Federal Circuit Deems Ban On Registration Of “Immoral” Or “Scandalous” Trademarks Unconstitutional

By: Rachel B. Kinney

 In an opinion by Judge Moore, the Federal Circuit held on December 15, 2017 that the Lanham Act’s Section 2(a) bar on the registration of “immoral” or “scandalous” trademarks is unconstitutional because it violates the First Amendment.  In re: Brunetti, No. 2015-1109, slip op. at 42 (Fed. Cir. Dec. 15, 2017) (“Brunetti”).  Following the Supreme Court’s recent decision invalidating as unconstitutional the Lanham Act’s bar on the registration of “disparaging” trademarks,  see Matal v. Tam, 137 S. Ct. 1744 (2017) discussed here, the Federal Circuit’s decision in Brunetti is hardly surprising.

Lanham Act Section 2(a) bans the federal registration of trademarks that “[c]onsists of or comprises immoral . . . or scandalous matter . . .  .”  15 U.S.C. § 1052(a).  In addressing trademark owner Erik Brunetti’s appeal of the Trademark Trial and Appeal Board’s (“Board”) refusal to register the mark FUCT, the Federal Circuit held that substantial evidence supports the Board’s finding that FUCT is “vulgar” and therefore scandalous.  Brunetti at 8-9.  The Federal Circuit agreed with the Board that the FUCT mark was the “phonetic twin” of “‘one of the most offensive’ English words.”  Id. at 6 (citation omitted).  The court also agreed that the putative registrant’s declaration seeking to establish that “‘fuct’ was chosen as an invented or coined term for ‘Friends yoU Can’t Trust,’” “‘stretche[d] credulity’” “given the contradictory record evidence.” Id. at 8 (citation omitted).

Despite this holding, and the court’s finding that “the use of such marks in commerce [is] discomforting”, the Federal Circuit ultimately reversed the Board’s refusal to register FUCT because it found that Section 2(a)’s ban on immoral and scandalous marks is unconstitutional.  The Federal Circuit held that the ban on immoral and scandalous marks “impermissibly discriminates based on content in violation of the First Amendment.”  Id. at 13, 42.  The Federal Circuit declined to address whether the “immoral or scandalous” provision is also viewpoint discriminatory, the basis on which the Supreme Court in Tam invalidated Section 2(a)’s “disparaging” provision.  Id.

The Federal Circuit rejected the government’s contentions that “§ 2(a)’s content-based bar on registering immoral or scandalous marks does not implicate the First Amendment because trademark registration is either a government subsidy program or limited public forum.”  Id. at 14.  The court determined that “the subsidy line of case law cannot justify the government’s content-based bar on registering immoral or scandalous marks” and that “the registration of trademarks does not create a limited public forum in which the government can more freely restrict speech.”  Id. at 14, 20, 26.

In response to the government’s alternative argument that “trademarks are commercial speech implicating only the intermediate level of scrutiny set forth in Central Hudson,”[1] the Federal Circuit held that the government could not meet Central Hudson’s second prong requiring a substantial government interest, third prong requiring “the regulation directly advance[] th[e] government’s [asserted] interest,” and fourth prong requiring regulation that is “‘not more extensive than necessary to serve that interest.’”  Id. at 28 (citing and quoting Central Hudson Gas & Electric Corp. v. Public Serv. Comm’n, 447 U.S. 557, 566 (1980)).

The majority also criticized Judge Dyk’s proposal in the concurrence to “‘narrow the immoral-scandalous provision’s scope to obscene marks in order to preserve its constitutionality,’” noting that [w]hile the legislature could rewrite the statute to adopt such a standard, we cannot.”  Id. at 39 (citation omitted).

The Federal Circuit’s decision in Brunetti further highlights the importance of protecting private expression, “even private expression which is offensive to a substantial composite of the general public.”  Id. at 42.

[1] The Federal Circuit observed that “a regulation of purely commercial speech reviewed according to the intermediate scrutiny framework established in Central Hudson,” which set forth “a four-part test which asks whether (1) the speech concerns lawful activity and is not misleading; (2) the asserted government interest is substantial; (3) the regulation directly advances that government interest; and (4) whether the regulation is ‘not more extensive than necessary to serve that interest.’”  Brunetti at 28 (citing and quoting Central Hudson Gas & Electric Corp. v. Public Serv. Comm’n, 447 U.S. 557, 566 (1980)).

Retrial of Apple v. Samsung Design Patent Damages: Judge Koh Adopts Four-Factor Test to Determine “Article of Manufacture” and Clarifies Burdens of Persuasion and Production

By Joshua L. Young

Following remand from the United States Supreme Court’s decision clarifying the law of design patent damages, District Court Judge Lucy Koh ordered a new trial to determine damages for Samsung’s infringement of three Apple design patents. Apple Inc. v. Samsung Elecs. Co., No. 11-CV-01846-LHK, 2017 U.S. Dist. LEXIS 177199, at *110-111 (N.D. Cal. Oct. 22, 2017).

As previously discussed here, in Samsung Elecs. Co. v. Apple Inc., the Supreme Court explained that under 35 U.S.C. § 289 the issue of assigning design patent damages is a two-step inquiry: “First, identify the ‘article of manufacture’ to which the infringed design has been applied. Second, calculate the infringer’s total profit made on that article of manufacture.” 137 S. Ct. 429, 434 (2016). The Supreme Court, however, did not articulate a specific test for identifying the article of manufacture, leaving that task to the lower courts.

In her new trial order, Judge Koh adopted the four-factor test proposed by the United States Solicitor General during oral argument before the Supreme Court in Samsung. See Apple Inc., 2017 U.S. Dist. LEXIS 177199, at *50-51. The Solicitor General identified the following four-factors to be considered in identifying the “article of manufacture” under section 289:

·       “[T]he scope of the design claimed in the plaintiff’s patent, including the drawing and written description”;

·       “[T]he relative prominence of the design within the product as a whole”;

·       “[W]hether the design is conceptually distinct from the product as a whole”; and

·       “[T]he physical relationship between the patented design and the rest of the product,” including whether “the design pertains to a component that a user or seller can physically separate from the product as a whole,” and whether “the design is embodied in a component that is manufactured separately from the rest of the product, or if the component can be sold separately.”

Id. at *70-71.

Judge Koh also held that Apple had the burden of persuasion in identifying the relevant article of manufacture and proving the amount of total profit on the sale of that article. Id. at 111. Judge Koh further held that while Apple had the initial burden of production in identifying the relevant article of manufacture and proving the amount of total profit on the sale of that article, once that burden was satisfied the burden would shift to Samsung to come forward with evidence of an alternative article of manufacture and any deductible expenses. Id. at *111-112.

The parties will now have several months to engage in additional fact and expert discovery to address the new analytical framework.  A five-day jury trial begins on May 14, 2018.

Supreme Court To Decide Whether IPRs Are Constitutional

By: Kayla A. Odom

Are inter partes reviews (“IPR”) constitutional?  This question has been on the minds of inventors, patent owners, practitioners, scholars and others since Congress enacted the America Invents Act in 2012.  This past summer, the Supreme Court granted a petition for certiorari in Oil States Energy Services v. Greene’s Energy Group, 137 S. Ct. 2239 (2017).  Oil States presents the question of whether patent rights are “public rights” that may be extinguished through an administrative proceeding, or private property rights that may only be revoked in an Article III court to which the Seventh Amendment right to a jury trial applies. 

IPRs are conducted before the U.S. Patent and Trademark Office’s (“USPTO”) Patent Trial and Appeal Board (“PTAB”).  Petitioners can challenge the validity of a patent under 35 U.S.C. §§ 102 or 103, and only on the basis of prior art consisting of patents or printed publications.  The patent’s owner may respond to the petition, and if IPR is instituted, a proceeding is conducted before administrative judges of the PTAB, ultimately resulting in a decision on the patentability of the subject patent. 

In the Oil States IPR, the PTAB cancelled Oil States’ patent as anticipated by the prior art.  Greene’s Energy Group, LLC v. Oil States Energy Services, LLC, 2015 Pat. App. LEXIS 5328 (PTAB May 1, 2015).  The Federal Circuit summarily affirmed, without opinion.  Oil States Energy Servs., LLC v. Greene’s Energy Grp., LLC, 639 Fed. Appx. 639 (Fed. Cir. 2016).  On June 12, 2017, the Supreme Court granted Oil States’ petition for certiorari on the question of whether a patent is a “private right” whereby a patent may only be revoked or cancelled in courts of the United States pursuant to Article III of the Constitution, or a “public right” that may be revoked by the agency that issued the patent, the USPTO.  Oil States, 137 S. Ct. at 2339.  Relatedly, the Court will decide whether IPR proceedings violate the Seventh Amendment, which provides the right to a jury trial in certain civil cases.  Petitioner’s brief on the merits was filed August 24, 2017, and numerous briefs by amici curiae have since been submitted.  Respondent’s brief on the merits is expected later this month.

Oil States is not the first case where the constitutionality of IPRs has been challenged.  In MCM Portfolio LLC v. Hewlett-Packard Co., 812 F.3d 1284 (Fed. Cir. 2015), the patent owner appealed the PTAB’s decision that its patent was invalid.  The patent owner had argued that IPR proceedings conducted before the PTAB are unconstitutional, specifically that “any action revoking a patent must be tried in an Article III court with the protections of the Seventh Amendment.”  812 F.3d at 1288.  The Federal Circuit held that Supreme Court precedent demonstrated that Congress’ grant of authority to the USPTO to cancel an issued patent did not violate Article III.  Id. at 1289.  The Federal Circuit reaffirmed the principle that Congress has the power to delegate disputes over “public rights” to non-Article III agencies.  Id.  Reasoning that “the issuance of a valid patent is primarily a public concern, ” the Federal Circuit held that the patent right “derives from a federal regulatory scheme” and that Congress “saw powerful reasons to utilize the expertise of the PTO for an important public purpose—to correct the agency’s own errors in issuing patents in the first place.”  Id. at 1290-91.  Since patents are “public rights,” the Federal Circuit concluded, IPR proceedings were constitutional.  Id.  The Supreme Court denied MCM’s petition for certiorari.

In Cascades Projection LLC v. Epson Am., Inc., 864 F.3d 1309 (Fed. Cir. 2017), the PTAB held the patent owner’s patent unpatentable in two separate IPR proceedings.  The patent owner challenged the constitutionality of IPRs, but since a three-judge panel could not overrule the MCM Portfolio precedential decision, the patent owner asked the full Federal Circuit to rehear the case en banc.  Cascades’ petition for rehearing en banc was denied per curiam.  864 F.3d at 1310.  Judge Newman, in a concurring opinion, stated that the constitutionality question should be resolved after “full opportunity for panel consideration” and that that the issue to ultimately be decided would be “whether the statutory scheme created by the America Invents Act, in which the Office is given an enlarged opportunity to correct its errors in granting a patent, with its decision subject to review by the Federal Circuit, meets the constitutional requirements of due process in disposition of property.”  Id. at 1311.  Judge Dyk, also concurring, wrote that MCM Portfolio was correctly decided and that the Supreme Court has “repeatedly made clear that such public rights may be adjudicated in the first instance by an administrative agency.”  Id. at 1312.

Judges O’Malley and Reyna each separately dissented, expressing that serious questions remained about MCM Portfolio, and that the full court should have heard the case.  Judge O’Malley stated that “it is far from certain that MCM’s underlying premise—that patent rights are public rights—is correct.”  Id. at 1313.  Without opining on the merits, Judge O’Malley said that the case “raises exceptionally important questions of constitutional law and separation of powers principles that warrant our careful consideration.”  Id. at 1314.  Citing Stern v. Marshall, 564 U.S. 462, 503 (2011), Judge O’Malley continued that “the Supreme Court has warned that allowing Congress to confer judicial authority outside Article III ‘compromise[s] the integrity of the system of separated powers and the role of the Judiciary in that system.’”

Judge Reyna, in a lengthy dissent discussing the history surrounding the Patent Clause in the Constitution and the case law leading up to the current question, stated that McCormick Harvesting Machine Co. v. Aultman, 169 U.S. 606, 609 (1898) “is the law of the land.”  Cascades Projection, 864 F.3d at 1319.  McCormick established that “[t]he only authority competent to set a patent aside, or to annul it, or to correct it for any reason whatever, is vested in the courts of the United States, and not in the department which issued the patent.”  Cascades Projection, 864 F.3d at 1314.  Judge Reyna would have granted Cascades’ petition given the Federal Circuit decisions since McCormick, and the enactment of the America Invents Act which “gave birth to inter partes review,” and that the “core of this dispute involves substantial questions of property rights, Article III, and the Seventh Amendment.”  Cascades Projection, 864 F.3d at 1314.  “We should not ignore these important questions that lie at our doorstep.”  Id.  Judge Reyna concluded that “inter partes review may be the type of agency activity that saps the judicial power as it exists under the federal Constitution and establishes a government of a bureaucratic character alien to our system.”  Id. at 1326 (citation omitted).

Oil States will be a much anticipated decision for all involved in the patent ecosystem.  If upheld as constitutional, IPR proceedings will continue but there will remain unanswered questions about various aspects of the PTAB’s procedures.  Some existing issues such as decisions to institute, the estoppel effect of PTAB decisions, and the propriety of so-called “serial petitioning” will likely remain at the forefront.  On the other hand, if IPRs are found to be unconstitutional, myriad new questions will arise, including, for example, the retroactive effect of such a decision, the existence or non-existence of any remedy or relief for patent owners who lost their patents in IPR proceedings, and the fate of other existing post-issuance review procedures.  Oral argument in Oil States has been set for November 27, 2017.  Until then, the future of IPR proceedings remains uncertain.

Supreme Court Rejects Appellate Jurisdiction Over Class Certification Appeals Following Voluntary Dismissal With Prejudice

On June 12, 2017, the Supreme Court answered “no” to the question whether federal courts of appeals have jurisdiction under 35 U.S.C. section 1291 to review adverse class orders after the named plaintiffs have voluntarily dismissed their claims with prejudice.  Microsoft Corp. v. Baker, 137 S. Ct. 1702 (2017), Slip Op. at 11. 

In 2007, Microsoft Corporation was sued for an alleged product defect of its Xbox 360 video-game console.  Slip Op. at 8.  The Xbox-owner plaintiffs sought class certification in May 2009.  In re Microsoft Xbox 360 Scratched Disc Litig., No. C07-1121-JCC, 2009 WL 10219350, at *2 (W.D. Wash. Oct. 5, 2009).  The district court denied class certification, holding that individual issues of damages and causation predominated over common issues.  Id. at *6–*7.  The plaintiffs petitioned the Ninth Circuit under Rule 23(f) for leave to appeal the class-certification denial, but the Ninth Circuit denied the request.  Baker v. Microsoft Corp., 851 F. Supp. 2d 1274, 1276 (W.D. Wash. 2012).  Thereafter, the plaintiffs settled their claims individually. 

In 2011, a new lawsuit alleging the same Xbox design defect was filed in the same court.  Id. at 1275-76.  The new plaintiffs argued the class-certification analysis in the earlier case did not control because an intervening change in law overcame the previous certification denial.  Id. at 1277-78.  The district court disagreed and struck the class allegations.  Id. at 1280-81.  The plaintiffs petitioned the Ninth Circuit under Rule 23(f) for leave to appeal, arguing interlocutory review was appropriate because the order would “effectively kil[l] the case” as the claims made it “economically irrational to bear the cost of litigating th[e] case to final judgment.”  Slip Op. at 9.  The Ninth Circuit denied the petition. 

The plaintiffs then stipulated to a voluntary dismissal of their claims “with prejudice,” but reserved the right to revive their claims should the district court’s certification denial be reversed.  Maintaining that the defendants would have “no right to appeal,” Microsoft stipulated to the dismissal.  Id. at 10.  The district court granted the stipulated dismissal.  The plaintiffs thereafter appealed the district court’s interlocutory order striking their class allegations – not the dismissal order – to the Ninth Circuit under section 1291.  Id.

On appeal, the Ninth Circuit rejected Microsoft’s argument that the plaintiffs’ dismissal impermissibly circumvented Rule 23(f).  Id.  The Ninth Circuit ultimately held the district court had misapplied the comity doctrine and remanded on the question whether a class should be certified.  Baker v. Microsoft Corp., 797 F.3d 607, 610 (9th Cir. 2015).  Thereafter the Supreme Court granted Microsoft’s petition for a writ of certiorari.

Because the plaintiffs’ voluntary dismissal “subverts the final-judgment rule and the process Congress has established for refining that rule and for determining when non-final orders may be immediately appealed,” the Supreme Court held the tactic “does not give rise to a ‘final decisio[n]’ under §1291.”  Slip Op. at 12.  The Supreme Court highlighted its recognition that “finality is to be given a practical rather than a technical construction.”  Id. (quoting Eisen v. Carlisle & Jacquelin, 417 U. S. 156, 170, 171 (1974).  “Repeatedly we have resisted efforts to stretch §1291 to permit appeals of right that would erode the finality principle and disserve its objectives.”  Id

Rule 23(f) was crafted carefully by rule makers, the Supreme Court said, leaving the sole discretion to the courts of appeals.  Slip Op. at 15.  That careful crafting “warrants the Judiciary’s full respect.”  Id. (quoting Swint v. Chambers County Comm’n, 514 U. S. 35, 48 (1995)).  [E]ven plaintiffs who altogether bypass Rule 23(f) may force an appeal by dismissing their claims with prejudice,” under the plaintiffs’ logic.  Id.  If such logic were embraced, the Supreme Court said, “Congress[‘] final decision rule would end up a pretty puny one.”  Slip Op. at 16 (quoting Digital Equipment Corp. v. Desktop Direct, Inc., 511 U. S. 863, 872 (1994)).

Supreme Court Declares Unconstitutional Lanham Act Provision Banning Registration Of “Disparaging” Trademarks

By: Rachel B. Kinney

 On June 19, 2017, the Supreme Court in Matal v. Tam, 582 U.S.___ (2017) unanimously invalidated as unconstitutional the 70-plus year-old provision of Section 2(a) of the Lanham Act that bans federal registration of trademarks “which may disparage . . . persons living, or dead, institutions, beliefs, or national symbols, or bring them into contempt or disrepute.”  The Court held that this “disparagement” clause of the Lanham Act “violates the Free Speech Clause of the Frist Amendment” and “offends a bedrock First Amendment principle: Speech may not be banned on the ground that it expresses ideas that offend.”  Id.

This case involves Simon Tam, lead singer of an Asian-American rock band, who sought federal registration of the mark THE SLANTS.  The Court described Mr. Tam as believing “that by taking that slur as the name of their group, they will help to ‘reclaim’ the term and drain its denigrating force.”  Id. at 1.  The Patent and Trademark Office (“PTO”) refused registration pursuant to Section 2(a) of the Lanham Act, finding the mark disparaging to persons of Asian descent.  After unsuccessfully contesting the denial before the PTO’s Trademark Trial and Appeal Board, Mr. Tam appealed.  The en banc Federal Circuit found the Lanham Act’s disparagement clause facially unconstitutional under the First Amendment’s Free Speech clause, which prohibits the government from regulating speech in ways that favor some viewpoints at the expense of others.  Id. at 7, 13.  The Supreme Court granted the Government’s petition for certiorari to decide “whether the disparagement clause ‘is facially invalid under the Free Speech Clause of the First Amendment.’”  Id. at 8.

The Court affirmed the Federal Circuit, and rejected the Government’s contentions “(1) that trademarks are government speech, not private speech, (2) that trademarks are a form of government subsidy, and (3) that the constitutionality of the disparagement clause should be tested under a new government-program doctrine.”  Id. at 12.

The Court observed that it has long held that the First Amendment does not regulate government speech.  Id. at 12-13.  But to prevent the risk of government “silenc[ing] or muffl[ling] the expression of disfavored viewpoints,” the Court exercises “great caution” before extending its government-speech precedents.  Id  at 14.  The Court specifically held that “trademarks are private, not government, speech.”  Id. at 18.  The Court commented that “it is far-fetched to suggest that the content of a registered mark is government speech,” since the Government does not “dream up” or “edit marks submitted for registration,” and the PTO is not authorized to unilaterally remove a mark from the register.  Id. at 14.  The Court further explained that “none of [its] government speech cases even remotely supports the idea that registered trademarks are government speech.”  Id. at 16.

The Court quickly rejected the Government’s “government subsidy” and “government program” arguments.  The Court noted that “the federal registration of a trademark is nothing like the programs at issue” in cases upholding the constitutionality of government programs that subsidized speech expressing a particular viewpoint.  It held that the “disparagement clause cannot be saved by analyzing it as a type of government program in which some content- and speaker-based restrictions are permitted” because “the disparagement clause discriminates on the bases of ‘viewpoint,’” which the First Amendment forbids.  Id. at 22-23. The Court explained that the disparagement clause “denies registration to any mark that is offensive to a substantial percentage of the members of any group.  That is viewpoint discrimination in the sense relevant here: Giving offense is a viewpoint.”  Id. at 22.

Tam includes two concurring opinions, one by Justice Kennedy in which he further wrote that “the First Amendment’s protections against viewpoint discrimination,” and another by Justice Thomas, which advocated that strict scrutiny should apply when the government seeks to restrict speech.

This case is a strong indication of the Court’s reluctance to allow government censorship, and the ruling has several likely implications.  Although the Court did not directly address Section 2(a)’s provision barring registration of “immoral or scandalous” marks, given the Court’s invalidation of Section 2(a)’s disparagement clause, practitioners and the PTO are likely to reevaluate the effect of the Lanham Act’s ban on registration of “immoral or scandalous” marks, among other things.

For “live” trademark applications currently facing a disparagement refusal, the PTO will very likely allow those marks to proceed to publication.  Although the PTO will likely see an influx of trademark applications for “offensive” or “disparaging” marks, it is doubtful that the marketplace will actually be flooded with marks that are hateful or offensive.  Most brands do not use nor are inclined to use marks that are likely to offend. 

As for Simon Tam and The Slants, they are not the only brand celebrating the Court’s ruling.  The Court’s decision is also a victory for professional football team Washington Redskins whose appeal of the cancellation of its REDSKINS trademark registrations has been stayed pending the Court’s decision in Tam.  

Supreme Court Clarifies “Article of Manufacture” In Design Patent Cases, And Reverses $400,000,000 Jury Award To Apple

On Tuesday December 6, 2016, in Samsung Electronics Co. v. Apple Inc., 580 U.S. ___ (2016), the Supreme Court unanimously rejected the Federal Circuit’s “narrow reading” of “article of manufacture” for purposes of damages for infringement of a design patent, and reversed the Federal Circuit’s affirmance of a $400,000,000 damages award to Apple.  The Court’s decision is an important step toward limiting what many have viewed as an outdated damages regime for design patent infringement.

The Patent Act prohibits the unlicensed use of a patented design “or any colorable imitation thereof, to any article of manufacture for the purpose of sale” as well as the unlicensed sale or exposure to sale of “any article of manufacture to which [a patented] design or colorable imitation has been applied.”  35 U.S.C. § 289.  A successful design patent plaintiff is entitled to recover from an infringer the “total profit” from the unauthorized use of “the patented design” on the “article of manufacture.”  Id.

Apple sued Samsung in 2011, alleging that various Samsung smartphones infringed three design patents.  Slip Op. at 3-4.  The design patents covered “a black rectangular front face with rounded corners,” “a rectangular front face with rounded corners and a raised rim,” and “a grid of 16 colorful icons on a black screen.”  Id. at 3.  In 2012, a jury found that some of Samsung’s smartphones infringed the design patents and awarded Apple $399,000,000 in damages.  Id. at 4.  This amount was based on the “total profit” Samsung made from its sales of the infringing smartphones.  Id.; 35 U.S.C. § 289. 

On appeal to the Federal Circuit, Samsung argued that the damages award was improperly calculated because it was based on profits derived from the entirety of each infringing smartphone, rather than the components of the phones found to infringe the Apple design patent (i.e., the camera shell or body).  Id.; see 786 F.3d at 1002.  According to Samsung, because each Samsung smartphone was comprised of numerous components, the damages should have been limited to profits attributable to the components that incorporated the patented designs.  Id.  The Federal Circuit disagreed, finding that the components of each smartphone were not sold separately from the smartphone as a whole, and therefore did not qualify as “distinct articles of manufacture to ordinary purchasers.”  Id.  In the Federal Circuit’s view, only the smartphone in its entirety qualified as an “article of manufacture” within the meaning of section 289.  Id

The Supreme Court reversed.  The Court framed the issue of assigning design patent damages as a two-step inquiry:  first, identification of the “article of manufacture” to which the infringing design has been applied; second, to calculate the infringer’s profit made on the article of manufacture.  Samsung required the Court to consider the Federal Circuit’s evaluation of the first step.  Samsung, 580 U.S. at ___ (slip op., at 5).

The Supreme Court explained that “[t]he text [of §289] resolves this case.”  Id. at 6.  The Court held the Federal Circuit’s restriction of “article of manufacture” to only a final product sold to a consumer was a “narrow” reading of section 289 that “cannot be squared with the text.”  Id. at 7-8.  “The term ‘article of manufacture,’ as used in §289, encompasses both a product sold to a consumer and a component of that product.” Samsung, 580 U.S. at ___ (slip op., at 6).  Relying on dictionary definitions to support its conclusion that “an article of manufacture . . . is simply a thing made by hand or machine,” the Court held that the statutory language is broad enough to encompass the individual components of a multicomponent device.  Id.  The Court further noted that its interpretation of “article of manufacture” was consistent with the term’s use in 35 U.S.C. §171, the provision governing what subject matter can qualify for a design patent, and 35 U.S.C. §101, the provision governing what subject matter can qualify for a utility patent.  Id. at 6-7.

The Court declined, however, to decide whether “for each of the design patents at issue here, the relevant article of manufacture is the smartphone, or a particular smartphone component.”  Id. at 8.  The Court explained that such a determination would require it to develop a test for identifying relevant articles of manufacture.  Id.  While the United States as amicus curiae had proposed a test,[1] neither Samsung nor Apple had briefed the issue.  The Court declined to articulate a test, instead leaving it to the lower courts to fashion a methodology for identifying the “article of manufacture” to which liability for design patent infringement may attach.

Various implications of Samsung seem likely.  While clarification of the “article of manufacture” is important to the ongoing development of patent damages law, it may not prove the most challenging aspect of the inquiry.  In many cases, identification of the article of manufacture is more straightforward that ascertaining the “total profits” derived from the sale of the article.  The latter issue will almost certainly require new expert and trial approaches to establishing, or refuting, damages associated with infringement of a design patent.  Also, the Court’s decision almost certainly will mean that many design patents will be viewed as not carrying the same value they did prior to Samsung.  Nevertheless, the additional clarity that will result from Samsung, and the lower courts’ application of it, will help parties better evaluate their rights and exposure in the marketplace and litigation.  It will also help to sharpen the focus on valuation of design patent assets, and portfolios in which they exist.

-- By Jason S. Angell and Josh Young

[1] The Government proposed a case-specific “article of manufacture” test that called for the fact finder to consider the scope of the design claimed in the plaintiff’s patent, the relative prominence of the design within the product as a whole, whether the design is conceptually distinct from the product as a whole, and the physical relationship between the patented design and the rest of the product.  Brief for United States as Amicus Curiae 27–29. 

Supreme Court Relaxes Standard for Proving Willful Infringement

In Halo Electronics, Inc. v. Pulse Electronics, Inc., et al., No. 14-1513, a unanimous opinion by Chief Justice John Roberts, the Supreme Court today overturned the two-part test for willful infringement that the Federal Circuit established in 2007 in In re Seagate Technology, LLC, 497 F.3d 1360 (Fed. Cir. 2007) (en banc).  The Supreme Court held that the lower court’s test was too rigid and unfairly protected infringers that had willfully infringed the patent rights of others.  Importantly, today’s holding establishes that district courts have broad discretion to evaluate whether a party has willfully infringed a patent such that it should be liable for enhanced damages under the Patent Act.

Upon a finding of infringement, a district court “shall” award a successful plaintiff in an action for patent infringement “damages adequate to compensate for the infringement.”  35 U.S.C. § 284.  In addition, the district court “may increase the damages up to three times the amount found or assessed.”  Case law interpreting § 284 has long held that enhanced damages may be available in cases of “willful” infringement.

The law of enhanced damages under § 284 has been the subject of some controversy over the years.  Soon after it was established, the Federal Circuit established an “affirmative duty of due care” that effectively required accused infringers to present an opinion of counsel in order to successfully defeat a willfulness claim.  See Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F. 2d 1380 (1983).  The “affirmative duty of due care” foreseeably created tension with respect to the attorney-client privilege.  Twenty years later, the Federal Circuit changed the law in ways that represented a significant pendulum swing in the opposite direction. 

In 2007, abandoning the “affirmative duty of due care” standard, the Federal Circuit established a two-part test to be used to determine when it would be appropriate to enhance damages under § 284 for willful infringement.  See In re Seagate, supra.  The first step of the willfulness inquiry required the plaintiff to prove by clear and convincing evidence that “the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.”  The second step required the plaintiff to demonstrate by clear and convincing evidence that the “objectively-defined risk . . . was either known or so obvious that it should have been known to the accused infringer.”  In practice, an infringer that made a showing that a “reasonable” defense existed (or, in other words, raised a “substantial question” as to validity or noninfringement) could defeat a willfulness claim at step one, and few cases proceeded to step two. 

Today’s Supreme Court opinion held that the Seagate test was not consistent with § 284.  The Supreme Court reviewed two willfulness decisions from the Federal Circuit.  In the first case, Halo Electronics had sued Pulse Electronics for patent infringement.  A jury found Pulse liable for infringement, and that there was a high probability Pulse had done so willfully.  However, the district court declined to award enhanced damages under § 284 because it determined Halo could not show objective recklessness under the first step of Seagate.  The basis for the court’s finding was that Pulse had presented at trial a defense that “was not objectively baseless, or a ‘sham.’”  The Federal Circuit affirmed. 

In the second case, a jury found that Zimmer had willfully infringed Stryker’s patents.  The district court awarded treble damages under § 284, noting the enhancement was appropriate “[g]iven the one-sidedness of the case and the flagrancy and scope of Zimmer’s infringement.”  The Federal Circuit vacated the award of treble damages, concluding that enhanced damages were unavailable because Zimmer had asserted “reasonable defenses” at trial.

The Supreme Court vacated the judgments of these two Federal Circuit cases and remanded them for further proceedings.  The Supreme Court came to three important conclusions.  First, the Supreme Court rejected the idea that an independent showing of “objective recklessness” should be a prerequisite to enhanced damages.  The opinion held that an infringer’s subjective willfulness may warrant enhanced damages without regard to whether its infringement was objectively reckless.  Culpability is generally measured against an actor’s knowledge at the time of the challenged conduct.  The Federal Circuit’s Seagate framework erroneously made dispositive the ability of the infringer to muster a reasonable defense at trial, even if it did not act on the basis of that defense, or was even aware of it. 

Second, the Supreme Court rejected the Federal Circuit’s requirement that recklessness be proved by clear and convincing evidence, and held § 284 is governed by the preponderance of the evidence standard.  The Supreme Court noted that Congress erected a higher standard of proof elsewhere in the Patent Act, but not in § 284. 

Third, the Supreme Court held that the district court’s determination on whether enhanced damages are appropriate is to be reviewed on appeal for abuse of discretion.  In doing so, the Supreme Court rejected the Federal Circuit’s tripartite appellate review framework, which required reviewing the first step – objective recklessness – de novo, the second step – subjective knowledge – for substantial evidence, and the ultimate decision – whether to award enhanced damages – for abuse of discretion.

Today’s decision reflects the continuing trend of the Supreme Court’s correction of the Federal Circuit’s interpretation of the Patent Act.  It will also be considered a win for patent owners, many of whom view recent decisions from the Supreme Court and the Federal Circuit as tipping the balance against patent holders.  Nevertheless, the Supreme Court emphasized that enhanced damages remain reserved for egregious cases typified by willful misconduct.  Elimination of the Federal Circuit’s Seagate test reestablishes that it is the “over nearly two centuries of application and interpretation of the Patent Act” that again guides district courts in applying § 284.

TC Heartland: No Tightening Of Plaintiffs’ Ability To Choose A Friendly Patent Venue

By: Jason S. Angell

A frequent complaint from accused patent infringers is that they often are sued in far-flung jurisdictions that are considered “plaintiff-friendly,” such as the Eastern District of Texas, Delaware, or, more recently, the Middle District of Florida.  Defendants complain that requiring them to defend a patent case in a jurisdiction in which they have no operations or personnel is inappropriate and unfair.  However, the Federal Circuit has long held that venue is proper in jurisdictions where defendant’s goods are sold, and thus infringing acts have occurred in the jurisdiction.  The Federal Circuit reaffirmed that rule in its rejection of a closely-watched mandamus proceeding initiated by TC Heartland LLC (“TC Heartland”). In re: TC Heartland LLC, Case No. 16-105 (Fed. Cir. April 29, 2016).