in dissent:

“Because a sale abroad operates independently of the U. S. patent system, it makes little sense to say that such a sale exhausts an inventor’s U.S. patent rights. U.S. patent protection accompanies none of a U.S. patentee’s sales abroad—a competitor could sell the same patented product abroad with no U. S.-patent-law consequence. Accordingly, the foreign sale should not diminish the protections of U.S. law in the United States.”

The Supreme Court’s decision may close the door on assertion of patent rights in such cases, but that may be only half the story.  As the Supreme Court noted, the single-use/no-resale restrictions in Lexmark’s contracts with customers may have been clear and enforceable under contract law.  Thus, the resale restrictions may be enforceable under contract law against the original purchaser who breached, and may give rise to a tortious interference claim against a company, such as Impression Products, if that company had knowledge of the restrictions and induced the breach.  As such, inclusion of contractually enforceable resale restrictions in sales documents related to both domestic and foreign sales may become more important in some industries than such restrictions have been in the past.  Likewise, ensuring that competitors are on notice of such restrictions may be equally important.

This is just one example of how contract rights might be used to expand the protections afforded by patents.  We are here to assist if you need help drafting or enforcing contracts designed to do so.

Appeals Court Strikes Down Facial Recognition Software Patent

May 09, 2017 By: Peter Nikolai Category: nm_news

Composite picture systems used by police departments and other law enforcement agencies typically require maintaining records for thousands of people.  Mug shots and other photos are stored digitally in some graphical format such as “bitmap”, “gif” or “jpeg” files.  These files typically are quite large, necessitating large amounts of memory for storage and processing and large amounts of bandwidth (and time) for transmission of these files to officers in the field.  Various techniques are known for compressing these files to reduce memory and bandwidth requirements, but these techniques often degrade image quality.  Thus, Pierce Cote set out to find a way to maintain image quality while reducing the memory required for storage and the bandwidth required for transmission.

Cote was awarded U.S. Patent No. 8,005,303 on August 23, 2011 covering a method and apparatus he developed for encoding and decoding image data.  Between May, 2013 and April 2014, the patent was reexamined and in April 2014 the U.S. Patent and Trademark Office again found the claims (as amended) defining Cote’s invention to be patentable.

Specifically, Cote created a method for creating a composite image including the following steps:

  • displaying facial feature images on a first area of a first display via a first device associated with the first display, wherein the facial feature images are associated with facial feature element codes;
  • selecting a facial feature image from the first area of the first display via a user interface associated with the first device, wherein the first device incorporates the selected facial feature image into a composite image on a second area of the first display, wherein the composite image is associated with a composite facial image code having at least a facial feature element code; and
  • reproducing the composite image on a second display based on the composite facial image code.

Two months later after the reexamination was complete, the U.S. Supreme Court published its decision in Aiice Corporation v. CLS Bank International.

Section 101 of the Patent Code provides that “[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor … .” There is an exception to that general principle: subject matter directed to laws of nature, natural phenomena, or abstract ideas is not patent‐eligible. In Alice, the Supreme Court established a two‐part test to determine whether patent claims are directed to ineligible subject matter.

According to Alice, In the first step, “we determine whether the claims at issue are directed to one of those patent‐ineligible concepts.  If the answer in step one is yes, we then ask, ‘[w]hat else is there in the claims before us?’ In other words, step two asks whether the patent claims an ‘inventive concept’ sufficient to ‘transform’ the claimed abstract idea into a patent‐eligible application.”

When the owner of the Cote patent sued Nintendo for infringement, Nintendo filed a motion for judgment on the pleadings contending that the claims of the Cote patent were ineligible for patent protection under 35 U.S.C. § 101.   Nintendo argued that under the Alice test Cote’s patent never should have been granted.  When the District Court found in favor of Nintendo, the owner of Cote’s patent appealed.

On appeal, the Federal Circuit Court of Appeals first considered the first step of the Alice test and noted, “[w]hile ‘generalized steps to be performed on a computer using conventional computer activity’ are abstract, … not all claims in all software patents are necessarily directed to an abstract idea…. For example, we have held that software patent claims satisfy Alice step one when they are ‘directed to a specific implementation of a solution to a problem in the software arts,’ such as an improvement in the functioning of a computer.”   However , the Court held “that claim 1 is directed to the abstract idea of encoding and decoding image data. It claims a method whereby a user displays images on a first display, assigns image codes to the images through an interface using a mathematical formula, and then reproduces the image based on the codes.… This method reflects standard encoding and decoding, an abstract concept long utilized to transmit information.”  The Court compared Cote’s invention to “Morse code, ordering food at a fast food restaurant via a numbering system, and Paul Revere’s ‘one if by land, two if by sea’ signaling system.”

The Court then considered the second Alice step and noted, “we search for an ‘inventive concept’ sufficient to ‘transform the nature of the claim into a patent‐eligible application.’  To save a patent at step two, an inventive concept must be evident in the claims.”  The owner of the Cote patent argued, “that the claims of the patent contain an inventive concept sufficient to render them patent‐eligible.” Specifically, the owner argued that (1) the combination of claim elements, i.e., the “particular encoding process using the specific algorithm disclosed” in the patent “transforms” the abstract idea into a patentable invention, and (2) the “facial feature element codes” and “pictorial entity symbols” disclosed in the patent claims also “transform” the abstract idea into a patentable invention.  The Court disagreed, noting the patent claims do not define “a particularized application of encoding and decoding image data. Indeed, claim 1 does not even require a computer; the invention can be practiced verbally or with a telephone.”

While the Court did acknowledge that patent claims satisfy Alice if “the claimed solution amounts to an inventive concept for resolving [a] particular problem”, the Court apparently discounted the problem Cote was seeking to address, namely to find a way to maintain image quality with reducing the memory required for storage and the bandwidth required for transmission.

Hindsight is always 20/20, but perhaps the claims would have been written differently if the lawyer who wrote Cote’s claims had the benefit of the Alice decision when the patent was originally granted or even when the patent was being reexamined by the Patent Office.  Likewise, if the Patent Office,which allowed the claims twice, had the benefit of Alice, it could have rejected the claims as written giving Cote’s and his lawyer the opportunity to bring the claims into conformance with the new test established by the Supreme Court in Alice.  This is just one reason why we keep abreast of developments in intellectual property law and share significant developments with clients and friends in articles such as this.

Persistence Pays Off When Pursing Patent Protection

September 12, 2016 By: Peter Nikolai Category: Drafting Patent Applications, Patents

According to a recent U.S. Patent and Trademark Office (PTO) study, only 11.4% of the patent applications filed are initially allowed. 86.4% are initially rejected and the rest are abandoned before the PTO takes any action. In well over half the cases, these rejections are overcome and a patent is granted if the applicant does not give up.

Most rejections are for anticipation by or obviousness in view of prior art. PTO examiners will withdraw such rejections when presented with arguments and amendments sufficient, in their view, to overcome the prior art. When an examiner refuses to withdraw an improper rejection, the applicant can appeal to the Patent Office Board of Appeals and then, if necessary, to a court having the power to order the PTO to grant the patent. Last week the PTO was ordered to grant a patent on a saw safety system by a court in Washington D.C.

The Patent Application At Issue

In 2002 SDC, LLC filed a patent application which claims a cutting tool and a safety system. The claims of the patent application require that the safety system include:

  • a detection subsystem adapted to detect an unsafe condition, and 
  • a reaction subsystem adapted to mitigate the unsafe condition.

The claims further require that the reaction subsystem include a brake mechanism adapted to stop the blade of the cutting tool within 10 milliseconds after detection of an unsafe condition. In other words, if a finger or some other body part of a user comes into contact with the blade, the safety system allegedly stops the blade within 10 milliseconds and thereby prevents serious injury.

The PTO Examiner assigned to evaluate the application rejected the claims based on an earlier patent granted in 1974, the Friemann patent. The earlier Friemann patent also claims a protective device for use in cutting machines having a moving cutting member that includes:

  • safety circuit means, responsive to touching of the cutting member by an operator, for generating an output signal; and
  • braking means electrically connected to said safety circuit means for substantially instantaneously stopping the cutting member in response to said generated output signal of said safety circuit means.

The Friemann patent also specifically states: “[e]xperiments have shown that with a protective circuit arrangement in accordance with the invention it is possible for a band cutter to be stopped in about  1/200th of a second, so at the usual speed of rotation of the band cutter of 14 meters per second the run-on distance amounts to 3-5 cm.” One two-hundredth of a second is 5 milliseconds, well under the 10 millisecond threshold listed in the claims SDC was seeking to patent. All of this led both the PTO Examiner and Board of Appeals to conclude that the SDC claims were not patentable given Friemann’s express teachings.

But SDC was not ready to give up. Believing that the system disclosed by the Friemann patent was incapable of stopping the blade in 10 milliseconds, SDC took the PTO to court. In a real battle of the experts, SDC was able to prove to the satisfaction of the court that none of the example devices shown in the Friemann patent could stop the blade fast enough. SDC and its experts asserted that braking by the Friemann devices would not even begin for 18 to 20 milliseconds, and that, even if braking began at the exact time the user’s flesh came into contact with the blade, the braking system would still require 25 milliseconds to stop the blade. The burden then shifted to the PTO to prove Friemann taught one of ordinary skill in the art in 2001 how, without undue experimentation, to build a safety system conforming to SDC’s patent application claims.

To try to meet its burden the PTO attempted to show changes that could be made to what Friemann disclosed without undue experimentation that would result in total braking times of less than 10 milliseconds.

The court found, however, that the PTO failed to meet this burden holding that one of ordinary skill in the art:

  • “could not build a motor capable of producing sufficient torque to stop the blade of a band cutter based on the Friemann patent within 10 milliseconds without engaging in undue experimentation, assuming such a motor can be designed”; and
  • “would not be able to design and implement a mechanism to grab the band blade of the Friemann band cutter and stop the blade within 10 milliseconds by utilizing electromechanical brakes without first engaging in undue experimentation, assuming that such a feat is even possible.”

If the PTO abides by the court’s order and does not appeal, not only will SDC finally get a patent, but the term of the patent will also be extended for the period of delay resulting from the PTO’s refusal to grant the patent.

Lessons Learned

SDC’s invention provides an asserted important safety feature for saws and other cutting tools. The only way to protect that invention is to secure a patent. Despite repeatedly receiving bad news and facing a real uphill battle in the PTO and in court, through persistence and perseverance SDC finally prevailed. While many inventors find any rejection disheartening, often these rejections are made in error and are ultimately overcome.

Why Nikolai & Mersereau?

The team of lawyers at Nikolai & Mersereau collectively share more than 150 years of experience addressing issues related to the patentability of inventions across a wide range of technologies. More than 2500 patents have been secured by the firm for its clients, 80 already this year alone. Our attorneys have the skill and experience necessary to successfully marshal patent applications through the PTO and a track record of success securing patents for our clients. Like the attorneys who represented SDC, we don’t take things at face value, but dig deeper to present the facts necessary to overcome rejections. We are ready to help you secure patents on your important inventions, just as we have for so many of our clients.

Europe and the UK?

June 24, 2016 By: Peter Nikolai Category: nm_news

Yesterday the United Kingdom (UK) voted to exit the European Union (EU), a step referred to in the world press as BREXIT. In light of these political developments, we have been in contact with our associates throughout Europe, and particularly in the UK, to see what impact this will have on our clients’ efforts to protect their intellectual property there. In this article, we provide our preliminary assessment.

Current Status:

Yesterday’s vote does not mean that the UK is immediately no longer a member of the EU. The Treaty on European Union outlines a process for exiting that takes at least two years. No country has ever exited the European Union before so some believe the process may take as long as a decade to complete.

Whether that process is ever completed and the UK actually exits the EU is left to be seen.

Further, the vote yesterday has virtually no impact on other treaties and international agreements related to intellectual property. The UK is still (and likely to continue to be) a member of the World Intellectual Property Organization, the Patent Cooperation Treaty, and the Madrid Protocol.

Patents:

Yesterday’s vote should have essentially no affect on European Patents. This is because the European Patent Office is not an EU body. It was created as a result of a separate international agreement known as the European Patent Convention (EPC). In fact, countries such as Switzerland and Norway are part of the EPC even though they are not, and never have been, members of the EU.

Any of our associates in Europe who have helped us in the past secure European Patents will be able to continue to help us in the future. Likewise, when a European Patent is granted by the European Patent Office, the owner will be able to validate that patent in the UK just as it will be able to validate the patent in any other country that belongs to the EPC.

Trademarks:

Currently, trademarks may be protected in the UK either via a UK trademark registration or an European Community Trademark Office registration. Both types of registrations may be applied for directly or through the Madrid Protocol. Any departure of the UK from the EU will have no impact on a UK trademark registration. The status of European Community Trademark Office registrations as they relate to the UK is less clear.

The trademark experts we work with in the UK are uniform in the belief that some new rules will be developed. Since these new rules have not yet been developed, it is unclear whether the protections afforded by an European Community Trademark Office registration will automatically be extended into the UK or whether some re-registration process may be required. For now, our European associates are recommending that existing European Community Trademark Office registrations and applications continue to be handled as in the past and when the new rules are promulgated the steps required by those rules be then taken. If the UK is the predominant place in Europe where a company markets its goods, it may make sense to apply for registration directly in the UK now rather than wait. We are here to assist you with this.

What may change is the number of associates we will need to work with regarding trademarks if and when the UK exits the EU. We currently have associates in all major European countries, e.g., the UK, France, Germany, Italy, and Spain. Ordinarily we work with only one of them at a time to secure a European trademark registration. After any departure by the UK from the EU, we may find it necessary to work with both an associate in the UK and a different associate elsewhere in Europe. If, however, the UK decides to join the European Economic Area as a member state, like other non-EU countries such as Norway, Iceland and Lichtenstein have, we may be able to continue to use a single associate located in the UK to assist us with the trademark registration process. Also, some of our associates have offices in both the UK and other European countries.

Registering Designs:

Generally the situation is the same as for trademarks.

Concluding Comments:

In summary, the UK will remain a member of the EPC which is completely independent of the EU so BREXIT should have virtually no impact on the procurement and maintenance of European patents and protection in the UK. For the time being, we can continue to handle trademarks and designs as we have in the past. In the future, it may be necessary to take separate steps to protect trademarks and designs in the UK and in the rest of Europe. It is possible to pursue such separate protection now.

Some of our clients have trademark registrations in individual European counties separate and apart from their European registrations. We are often asked whether both are necessary since the protection afforded is somewhat redundant. These clients know that we have been reluctant to advise them to give up any of these registrations, primarily because of the earlier priority of the national registrations. Maintaining both the national and the European registrations now makes more sense than ever given the instability that has been created by the BREXIT vote in the UK. It is a distinct possibility that other EU countries will follow suit.

Unanimous Supreme Court “Clarifies” When Attorney Fees are Recoverable in Copyright Cases

June 22, 2016 By: Peter Nikolai Category: nm_news

Section 505 of the Copyright Act provides that a district court ”may . . . award a reasonable attorney’s fee to the prevailing party.” Last week, the Supreme Court attemped to clarify when such an award is proper in Kirtsaeng v. John Wiley & Sons, Inc.

Kirtsaeng, a citizen of Thailand, came to the United States 20 years ago to study math at Cornell University. He quickly figured out that respondent John Wiley & Sons, an academic publishing company, sold virtually identical English-language textbooks in the two countries—but for far less in Thailand than in the United States. Seeing a ripe opportunity for arbitrage, Kirtsaeng asked family and friends to buy the foreign editions in Thai bookstores and ship them to him in New York. He then resold the textbooks to American students, reimbursed his Thai suppliers, and pocketed a tidy profit.

Wiley sued Kirtsaeng for copyright infringement, claiming that his activities violated its exclusive right to distribute the textbooks. See 17 U. S. C. §§106(3), 602(a)(1). Kirtsaeng invoked the “first-sale doctrine” as a defense. That doctrine typically enables the lawful owner of a book (or other work) to resell or otherwise dispose of it as he wishes. See §109(a). But Wiley contended that the first-sale doctrine did not apply when a book (like those Kirtsaeng sold) was manufactured abroad.

At the time, courts were in conflict on that issue. Some thought, as Kirtsaeng did, that the first-sale doctrine permitted the resale of foreign-made books; others maintained, along with Wiley, that it did not. To settle the continuing conflict, the Supreme Court in an earlier decision involving the same case ruled 6 to 3 that the first-sale doctrine allows the resale of foreign-made books, just as it does domestic ones. See Kirtsaeng v. John Wiley & Sons, Inc., 568 U. S. ___, ___ (2013) (slip op., at 3).

Returning victorious to the District Court, Kirtsaeng invoked §505 to seek more than $2 million in attorney’s fees from Wiley. The court denied his motion. The District Court gave “substantial weight” to the “objective reasonableness” of Wiley’s infringement claim. In explanation of that approach, the court stated that “the imposition of a fee award against a copyright holder with an objectively reasonable”—although unsuccessful—“litigation position will generally not promote the purposes of the Copyright Act.” Here, Wiley’s position was reasonable: After all, several Courts of Appeals and three Justices of the Supreme Court had agreed with it. According to the District Court, no other circumstance “overr[o]de” that objective reasonableness, so as to warrant fee-shifting.

The Supreme Court agreed to consider the matter of whether the fees should be awarded to resolve disagreement in the lower courts about how to address an application for attorney’s fees in a copyright case.

In attempting to provide clarification, the Supreme Court held:

(1) The statutory language clearly connotes discretion and eschews any precise rule or formula for awarding fees;

(2) A district court may not award fees as a matter of course;

(3) A district court must make a more particularized case-by case assessment;

(4) A district court may not treat plaintiffs and defendants any differently—defendants should be encouraged to litigate meritorious defenses just as plaintiffs are encouraged to litigate meritorious claims of infringement;

(5) The objective reasonableness of the losing parties position is a key factor a district court should consider, but is not the controlling factor in every case;

(6) A district court should also consider other factors including, but not limited to:

  •  frivolousness,
  •  motivation,
  •  the need in a particular circumstance to advance considerations of compensation
  • and deterrence,
  •  litigation misconduct,
  •  repeated or overly aggressive assertion of copyright claims.

In the end, the Supreme Court indicated that district courts should consider the totality of the circumstances. The Supreme Court again sent the case back to the District Court so it could do so. As noted above, the District Court has already found that no other circumstances override Wiley’s objective reasonableness to warrant fee-shifting. As such Kirtsaeng will likely not recover his attorney fees. However, the guidance provided by the Supreme Court should prove to be most useful when framing arguments in other cases.