Milbank… has established a significant intellectual property practice … – Benchmark Litigation 2011 is renowned in the patent litigation field, thanks to its handling of major infringement cases for clients in a diverse range of sectors. The team also undertakes a significant amount of licensing work, both domestically and abroad. Clients benefit from the firm’s international platform, which includes offices in the USA, Europe and Asia. SOURCES SAY: “They have stood up and actually argued cases in court; they’ve got great trial experience under their belts.” – Chambers USA 2010 is recommended for IP patent litigation – PLC Which Lawyer? 2010 is a leading IP firm for contentious patent matters – Managing Intellectual Property’s World IP Survey 2010

2 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 CONTENTS

INTRODUCTION PHARMACEUTICALS AND BIOTECHNOLOGY Considering the impact of new legislation on biologics in the US 11 Errol B. Taylor and Lawrence T. Kass Was the Concern That KSR was a Game-Changer Justified? Not For Chemical Cases Before 13 the Federal Circuit Fredrick M. Zullow and Anna Brook The Challenger Is Prepared, Are You? Strategies for Preparing to Enforce Patents Covering 20 Pharmaceutical Products John M. Griem and Lawrence T. Kass Implications of ‘Ariad’ for Describing Biological and Chemical Inventions 24 Lawrence T. Kass and Nathaniel T. Browand The Biosimilar Ballet: Patent Litigation Under the 2010 Health Care Reform Act 28 Arie M. Michelsohn Speaking Engagement:

. Practising Law Institute’s Patent Damages in Flux? Harmonizing Recent Federal Circuit Decisions with the Georgia-Pacific Factors 2010, San Francisco, CA IP partner Jack Griem chaired the program and IP partner Fred Zullow participated in a panel on Strategies for Damages Presentations in Pharmaceutical Litigation. SOFTWARE AND BUSINESS METHODS

Supreme court Invalidates Patent on Hedging Risk but Leaves Door Open for Less “Abstract” 35 Business Method Mark C. Scarsi and Blake Reese Learning from the Goldman Sachs Trade Secret Case 37 Mark C. Scarsi What Can Decisions by European Courts Teach Us About the Future of Open-Source Litigation 39 in the United States Christopher J. Gaspar and Jennifer Buchanan O’Neill Commentary: Cloud Computing Tips for Broker-Dealers, ATSs and ECNs 55 Richard Sharp (Partner, Litigation and Arbitration Group), Blake Reese and Michael D. Kurzer Judicially Re(De)Fining Software Patent Eligibility: A Survey of Post-Bilski Jurisprudence 59 Blake Reese Speaking Engagements: . 2010 AIPLA Annual Spring Meeting, New York, NY IP partner Chris Gaspar presented on “The Fundamentals of Open Source Licensing.” . University of Florida, Dinner for the Association for Computing Machinery, Industrial Advisory Board and Faculty of the University of Florida’s Computer & Information Sciences & Engineering Department, and Association of Graduate Students in Computer Information Science and Engineering, Gainesville, FL IP associate Blake Reese presented on “Judicially Re(de)fining the Patent Eligibility of Software.”

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 3 . Financial Technologies Forum LLC’s Cloud Computing on Wall Street: A Breakfast Briefing, New York, NY Litigation partner Rick Sharp moderated a panel titled “Regulation, Risk Management & Compliance,” which discussed disaster recovery, licensing and regulatory issues. IP associates Blake Reese and Michael Kurzer co-authored the materials for the panel discussion. CLEAN ENERGY ITC patent dispute over wind turbines turns political 83 Lawrence T. Kass Speaking Engagements: . Infocast’s 3rd Annual Utility Scale Solar Summit 2010. IP partner Larry Kass moderated a panel entitled, “Concentrated Solar Thermal Technology (CSP) Providers,” which discussed the pros and cons of a number of emerging CSP technologies competing for utility scale market acceptance and the benefits they provide. . GTCbio’s The Future of Bio-based Chemicals – Inception to Marketplace, San Francisco, CA. IP partner Larry Kass’s presentation titled, “Knowing Your Investors when Securing Funding for Biofuels,” focused on intellectual property in discussing the relative importance of assets and risks for biofuel entities, whether and how these dynamics are changing as the biofuel market matures, and investment trends globally and domestically. . AIPLA’s “Intellectual Grid”: Intellectual Property Issues in Smart Grid Innovations (Webinar). IP partner Larry Kass and other members of the panel discussed the basic parts of the smart grid; the technical & business backdrop of smart grid-related innovations; and IP issues & landscape in the space. BANKRUPTCY International Trade Commission Intellectual Property Investigations: An Exception to 89 the Bankruptcy Code’s Automatic Stay? James R. Klaiber and Bradley S. Friedman (Associate, Financial Restructuring Group) Back to the Future (Lubrizol): Qimonda Bankruptcy Provides Debtors with a Windfall at the 96 Expense of Their IP Licensees Blake Reese and Bradley S. Friedman (Associate, Financial Restructuring Group) Back to the Future (Lubrizol) Part II: An Update on the Qimonda Bankruptcy 99 Blake Reese and Bradley S. Friedman (Associate, Financial Restructuring Group) Speaking Engagement: . BNA LegalEdge’s “Back to the Future (Lubrizol): An overview of IP & Bankruptcy issues, Chapter 15, and the Qimonda Proceeding” (Webinar) IP partner Michael Murray moderated and associates Blake Reese (Intellectual Property) and Brad Friedman (Financial Restructuring) were panelists. They discussed the importance of understanding intellectual property issues in bankruptcy and financial restructuring, and how strategy may have been affected by the recent Qimonda decision.

OTHER HOT ISSUES A (Markup) Language Barrier - i4i v. Microsoft 107 Christoper E. Chalsen Divided Congress may Create Perfect Storm for Patent Reform 109 Mark C. Scarsi Obvious to the Most Casual Observer? 111 Christopher E. Chalsen

4 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 The Central District of California: Effectively Navigating the New Home for Patent Litigation 113 Mark C. Scarsi Predicting the Future of Patent Misuse Remedies 116 James R. Klaiber and Jeffrey W. Lesovitz Amicus Brief regarding Inequitable Conduct on behalf of American Intellectual Property Law Association (AIPLA) in Therasense v. Becton, Dickenson et al. (http://www.aipla.org/advocacy/judicial/jud2010/Documents/AMC_2010-08-02_Therasense.pdf) Christopher E. Chalsen, Lawrence T. Kass and Nathaniel T. Browand Amicus Brief to the U.S. Supreme Court regarding privacy in the workplace on behalf of the New York Intellectual Property Law Association (NYIPLA) in the City of Ontario v. Quon (http://epic.org/privacy/quon/08-1332_RespondentAmCuNYIPLA.pdf) Christopher J. Gaspar in conjunction with NYIPLA Privacy Law Committee (Supreme Court cited Brief favorably in its June 17, 2010 published decision) To Mark, Or Not To Mark 122 Chris L. Holm Speaking Engagements: . IPO’s Asia Practice Committee Meetings, Beijing, People’s Republic of China. IP practice group leader Chris Chalsen, who is Vice Chair of IPO’s Asia Practice Committee, co-led the delegation’s meetings with various IP-related organizations in China. Delegates shared experiences and perspectives with patent practitioners and the judiciary of China on intellectual property practice. . Intellectual Property Owners, Inc. (“IPO”) Annual Meeting, Atlanta, GA. IP partner Chris Chalsen participated in an international panel on “The Sum of All Fears: Compulsory Licensing as an Emerging IP Issue.” The panel discussed recent developments, issues, cases and legislation associated with compulsory licensing from various geographical perspectives, including the U.S., Europe, Taiwan and China. . 2010 AIPLA Partnering in Patents Conference – An Open Dialogue between the USPTO and the Bar, Washington, DC. IP partner Chris Gaspar presented on “Latest Guidelines to Obviousness from the Courts.” . IPO’s Winning Trade Secrets Litigation: The Plaintiff’s Toolkit (Webinar). Chris Gaspar participated in a panel that discussed various tools to protect a company’s valuable information and competitive position. They discussed various issues, including preliminary injunction strategies, protecting trade secrets from disclosure and use of protective orders, and effective case and trial themes. . NYIPLA’s CLE patent program, New York, NY. IP associate Jim Klaiber participated in the Settlement & Damages panel. He presented on “Using Settlement – Negotiated Licenses in Litigation, and Using Licenses in Settlement Negotiation.” IP associate Wayne Chang provided assistance in the preparation of the presentation. . NYC Bar: Intellectual Property Due Diligence in Business Transactions, New York, NY. IP associate Jim Klaiber presented on “Patent Due Diligence”, and discussed the types of transactions in which due diligence investigations occur, the purpose of patent due diligence, scope of the investigation, the importance of representations and warranties, and tips for recording security interests in the US Patent and Trademark Office.

MILBANK INTELLECTUAL PROPERTY TEAM

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 5 6 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 Introduction

Milbank Intellectual Property Year in Review At Milbank, we serve our clients not only by recognizing and studying important developments in intellectual property law as they occur, but also by timely evaluating their potential impact on our clients’ legal and business concerns. Throughout the past year, a number of developments have impacted intellectual property law in the areas of biopharma, software, business methods, cloud computing, clean energy and bankruptcy, in addition to numerous other areas. Milbank IP attorneys have evaluated these developments and applied them in practice, while educating the profession through articles and presentations. This annual IP review presents a selection of articles from 2010 addressing issues that continue to be cutting edge in 2011. Milbank is a leading international law firm that has been providing legal solutions to clients throughout the world for more than 140 years. Our lawyers operate out of 11 global offices, including a newly-opened office in São Paolo, Brazil. Our intellectual property law group leverages multi-jurisdictional resources and capabilities to provide comprehensive and sophisticated IP services that the world’s leading businesses require. In addition, we apply our intellectual property expertise for our world renowned clean energy project finance and bankruptcy practices. Our lawyers, most of whom are technically trained, have a wealth of expertise in a diverse array of technologies. As a result, the articles in this review at the same time reflect the authors’ depth of understanding and their diversity of expertise. The following is a summary of the five areas we focus on in this year’s IP annual review. Section I: Pharmaceuticals and Biotechnology Several important developments for pharmaceuticals and biotechnology arose in 2010. Most significant perhaps was the new legislation for follow-on biologics (FOBs), the Biologics Price Competition and Innovation Act, which was passed under the Patent Protection and Affordable Care Act as part of the heath care reform of 2010. In Financier Worldwide’s “Global Reference Guide -- Biotech & Pharmaceuticals 2010,” Errol Taylor and Larry Kass summarized the newly enacted legislation, compared it to the Hatch-Waxman Act, and discussed its potential impact on innovators. And in an article for Corporate Counsel, Arie Michelsohn drilled down to describe the complex “dance” that biologic innovators and generics must perform in the prelude to an FOB litigation under the new legislation. Milbankers also analyzed recent developments that were seen as potentially paradigm shifting and put them into practical perspective based on recent experience. In an article for BNA’s Patent, Trademark & Copyright Journal, Fred Zullow and Anna Brook provided an in-depth analysis that questioned the

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 7 impact of KSR v. Teleflex on chemical during the year, Rick Sharp, Blake foreign debtor to administer its U.S. cases before the Federal Circuit, Reese and Michael Kurzer provided assets, as exemplified by bankruptcy and found KSR has not turned out tips and guidance for financial proceedings concerning Qimonda AG. to be the “game changer” many institutions on how to approach thought it would be. For that same outsourcing agreements with Section V: Other Hot Issues journal, Jack Griem and Larry Kass cloud computing service providers, Milbank attorneys addressed several drew upon their knowledge about a focusing on the need for service other hot issues in 2010. Chris number of recent developments in level commitments and regulatory Chalsen wrote in Inside Counsel biopharma cases to suggest strategies compliance. about how the Supreme Court that pharmaceutical patent holders Section III: Clean Energy recently sent shock waves through might take in preparing for generic the profession by granting certiorari challenges. Larry and Nate Browand In 2010, clean energy continued to in i4i v. Microsoft to review a Federal also followed up on an article they draw attention from the profession, Circuit decision on a fundamental coauthored in 2009, where they the public, and policymakers. Larry patent principle: the presumption had asked “Is There A Written Kass authored an article in the National of patent validity. Mark Scarsi was Description Requirement After All?” Law Journal studying how the GE v. featured in Inside Counsel and BNA’s In 2010, the Federal Circuit issued Mitsubishi wind turbine litigation at Patent, Trademark & Copyright Journal, its landmark en banc opinion in Ariad the ITC transformed into a public with his articles addressing such Pharms. Inc. v. Eli Lilly & Co. Larry policy dispute, drawing in numerous diverse issues as the political climate and Nate authored an article in the prominent politicians as advocates favoring patent reform, ethical issues New York Law Journal explaining how for one side or the other. Larry was arising in international IP practice, the en banc opinion answered their extensively quoted about the GE v. and tips for patentees planning to sue question with a definitive “yes” and Mitsubishi litigation in a number of in the Central District of California, further analyzed the impact of the articles in The New York Times and a growing hub for patent litigation. multifaceted opinion. Windpower Monthly. He also covered The issue of obviousness became hot Section II: Software and other clean energy technologies again in 2010, and Milbankers were Business Methods as well, participating in several on top of it. Chris Chalsen wrote prominent speaking engagements, about the so-called “common sense” As we entered 2010, the fate of panel discussions and webinars that obviousness test for patentability, a software and business method addressed solar energy, biofuels, and concept that cropped up in KSR and patentability was in jeopardy. Many the smart grid. is now starting to pervade Federal predicted the U.S. Supreme Court Circuit obviousness jurisprudence. would simply render such subject Section IV: Bankruptcy Chris Gaspar presented on the latest matter unpatentable. But in its Milbank IP and bankruptcy practices guidelines to obviousness from the landmark opinion of Bilski v. Kappos, complement each other and combine courts. Remedies also reappeared the Court took a more nuanced -- to provide substantial expertise in as a hot issue in 2010. Chris Chalsen some say confused -- approach that navigating intellectual property issues presented at the IPO annual meeting left the door open to patentability. arising in bankruptcy proceedings about the emerging remedy of Mark Scarsi and Blake Reese analyzed and restructuring transactions. compulsory licensing, which for the decision and its impact on Milbankers shared some of that patentees may be the sum of all business method patents pending expertise in several publications and fears. In BNA’s Antitrust & Trade before the Patent and Trademark speaking engagements throughout Regulation Report, Jim Klaiber and Office in an article printed in the 2010. In articles appearing in BNA’s Jeff Lesovitz also addressed Hedge Fund Law Report. Blake Reese Patent, Trademark & Copyright compulsory licensing, particularly also surveyed decisions that issued Journal and Bankruptcy Law Reporter, in patent misuse cases. Another after Bilski in an additional article and associates Jim Klaiber and Brad emerging, if not alarming trend in in speaking engagements. Milbankers Friedman wrote about whether 2010, was the filing of numerous qui also examined other intersections of certain ITC intellectual property tam actions for false patent marking. IP law with software and computing investigations served as exceptions to Chris Holm wrote about the risks that are particularly timely in view the Bankruptcy Code’s automatic stay and benefits of patent marking and of the explosion of open source provisions. In those same journals, current trend in false marking cases. and cloud computing. In an article Blake Reese and Brad Friedman Finally, Jim Klaiber delivered several featured in Inside Counsel, Mark Scarsi examined the conflict between the presentations on business aspects explained how companies must be territoriality of the international of IP, including due diligence and careful when using open source patent laws and provisions of the licensing / settlement negotiations. code in their proprietary systems. In bankruptcy code that permit a Traders Magazine and in presentations

8 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 PHARMACEUTICALS AND BIOTECHNOLOGY

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 9 10 Considering The Impact Of New Legislation on Biologics In The US

By The Hatch-Waxman Act altered The Biologics Act is partially modelled Errol B. Taylor the competitive dynamics of the US after the Hatch-Waxman Act in and pharmaceutical market in favour of allowing generic applicants to legally Lawrence T. Kass generics by allowing them to rely on infringe for purposes of developing innovators’ clinical trial data to show FOBs and in allowing applicants Reproduced with permission safety and efficacy, thereby avoiding to mount early patent challenges. from Financier Worldwide. the enormous time and expense As with the Hatch-Waxman Act, associated with clinical trials. The innovators in return are afforded Act also allowed generics to legally certain periods of exclusivity as infringe for purposes of developing incentives. Although the generic generic drugs and to mount early disclosure procedures under the patent challenges. In return, some of Biologics Act are more complex than the patent term lost in the regulatory those under the Hatch-Waxman Act, approval process was restored to basically the FOB applicant must innovators and they were afforded disclose its application, a description exclusivity in certain circumstances of its manufacturing process and to their clinical trial data for some other information if necessary for the period before generic applicants innovator to analyse the application. could rely on the data. Industry Like the Hatch-Waxman Act, the insiders have questioned whether the Biologics Act further incentivises ‘balance’ struck by Hatch-Waxman generic entry by providing an has unduly favoured generics and has exclusivity period for the first generic contributed to a general decrease approved, so that a second generic in the innovative activity of the US applicant may not seek approval until pharmaceuticals industry. Against this the exclusivity period expires. backdrop, Congress this year enacted However, differences between small the Biologics Price Competition and molecule drugs and biologics account Errol B. Taylor and Lawrence T. Kass Innovation Act (Biologics Act), which for certain significant differences are partners at Milbank, Tweed, provides an abbreviated regulatory between the Hatch-Waxman Act and Hadley & McCloy LLP. pathway for follow-on biologics the Biologics Act. Small molecule (FOBs), or biosimilars. Comparing drugs are often more readily the Hatch-Waxman Act to the made from chemical compounds Biologics Act provisions may provide synthesised on a large scale. Biologics some insight into the possible effect are comparatively difficult to develop of the latter on the future of biologics because they are generally more innovation in the US. complex. Moreover, constructing

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 11 a manufacturing facility is typically result, the Biologics Act requires that The foregoing comparison between more expensive and complicated. the applicant demonstrate there is the Hatch-Waxman Act and the Recognising the substantially greater “no clinically meaningful differences Biologics Act suggests some time and expense investment between the biological product differences that may affect the required to develop and manufacture in terms of the safety, purity, and ‘balance’ between innovators and biologic drugs, the Biologics Act potency of the product”. Unless generics. However, on the whole provides for a greater data exclusivity waived by the FDA, biosimilarity must the Biologics Act does not seem period. Instead of a maximum of five be supported by data from preclinical substantially worse for innovators years of data exclusivity under Hatch- (analytical & animal) and human than the Hatch-Waxman Act. It is Waxman, a biologics innovator may clinical studies. This means the default therefore possible that the Biologics be allowed 12 years of exclusivity is that a biologics applicant must Act may not engender the same under the Biologics Act, regardless conduct at least some human clinical criticisms as the Hatch-Waxman of whether any patents have expired trials, rather than relying entirely on Act about unduly disadvantaging before that time. the innovator’s clinical data. This is innovators and decreasing innovative different from the approval pathway activity. While the impact of the On the other hand, other differences for generic small-molecule drugs, Biologics Act should be carefully in the Acts benefit the FOB which does not require any clinical monitored, for the time being it manufacturer. For example, the trials for safety and efficacy but should not deter investor interest in Hatch-Waxman Act requires a generic instead allows the applicant to rely the US innovator biologics industry. active ingredient to be the same as entirely on the innovator’s clinical the innovator active ingredient. In data. The FOB default requirement contrast, the Biologics Act provides for additional clinical trials could some flexibility, recognising it prove significant as such studies may be difficult or impossible to could exceed four years. There are exactly replicate biologics. Thus, additional disadvantages to innovators Errol Taylor “impresses with his the Biologics Act only requires an under the Biologics Act. For legal strategy, scientific insight and FOB to be “highly similar to the example, unlike the Hatch-Waxman business acumen.” He is best known reference product notwithstanding Act procedure, filing a patent for his patent litigation work in the minor differences in clinically inactive infringement suit does not stay FDA’s pharmaceutical and biotech fields, components”. Nevertheless, due approval of the FOB application. representing major names such as to the complexity of biologics, even This is a significant boon to the FOB AstraZeneca and Merck. slight differences may have significant applicant. – Chambers USA 2010 effects on safety and efficacy. As a

12 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 Was the Concern ThatKSR Was a Game-Changer Justified? Not for Chemical Cases Before the Federal Circuit

By results) was a linchpin to preserving Fredrick M. Zullow The authors argue validity in chemical patent litigation and pre-KSR, and that continues to be the that the ‘‘sea change’’ case post-KSR. Anna Brook in decisions on Reproduced with permission KSR did not significantly change the from BNA’s Patent, Trademark & obviousness after the factors considered when assessing Copyright Journal, 80 PTCJ 619, U.S. Supreme Court’s obviousness under Section 103 of the 09/03/2010, and Pharmaceutical Patent Act, 35 U.S.C. §103. Instead, Law & Industry Report, 8 PLIR KSR ruling did not a review of Federal Circuit case law 1197, 09/17/2010. Copyright occur, at least with shows that KSR only rejected a rigid © 2010 by The Bureau of National application of the Federal Circuit’s Affairs, Inc. (800-372-1033) respect to chemical ‘‘teaching, suggestion, or motivation’’ http://www.bna.com. compound patent test (‘‘TSM’’) and reconfirmed that challenges. the Supreme court’s Graham factors2 set out the appropriate framework for determining obviousness.3 These In the immediate aftermath of the Supreme court enunciated factors U.S. Supreme court’s ruling in KSR v. were the basis for proper validity Teleflex,1 many thought there would analysis prior to KSR, and remain be major changes in how courts so today. analyze obviousness. Subsequent case law in the U.S. court of Appeals KSR’s impact on chemical cases can be for the Federal Circuit shows that, analyzed in two groups: (1) chemical at least for chemical patent litigation, compound patents (including KSR did not significantly alter the enantiomer patent cases); and validity analysis. The touchstone (2) formulation or composition continues to be ‘‘predictability.’’ patents (including combination patents). Fredrick M. Zullow is a In litigation, courts recognize partner and Anna Brook is an that unlike the mechanical arts, associate in the Intellectual Property Compound Patents combinations and modifications Group of Milbank, Tweed, Hadley & of chemicals often produce The Federal Circuit reviewed several McCloy LLP, New York. unpredictable results, like drastic chemical compound patents in the increases in potency or the ability to wake of KSR. While heeding KSR’s treat unrelated diseases. A showing instruction to avoid a rigid application of unpredictability (or unexpected of the TSM test, the Federal Circuit

1 KSR International Co. v. Teleflex Inc., 550 U.S. 398, 82 USPQ2d 1385 (2007) (74 PTCJ 5, 5/4/07). 2 Graham v. John Deere Co. of Kansas City, 383 U.S. 1, 148 USPQ 459 (1966). These factors include the scope and content of the prior art, the differences between the prior art and the claims at issue, the level of ordinary skill in the art, and objective evidence of nonobviousness. 3 KSR, 550 U.S. at 406-407.

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 13 recognized that the unpredictable (Topamax) was structurally similar nature of the chemical arts impacts to prior art compounds, the patent the obviousness analysis. Whether or not at issue was not obvious because referred to as a it taught a different use of the Both pre-KSR and post-KSR, ‘‘teaching, suggestion compound to treat an unrelated obviousness inquiries in chemical disease. The use of the compound compound cases tend to identify or motivation’’ test, to treat an unrelated disease was a ‘‘lead compound.’’ A ‘‘lead the law pre-KSR and considered nonobvious, since ‘‘… compound’’ is a short-hand way the ordinary artisan in this field of referring to the closest prior post-KSR requires a would have had to … stop at that art–again, a long accepted approach reason (in the prior intermediate and test it for properties to analyzing validity. Post-KSR art) for making the far afield from the purpose for nonobvious rulings are primarily the development in the first place based on the lack of a prior artbased modification. (epilepsy rather than diabetes).’’7 reason to either (1) select a specific lead compound (or compounds) The court emphasized that a or (2) modify the lead compound no reason–for a skilled person to flexible application of the TSM test resulting in the claimed compound. select compound b as the lead as contemplated by KSR assists the Not surprisingly, these rationales compound, and nothing to suggest– obviousness analysis by preventing supported decisions upholding validity no reason for–making the molecular inappropriate use of hindsight. The pre-KSR as well. For example, in modifications necessary to achieve district court opinion was rendered Takeda v. Alphapharm,4 the Federal the claimed compound. In fact, the before KSR, but the Federal Circuit Circuit confirmed that KSR does not court noted that prior art taught away found that there was no rigid prevent use of the TSM test, as long from selecting compound b as the application by the district court of as the test is not rigidly applied. lead compound because it had toxic the evidentiary requirements for In the chemical arts, ‘‘normally a properties. The court’s analysis in obviousness and affirmed, confirming prima facie case of obviousness is Takeda focused on predictability as that KSR did not drastically alter the based upon structural similarity, i.e., understood by persons skilled in the validity inquiry. an established structural relationship art and the reasons available in the In Eisai v. Dr. Reddy’s,8 between a prior art compound prior art for making changes to the the Federal and the claimed compound.’’ prior art to arrive at the invention. In Circuit again acknowledged that But a prima facie case also requires short, the court used the same basic unpredictability may well differentiate ‘‘a showing that the prior art would approach to address obviousness. the chemical arts from the facts have suggested making the specific of KSR: ‘‘To the extent an art is In Ortho-McNeil v. Mylan6 the court molecular modifications necessary to unpredictable, as the chemical arts highlighted the need to consider the achieve the claimed invention.’’5 often are, KSR’s focus on these predictability of the art in question ‘identified, predictable solutions’ may Whether or not referred to as a when making an obviousness present a difficult hurdle because ‘‘teaching, suggestion or motivation’’ determination, and the unexpected potential solutions are less likely to test, the law pre-KSR and post-KSR nature of the chemical arts as be genuinely predictable.’’9 In Eisai, requires a reason (in the prior opposed to the mechanical apparatus the court affirmed summary judgment art) for making the modification. of KSR. The court pointed out that a patent claiming rabeprazole Thus, in Takeda, the court affirmed that the KSR obviousness standard (Aciphex), a proton pump inhibitor, nonobviousness of a compound, presumes a finite and, in the was not an obvious modification the antidiabetic drug pioglitazone context of the art, small or easily of a prior art compound. Again, (ACTOS), that was structurally similar traversed number of options. But in predictability was key: there was to a prior art compound (compound Ortho-McNeil, the court found that no discernible reason for a skilled b) because there was no motivation– although the compound topiramate artisan to modify the ‘‘lead’’ prior art

4 Takeda Chemical Industries Ltd. v. Alphapharm Pty. Ltd., 492 F.3d 1350, 83 USPQ2d 1169 (Fed. Cir. 2007) (74 PTCJ 291, 7/13/07). 5 Id. at 1356. 6 Ortho-McNeil Pharmaceutical Inc. v. Mylan Laboratories Inc., 520 F.3d 1358, 86 USPQ2d 1196 (Fed. Cir. 2008) (75 PTCJ 593, 4/4/08). 7 Id. at 1364. 8 Eisai Co. v. Dr. Reddy’s Laboratories Ltd., 533 F.3d 1353, 87 USPQ2d 1452 (Fed. Cir. 2008) (76 PTCJ 413, 7/25/08). 9 Id. at 1359.

14 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 compound in a way that eliminated and method to lower the compound’s Enantiomer Patents an element to which the compound’s pKa to improve stability. The court advantageous treatment property had noted that the prior art does not have Stereoisomers are compounds been ascribed. to point to a single lead compound that contain the same constituent since that would give rise to a rigid atoms and the same bonds between 10 In Procter & Gamble v. Teva, the test similar to the TSM test rejected atoms, but have different spatial Federal Circuit affirmed the district in KSR. These facts supported a strong arrangements. An ‘‘enantiomer’’ is court’s decision that the patent showing that a reason existed to one of two stereoisomers that are claiming risedronate (Actonel) was modify the prior art to encompass the mirror images of each other and valid. The court recognized the need claims (even if the prior art reason for are non-superimposable, generally to evaluate whether at the time modifying differed from the inventive explained by comparing the right and of the invention, a skilled person reason for making changes). left hands. A ‘‘racemic mixture’’ or had a reason to attempt to make ‘‘racemate’’ contains equal amounts the compound, and a reasonable Of course, the burden of showing a of both enantiomers. Because an expectation of success in doing so. substantial question of obviousness enantiomer may sometimes make Teva (the patent challenger) did at the preliminary injunction stage is up a portion of a prior art racemic not establish sufficient motivation lower than the burden of showing mixture, alleged infringers invariably (a reason) for a skilled person to clear and convincing evidence of argue that separating and testing synthesize and test the compound, invalidity at trial. After trial in Altana, the enantiomers would be obvious or that there was a reasonable a jury returned a verdict in favor of to a skilled person. The Federal expectation of success. Relying the patentee. The jury found that a Circuit cases pre- KSR and post-KSR, on Eisai, the Federal Circuit once skilled person did not have a reason however, highlight consideration of again explained that KSR’s focus on or motivation to select either of two time-tested factors when deciding the ‘‘identified, predictable’’ solutions potential lead compounds, modify obviousness question: unpredictable may present a difficult hurdle because it to obtain pantoprazole, or have a and unexpected properties of the solutions in the chemical field are less reasonable expectation of success.13 enantiomer over the racemate, likely to be predictable.11 The court denied a motion for a and the ability to make the claimed judgment as a matter of law, stating enantiomers. Comparing the As would be expected, patent that defendants failed to establish a post- KSR Federal Circuit decisions– challengers succeed where sufficient 14 prima facie case of obviousness. Forest, Aventis and Sanofi–helps evidence is presented to demonstrate reasons supported by prior art to modify the closest prior art to engulf the claimed compound. For example, in Altana v. Teva,12 the Federal Circuit affirmed a district court’s denial of Altana’s motion for a preliminary injunction, ruling that Teva succeeded in raising a substantial question of obviousness of the patent directed to pantoprazole (Protonix). Teva (the patent challenger) identified a lead compound (the closest prior art) and then showed that there was motivation to modify that compound to obtain pantoprazole. The court found that Altana’s own earlier patent identified a promising lead compound and that prior art provided a reason

10 Procter & Gamble Co. v. Teva Pharmaceuticals USA Inc., 566 F.3d 989, 90 USPQ2d 1947 (Fed. Cir. 2009) (78 PTCJ 92, 5/22/09). 11 Id. at 996. 12 Altana Pharma AG v. Teva Pharmaceuticals USA Inc., 566 F.3d 999, 91 USPQ2d 1018 (Fed. Cir. 2009) (78 PTCJ 86, 5/22/09). 13 No. 04-2355 (JLL) (D.N.J., jury verdict Apr. 23, 2010). 14 No. 04-2355 (JLL) (D.N.J. July 15, 2010).

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 15 illustrate how the court analyzes Circuit found that the prior art In Sanofi v. Apotex,18 the Federal these types of chemical cases, showed the immediate precursor Circuit considered the obviousness upholding validity in two cases while of ramipril, its active stereoisomers, of an enantiomer patent relating to invalidating the patent in the third. and how to isolate them, making a clopidogrel bisulfate (Plavix), used patent covering the similar active to treat or prevent blood-thrombotic In Forest v. Ivax,15 the Federal Circuit stereoisomers of ramipril obvious. events such as heart attacks and affirmed the district court’s pre-KSR Ramipril’s structure contains five strokes. Unlike in Aventis, the court decision maintaining validity for a stereocenters, each of which can affirmed the district court’s finding patent relating to a substantially pure be in the ‘‘R’’ or ‘‘S’’ orientation. that the results of the separation of (+)- enantiomer of citalopram, used There was a prior art composition the enantiomers were unpredictable in the antidepressant drug Lexapro. that included only the all-S (SSSSS) and not obvious. It was unexpected Ivax argued that (+)-citalopram was and SSSSR stereoisomers of ramipril that one isomer would exhibit the obvious in light of racemic citalopram (in other words the prior art was desired characteristics without and descriptions of various techniques not free of all other isomers as the negative side effects, while the available to separate isomers from required by the claims). It was also other isomer had the negative side their racemates. Also, Ivax argued effects and not the desired activity. there was an expectation in the art In addition, although there were that one enantiomer would be more Recent Federal Circuit several general methods for potent than the other and therefore separating isomers, achieving the a reason existed for a skilled person and district court separation for the isomer in question to isolate the enantiomers. Forest cases relating to required significant efforts because argued that the difficulty of separating combination patents it was not known in advance which the enantiomers and the unexpected process would work. And, nothing in properties of the (+)-enantiomer recognize KSR, but the prior art directed a skilled person (twice the potency of the racemate) to form the specific claimed salt of supported nonobviousness. it is likely that the outcome of the cases the enantiomer. The district court concluded would have been the The court rejected Apotex’s that a skilled person would have argument that separating the been motivated to make a new same prior to KSR. enantiomers and determining their compound rather than undertake properties was obvious and covered the unpredictable task of separating by KSR’s determination that a the enantiomers, and would have no known in the prior art that the all-S combination of familiar elements is reasonable expectation of success. (SSS) stereoisomer of a related ACE likely to be obvious when it yields The court also found that none of inhibitor was 700 times more potent predictable results. The court the prior art references described than the SSR stereoisomer. The emphasized that, unlike the KSR the reactions claimed by the patent. court found this would have led a mechanical device, Sanofi did not The Federal Circuit agreed that the skilled person to expect that the all-S concern a ‘‘combination of familiar claims were not invalid, holding that stereoisomer of ramipril would have elements.’’19 the district court properly applied the a similar effect, noting that post-KSR: Graham factors. The Federal Circuit ‘‘It remains necessary to show some Formulation Patents opinion issued five months after, but articulated reasoning with some rational underpinning to support did not cite, KSR. When considering formulation the legal conclusion of obviousness, patents, the Federal Circuit again In Aventis v. Lupin,16 the Federal but such reasoning need not seek focused on the unpredictability of the Circuit reversed the district court out precise teachings directed to chemical arts, and whether the prior and invalidated a patent directed the specific subject matter of the art narrows the range of solutions to to the blood pressure medication challenged claim.’’17 a finite and limited number that could ramipril (Altace). The Federal be systematically tried.

15 Forest Laboratories Inc. v. Ivax Pharmaceuticals Inc., 501 F.3d 1263, 84 USPQ2d 1099 (Fed. Cir. 2007) (74 PTCJ 557, 9/14/07). 16 Aventis Pharma Deutschland GmbH v. Lupin Ltd., 499 F.3d 1293, 84 USPQ2d 1197 (Fed. Cir. 2007) (74 PTCJ 555, 9/14/07). 17 Id. at 1301 (internal quotation marks omitted). 18 Sanofi-Synthelabo v. Apotex Inc., 550 F.3d 1075, 89 USPQ2d 1370 (Fed. Cir. 2008) (77 PTCJ 185, 12/19/08). 19 Id. at 1090.

16 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 In Abbott v. Sandoz,20 the Federal Circuit considered patents relating to extended release clarithromycin formulations, marketed as Biaxin XL. Sandoz alleged the two patents at issue were obvious in view of certain references. Sandoz asserted that KSR significantly changed the obviousness analysis and that the district court did not give proper recognition to the changes when it granted Abbott’s motion for a preliminary injunction pre-KSR.21

The Federal Circuit affirmed the preliminary injunction in part its absorption, but led to increased formulation,’’ making its choice less because the patentee established a isomerization in the stomach, which predictable. likelihood of success in demonstrating taught away from delivering the drug In Purdue v. Par,25 the Federal Circuit, nonobviousness. The court noted using a normal pill as opposed to an in a nonprecedential opinion, that the art was unpredictable, and enteric coated pill. Enteric coated affirmed the district court’s ruling the prior art did not narrow the pills, however, reduce the that patents relating to controlled- range of solutions to a finite number drug’s bioavailability and create release tramadol formulations that made it obvious to combine patient-to-patient variation in the (Ultram ER) were invalid for the references. The Federal Circuit onset of therapeutic response to obviousness. The court rejected emphasized that the obviousness the drug. The district court held Purdue’s argument that a skilled inquiry should consider the nature of that under KSR it would have been person would not have selected the science or technology at issue and obvious to a person of skill in the art tramadol for use in a once-daily that each case must be decided based to try a normal pill formulation. The formulation in view of a prior art on the characteristics and state of the Federal Circuit agreed, pointing out patent listing tramadol as one of particular field of technology. that a skilled person would be faced fourteen compounds for use in with two options for formulating In contrast to Abbott, in Bayer v. a controlled-release formulation 22 the product: an enteric coated pill Barr, the Federal Circuit found to provide effective blood levels and a normal pill.23 Judge Pauline that the prior art narrowed the for a twenty-four hour period. Newman dissented from the opinion, list of possible solutions to a finite The court agreed with the district stating that it was not obvious for number and upheld a district court’s court that the prior art patent persons of ordinary skill in the art to obviousness ruling on a patent and available knowledge would try a formulation that contravened relating to drospirenone (Yasmin), have led a skilled person to the conventional knowledge in the field an oral contraceptive. The court claimed formulation through routine and was not deemed reasonably found there was a limited number experimentation. The court did not likely to succeed.24 The unanswered of possible formulations and that it discuss any evidence that would question here is whether there would have been obvious to deliver teach away from using tramadol were other options or unsuccessful the micronized drug via a normal pill. in the formulation, and was not attempts to use formulations that convinced by Purdue’s secondary Bayer argued before the USPTO would lead a person of ordinary skill considerations of nonobviousness. that micronizing a drug improved away from using the ‘‘normal pill The Federal Circuit did not cite KSR

20 Abbott Laboratories v. Sandoz Inc., 544 F.3d 1341, 89 USPQ2d 1161 (Fed. Cir. 2008) (76 PTCJ 921, 10/31/08). 21 The district court’s original opinion issued before KSR. The court then requested additional briefing and argument and issued another opinion discussing KSR. 22 Bayer Schering Pharma AG v. Barr Laboratories Inc., 575 F.3d 1341, 91 USPQ2d 1569 (Fed. Cir. 2009) (78 PTCJ 469, 8/14/09). 23 Id. at 1350. 24 Id. at 1350-1351. 25 Purdue Pharma Products L.P. v. Par Pharmaceuticals Inc., No. 2009-1553 (Fed. Cir. June 3, 2010). 26 KSR, 550 U.S. at 415-416. 27 Id. at 418.

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 17 In considering validity, the court distanced chemical patents from KSR by stating, ‘‘each case must be decided in its particular context, including the characteristics of the science or technology, the nature of the choices available to one skilled in the art, the specificity of the prior art, and the predictability of results in the area of interest.’’29

The court vacated the district court’s summary judgment of invalidity of certain claims of the reissue patent. The court credited expert testimony that prior art that disclosed a combination of tramadol, acetaminophen, and two other ingredients (the Flick patent) did not make the claims at issue obvious because interactions between tramadol and acetaminophen were poorly understood and unpredictable at the time, and it was not obvious what would happen if the two other ingredients were removed from the prior art example. Thus, the court recognized a material fact issue in its opinion, but did consider the combination patents remains whether remained to be resolved, making 30 Graham factors. the combination of known elements summary judgment inappropriate. produces an unexpected effect. Any However, the court found a claim other approach would eviscerate the Combination Patents that used the term ‘‘comprising’’ large body of case law acknowledging of tramadol and acetaminophen in Recent Federal Circuit and district that the mere fact that each element a certain ratio obvious in light of court cases relating to combination in a combination was known in the Flick because ‘‘comprising’’ is an patents recognize KSR, but it is likely prior art does not by itself invalidate open-ended term that could include that the outcome of the cases would a patent.27 have been the same prior to KSR. the other two materials (which in In KSR the Supreme court affirmed its In Ortho-McNeil v. Teva,28 the Federal combination with tramadol and ‘‘earlier instructions concerning the Circuit considered the validity acetaminophen would include all need for caution in granting a patent of a reissued patent directed to the elements of the prior art). The based on the combination of elements a combination of tramadol and court further determined that the found in the prior art.’’ The court acetaminophen for use in prescription difference between the ratio in the explained that the combination of pain relief, sold under the name patent claim and in the prior art was familiar elements according to known Ultracet. The court reversed the too slight to preserve the claim’s 31 methods is likely obvious when it district court’s summary judgment validity. 26 only yields predictable results. of invalidity of certain claims of Judge Haldane Robert Mayer Thus, once again, before and after the patent, and affirmed judgment dissented, stating that the patent KSR, the main question with chemical of invalidity of one of the claims. did nothing more than combine

28 Ortho-McNeil Pharmaceutical Inc. v. Teva Pharmaceuticals Industries Ltd., 344 Fed.Appx. 595, 93 USPQ2d 1125 (Fed. Cir. 2009) (78 PTCJ 564, 9/4/09). 29 Id. at 598. 30 Id. at 598-599. 31 Id. at 599-601. 32 Id. at 601-603.

18 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 two known pain relievers into one coated famotidine degrades more existed regarding the scope of prior tablet and prior art already taught slowly than the uncoated form. art disclosure, including whether that the two ingredients could be The court, however, found the prior art disclosing short term combined for effective pain relief. claims obvious because the prior art reduction of blood pressure made Mayer explained that one of ordinary provided an independent motivation the use of the combination for the skill in the art at the time would to coat famotidine to mask its bitter treatment of hypertension obvious. have been motivated to remove the taste, regardless of its effects on Defendants subsequently received two other Flick ingredients because degradation. Thus, consistent with final FDA approval to market their it was suspected they had negative KSR (and pre- KSR law), the court ANDA product, and Sanofi sought a effects, and that it was known that considered the teachings in the preliminary injunction and temporary the combination of tramadol with prior art and what would be obvious restraining order. In its decision, the other analgesics showed synergistic avenues of development for a person 32 court discussed KSR’s rejection of effects. The value of the surviving of ordinary skill in the art. claims remains to be evaluated given a rigid application of the TSM test, this history. In Sanofi-Aventis v. Glenmark,35 the reviewed the cited prior art, and district court denied defendant’s applied the Graham factors. The court While the Federal Circuit has not motion for summary judgment denied the request for a preliminary had the opportunity to review many of invalidity of a combination injunction, finding that the patentee chemical combination patents post- patent. The patent claims were did not meet its burden of proof.36 KSR, recent district court cases shed directed to a combination of an It remains to be seen how the court some light. angiotensinconverting enzyme will ultimately rule on the merits of In McNeil PPC v. Perrigo,33 the district inhibitor (‘‘ACE inhibitor’’) and a the case, but the court’s reliance court, while invalidating the claims calcium antagonist that Sanofi sells on the Graham factors confirms at issue, addressed KSR at length, under the name Tarka. that the validity analysis of chemical combination patents was not altered highlighting the Supreme Court’s Defendants alleged that ACE by KSR. approval of the Graham factors, inhibitors, calcium antagonists, the the rejection of a rigid TSM test, combination of both, and their Conclusion and the caution against relying respective anti-hypertensive activities on hindsight. The Federal Circuit were known in the art at the time As can be seen from the post-KSR affirmed without an opinion.34 of the invention. They also pointed Federal Circuit cases and district The patent at issue was directed to the Tarka label which read court cases, the validity inquiry to a combination of aluminum or ‘‘the antihypertensive effect of the applied by courts in chemical/ magnesium hydroxide (an antacid) combination is approximately additive pharmaceutical patent litigation has with famotidine (a histamine H2- to the individual components’’ to remained largely the same. KSR’s receptor antagonist) used in Pepcid show that the combination did not warning against the rigid application Complete. The invention used produce unexpected results. Plaintiffs of the TSM test supports a flexible impermeably coated famotidine, argued that it was not known how inquiry. The validity inquiry balances which otherwise degrades in stomach the two interacted and worked the number of potential solutions, acid and has a bitter taste. Prior together to regulate blood pressure the innovative steps used to create art reviewed by the court included and that the duration and efficacy of the patented product, and what was references to a solid oral dosage Tarka is superior to the closest prior obvious to a skilled person at the form containing uncoated famotidine art combination. time. A review of post-KSR case law demonstrates that commentators and an antacid, a method for coating The court denied summary judgment who foresaw a ‘‘sea-change’’ in how various drugs (including famotidine) to of invalidity recognizing the existence cases would be analyzed appears to mask their taste, and a combination of questions of fact regarding the have been wrong at least with respect of another bitter H2 blocker and an independent and collective properties to chemical cases. antacid in a chewable tablet. of the compounds. The court also Plaintiff argued that the claimed acknowledged that fact questions

33 McNeil-PPC Inc. v. Perrigo Co., 516 F. Supp. 2d 238 (S.D.N.Y. 2007). 34 274 Fed.Appx. 899 (Fed. Cir. 2008). 35 Sanofi-Aventis Deutschland GmbH v. Glenmark Pharmaceuticals Inc. USA, No. 07-CV-5855(DMC), 2010 WL 715402 (D.N.J. Feb. 19, 2010). 36 Sanofi-Aventis Deutschland GmbH v. Glenmark Pharmaceuticals Inc. USA, No. 07-CV-5855 (DMC), 2010 WL 2428561 (D.N.J. June 9, 2010).

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 19 The Challenger Is Prepared, Are You? Strategies for Preparing to Enforce Patents Covering Pharmaceutical Products

By How do you figure out what potential John M. Griem Jr. challengers are doing? What issues and The authors provide are likely to come up in litigation? Lawrence T. Kass Set out below are a few key steps you advice to in-house can take to prepare management and Reproduced with permission key personnel for litigation that may from BNA’s Patent, Trademark & counsel to prepare determine the fate of this product. Copyright Journal, 81 PTCJ 36, for patent litigation 11/05/2010. Copyright © 2010 by under Hatch- Whether the litigation is triggered The Bureau of National Affairs, Inc. by the challenger’s patent notice (800-372-1033) http://www.bna.com. Waxman. required by the Hatch-Waxman Act, or by potential competition from a similar biologic product in the same Your company’s new product is doing class as your company’s product, one very well, and sales are increasing. key to long-term success is thorough Management is looking to you, the and effective early preparation. chief IP counsel, for guidance on how to use the company’s patents to Do Your Homework to protect the market for this important Find and Assess Potential product. Data exclusivity may not Challengers exist or may be ending soon. You are sure that someone will try to sell a The first place to start is making sure generic version and you want to be you have good information available prepared to enforce your company’s on potential challengers. There hard-won patents. are many good sources of market intelligence. Patents, published If your company’s product is a small patent applications, and prosecution molecule product subject to a histories can yield particularly useful Hatch-Waxman Act challenge, your information about the direction a company will have only 45 days generic challenger is taking. You also to decide whether to file a patent can research potential challengers infringement action against the using press releases, corporate challenger in order to obtain financial statements, and regulatory the 30-month stay of Food and Drug information such as clinical trial Administration approval provided reports and FDA reports on Drug by the act. This deadline makes it Master File, or DMF, applications. especially important to be prepared if any challenge can be anticipated. Analyst reports are another fruitful source of information. A structured

20 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 program to monitor various sources listed patent is either not infringed, of publicly available information can invalid, or unenforceable. The patent be very effective in piecing together Every patent is owner can then sue for infringement disparate bits of information into situated in its own and, if it declines to file suit, the a useful picture of the competitive challenger may be able to seek a landscape. area of technology, declaratory judgment. and cases can be For example, bioequivalence clinical In either case, litigation may be trial information can reveal the status won or lost based imminent. It is therefore better to of efforts to show that a potential on the quality and consider listing decisions well in competitor is ready for commercial advance, rather than after a litigation sale. However, bioequivalence preparation of is imminent or has been instituted. clinical trial information is often experts. It is generally not necessary to list sketchy. For example, a trial may process patents but they can be be identified only by a drug number asserted in litigation, so they should code, without stating what the active drugs are often made by the same be considered in any pre-suit analysis. pharmaceutical ingredient is. But this generic company, and its processes Use patents can be listed in certain code may be mentioned in corporate to make the related brand drugs circumstances, and should also be news reports, financial statements, may be very similar. Consequently, a considered in analyzing which patents or publicly available articles and challenge to a related brand drug may are listed in the Orange Book, as well presentations. Drug codes may also provide some insight into potential as any infringement analysis. be mentioned in patent applications challenges to your company’s There are many useful steps you can and/or prosecution histories. product. take in assessing how a litigation is In addition, DMF applications will likely to proceed. You should start by Preparing to Defend Your reveal which companies are planning stepping back and considering what to introduce an active pharmaceutical Hard-Won Patents from evidence will be necessary to prove ingredient in the United States, long Infringement infringement, and what potential before a formulation is finalized. validity challenges might be raised. Now that you’ve determined a DMFs are listed on the FDA’s challenge is likely, researched A first step might be to ensure a prior website and updated frequently. potential challengers, and hopefully art search has been performed on any When combined with information obtained some information on likely applicable patents and think about from private market research and generic formulations, the next step is what related invalidity arguments are sales people in the field, it is possible to consider the defenses and claims likely to be made. You can look at the to make good guesses as to which that are likely to be raised. It may prosecution history of the patents competitors are planning to challenge make sense at this point to line up with a critical eye. What arguments your patents, and when. Often, outside counsel, clear conflicts, and would you make if you were the a competitor will begin selling a set a budget to permit them to come challenger, trying to limit or invalidate formulation outside the United States, up to speed on the key facts and to the patents? Consider whether perhaps in India or Eastern Europe, assist in considering the legal issues. you have doctrine of equivalents which can signal a potential U.S. limitations, or whether you can assert challenge. If the Hatch-Waxman Act applies to a broad scope of equivalents. If such your company’s product, it would If there are other brand drugs in exercises are performed sufficiently make sense at this time to reconsider the same class as your company’s in advance, they may reveal flaws whether all of the right patents have product, it would also make sense in patent protection that can be been listed in the Orange Book. to monitor public information about corrected before litigation ultimately Orange Book listing decisions are challenges to those drugs, such as commences. For example, it may be important because under the DMF filings, Abbreviated New Drug possible to seek and obtain a patent Hatch-Waxman Act, a generic Applications, and associated FDA continuation, reexamination, or challenger that wants to sell a approvals, whether they are tentative reissue that can fix a gap in coverage competing product before the or final. Challenges to related brand or a potential invalidity issue. patents expire must certify that any

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 21 You should also begin at this stage to ascertain the invention story and develop litigation themes supported by internal information that ultimately may be disclosed in discovery. While U.S. discovery can be very wideranging, it is usually possible to make reasonable estimates and forecasts about what documents and groups of documents will likely be relevant to the issues in the litigation and to start thinking about what documents will be produced.

It may make sense to conduct an initial review of those documents to anticipate particular issues that might come up. Because of the wide scope of discovery in U.S. cases, litigation and prosecution on related foreign patents often becomes evidence in a U.S. litigation. For that reason, your preparation should include if possible reviewing foreign evidence for statements and arguments that a challenger might assert against you in the United States.

It is usually possible to identify some people who are likely to be the subject of depositions. Certainly, inventors of the patents at issue are likely to be witnesses, if they are available. There may be people who are particularly important from a marketing or business perspective, and so you should consider making If likely deponents are in another In a pharmaceutical patent contact with those people in order country, it may make sense to think infringement action, one of the most to evaluate them as a potential about what the legal requirements important aspects of the evidence witnesses. are for either bringing them for a is expert testimony. Experts are deposition in the United States, or almost always used in addressing Often, inventors can be excellent holding a deposition in their country validity issues like anticipation and witnesses for the patent owner of residence. And, of course, likely obviousness under 35 U.S.C. §§102 because they can provide a personal witnesses may be former employees. and 103. Their testimony will also story of invention. Talking with You can anticipate that the challenger be necessary on any enablement or people who have personal knowledge will seek to contact former description issues under 35 U.S.C. of the invention is also the best employees to determine whether §112. And of course, experts are also way to uncover any potential or not they are willing to appear as critical for infringement. challenges based on alleged incorrect a witness. It may make sense for Experts can also provide good advice inventorship or alleged prosecution you to find out what they will say on outside testing laboratories and/ disclosure misstatements or beforehand, so that you can think or internal testing protocols. So, omissions. about how that information is likely to where you know that a certain patent play out.

22 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 is likely going to be in litigation, it experts, outside testing laboratories companies in that state and the often makes sense to try to identify or, with permission from the experience of the federal judges in and retain relevant outside experts challenger, in-house technical experts. the district. There are other districts early, even before a suit is filed. that are known for having faster Every patent is situated in its own dockets, however, and the speed of area of technology, and cases can be the court may be a concern. Other won or lost based on the quality and Early research and factors to consider in deciding where preparation of experts. to bring an action include the location consultation with of the likely witnesses, and whether To check on how strong an expert outside counsel will subpoenas will be necessary in order will be in litigation, it may make to obtain their testimony at trial. sense to review relevant publications make the process authored by a proposed expert, smoother and lead New Jersey has joined other districts because these will likely be used in and adopted patent-specific rules that cross-examination. Likewise, other to a more effective can accelerate Hatch-Waxman patent cases where the expert has provided defense. litigation. These rules require that an opinion or testimony may come the generic challenger’s Abbreviated up, and so it may make sense to New Drug Application be produced obtain and review an expert’s earlier very promptly, before the initial opinions or testimony, if available. In any event, it will be important to scheduling conference, and that have experts and testing capabilities infringement and validity contentions Infringement is usually proven in part ready to hit the ground running be exchanged within two months of through the testing of samples of when a notice letter and samples the initial scheduling conference. the challenger’s product. In a Hatch- come in. In fact, it may be possible These rules are similar in that respect Waxman action, where the product and desirable to get a head start to rules in the Eastern District of is not yet on the market, the product by obtaining samples of products Texas and the Northern District of to be analyzed for infringement is the containing the same active ingredient California. Preparation is arguably product that is likely to be sold if being sold by the challenger in foreign even more important in those the product is approved. markets. These foreign samples, courts, where the rules further while not necessarily the same as So, being able to test samples require a plaintiff to present its claim U.S. samples, may provide some obtained from the challenger which construction and other key positions insight into the issues that will be may have been submitted to the FDA quite early in the case. is very important. A challenger may encountered in a U.S. litigation. provide these samples after its notice Another important issue to consider Conclusion letter but before the 45-day deadline is where an action is likely to be to secure a 30-month stay and, brought. Think about where potential Even before a specific challenge depending on the circumstances, you defendants are likely to be found, is received, prudent in-house may be expected to have evaluated and then what courts would be counsel can do a lot to get ready for those samples before filing suit. considered good ones to hear the challenges to the patents protecting their company’s key products. This leaves only a narrow window case. For pharmaceutical patent Early research and consultation to complete any pre-suit testing, so litigation, the U.S. District Court with outside counsel will make the it may make sense to try and line up for the District of New Jersey is a process smoother and lead to a more relevant testing capability beforehand. popular place to bring cases because effective defense. That testing can be done by outside of the number of pharmaceutical

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 23 Implications of ‘Ariad’ for Describing Biological and Chemical Inventions

By To patent an invention you must At trial in the District of Massachusetts, Lawrence T. Kass describe it. While that task may the jury found Ariad’s patent valid and be more difficult for biological and and infringed. On appeal, the Federal Nathaniel T. Browand chemical inventions, the U.S. court Circuit reversed and held the patent of Appeals for the Federal Circuit invalid for lack of written description. Reprinted with permission from has confirmed that the patent laws Ariad petitioned for a rehearing en the June 1, 2010 edition of the require no less for such inventions banc on the ground that the court NEW YORK LAW JOURNAL © than any other. misinterpreted §112’s first paragraph 2010. ALM Media Properties, LLC. as having a separate written All rights reserved. On March 22, 2010, the Federal description requirement. Circuit released its much In an effort to resolve over a decade anticipated en banc opinion in Ariad of uncertainty on this issue, the 1 Pharmaceuticals Inc. v. Eli Lilly & Co. court agreed to reconsider the panel At issue was whether 35 U.S.C. opinion. §112’s first paragraph contains a written description requirement Background separate from the enablement requirement and, if so, the scope At the heart of Ariad was the and purpose of that requirement. statutory provision designed to The opinion addressed a number uphold the quid pro quo that of hotly disputed issues about the underpins patent law. Inventors written description requirement are granted the exclusive right to and has important implications for make, use, and sell their invention in patent owners, particularly those exchange for full disclosure of their in the chemical, biotechnology and invention. This centuries-old bargain pharmaceutical industries. is meant to promote innovation by providing inventors with an incentive Ariad owned a patent for a method to develop their ideas while ensuring LAWRENCE T. KASS is a partner and for interfering with the expression that the public is able to understand NATHANIEL T. BROWAND is an of certain genes that are responsible and build upon them. associate in the Intellectual Property for the harmful symptoms of certain Group of Milbank, Tweed, Hadley diseases. The patent included genus Specifically, §112 states in relevant & McCloy LLP. MICHAEL MARIN, claims that purported to cover all part: “The specification shall contain former associate at the firm, assisted molecules capable of reducing gene in preparing this article. a written description of the invention, expression through the disclosed and of the manner and process of method. Ariad sued Lilly alleging that making and using it, in such full, clear, its products infringed its patent. concise, and exact terms as to enable

1 No. 2008-1248, slip op. (Fed. Cir. March 22, 2010).

24 24 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 any person skilled in the art to which which articulated such policies and it pertains…to make and use the applied §112 in a manner consistent same…” ‘Ariad’ is significant with the existence of a separate written description requirement. The controversy over the content because it clarifies and scope of §112 has attracted the written The Federal Circuit also reconsidered renewed interest ever since the a test it had developed in earlier Federal Circuit’s decision in Regents description standard cases that inquires whether the of the University of California v. and provides some written description is sufficient to Eli Lilly & Co.2 In that case, the court prove the inventor’s “possession” of confronted a patent that claimed guidance to its the invention. The court recognized a broad genus of synthetic DNA application. that “[t]he term ‘possession’…has sequences that purported to encode never been very enlightening” and insulin molecules of many different emphasized that “the hallmark of species. Such patent claims that cover the distinct written description written description is disclosure.” a broad genus of DNA sequences are 4 requirement. The court held that the The court clarified that “possession” common in biotechnology because patentee must do more than simply means “possession as shown in the researchers often discover a novel, include the claim language in the disclosure” because “the test requires useful, and non-obvious functional original specification. Furthermore, an objective inquiry into the four encoding relationship between a the court elaborated on its earlier corners of the specification from the certain type of DNA and a class “possession” standard of the written perspective of a person of ordinary of proteins before identifying the description requirement, stating skill in the art.” specific DNA molecules and/or that possession alone is not always corresponding proteins. sufficient to satisfy §112. In addition, the court confirmed that whether a patent complies with In Eli Lilly, the court held that such The court’s failure to clearly §112 is a question of fact. Finally, claims fail to meet the written articulate a standard for written the Federal Circuit reiterated that description requirement because they description distinct from enablement actual examples or reduction to provide “only a definition of a useful led to strong dissents by Judges practice outside the specification are result rather than a definition of what Randall R. Rader, Richard Linn, and neither required nor sufficient; rather, achieves that result.” Arthur J. Gajarsa, as well as scholarly the specification determines the The court has also grappled with criticism, thus setting the stage for sufficiency of the written description. 5 this issue in subsequent cases. rehearing of Ariad. The primary The majority opinion is also partly In University of Rochester v. question before the court was based on the principle of stare G.D. Searle & Co. Inc., the Federal whether §112 contains two separate decisis–that holding the written Circuit affirmed the lower court’s disclosure requirements: one to summary judgment of invalidity describe the invention and another description and enablement for lack of written description to enable it. requirements are one would overturn because the pharmaceutical method longstanding law and thus frustrate claims at issue were not supported The Decision the expectations of the inventing by disclosure of the compounds community. The court reasoned that In a 9-2 decision, the Federal necessary to achieve the such a significant change is best left to Circuit held that §112 does in fact therapeutic result.3 Congress. contain a distinct written description The opinion also addressed the In Enzo Biochem Inc. v. Gen-Probe Inc., requirement. The court’s reasoning application of the written description which involved claims to a broad was based on statutory construction requirement to original versus genus of nucleotide sequences useful and the policy that “[e]very patent amended claims. Ariad argued that in bacterial screening, the Federal must describe an invention.” The if a separate requirement exists, it is Circuit addressed the content of court also found support in Supreme court precedent dating back to 1938, limited to establishing priority.

2 119 F.3d 1559 (Fed. Cir. 1997). 3 375 F.3d 1303 (Fed. Cir. 2004). 4 323 F.3d 956 (Fed. Cir. 2002). 5 Lawrence T. Kass & Nathaniel T. Browand, “Is There a Written Description Requirement After All?” IPLaw360, New York, Dec. 11, 2009.

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 25 By extension, Ariad’s view was that it relied. Finally, Judge Linn’s dissent the written description requirement took issue with the majority for does not apply to original claims The primary failing to advance a workable written because they are included in the description text. original disclosure and thus fulfill the question before the objective of establishing priority. court was whether Implications As it did in Enzo, the circuit court §112 contains two Much was at stake in the Ariad case, rejected the distinction between separate disclosure particularly for inventors in the original and amended claims, finding biotechnology and pharmaceutical nothing in the language of the requirements–one industries. While the majority statute to support it. Furthermore, to describe the opinion and vast majority of amicus the court explained that such invention and briefs devote considerable effort a narrow interpretation of the to whether the written description written description requirement another to enable it. requirement is distinct from would betray the policy of ensuring enablement, Ariad’s legacy is not so that the inventor actually invented limited. what is claimed. Drawing on its specific molecules that inhibited that Instead, Ariad is significant because case law regarding genus claims in expression of the targeted gene. biotechnology, the court reasoned it clarifies the written description that a robust written description Indeed, the specification did not standard and provides some guidance requirement prevents an applicant disclose a single molecule capable to its application. The Federal Circuit from monopolizing a desired of achieving the claimed methods, distanced itself from its earlier result without explaining how that and Ariad’s reliance on three broad “possession” test and made clear result can be achieved. classes of molecules could not satisfy that the sufficiency of the written the written description requirement. description is assessed based on the The court explained that the written “four corners of the specification.” description requirement can be met In addition to the majority opinion, through disclosure of a representative Ariad included a separate Based on the court’s repeated number of species within the genus opinion, a concurring opinion, and references to genus claims and its or structural features shared by all two dissenting opinions. In her biotechnology and pharmaceutical members of the genus such that one separate opinion, Judge Pauline case law, the majority was most skilled in the art can identify them. Newman supported the outcome concerned about protecting the reached by the majority, but public from applicants who claim In addition, the species within the suggested that the case could have inventions that are still too uncertain. genus must be defined with sufficient been resolved on the basis of §101 In keeping with patent law’s precision to distinguish them from because Ariad’s methods were quid pro quo, applicants must ensure those outside the genus, and this may merely scientific discoveries, which that their specifications not only claim be done by formula, chemical name, are not patentable subject matter. a desired result, but also provide and physical or other properties. While joining the majority on its sufficient information to demonstrate Finally, when the science supports an interpretation of §112, Judge Gajarsa how that result is achieved. inference of structure from function, was not convinced that the written The decision provides additional functional claim language can satisfy description requirement serves much guidance to inventors and patent the written description requirement. purpose beyond policing priority. practitioners. Specifically, when Having reaffirmed its written In dissent, Judge Rader argued claiming a genus, patent applicants description doctrine, the circuit court forcefully that the language of the should ensure to identify and found that Ariad’s claims were invalid. statute only supports one requirement describe as many species as Applying the analogous Rochester under §112–enablement–and that the possible. There is considerable case, the court held that Ariad’s majority incorrectly interpreted flexibility in terms of meeting this method claims failed to disclose the Supreme Court cases on which standard including disclosure of the

26 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 chemical name, formula, physical is assessed objectively based on the As was the case in Ariad, institutional properties, structure-function content of the specification is that research may not progress far enough inferences, biological deposits, etc. extrinsic evidence may be unable to allow such applicants to satisfy Since the sufficiency of the written to cure a disclosure that is lacking the written description requirement, description is a factual inquiry, the under §112. Thus, Ariad may provide through, for example, the precise most appropriate form of disclosure accused infringers with an additional description of species. Consequently, will depend on the circumstances of weapon for invalidating patents it may be more difficult for these each case, particularly the technology asserted against them. members of the inventive community involved. to acquire patents and use them as a Ariad will likely be seen as a source of funding. The circuit court’s clarification setback for research institutions of “possession” is likely to have like universities, which have Despite two dissents, the separate implications for patent litigation increasingly sought patents over written description requirement will as well. A corollary of the court’s the last few decades as a means of likely be a fixture of U.S. patent law statement that the written description commercializing their discoveries.6 for the foreseeable future.

6 Abigail Rubenstein, “‘Ariad’ Ruling Bolsters Written Description Requirement,” IPLaw360, New York, March 23, 2010.

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 27 The Biosimilar Ballet: Patent Litigation Under The 2010 Health Care Reform Act

By Prologue: Patent Litigation pathway by amending the biologics Arie M. Michelsohn as an Incentive to Develop licensing statute, §351 of the Public Health Services Act (“PHSA”), to add Reprinted with permission from Biosimilar Drugs the January 6, 2011 edition of a new, “subsection (k),” codified at Corporate Counsel © 2011 ALM The 2010 Health Care Reform Act 42 U.S.C. §262(a)(1)(A)(k) et seq.) Media Properties, LLC. This article brought not only insurance reform, Central to this pathway is a patent appears online only. All rights but also added new subsections litigation scheme as an incentive for reserved. (k) and (l) to the biologics licensing biosimilar development. (Codified as statute, creating an abbreviated subsection (l) of the biologics licensing regulatory pathway to enable a statute, 42 U.S.C. §262(a)(1)(A)(k) generic, or “biosimilar,” biologics et seq.) The scheme, outlined industry for the first time. (Title VII in subsection (l), comprises a of the 2010 Health Care Reform Act multi-stage, highly choreographed, creates a new biosimilars regulatory

Arie M. Michelsohn

Overview of subsection (l) of the new biosimilars legislation (codified at 42 U.S.C. §262(a)(1)(A)(l) et seq.), which sets forth a dual-phase patent litigation scheme for resolving patent disputes arising from the filing of a subsection (k) (biosimilar) application. The references on the left of the Figure correlate to the ballet metaphor in the text.

28 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 and improvisational series of The Jig. The overall scheme is biosimilar application I filed with interactions between a biosimilar illustrated in Figure 1, and described the FDA, including all its confidential applicant under subsection (k) further, below. information. I am also giving you any (called the “subsection (k) applicant” confidential information I consider (“SSKA”)), and the innovator drug ACT I: The Four-Step additionally necessary to inform company that owns the approved [Subsections (l)(1-3)] you of how my biosimilar product application for the corresponding is made. You may ask me for more “reference product” (the “reference The choreography of Act I is information, and I may give it to product sponsor,” or “RPS”). illustrated in Figure 2A, and may be you if I want to. Of course, you described as follows: understand that all of the confidential The complexity of the scheme (which information is provided under the Act I begins when the FDA accepts an is loosely based on, but much more strict confidentiality provisions of application filed by SiSKA. The statute complicated than, the Hatch-Waxman subsection (l)(1), which requires does not define a time period during Act that incentivized development that it only be used by a limited which the FDA must accept a filed of generic, small-molecule drugs number of your outside and in-house application, which could lead to some beginning over 25 years ago) counsel and only for the purpose of delay in the start of the show. However, appears, at least at first glance, to determining whether I infringe any within 20 days of such acceptance by rival three-dimensional chess. This of your patents, and that your failure the FDA, SiSKA and RiPS must begin article provides a guide through the to respect this confidentiality will their four-step dance, as required under complexity of the new biosimilars cause me irreparable harm. litigation scheme, using the metaphor subsections (l)(2) and (3) of the statute: of a ballet. Within 60 days, RiPS must respond: Virtually, in Their Respective Offices RiPS:Thank you, SiSKA. Here is my SiSKA & RiPPS: A Strategic SiSKA:Dear RiPS, pursuant to list of patents pursuant to subsection subsection (l)(2) of the new Ballet, in Three Acts (l)(3)(A) that I believe you would By: The United States Congress, biosimilars legislation, here is the March 23, 2010

Cast of Characters

SiSKA, the follow-on filer (the so-called “subsection (k)) applicant”), who has asked FDA to approve her application to market a biosimilar drug pursuant to the new subsection (k) of the biologics licensing act; and

RiPS, her counterpart in this drama, the innovator who is the owner, or sponsor, of the reference product SiSKA wants to copy and sell (the “reference product sponsor”). (Those who exclusively license RiPS and retain litigation rights may also join in the ballet, but as they typically are aligned with RiPS, they are omitted here for simplicity.) Overview of the four-stage process of detailed factual and legal information exchange between the The ballet of SiSKA and RiPS takes subsection (k) applicant (SSKA) and the reference product sponsor (RPS) beginning 20 days after place in three stages, or Acts, called the FDA accepts the SSKA application, pursuant to subsections (l)(1)-(3) of the new biosimilars legislation. The Four-Step, The Tango, and

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 29 infringe if you made, used, sold, once they have shared their detailed period, however, they must engage offered for sale, or imported your contentions on patents. For 15 days in the card-game power-dance of proposed biosimilar product. Also, after SiSKA receives RiPS’ response subsection (l)(5). Under subsection I give you my list of which of those under (l)(3)(C), the statutory ballet (l)(5)(A), SiSKA “shall notify” RiPS patents I would be willing to license requires that the two principals “shall of the number of cards she will play: to you. engage in good faith negotiations the number of patents she will list to agree” on which, if any, patents during the required, subsequent, Within 60 days, SiSKA must respond: exchanged in the Act I Four-Step will list-exchange with RiPS that must SiSKA:Dear RiPS, pursuant to be litigated immediately, pursuant to occur within five days of her subsection (l)(3)(B), here are my subsection (l)(6) of the statute. If they notification. If SiSKA fails to notify detailed factual and legal reasons on cannot agree, they must engage in a RiPS, however, then RiPS may bring a claim-byclaim basis why I believe, card-game power-dance to determine a declaratory judgment action against with respect to each of the patents on the final outcome. The suspense of SiSKA, pursuant to subsection (l)(9) your list, the patent is not infringed, the interactions suggests the tango (B), on any patents listed by RiPS invalid, and/or unenforceable. I also metaphor. during the Four-Step. (Subsection (l)(5) does not provide a time limit for respond to your kind licensing offer. In a Conference Room And finally, I list those patents that SiSKA’s notification; and subsection I want to, which you did not list, and If SiSKA and RiPS agree within (l)(4)(B) simply states that if the which I believe would be infringed by 15 days on which patents to litigate parties fail to reach agreement within making, using, selling, offering for sale, immediately, they prepare what may 15 days, the provisions of (l)(5) shall or importing my biosimilar product, be called an “(l)(4) list” of patents. apply. Presumably, then, given the and describe the factual and legal Those patents on the (l)(4) list will be tight schedule otherwise provided, reasons why I believe, on a litigated “immediately,” pursuant to declaratory judgment jurisdiction claim–by-claim basis, that subsection (l) (6) of the statute. under (l)(9) would commence unless those patents are invalid and/or SiSKA notifies RiPS promptly, although If SiSKA and RiPS do not agree unenforceable. there may be some ambiguity as to within the prescribed 15-day the timing involved.) Within 60 days, RiPS must respond:

RiPS:Thank you, SiSKA. Pursuant to subsection (l)(3)(C), here are my detailed factual and legal reasons why I believe, on a claim-by-claim basis, that each new patent you identified would be infringed by making, using, selling, offering for sale, or importing your proposed biosimilar product. I also provide my response to your statements on invalidity and/or unenforceability.

The curtain then closes on Act I, each of the principals with the other’s lists and contentions in hand.

Act II: The Tango [Subsections (l)(4) & (5)]

The choreography of Act II is illustrated in Figure 2B, and may be Overview of the negotiation process between SSKA and RPS according to subsections (l)(4) & (5) described as follows: of the new biosimilars legislation, culminating in “immediate” patent litigation pursuant to subsection (l)(6). Act II unfolds as an improvisational, strategic duet between SiSKA and RiPS,

30 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 Upon receipt of SiSKA’s notification, Act III: The Jig but not included on any list subject to SiSKA and RiPS must each give [Subsection (l)(8)] “immediate” litigation following the the other a list of patents that Tango. (In technical terms, RiPS may each, respectively, wants to litigate The choreography of Act III is sue SiSKA on any patent vetted under immediately (these may be called illustrated in Figure 2C, and may be (l)(3) or (l)(7) and not included on any “the (l)(5) lists”). RiPS, however, described as follows: lists generated under (l)(4) or (l)(5).) may not list any more patents than Act III begins when SiSKA notifies Subsection (l)(8) further provides the number identified by SiSKA in RiPS six months (180 days) prior to that once RiPS initiates such a her notification. If, however, SiSKA commercial marketing of her biosimilar preliminary injunction action, the identified zero patents, SiSKA may drug, which she must do pursuant principals “shall reasonably cooperate list one patent. Upon the exchange to subsection (l)(8)(A) of the new to expedite such further discovery as of their (l)(5) lists, RiPS then must sue biosimilars statute. is needed” in conjunction with SiSKA within 30 days, if at all, on any the action. The relatively brief, patents on either of those lists. In Court six-month interval, during which Thus, the outcome of the Tango can Upon receiving notification from RiPS may bring his action, and the result in “immediate” litigation of at SiSKA of her intent to market, RiPS explicit, statutory, requirement for least one patent, at RiPS’ discretion; may initiate the Jig by bringing a expedited discovery in such an action, but at most, one patent, unless SiSKA preliminary injunction action against suggests that when brought, it will desires otherwise. SiSKA at any time during the six cause a frenzy of litigation activity to months before commercial marketing vet issues of infringement, validity, INTERMISSION begins. RiPS may assert in this action and enforceability, even for the any patents previously identified by well-prepared (hence, the Jig Any other patents identified by the either RiPS or SiSKA in a Four-Step, metaphor). principals during a Four-Step and not included on either the (l)(4) or (l)(5) lists generated during the Tango cannot be litigated until six months before commercial marketing of SiSKA’s drug. At that point, at RiPS’ discretion, SiSKA and RiPS may perform their final litigation dance, the Jig of Act III. The length of the intermission may depend on a variety of factors, including the length of FDA approval procedures, whether a biosimilar product is eligible for market exclusivity (which could cause a long intermission when the biosimilar application is filed relatively early in a reference product’s data exclusivity period), and whether a reference product is ineligible for data exclusivity (which could cause a short intermission when FDA approval of the biosimilar’s data package occurs relatively quickly).

Overview of the final stage in the patent litigation scheme according to subsections (l)(7) & (8) of the new biosimilars legislation, requiring SSKA to notice RPS 180 days prior to commercial marketing, and permitting RPS to bring a DJ action during that time on patents on (l)(3) lists that were not previously listed under (l)(4) or (l)(5).

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 31 The frenzy likely would be particularly of information exchange, negotiation, innovator pharmaceutical companies in fierce when the parties previously and gamesmanship that choreograph Hatch-Waxman litigation over patent do not agree to vet substantially the this dance. The outcomes of rights regarding generic drugs. He is a patent issues addressed during the dance are further influenced former patent examiner in biotechnology the “immediate” (after filing) phase by the data and market exclusivity at the U.S. Patent & Trademark Office, of the litigation scheme. provisions of new subsection (k). and a former law clerk to the Honorable The dance will require numerous, Raymond C. Clevenger III, U.S. Court of In any event, whether SiSKA and RiPS detailed, and rapid strategic Appeals for the Federal Circuit. choose to vet their patent differences maneuvers once a biosimilar The views expressed are those of the following the Tango, or in the later Jig application is filed, which, in author, do not constitute legal advice, (or both), when the Jig stage of the turn, will require adequate and and do not necessarily reflect the views biosimilar patent litigation scheme substantial advance preparation. of any past, present, or future clients of is over, then the time for biosimilar The dance can result in numerous Milbank. The author may be reached via patent litigation over SiSKA’s drug, as permutations of scope and timing, e-mail at [email protected]. it were, is up. and the ensuing litigation will be outcomedeterminative on Epilogue: Preparing for a substantially all patent issues related Plethora of Possibilities to biosimilar drugs in the U.S.

Taken together, the byzantine If they haven’t already, SiSKA and RiPS features of the new biosimilars should start limbering up now. litigation scheme create a strategic, improvisational dance between the Arie M. Michelsohn, Ph.D., J.D., practices biosimilar applicant (SSKA), and patent litigation and counseling as a the innovator-patentee (RPS). member of the litigation department at New subsection (l) of the biologics Milbank, Tweed, Hadley & McCloy, and licensing statute defines the parameters has significant experience representing

32 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 SOFTWARE AND BUSINESS METHODS

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 33 34 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 Supreme Court Invalidates Patent on Hedging Risk But Leaves Door Open for Less “Abstract” Business Method

By On June 28, 2010, the U.S. Supreme transformation test by structuring the Mark Scarsi Court held a patent directed to a claim in that fashion (the argument and series of steps for hedging risk in being that a disc is a machine, so one Blake Reese commodities trading invalid as not could claim a disc a/k/a “computer- being drawn to statutory subject readable medium” with novel code Reproduced with permission from matter. While the Supreme Court on it). The Hedge Fund Law Report. affirmed the Federal Circuit Court of Appeals’ decision that the Prior Law at the Trial Courts patent was invalid, the Supreme Court did instruct the Federal On the other hand, if a financial Circuit to fashion additional tests services company was sued for for patentable subject matter based infringing another’s so-called on the Supreme Court’s broad and “business method” patent, many of somewhat antiquated principles. the federal district courts were not so kind to these patents. Many of these Prior Law and USPTO district courts were not convinced of the legal fiction that a general purpose Practice computer becomes a “particular Before the Supreme Court’s machine” when a novel program is June 28 decision in Bilski v. Kappos, if performed by it. Going further, some a financial services company wanted courts looked beyond the form of a patent on a so-called “business the claim and used the MorT test to method,” it had to make sure the invalidate machine claims that were patent’s claims were “tied” to a written as, for example, general “particular” machine or performed purpose computers that performed a physical or chemical novel processes or novel processes “transformation.” The U.S. Patent stored in a computer-readable and Trademark Office (USPTO) medium, such as a disc drive or would typically allow a general memory. (For further discussion, see Mark Scarsi is a partner, and purpose computer to satisfy the Blake Reese, Judicially Re(De)Fining Blake Reese is an associate, in the “particular machine” requirement Software Patent Eligibility: A Survey Intellectual Property Litigation & of the “machine-or-transformation” of Post-Bilski Jurisprudence (April 6, Technology Department of Milbank, test (“MorT test”). In addition, 2010).) Nonetheless, other district Tweed, Hadley & McCloy LLP. Messrs. when a method could be expressed courts followed the status quo that Scarsi and Reese represent large as steps conducted by a software as long as a method claim had some technology companies, all types of program on a disc, patent attorneys computer hardware in the claims, or financial services companies, and if the claim was written as a machine start-ups. The views expressed in this could get around the machine-or- article are solely those of the author and may not be attributed to Milbank or its clients.

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 35 claim that it was eligible for a patent. applied the MorT test to process Watching the Next Two Of course, just because an invention claims. Under the USPTO’s Interim Quarters is eligible subject matter for a patent Guidelines that were released on does not mean that a patent should June 28 after the Supreme Court’s In the next several months, the issue. The claim still has many other decision, the USPTO stated that Federal Circuit will be deciding hurdles to overcome, like whether it it will still apply the MorT test. If a cases that will likely give teeth to the is new and nonobvious. Meanwhile, patent applicant’s claims fail that test, principles in the Supreme Court’s the Federal Circuit Court of Appeals the applicant now has an additional decision. These Federal Circuit had about a half-dozen or so of these argument that, despite its failing to opinions and the interpretations district court cases on appeal and satisfy the MorT test, the claims are of them by the USPTO will likely the major players in all industries not “abstract.” Abstraction law is have more of an impact on these were waiting to see how the Federal confusing and archaic; it is not a child companies’ applications. In the Circuit would clarify the MorT test. of the information age. The appellate interim, expect plaintiffs to assert In other words, which district courts board at the USPTO (a/k/a the Board those patents that were collecting would it say were getting “it” right. of Patent Appeals and Interferences) dust because they lacked sufficient will almost certainly come out with its hardware to be considered a The Supreme Court’s own new tests for determining what “machine” or tied to a “particular Important Statements is “abstract” which will be, in theory, machine.” Also, expect defendants based on these older abstraction to claim the software or business In Bilski v. Kappos, the Supreme cases and subject to tweaks and method patents that are asserted Court held that the MorT test is rewrites by the Federal Circuit’s against them are invalid for being merely a “useful and important own development of abstraction law. “abstract.” clue,” but is “not the sole test Importantly, the USPTO, at least, is In short, unfortunately, more wait- for deciding whether” a claimed limiting Bilski v. Kappos to process and-see in industries that often lack process is patent eligible. Instead, claims, so machine claims are largely the virtue of patience. the court focused on its own prior unaffected – a strategy of which precedent and concluded that the financial services companies and the claims-at-issue were within what entities that go after them will be had been previously characterized aware. as an unpatentable abstract idea. In its opinion, the court did not define No Mention About the what would constitute a patentable Elephant in the Room “process.” As a result, the Supreme Court deferred to the Federal Circuit Practitioners and industry to develop “other limiting criteria” for stakeholders still do not have a assessing whether claimed processes, definitive answer as to whether a including certain business methods, general purpose computer can be may be patented. a “particular machine” under the MorT test. As a result, financial Bilski v. Kappos Implemented services companies will continue at the USPTO to file so-called “business method” Former software engineer Mark Scarsi applications and absent any significant of Milbank, Tweed, Hadley & From a practical standpoint, the changes, those applications will issue McCloy LLP marries his exceptional USPTO will now look at a financial as patents despite their relying solely knowledge of computer software services company’s patent application on a general purpose computer as technology with winning trial in virtually the same way as it did the claims’ “particular machine” or skills. His clients include Apple and before the Supreme Court issued being written as a general purpose Lockheed Martin. its opinion. Last week, as previously computer, computer readable- – Chambers USA 2010 stated, the USPTO exclusively medium or the like.

36 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 Learning from the Goldman Sachs Trade Secret Case

By freely use “open source” software Mark C. Scarsi code in commercial products if they agreed to certain open Reproduced with permission Companies must be source terms. Unfortunately, from Inside Counsel. careful when using there was little uniformity open source code between open source licenses, in their proprietary and “acceptable” open source terms ranged from the innocuous systems. (using proper copyright notice) to the egregious (agreeing to license any of your own programs As a computer science student that contain open source code in the ’80s, I was well-steeped for free). While sophisticated in the pioneering spirit that led companies certainly recognized to the modern open source the cost benefit of using “off the code movement. Back then, we shelf” software, the attendant were far too busy exploring the legal complexities have not always potential of digital computers been routinely considered. (remember artificial intelligence?) to concern ourselves with The recent Goldman Sachs trade notions of ownership or secret trial provides yet another commercialization. Those who reason to carefully consider the were lucky enough to break new use of open source software. ground were happy to share In early December, Sergey their accomplishments with the Aleynikov was convicted of programming community in the stealing trade secret computer Mark Scarsi is a partner in the hopes of earning some modest code he developed for his former Intellectual Property Group of peer recognition while helping employer, Goldman Sachs. Milbank, Tweed, Hadley & McCloy others take the next step. LLP, resident in the Los Angeles According to court documents, the government alleged that office. When computer programs Aleynikov took the software became widely integrated into code to enable him to develop a commercial society in the ’90s, competing program for his new the free software movement employer, Teza Technology. began looking for ways to formalize the traditional openness In developing proprietary code among programmers. This for Goldman, however, Aleynikov formalization took the form of apparently incorporated open source code licenses. These some open source elements. licenses allowed programmers to In defending against the

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 37 misappropriation charges, While it appears that the they can evaluate the applicable Aleynikov’s lawyers argued government was able to open source license terms. that he did not intend to take overcome the “open source” Finally, companies should not let Goldman trade secret code, but, defense in the Goldman case, programmers make the decision rather, he was merely trying to other companies may not be so on whether or not to include take the open source code he lucky. To prevent “open source” open source code in proprietary was entitled to take under the issues from overriding proprietary systems. The legal and business applicable open source license. protection, companies need to implications of open source are This defense added a second level carefully consider the use of open far too nuanced to allow decisions of complexity to what ordinarily source code in their proprietary to be made real-time during would have been an open-and- systems. software development. shut case. Not only would a jury If open source code is used, need to decide that Aleynikov technical directors need to ensure took software with him, they that it is physically and logically would also need to determine segregated from proprietary that the purloined software was source code elements. In-house open source. Given the vagaries counsel should also be aware of of many open source licenses, the origin of any open source this second question is not always elements being used so that easy to answer.

38 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 What Can Decisions by European Courts Teach Us About the Future of Open-Source Litigation in the United States?

By Introduction custom features and functionalities to Christopher J. Gaspar1 and meet their unique internal business Corporations can no longer Jennifer Buchanan O’Neill requirements. The availability of ignore the commercial impact open-source software and the Presented at the 2010 AIPLA and cultural changes resulting extensive collaboration that fosters its Spring Meeting in New York City. from the exponentially increasing enhancement are widely believed to adoption of and reliance on open- allow the development, modification, source software. Unlike traditional and debugging of software through proprietary software licenses that processes that are faster and less afford access only to machine- expensive than if the creator were readable object code and generally required to do all of the work for a fee, open-source software is independently. available to the public at no charge. The licensee receives the human- The United States Court of Appeals readable source code, which it for the Federal Circuit recognized may modify for use in any field of this phenomenon in the landmark endeavor, and redistribute both the case Jacobsen v. Katzer, observing that original code and its derivative works “[o]pen source licensing has become to others.2 Powerful non-profit, a widely used method of creative volunteer communities, such as the collaboration that serves to advance Free Software Foundation (“FSF”), the arts and sciences in a manner Apache Software Foundation, and at a pace that few could have and Eclipse Foundation, bring imagined just a few decades ago.”4 together the talents of thousands Unsurprisingly, the widespread use of skilled developers who engage of open-source software has created in collaborative development and a groundswell in the number of enhancement of open-source actions filed by licensors who believe software.3 Companies with sizeable that their intellectual property and IT departments bring the software contractual rights have been infringed. in-house and use it to create new These licensors turn to federal proprietary offerings or develop courts when informal enforcement

1 Christopher J. Gaspar ([email protected]) is located in the New York office of Milbank, Tweed, Hadley & McCloy LLP. Jennifer Buchanan O’Neill (jennifer.o’[email protected]) is the Vice President and Managing Assistant General Counsel at CA, Inc., where she leads the legal department’s technology law group. The views expressed in this article are solely those of the authors and may not be attributed to CA, Milbank, or the firm’s clients. 2 Open Source Initiative, “Open Source Definition.” http://www.opensource.org/docs/osd (accessed April 2, 2010). 3 The Free Software Foundation identifies itself as a proponent of “free” rather than “open” software, viewing open source as a “development methodology” and free software as a “social movement.” Richard Stallman, “Why Open Source misses the point of Free Software,” http://www.gnu.org/philosophy/open-source-misses- the-point.html (2007). For purposes of this article, we use the term “open source” to refer to software available under the Open Source Definition and do not distinguish licenses that the FSF may consider to be “non-free.” 4 Jacobsen v. Katzer, 535 F.3d 1373, 1378 (Fed. Cir. 2008).

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 39 requests fail to bring users of the Corporate America Meets granted by the original creators of the source code into compliance. Those Open-Source software under Contributor License suits are often brought by, or in close Agreements. The BSD and Apache cooperation with, open-source or The requirements and restrictions licenses have found great favor with free software communities and their of open-source licenses vary the private sector because they legal counterparts. dramatically. The many variations of permit the licensees to exploit the the permissive Berkeley Software software commercially as long as they But years earlier, European courts Distribution (“BSD”) License allow abide by reasonable documentation began laying the foundation for the the licensee to distribute and requirements. enforcement of open-source licenses modify the subject code essentially taking place today in the United without limitation, provided that By contrast, the philosophy of other States. And the same volunteer, 7 the text of the license (including open-source licenses is “copyleft” – non-profit organizations that now the disclaimer of warranties) and that is, in exchange and consideration lead compliance efforts and drive the applicable copyright notices are for use of the subject work, the litigation in this country also filed or provided with the distribution.5 The copyright holder allows licensees to offered material assistance in the early popular Apache Software License copy, modify, and distribute the code European court cases. This paper v.2.0 similarly enables the end-user to and their derivative works thereto traces some of the roots of current distribute its derivative works of the provided that downstream users strategies in the United States for code under the licensing terms of its are afforded the same privileges of enforcement of open-source licenses choice.6 Unless a “patent retaliation” accessibility and use of the licensee’s back to the ground-breaking decisions clause is triggered by a licensee’s suit derivative works. A pure copyleft in Europe. We also highlight the alleging that the software infringes its license provides each user or holder impact of those decisions abroad on patent rights, the licensee enjoys the of a software program the same “four recent and ongoing federal litigation. benefits of broad, explicit patent and essential freedoms” as the software’s copyright licenses that mirror those creator:

5 See, e.g., Open Source Initiative, “Open Source Initiative OSI - The BSD License: Licensing,” http://www.opensource.org/licenses/bsd-license.html (accessed April 2, 2010). 6 Apache Software Foundation, “Apache License Version 2.0, January 2004, http://www.apache.org/licenses; http://www.apache.org/licenses/LICENSE-2.0.txt (2004). See also Opscode, Inc., “Why We Chose the Apache License,” http://www.opscode.com/blog/2009/08/11/why-we-chose-the-apache-license/ (August 11, 2009), for an interesting layman’s perspective on the benefits of using the Apache Software License v.2.0 as an outbound licensing mechanism. 7 See generally Free Software Foundation, Inc., “What is Copyleft?”, http://www.gnu.org/copyleft (accessed April 2, 2010).

40 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 0. the freedom to run the There is no longer a question program, for any purpose, ...the widespread that the risks and ramifications of noncompliance are real. By the 1. the freedom to study how the use of open-source end of 2007, the FSF, with the program works (through access software has created assistance of the Software Freedom to the source code) and change it a groundswell in the Law Center, had filed copyright at will, number of actions infringement actions in the United 2. the freedom to copy and share States District Court for the Southern the program with others, and filed by licensors who District of New York (“SDNY”) believe that their against Verizon Communications, 3. the freedom to share Xterasys, and High-Gain Antennas modifications with others.8 intellectual property based on the defendants’ distribution and contractual of open-source, Unix-based Busy The GNU General Public License Box software in alleged violation (“GPL”) is the most well-known rights have been of the GPL. The FSF withdrew the copyleft license. By way of example, infringed. complaint in each of those actions copyleft licenses may contain: shortly after filing suit, but only after the more straightforward Mozilla and • a requirement that the each defendant agreed to comply Eclipse requirements. licensee publish or make available with the terms of that license. (These the source code for any works The free software philosophy first suits and others are described in based on or derived from the captured the attention of corporate more detail below.) original software; America in 1994 when Linus Torvalds European case law allowing licensors released Linux, a free, Unix-type • a requirement that the to strictly enforce the GPL against operating system, under the GPL.9 licensee send the sponsoring wayward licensees, coupled with Corporate counsel and their clients open-source community a copy other publicized settlements were uncertain how to comply of all versions of derivative of open-source disputes in the with the terms of this new licensing software created using the European Union, was undoubtedly a structure and what the risks were software; or significant factor in the 2007 SDNY of noncompliance. United States cases. These unwavering, bright- common law on open-source • a requirement that software line decisions empowered the free licensing issues was undeveloped, and documentation be made available software proponents while serving practitioners struggled in applying the at no charge. as a cautionary tale to the corporate artistically focused Copyright Act to defendants. Pioneering judges from “Weak” copyleft licenses permit the technicalities of software.10 the licensee to include or link to across the pond have created a de the original, unmodified code in a Many lawyers relied on online, facto precedent for American courts greater work without being required informal guidance published by in information technology law and to license the entirety of the new open-source communities, which policy – a compelling reminder to work under the open-source license. consisted primarily of developers remain aware of global trends in Examples of weak copyleft licenses and other non-lawyers. But the intellectual property law. Today, both are the Mozilla Public License and relatively low level of enforcement formal and informal enforcement the Eclipse Public License. While the activity actually conducted by these activity of open-source licenses GNU Lesser General Public License communities added uncertainty as to continues to intensify, and many more (“LGPL”) is sometimes referred how real and costly the risks were for related copyright infringement and to as a weak copyleft license, its failing to comply with the terms of breach of contract cases have been narrow safe harbor and diverse an open-source license. The number filed in federal district courts as of the interpretations of how to link safely of devices and companies that relied date of this article. to LGPL-licensed code warrant a upon or included open-source much more rigorous analysis than software continued to expand rapidly.

8 Free Software Foundation, Inc., “Free Software Definition,” http://www.gnu.org/philosophy/free-sw.html (accessed April 2, 2010). While the four freedoms are paraphrased above, we have retained Richard Stallman’s unique numbering scheme that begins with a zero rather than a one. 9 Linux Online Inc., “What is Linux,” http://www.linux.org/info/ (July 2, 2007). 10 17 U.S.C. §§ 101 et seq.

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 41 It All Started With A applicability and the validity of the 25-Year-Old German Today, both formal GNU GPL.”15 Developer… and informal Formal enforcement of open source licenses thus began with the targeting In 2003, Harald Welte, a young enforcement activity of primarily router and network programmer from Berlin, was a of open source appliance manufacturers, likely due principal contributor to and copyright in part to the discrete architecture of owner of netfilter/iptables, a packet licenses continues the technology and the relative ease filtering framework for the Linux to intensify, of demonstrating noncompliance. kernel that is licensed under the Because the software for these GNU General Public License.11 Welte and many more devices is necessarily integrated became frustrated over what he related copyright and embedded in the hardware perceived as a pervasive, industry- infringement and as “firmware,” manufacturers wide failure of wireless networking encountered difficulty claiming manufacturers who embedded breach of contract that they were not distributing or netfilter code in their products to cases have been filed conveying a work “based on” the comply with the terms of the GPL. GPL-licensed code.16 There may also After being named chairman of the in federal district have been insufficient policing of netfilter core team that managed courts as of the date internal software development and the open-source project, Welte of this article. licensing practices by the hardware began active enforcement activity manufacturers because it was not targeted at the manufacturers. He viewed as a critical business issue at founded the gpl-violations.org project distribution of the product pending the time. in January 2004 to advocate and compliance by Sitecom with the open-source license. investigate compliance with the GPL, Emboldened by their success and then proceeded to obtain several On April 2, 2004, a three-judge panel indeed, an apparent batting record out-of-court settlement agreements issued the injunction and upheld it of a thousand, Welte and the gpl- in which the licensees agreed to on May 19, 2004, in response to violations.org project broadened 12 remedy their licensing violations. Sitecom’s objection.14 The German the scope of their efforts to include Welte sent one such cease and desist court held that the terms of the GPL an infringing operating system. notice to Sitecom Germany GmbH, were enforceable and that Sitecom Fortinet UK Ltd. (“Fortinet”) sold the German subsidiary of a Dutch had no right to distribute netfilter/ a line of security appliances that 13 wireless networking company. iptables-based products without were marketing as running on the After Sitecom declined to cooperate, complying with the GPL’s conditions. proprietary “FortiOS” operating Welte filed an action for copyright The milestone decision was reported system. The GPL watchdogs analyzed infringement in the Munich district worldwide, both within and beyond the operating system and determined court alleging that Sitecom violated the open-source community. that it contained portions of the Linux the terms of the GPL by (i) failing Till Jaeger, counsel for Welte and kernel that were not being distributed to make available the source code co-founder of the Institute for Legal in compliance with the GPL.17 for its wireless access router and (ii) Issues of Free and Open-Source Moreover, the project concluded that failing to distribute a copy of the GPL Software, noted: “To my knowledge, Fortinet had knowingly concealed license to its end-users. He sought this is the first case in which a judicial its use of the Linux code through a preliminary injunction to stop decision has been decreed on the the use of cryptographic tools.18

11 http://netfilter.org/about.html#license (accessed on April 3, 2010). 12 12 http://www.gpl-violations.org/about.html#history (accessed on April 3, 2010). 13 Harald Welte, “Preliminary Injunction to enforce netfilter/iptables GPL,” http://lists.netfilter.org/pipermail/netfilter-announce/2004/000057.html (April 15, 2004). 14 For a report of this decision, see http://news.cnet.com/2100-7344_3-5198117.html (April 22, 2004); see also http://www.gpl-violations.org/news/20040415-iptables.html (April 15, 2004). The decision itself is located at http://www.ifross.org/ifross_html/eVWelte.pdf (accessed April 3, 2010). An unofficial English-language translation by Thorsten Feldmann, LL.M., Esq., and RRef. Julian Hoeppner, LL.M., Jaschinski Biere Brexl Rechtsanwaelte, Berlin is available at http://www.jbb.de/fileadmin/download/judgment_dc_ munich_gpl.pdf . 15 Harald Welte, “Preliminary Injunction to enforce netfilter/iptables GPL,” http://lists.netfilter.org/pipermail/netfilter-announce/2004/000057.html (April 15, 2004). 16 The GNU General Public License Version 2 focuses on whether the licensee is “distributing” a covered work, while the GNU General Public License Version 3 published in June 2007 queries whether a covered work has been “conveyed.” See generally Free Software Foundation, Inc., “Licenses,” http://www.gnu.org/licenses/licenses.html (accessed April 3, 2010). The difference in application of these terms is beyond the scope of this article. 17 http://gpl-violations.org/news/20050414-fortinet-injunction.htm (April 14, 2005). 18 Id.

42 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 Fortinet, however, did not yet take Welte’s gpl-violations.org project investigation, a remedy potentially the project’s efforts to engage it prevailed again in litigation in available to him under the German seriously, and it refused to either 2006, this time against D-Link Civil Code.23 honor the cease-and-desist notice or Germany GmbH (“D-Link”), a otherwise settle the project’s claims German subsidiary of the Taiwanese Welte brought suit in the Frankfurt of infringement. Again, Welte sought manufacturer and a distributor of district court, alleging copyright claims based on the GPL and claiming that reinforcement from the Munich its hardware and network devices.21 he was entitled to reimbursement district court. D-Link had distributed a Wireless for the expenses of the enforcement G network attached storage (NAS) On April 14, 2005, the court granted activity. In the proceedings, D-Link device that contained at least three a preliminary injunction against argued that the GPL was not software components from the Linux Fortinet, agreeing with Welte’s legally binding, “[r]egardless of the kernel, all of which were licensed assertions that Fortinet did not have repeatedly-quoted judgement of under the GPL.22 D-Link, however, the right to continue distributing the the district court of Munich…,” a did not provide either a copy of the Linux kernel in its operating system reference to the Sitecom decision GPL or the requisite disclaimer of without abiding by the terms of the discussed herein.24 warranties to its customers, and it D-Link contended GPL.19 In order to return to the did not disclose the source code that the GPL’s requirement that marketplace, Fortinet was required to for the data storage unit to the source code be made available at no modify its end user license agreement public. Although D-Link agreed to charge was in essence a price-fixing to conform to the GPL, and make address these breaches, it refused obligation, and hence unenforceable 25 available the corresponding source to reimburse Welte for the costs of as a violation of antitrust law. D-Link code for the covered code.20 also contended that it could not be

19 Id.; see also Pinsent Masons, LLP, “Software firm settles GPL violation lawsuit,” http://www.out-law.com/page-5620 (April 28, 2005); CBS Interactive, “Fortinet Accused of GPL Violation,” http://www.zdnet.co.uk/news/application-development/2005/04/14/fortinet-accused-of-gpl-violation-39195174/ (April 14, 2005). 20 http://news.cnet.com/Fortinet-settles-GPL-violation-suit/2100-7344_3-5684880.html (accessed April 5, 2010). 21 http://www.gpl-violations.org/news/20060922-dlink-judgement_frankfurt.html (accessed on April 3, 2010). 22 The authors of the software had granted Welte exclusive rights in the code, thus enabling Welte to license the software to others under the GPL and granting him standing to enforce the terms of the license in the German court. http://thinkingopen.files.wordpress.com/2007/07/d-link-verdict-english-translation-061028_2_.pdf (accessed on April 4, 2010). 23 See Sections 670 and 683 of the German Civil Code. An English translation of the German Civil Code is provided by the German Federal Ministry of Justice at http://www. gesetze-im-internet.de/englisch_bgb/index.html. 24 http://www.gpl-violations.org/news/20060922-dlink-judgement_frankfurt.html (accessed on April 3, 2010). 25 http://thinkingopen.files.wordpress.com/2007/07/d-link-verdict-english-translation-061028_2_.pdf (accessed on April 4, 2010).

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 43 held liable for infringement because whether they actually deserve to enforce was resolved in a legal its status as a subsidiary meant that it such a mild strategy.”28 success, either in-court or out of was merely a distributor of the data court.”29 The project announced that storage unit and had no knowledge Another clear-cut win for the free numerous “major companies” had of the code actually embedded in the software proponents; the court’s agreed to out-of-court settlements device. resounding validation of the GPL’s of GPL enforcement activity, legitimacy plainly advanced both their including Siemens, Fujitsu-Siemens, On September 6, 2006, the cause and their zeal. Asus, Belkin, and TomTom B.V.30 district court issued its judgment, The Free Software Foundation confirming Welte’s claims of copyright Thus, it was a trio of decisions by presented Welte with the 2007 infringement and specifically holding German courts that led the way FSF Award for the Advancement of that the GNU GPL was valid in recognizing and enforcing free Free Software as recognition for his and enforceable under German and open-source software licenses. Welte crowed on the gpl-violations. leadership in licensing enforcement; law.26 The court rejected D-Link’s org site: “By June 2006, the project he subsequently received the 2008 claim that it was not responsible has hit the magic ‘100 cases finished’ Google-Reilly Open-Source Award for infringement because it was mark, at an exciting equal [sic] for Defender of Rights. He continues merely a distributor. In a statement ‘100% legal success’ mark. Every to lead gpl-violations.org vigorously as foreshadowing the Federal Circuit’s GPL infringement that we started of the date of this article. 2008 decision in Jacobsen (discussed below), the court noted in response A French Appellate Court to D-Link’s antitrust defense that Many contracts if a would-be licensee refused to Enforces the GPL in Favor of accept the licensing terms imposed between software a Software Recipient by the copyright owner of software, licensors and their While Welte and gpl-violations.org regardless of the rationale for refusal, energetically enforced the GPL in then it could not somehow claim the customers contain German courts, the Free Software right to distribute the software under warranties of Foundation France (“FSF France”) the terms of its choice.27 The court noninfringement was helping a downstream licensee also ordered D-Link to reimburse pursue its rights under an open- Welte for most of his requested and other terms source license in a case of first expenses for legal services, testing, that enable the impression under the French Civil and re-engineering. customers to claim Code. The licensee, Association pour After the victory, Welte issued a monetary damages la formation professionnelle des adultes statement condemning D-Link’s (“AFPA”), maintained training facilities attitude and hinting at the for the licensor’s that included tele-mentoring and implementation of more aggressive unauthorized other adult educational programs.31 enforcement tactics: EDU 4, a manufacturer of multimedia distribution of third- teaching rooms, was the successful “It was very sad to see D-Link party intellectual bidder to a request for proposals starting to argue that the GPL property, if not issued by AFPA and provided AFPA would not apply. Given D-Link’s with certain equipment and software repeated license violations, it specific performance that included a modified version can be thankful that we’ve never obligating the of Virtual Network Computing asked for any kind of damages, licensor to remediate (“VNC”) software. VNC software but merely to cease and desist enables a desktop user to view and from further infringements, plus the infringement. control another desktop connected our expenses. I start to wonder to the Internet. The version of VNC

26 Id. 27 Id. See also Groklaw, “GPL Upheld in Germany Against D-Link,” http://www.groklaw.net/articlebasic.php?story=20060922134536257 (September 22, 2006). 28 http://www.gpl-violations.org/news/20060922-dlink-judgement_frankfurt.html (accessed on April 3, 2010). 29 http://www.gpl-violations.org/about.html#history (accessed on April 3, 2010). 30 http://www.gpl-violations.org/news/20041004-majorupdate.html; http://www.gpl-violations.org/news/20041024-linux-tomtom.html (accessed on April 3, 2010). 31 A copy of the decision is available at http://fsffrance.org/news/arret-ca-paris-16.09.2009.pdf. The authors of this article relied upon an unofficial English translation of the decision for their discussion of the case. If possible, that translation will be made available at http://www.milbank.com/en/Attorneys/g-i/Gaspar_Christopher.htm.

44 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 provided by EDU 4 was subject to the GNU GPL.

EDU 4 did not acknowledge the presence of the VNC software in the media that it provided.32 In its distribution, it also had deleted the VNC license, copyright notices, and attributions originally contained in the software and inserted its own. FSF France, another open-source community advocate for enforcement of the GPL, assisted AFPA by identifying the specific violations of the GPL and attempting to mediate a resolution with EDU 4, but to no avail.33 In early 2002, AFPA unilaterally court also determined that EDU 4 unauthorized distribution of third- terminated the contract with EDU 4, could not assert that it had made a party intellectual property, if not 37 due in part to the perceived violation compliant delivery of software. This specific performance obligating of the GPL and its claim that EDU 4 was the first time that the French the licensor to remediate the had concealed the true pedigree of courts treated the GPL as enforceable infringement. The existence of these 38 this code.34 EDU 4 sued AFPA for and binding. commercial terms can have the same practical impact in federal court as breach of contract and was awarded Two additional aspects of this decision damages by the Trial Court of the AFPA’s claim for rescission under bear mention here. First, the decision French civil law. Bobigny on September 21, 2004. established that, under French civil On appeal, AFPA alleged that it law, an end-user of software licensed Second, the appeals court’s ruling was entitled to rescission under under the GPL can seek judicial concerned software preloaded on Article 1184 of the French Civil relief regarding compliance with its a personal computer, unlike the Code.35 AFPA also sought restitution terms, based on rights granted to German cases governing firmware of amounts it had paid under the that downstream licensee by the on routers, appliances, and other 39 contract. The Court of Appeals of copyright owner. While this ruling hardware. The investigative focus Paris agreed and overturned the does not automatically bestow of free and open-source software lower court’s ruling on September standing on an unlimited class of advocates has clearly broadened to 16, 2009.36 The court determined potential enforcers in United States include non-embedded software that EDU 4 breached its contractual courts, it serves as a reminder that that can readily be distributed obligations by, inter alia, delivering the FSF is not the only party that independently of hardware. This software that did not satisfy the can enforce the General Public reinforces the need to comprehend 40 notice and attribution requirements License. Further, many contracts how expansively the open- of the GPL. Because EDU 4 did not between software licensors and source proponents may scrutinize provide AFPA with the source code their customers contain warranties applications, middleware, and utilities for its modifications to the VNC of noninfringement and other terms to assess their incorporation of open- software despite repeated requests that enable the customers to claim source code and the parameters they from both AFPA and FSF France, the monetary damages for the licensor’s will apply to determine whether the

32 Id. 33 FSF France, “Paris Court of Appeals condemns Edu4 for violating the GNU General Public License,” http://fsffrance.org/news/article2009-09-22.en.html (September 22, 2009). 34 http://fsffrance.org/news/arret-ca-paris-16.09.2009.pdf (September 16, 2009). 35 Id. A copy of Article 1184 is available at http://www.legifrance.gouv.fr/affichCodeArticle.do?cidTexte=LEGITEXT000006070721&idArticle=LEGIARTI000006436635&dateTe xte=20100404 (February 1804). 36 Id. 37 Id.; http://fsffrance.org/news/article2009-09-22.en.html (September 22, 2009). 38 See Mark Radcliffe, “French Court Indirectly Finds the GPL Enforceable for the First Time,” http://lawandlifesiliconvalley.com/blog/?p=285 (September 30, 2009). 39 FSF France, “Paris Court of Appeals condemns Edu4 for violating the GNU General Public License,” http://fsffrance.org/news/article2009-09-22.en.html (September 22, 2009). 40 SCO notoriously argued to the contrary in its Answer to IBM’s Amended Counterclaims in The SCO Group, Inc. v. International Business Machines Corp., No. 03-CV-294 (D. Utah) (October 24, 2003), contending that IBM lacked standing to enforce the GPL because it had failed to join the FSF as a necessary party to its claim. SCO subsequently dropped this defense in its Answer to IBM’s Second Amended Counterclaims, filed on April 23, 2004.

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 45 software is a derivative work of code and two developers of the popular The plaintiffs alleged that Monsoon originally licensed under a free or BusyBox UNIX utilities sued improperly failed to make available open source software license. Monsoon Multimedia (“Monsoon”) in the source code for the firmware the SDNY, in the first federal action embedded on its media devices, Coming to America for copyright infringement based though Monsoon had acknowledged on an alleged violation of the GPL.42 on its online support forum that its The American free software The plaintiffs sought actual damages, firmware included BusyBox code movement continued to gather attorney fees, and injunctive relief.43 and it was otherwise providing the steam, invigorated by the firmware for download in object achievements of their European BusyBox, the “Swiss Army Knife form.46 They also claimed that the of Embedded Linux,” is a single counterparts. In 2005, Eben Moglen, only permission Monsoon had to executable program comprised professor at Columbia University distribute BusyBox software was of numerous, bare-bone UNIX Law School and longtime legal advisor pursuant to the GPL, characterizing utilities for devices such as cell to the Free Software Foundation, that permission as “contingent” phones and PDAs.44 founded the Software Freedom BusyBox is on Monsoon’s compliance with its Law Center (“SFLC”), a nonprofit distributed under the terms of the terms.47 organization dedicated to providing GPL Version 2, which requires that legal representation for advocates re-distributors of a GPL-licensed The parties settled the case on of free and open-source software.41 program give recipients access to October 30, 2007, just six weeks On September 19, 2007, the SFLC the corresponding source code.45 after the complaint was filed.48

41 http://www.softwarefreedom.org/ (accessed on April 4, 2010). 42 Andersen v. Monsoon Multimedia, Inc., No. 07-CV-8205 (S.D.N.Y. 2007); see Software Freedom Law Center, “On Behalf of BusyBox Developers, SFLC Files First Ever U.S. GPL Violation Lawsuit,” http://www.softwarefreedom.org/news/2007/sep/20/busybox/ (September 20, 2007). 43 It is not clear from the Monsoon filings why the developers did not seek statutory damages under the Copyright Act, but it is possible that they had not yet satisfied the registration requirements for that remedy. 17 U.S.C. §§ 412, 504(c). 44 Monsoon Complaint ¶ 6; http://www.busybox.net/about.html (accessed on April 5, 2010). 45 As noted in the Preamble to the GPL: “[I]f you distribute copies of such a program, whether gratis or for a fee, you must give [pass on to] the recipients all the rights that you have [the same freedoms that you received]. You must make sure that they, too, receive or can get the source code. And you must show them these terms so they know their rights.” http://www.gnu.org/licenses/gpl-2.0.txt; http://www.gnu.org/licenses/gpl-3.0.txt (variations shown in brackets). 46 Monsoon Complaint ¶¶ 11, 15. 47 Id. at ¶ 12. 48 Software Freedom Law Center, “BusyBox Developers and Monsoon Multimedia Agree to Dismiss GPL Lawsuit,” http://www.softwarefreedom.org/news/2007/oct/30/ busybox-monsoon-settlement/ (October 30, 2007).

46 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 In addition to the payment of an complaint also set forth a stance compliance efforts: undisclosed sum, Monsoon agreed to considerably more aggressive than “We began working with Cisco appoint an open-source compliance that of the earlier BusyBox litigation, in 2003 to help them establish a officer, publish the source code explicitly invoking the automatic process for complying with our for the BusyBox software it had termination clause of the GPL and software licenses, and the initial distributed, and notify previous LGPL and contending that Cisco changes were very promising,” recipients of the software of their had lost all rights to redistribute the explained Brett Smith, licensing rights under the GPL.49 The victory GNU software or any modifications compliance engineer at the FSF. inspired the plaintiffs and their thereto “the instant that [it] made “Unfortunately, they never put counsel to file a rapid stream of in the effort that was necessary separate, near-identical copyright to finish the process, and now infringement claims in the SDNY While the list of five years later we have still not against Verizon Communications, seen a plan for compliance. As a High-Gain Antennas, L.L.C., and conquests by the result, we believe that legal action Xterasys Corporation.50 Like FSF and SFLC is is the best way to restore the Monsoon, each defendant quickly impressive and rights we grant to all users of our agreed to comply with the GPL by software.”56 publishing the source code for the there is no reason to firmware, and the cases were settled expect that the trend Queries about Linksys’ compliance under terms substantially similar to of filings will ebb, with the GPL had been rampant those in the Monsoon litigation. on developer blogs and forums the litigation is not On December 11, 2008, the FSF, when Cisco acquired the privately represented by the SFLC, brought without controversy held company for $500 million in a suit in the SDNY for copyright in the open-source June 2003; the larger corporation infringement against Cisco Systems, apparently failed to “meaningfully community. improve” upon those licensing Inc.51 The Cisco case was the first practices when the FSF continued U.S.-based enforcement action its discussions with the new parent filed by the FSF and the first case noncompliant distribution of the company.57 prosecuted by the SFLC involving Program in its Infringing Products or open-source software other than Firmware.”54 Shortly thereafter, and before Cisco 52 BusyBox. The FSF alleged that was required to formally respond Cisco infringed the FSF’s copyrights The hard-line tactics were due to the FSF’s complaint, the FSF in various GNU tools licensed under in large part to the evidently announced that the parties had either the GPL or the GNU Lesser unproductive exchanges regarding settled the dispute.58 Cisco and the General Public License (“LGPL”) the alleged violations that had FSF jointly announced the terms when the company distributed taken place between the FSF and of the settlement, which included Linksys routers and other products Linksys for several years before the Cisco’s agreement to: (1) appoint 55 embedding the GNU software, FSF commenced the lawsuit. In a Free Software Director for but failed to give its users access a statement announcing the filing Linksys to supervise the subsidiary’s to corresponding source code as of the lawsuit, the FSF explained compliance with the requirements 53 required by those licenses. The its disappointment with the earlier of free software licenses; (2) report

49 Id.; see http://news.cnet.com/8301-13580_3-9808378-39.html (describing the case as “signal[ing] a new assertiveness on the part of open-source programmers”). 50 Complaints were filed against High-Gain Antennas, L.L.C. and Xterasys Corporation on November 19, 2007, and against Verizon Communications on December 6, 2007; all three cases involved the distribution of routers and gateways with BusyBox embedded in the firmware. See http://www.linux-watch.com/news/NS8734215139.html (December 7, 2007). 51 Free Software Foundation, Inc. v. Cisco Sys., Inc., No. 08-CV-10764 (S.D.N.Y. 2008). 52 See Ars Technica, “Free Software Foundation lawsuit against Cisco a first,” http://arstechnica.com/open-source/news/2008/12/free-software-foundation-lawsuit-against-cisco- a-first.ars (December 11, 2008). 53 Cisco Complaint ¶ 26. 54 Id. at ¶ 28. 55 Id. at ¶¶ 29-42. 56 Free Software Foundation, “Free Software Foundation Files Suit Against Cisco For GPL Violations,” http://www.fsf.org/news/2008-12-cisco-suit (December 11, 2008). 57 Cisco Complaint ¶ 42. See, e.g., Forbes.com, “Linux’s Hit Men,” http://www.forbes.com/2003/10/14/cz_dl_1014linksys.html (October 14, 2003); “Embedded Linux and the GPL” [including comments], http://lwn.net/Articles/35712/ (June 10, 2003); “Linux and Linksys: The Saga Continues” [with comments], http://www.oreillynet.com/etel/ blog/2003/08/linux_and_linksys_the_saga_con.html (August 12, 2003). 58 Free Software Foundation “FSF Settles Suit Against Cisco,” http://www.fsf.org/news/2009-05-cisco-settlement.html (May 20, 2009).

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 47 periodically to the FSF regarding to participate in any subsequent with Landley for several years over Linksys’ compliance efforts; (3) litigation.60 Landley disliked what he the pedigree of that code.63 notify recipients of Linksys products called “ivory tower idealism with a On December 15, 2009, Perens of their rights under the GPL and negative pragmatic result,” and he released a statement asserting that other applicable licenses; (4) publish did not recognize any substantive he was the creator of the original licensing notices online and in product benefit to BusyBox from the SDNY BusyBox code base and that the SFLC documentation; (5) make source code settlements.61 Other developers did not represent his interests in for FSF software used with current have also begun to raise concerns the ongoing enforcement actions.64 Linksys products freely available on its about the SFLC’s decision to seal the Perens contended: website; and (6) make an unspecified settlement agreements, a concept monetary contribution to the FSF.59 they perceive as counter to the The version 0.60.3 of BusyBox objectives to an open community upon which Mr. Andersen claims While the list of conquests by the FSF rather than a nod to defendants who copyright registration in the and SFLC is impressive and there is do not wish to broadcast the amount lawsuits is to a great extent my no reason to expect that the trend of damages paid.62 own work and that of other of filings will ebb, the litigation is not developers. I am not party to the without controversy in the open- Ironically, the most recent expression registration.... Mr. Andersen, his source community. Rob Landley – the of misgivings about the SFLC is from past employers and Mr. Landley second plaintiff in the watershed Bruce Perens, a co-founder of the appear to have removed some Monsoon case – disengaged from the Open-Source Initiative and BusyBox of the copyright statements of SFLC in December 2008 and refused developer who has openly warred other BusyBox developers, and

59 Id. 60 Rob Landley, http://landley.net/notes-2009.html#15-12-2009; http://landley.net/notes-2008.html (accessed on April 2010). 61 Linux Weekly News, “Bruce Perens: Statement on Busybox Lawsuits” [including comments], http://lwn.net/Articles/366684/ (December 15, 2009). 62 Id. 63 Bruce Perens, “Statement on BusyBox Lawsuits,” http://perens.com/blog/d/2009/12/15/23/ (December 15, 2009); see also Linux Weekly News, “Bruce Perens: Statement on BusyBox Lawsuits” [including comments], http://lwn.net/Articles/366684/ (December 15, 2009). 64 Id.

48 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 appear to have altered license has written we’ve basically been triumphant appellant following the statements, in apparent violation snubbed by them.66 Federal Circuit’s landmark decision of various laws. ... Much as other verifying the remedies available to BusyBox developers wish to Perens and Cinege raise interesting open-source licensors. support the general cause of questions as to the validity of the copyright registrations that may getting companies to comply Full Steam Ahead at the have been relied upon in some of with simple Free Software Federal Circuit Licenses, some of the other the BusyBox cases. Further, the developers and I are becoming Free Software Foundation itself has The first federal appellate decision annoyed with Mr. Andersen and issued guidance strongly suggesting enforcing an open-source license was Mr. Landley’s apparent violation that the removal of copyright notices issued on August 13, 2008, less than a of our own rights, and SFLC’s from GPL-licensed source code year after the threshold Monsoon case treatment of our interest. We without the consent of the copyright was filed.68 The United States Court have held off, to date, to avoid owner would be an unauthorized of Appeals for the Federal Circuit confusing issues, but our patience modification of that code: considered “the ability of a copyright 65 is limited. I want to get credit for my holder to dedicate certain work to work. I want people to know free public use and yet enforce an He was joined on another bulletin what I wrote. Can I still get ‘open-source’ copyright license to board by longtime BusyBox credit if I use the GPL? control the future distribution and maintainer Dave Cinege, who also modification of that work.” Jacobsen v. expressed his unhappiness with the You can certainly get credit Katzer, 535 F.3d 1373, 1375 (Fed. Cir. SFLC and expressly stated that he for the work. Part of releasing 2008). Reversing the district court, believed Andersen was subject to a program under the GPL is the Federal Circuit held that because legal action for his own violations of writing a copyright notice in your the terms of the open-source license the GPL: own name (assuming you are were both covenants and conditions, the copyright holder). The GPL Anderson [sic] is claiming the copyright holder had granted a requires all copies to carry an complete Copyright [sic] and that limited license that entitled it to seek appropriate copyright notice.67 is simply an impossibility. As far remedies for both breach of contract and copyright infringement. Id. at as I am concerned, this claim is a If an entity redistributing the GPL- 1381-82. This case is a clear indicator GPL violation in and of itself. ... licensed code for profit intentionally of a somewhat newly crystallized [H]e is in violation of Section 1 deleted copyright notices, such view of the viability of open-source GPLv2, and has lost his privileges conduct would almost certainly licenses in the United States. to the software according to generate a violation report, as Section 4 GPLv2. In this case in the AFPA litigation before the Palsgraf v. Long Island Railroad Co., 162 Anderson lacks standing to bring Paris appeals court and vigorously N.E. 99 (N.Y. 1928), set the standard suit and he himself is open to an pursued by FSF France. Cinege’s for determining foreseeability in action. proposed application of the automatic negligence cases, when a package full of unexpected fireworks fell and 6) One must wonder why the termination clause with respect to Andersen is thus not inconsistent exploded at a railroad station. It was SFLC is working with Anderson the model railroad enthusiasts that set when they have been aware with policies implemented to date by the fireworks ablaze in Jacobsen, the that both Bruce and myself the FSF and its allies. And it would new standard for the enforceability have more senior claims to be unwise to disregard Perens’ of open-source licenses. Robert the original work without the subject matter expertise, which Jacobsen and similarly minded “issues” Anderson has. As Bruce was immediately called upon by the developers collaborated in an open-

65 Id. 66 “Your Rights Online: Busybox Developer Responds to Andersen-SFLC Lawsuits” [including comments], http://yro.slashdot.org/story/09/12/15/1925257/Busybox-Developer- Responds-To-Andersen-SFLC-Lawsuits (December 15, 2009). 67 Free Software Foundation, “Frequently Asked Questions about the GNU Licenses,” http://www.gnu.org/licenses/gpl-faq.html?sess=bf533ea338dd987ba57fe7f7c2b3b30e#I WantCredit (accessed April 5, 2010). 68 An earlier opinion from the United States Court of Appeals for the Seventh Circuit stated, without holding, that “[c]opyright law, usually the basis of limiting reproduction in order to collect a fee, ensures that open-source software remains free: any attempt to sell a derivative work will violate the copyright laws, even if the improver has not accepted the GPL.” Wallace v. IBM Corp., 467 F.3d 1104, 1105-06 (7th Cir. 2006). In that case, Wallace alleged that IBM, Red Hat, and Novell conspired to eliminate competition in the operating-system market by making Linux available at no charge and that the GPL’s requirement in this regard constituted illegal price-fixing. The Seventh Circuit held that the GNU GPL did not restrain trade or violate the federal antitrust laws. Id. at 1107-08.

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 49 source software project called Java Jacobsen sued Katzer and KAMIND the person of Victoria Hall; she had Model Railroad Interface (“JMRI”). in the United States District Court for regularly provided pro bono advice to JMRI created and distributed Java- the Northern District of California for the Electronic Frontier Foundation based applications including the copyright infringement on the basis and was willing to assist Jacobsen at DecoderPro tool, which allows model of the defendants’ failure to abide no charge.74 railroad enthusiasts to program by the terms of the Artistic License The district court, however, held decoder chips that control the trains. and sought a preliminary injunction that the Artistic License was an At the time of the subject lawsuit, to halt distribution of the Decoder “intentionally broad” nonexclusive 72 DecoderPro was available for Commander software. Jacobsen license that was unlimited in scope. download from the JMRI site under employed a similar litigation strategy The district court thus concluded that 69 the terms of Artistic License. to that followed by Harald Welte in no liability for copyright infringement Katzer developed commercial the German courts, recognizing that could attach and denied Jacobsen’s software products for the model equitable relief could be a powerful request for a preliminary injunction: motivational tool while acknowledging train industry, and offered a …[T]he JMRI Project license that monetary damages arising from proprietary software product, provides that a user may copy Decoder Commander, that was also the files verbatim or may used to program decoder chips. otherwise modify the material Katzer, the owner of KAMIND If an entity in any way, including as part of Associates, Inc., contended that redistributing the a larger, possibly commercial JMRI software infringed two patents software distribution. The held by KAMIND and sent Jacobsen GPL licensed code for license explicitly gives the users numerous letters seeking the profit intentionally of the material, any member 70 payment of royalties. Investigating, deleted copyright of the public, “the right to use Jacobsen determined that Katzer/ and distribute the [material] in a KAMIND had included definition notices, such conduct more-or-less customary fashion, files from the DecoderPro code in would almost plus the right to make reasonable the Decoder Commander software certainly generate a accommodations.” The scope in apparent noncompliance with of the nonexclusive license is, the Artistic License. In particular, violation report, as therefore, intentionally broad.75 the Decoder Commander software did not include: “(1) the authors’ in the AFPA litigation The court determined that to the names; (2) JMRI copyright notices; before the Paris extent Jacobsen had a potential (3) references to the COPYING file; appeals court and remedy for Katzer’s unauthorized (4) an identification of SourceForge distribution of the DecoderPro files, or JMRI as the original source of the vigorously pursued the appropriate cause of action was definition files; or (5) a description by FSF France. breach of contract, not copyright of how the files or computer code infringement. had been changed from the original On appeal, the Federal Circuit 71 source code. Katzer/KAMIND had vacated and remanded the district the unauthorized distribution of also modified DecoderPro file names court’s decision. The appeals court free software could be speculative.73 without referencing the original JMRI noted, as a practical matter, that Like Welte, Jacobsen also found an files or explaining where they could “[o]pen source licensing has become be located. attorney dedicated to the cause, in

69 Jacobsen, 535 F.3d at 1376. 70 See, e.g., http://jmri.org/k/correspondence/20050308-KAM.pdf (accessed on April 6, 2010). 71 Jacobsen, 535 F.3d at 1376. 72 Jacobsen v. Katzer, No. 06-CV-01905 JSW, 2007 WL 2358628 (N.D. Cal. Aug. 17, 2007). 73 See Jacobsen, 535 F.3d at 1383, n.6 (noting that “[a]t oral argument, the parties admitted that there might be no way to calculate any monetary damages under a contract theory”). 74 Bruce Perens, “Bruce Perens: Inside Open Source’s Historic Victory,” http://itmanagement.earthweb.com/features/article.php/3866316/Bruce-Perens-Inside-Open-Sources- Historic-Victory.htm (February 22, 2010). 75 Jacobsen, 2007 WL 2358628, at *7. Exhibit A to the Supplemental Declaration of Robert Jacobsen in Support of Motion for Preliminary Injunction states, inter alia, that “The intent of this document is to state the conditions under which a Package [i.e., the collection of files distributed by the Copyright Holder, and derivatives thereof] may be copied, such that the Copyright Holder maintains some semblance of artistic control over the development of the package, while giving the users of the package the right to use and distribute the Package in a more-or-less customary fashion, plus the right to make reasonable modifications.” Jacobsen, No. 06-CV-01905 JSW (N.D. Cal. filed Nov. 17, 2006) (document no. 131-1).

50 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 a widely used method of creative by some estimates, there are The court’s legal analysis focused on collaboration that serves to advance close to 100,000,000 works the issue of whether the terms of the the arts and sciences in a manner licensed under various Creative Artistic License were covenants to or and at a pace that few could have Commons licenses. The conditions of the license to use the imagined just a few decades ago.”76 Wikimedia Foundation, another DecoderPro software. Specifically, the The court offered an illustration of the amici curiae, estimates that Federal Circuit explained that if the of the popularity and prevalence the Wikipedia website has more license terms constituted conditions of software and other content than 75,000 active contributors of use, then those conditions could distributed under public licenses: working on some 9,000,000 limit the scope of the license and For example, the Massachusetts articles in more than 250 enable the licensor to bring a claim 77 Institute of Technology (“MIT”) languages. of copyright infringement against a 79 uses a Creative Commons public licensee that acted outside its scope. The Federal Circuit also highlighted The court found that the Artistic license for an OpenCourseWare the benefits of open-source licenses project that licenses all 1800 License’s explicit reference to the “that range far beyond traditional creation of “conditions,” the use of MIT courses. Other public license royalties,” including the licenses support the GNU/ the phrase “provided that” when expansion of market share for characterizing the license grant, Linux operating system, the proprietary licensors who are Perl programming language, the and the critical nature of the license willing to offer certain components requirements in helping the copyright Apache web server programs, at no charge, gain of reputation, the Firefox web browser, and holder benefit from the subsequent and the ability to exploit additional redistribution of the software, all a collaborative web-based development resources for more encyclopedia called Wikipedia. supported the characterization of rapid and less costly product these terms as conditions.80 Creative Commons notes that, enhancements.78

76 Jacobsen, 535 F.3d at 1378. 77 Id. 78 Id. at 1379-81 (further noting that “[t]he choice to exact consideration in the form of compliance with the open source requirements of disclosure and explanation of changes, rather than as a dollar-denominated fee, is entitled to no less legal recognition”). 79 Id. at 1380. 80 Id. at 1382; see also id. (“The clear language of the Artistic License creates conditions to protect the economic rights at issue in the granting of a public license.”). MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 51 Accordingly, the Federal Circuit criteria for the issuance of equitable infringing open-source software; one determined that the district court relief.83 such witness was Bruce Perens, the 85 had erred in failing to treat the Upon remand, the court again BusyBox developer discussed supra. express limitations in the Artistic denied the request for a preliminary Following a ruling on both parties’ License on an end-user’s right to injunction, and Jacobsen filed an motions for summary judgment that copy, distribute, and modify as appeal with the Federal Circuit.84 heavily favored Jacobsen, the parties 81 conditions. The appellate court thus Jacobsen also continued to pursue settled the litigation on explicitly confirmed that the potential the district court litigation vigorously, February 17, 2010. Rather than remedies available to a copyright filing a motion for summary judgment continuing to distribute the owner for violation of an open-source on October 30, 2009. Jacobsen DetectorPro files and implementing license included those for breach of engaged several expert witnesses remedial steps to comply with the 82 contract and copyright infringement. to provide written testimony on Artistic License, Katzer/KAMIND It directed the district court to the critical importance of copyright consented to a permanent injunction reconsider the motion for preliminary notices and attributions in open- prohibiting them from reproducing, injunction and make factual findings source code and the irreparable harm modifying, or distributing JMRI on whether Jacobsen had satisfied the caused by the ongoing distribution of materials. Katzer/KAMIND also

81 Id. at 1382. 82 In addition to his claim for copyright infringement, Jacobsen also alleged that Katzer had violated the Digital Millennium Copyright Act (“DMCA”). Jacobsen v. Katzer, No. C 06-01905 JSW, 2009 WL 4823021, at *1, 93 USPQ2d 1236 (N.D. Cal. Dec. 10, 2009). Jacobsen specifically alleged that notices and attributions in the original JMRI source code constituted “copyright management information” (“CMI”) within the meaning of the DMCA, and that the defendants violated 17 U.S.C. § 1202(b) by removing those notices prior to re-distribution of the software. Id. at *7. The statute, which has as a primary objective protection of the integrity of CMI, includes the information in copyright notices, the name and other identifiers of the author of the work, the name and other identifiers of the copyright owner of the work, and terms and conditions for use of the work.” 17 U.S.C. § 1202(c). Jacobsen contended that for purposes of the DecoderPro files, the “author’s name, a title, a reference to the license and where to find the license, a copyright notice, and the copyright owner” were CMI. Jacobsen, 2009 WL 482301, at *7.

The district court agreed that this information was “CMI” and found that defendants’ removal thereof met certain elements of a DMCA violation, but it did not resolve the ultimate issue prior to the parties’ settlement of the case. Id. Nevertheless, the case highlights the potential applicability of the DMCA in instances where copyright or licensing notices have been removed; criminal penalties including fines and imprisonment could result from the willful removal of CMI “for purposes of commercial advantage.” 17 U.S.C. § 1202. 83 Id. 84 JMRI provides a detailed chronology of the Jacobsen litigation at http://jmri.sourceforge.net/k/History.shtml (accessed on April 6, 2010). 85 Perens’ testimony is available at http://perens.com/works/testimony/PerensJMRI.pdf (accessed on April 6, 2010); see Bruce Perens, “Bruce Perens: Inside Open Source’s Historic Victory,” http://itmanagement.earthweb.com/features/article.php/3866316/Bruce-Perens-Inside-Open-Sources-Historic-Victory.htm (February 22, 2010).

52 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 agreed to pay Jacobsen the sum on a jury would look unfavorably in a claim seeking the enforcement of $100,000.86 JMRI independently on this extension of free software of a free or open-source license. forswore the Artistic License and philosophy; this would be the first For example, Best Buy raised seven adopted the GPL Version 2 for all of federal case in which a jury would affirmative defenses that include a its applications.87 serve as decision-maker for an open- challenge to the plaintiffs’ standing source enforcement action. to bring the suit and a “fair use” Recent Enforcement Two additional procedural aspects defense. Best Buy has also filed a Actions in U.S. Courts of this case are noteworthy, even as counterclaim seeking a declaratory Continue to Follow Patterns the case remains in its early stages. judgment that it does not infringe any Formed in European Courts First, Best Buy emphasizes that open- copyright in the BusyBox code. This source licenses are being enforced forceful approach may be the result In December 2009, again represented not only against software providers of Best Buy observing the previously by the SFLC, Andersen and the and hardware manufacturers, but referenced disputes within the open- distributors of devices that contain source community regarding the ...efforts to enforce open-source software. Best Buy, ownership of such copyright; it will for example, is alleged to have be enlightening to see who Best Buy free and open- distributed a “Blu-ray Disc Player” names to its witness list. source licenses in infringing Andersen’s copyright in the This case is certain to be closely the United States are BusyBox code. Discovery in the case watched by the open-source will likely show that Best Buy had no community and the corporate users more spirited than role in determining which software or of their software. ever, with disciplined firmware was used in the disc player organizations of or was even aware of its inclusion. Conclusion developers and Second, counter to the reaction to Since 2005, authority supporting the earlier cases filed by the SFLC, only enforceability of open-source licenses counsel often one of fourteen defendants in Best in the United States has matured, in ready and willing to Buy settled the suit before the due large part due to groundbreaking and date for formally responding to the unwavering decisions by European participate on behalf complaint. The remaining thirteen courts. So too have the recognized of the plaintiff. defendants each filed a timely scope of remedies available to the “answer” under Federal Rule of Civil licensor and, perhaps, even the range Software Freedom Conservancy88 Procedure 12(a). No defendant filed of other affected parties who can sued Best Buy Co., Samsung a motion to dismiss under Federal pursue such enforcement. Although Electronics America, and twelve Rule of Civil Procedure 12(b)(6), the European decisions have not been other companies in the SDNY for alleging, for example, that the GPL cited directly in opinions by federal copyright infringement arising from was unenforceable as a matter of law. courts, they certainly have left their their redistribution of the BusyBox The defendants’ procedural strategy mark on our jurisprudence. program.89 As of the date of this suggests that they are cognizant Moreover, the zealous and dedicated article, the case is proceeding and the of earlier decisions upholding the open-source advocates that aided district court recently set a schedule enforceability of open-source enforcement litigation in European for standard pre-trial and discovery licenses. courts through both technical and activities. Notably, the defendants But, the defendants have denied pro bono legal services have offered in Best Buy have reserved their right copyright infringement and raised the same assistance in analogous to seek a jury trial on the issues, numerous affirmative defenses yet federal cases. And efforts to enforce perhaps believing that the laymen to be considered by a federal court free and open-source licenses in the

86 Jacobsen, No. 06-CV-01905 JSW (N.D. Cal. filed Feb. 18, 2010) (document no. 402). 87 http://www.jmri.org/help/en/html/doc/Technical/index.shtml#use (accessed April 6, 2010). 88 Founded in 2006, the Software Freedom Conservancy is an outgrowth of the Software Freedom Law Center and is a self-described “fiscal sponsor” for open source projects that elect to transfer their assets to this 501(c)(3) organization. http://conservancy.softwarefreedom.org/news/2006/apr/03/conservancy-launch/ (April 3, 2006). The Conservancy performs financial and administrative services for the projects and asserts that its corporate shield will protect the software contributors from personal liability. http://conservancy.softwarefreedom.org/overview/ (accessed on April 6, 2010). “All of these benefits are currently provided for free.” Id. Busy Box was one of the first projects to join the Conservancy. http://conservancy.softwarefreedom.org/news/2006/apr/03/conservancy-launch/ (accessed on April 6, 2010). 89 Software Freedom Conservancy, Inc. v. Best Buy Co., Inc., No. 1:09cv10155 SAS (S.D.N.Y. Dec. 14, 2009).

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 53 United States are more spirited than But there are many issues that And perhaps the most intriguing ever, with disciplined organizations require deeper exploration. What will question of all also remains, for those of developers and counsel often become the conventional standard who must understand and apply the ready and willing to participate on for quantifying actual monetary principles to their technology with a behalf of the plaintiff. The open- damages for copyright infringement degree of certainty as to their validity: source community will exploit suffered by a copyright owner of On which continent will jurisprudence the momentum gained from their software distributed solely under an regarding the enforcement of free achievements; they cannot afford open-source license? May a copyright and open-source licenses develop to lose credibility, or the impetus owner of open-source software most rapidly? Counsel on both sides for many licensees to comply may seek the destruction or seizure of of the Atlantic Ocean are advised be diminished.90 As courts around equipment and hardware on which to track carefully the work of their the world continue to decide the infringing code is embedded? Under colleagues. vast array of complex contractual what circumstances will the terms and intellectual property questions of a free or open-source license be surrounding the interpretation of deemed to be covenants but not and compliance with open-source conditions enabling a related claim for licenses, the marks of early decisions copyright infringement? These and by European courts will remain. many other questions remain.

90 CBS Interactive, “GPL Defenders Say: See You in Court,” http://news.cnet.com/GPL-defenders-say-See-you-in-court/2100-7344_3-6210837.html (October 1, 2007) (Daniel Ravicher, counsel in Monsoon and co-founder of SFLC, observed “[i]f you start getting a reputation for being a pansy, then people are going to conclude they don’t have to do anything”).

54 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 Commentary: Cloud Computing Tips for Broker-Dealers, ATSs and ECNs

By upgrades and without having to hire Richard Sharp and retain costly IT staff. The cloud Michael Kurzer Cloud computing has expanded beyond traditional and IT services, and now offers a broad has burst onto the range of market data, blotters, Blake Reese scene. Broker-dealers, portfolio models, analytic tools, This article was originally ATSs and ECNs see dark pools, trading algorithms, and published in the April 2010 aggregator services. issue of Traders Magazine. nothing but sunny Choosing Service Partners In skies ahead. This The Cloud? article clears up A search for a partner begins with some of the often structured due diligence. Examine nebulous deal terms qualifications, technology, staff, each should consider management style and past work of potential service partners. Obtain and before sending trade review proposals that include detailed data to the clouds. descriptions for any services to be provided. Regulated entities that have been through the outsourcing exercise will attest to the many What In The World Is Cloud technical and legal obstacles involved Computing? in picking the right service partners. The “cloud” is made up of software A wrong choice can result in and hardware service providers significant downstream costs, invisible to the traders using them. reputational damage, regulatory Traders see only the front-end liability, or worse. Broker-dealers, website. Broker-dealers, ECNs ECNs, and ATSs cannot sacrifice and ATSs timeshare the servers, performance, increase trade latency, networks, administrators, and tolerate downtime, skimp on software developers. Traders enjoy compliance, or injure their customers the benefits of more services, more with technical snafus. flexibility, scalability, more access to Many large cloud service providers liquidity and faster executions. All this purport to offer “industry standard” comes without broker-dealers, ECNs service or technology agreements. Make and ATSs having to incur large upfront no mistake. These agreements are capital expenditures for hardware complex and rife with legal traps. and software requiring frequent They need to be carefully negotiated

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 55 with advice of experienced in-house responsibilities. The cloud should or outside counsel. The devil is in only perform ministerial activities for the details, and it pays to have a A “cloud computing” the broker-dealer. Except for limited negotiating team with IT know-how back office contact, the cloud and regulatory and software structure could should not communicate with a expertise. Broker-dealers, ECNs involve significant broker-dealer’s customers. The and ATSs must avoid letting their software integration broker-dealer client must monitor judgment be clouded by the lure and supervise any outsourced of potential cost savings in using between the client functions on an ongoing basis service providers. They need to think and the cloud, pursuant to comprehensive written carefully about the following issues supervisory procedures (WSPs). when they negotiate cloud computing perhaps even sharing Neither the SEC nor FINRA has made agreements. source code. clear how much, if any, responsibility How Do I Make Sure The Cloud falls directly on the cloud service Meets Expectations? providers, themselves. As the line secure, during both data transmission between the client and the cloud Clear specifications in the contract and storage. Further, the client may blurs, both the SEC and FINRA may should detail how software is to request cloud service providers to conclude that policy considerations perform and interact with hardware agree not to share information that weigh heavily in favor of subjecting and other software. The client may reveals the identity of customers, the underlying providers to direct want the cloud provider to agree trading patterns or aggregate trades. regulation. Such a change would to each and every representation The client should require that the likely take an act of Congress made by the cloud provider’s sales cloud maintain confidentiality and because regulatory jurisdiction over staff. The cloud provider, in contrast, renounce any ownership interest in the cloud is unclear. For now the may seek to provide performance any data received from the client or regulators reach the clouds through obligations that meet loose definitions its customers. the backdoor, requiring broker- not always tailored to the client’s dealers to put certain provisions in How To Handle Regulatory needs. The cloud provider should their outsourcing agreements. For Requirements In The Cloud? define “bugs,” satisfactory levels of example, agreements normally “bugs,” what events are deemed a Broker-dealers have been regulated need to provide regulators access “failure,” and remedies for a “failure” by the SEC since its creation in 1934. to the client’s data at the cloud occurring. Think “fix” as opposed to ATSs have been directly regulated service provider. mere restoration of service. Think by the SEC only since 1998, when Who Is Responsible When The service level obligations and penalties the SEC promulgated Regulation Cloud Crashes? if they are not met. Beta testing ATS, Rules 300-303. Rule 301, for provisions may also be included to example, specifies requirements for Clouds burst. Systems glitch. ensure that the software–before ATSs, including: capacity estimation, Networks crash. Parties need a global rollout and commitment– stress testing, security reviews, to agree on how liability for meets minimum requirements during oversight procedures, disaster resulting damages, both actual and the beta phase. The negotiation recovery plans, annual auditing, consequential, will be apportioned. process is an opportunity for the and filing and periodically amending The parties will need to decide if client to “smoke out” the cloud Form ATS to report material system liability should only arise from willful and determine how confident the outages or changes. FINRA imposes misconduct or if a negligence or cloud is about the performance of its additional regulations on broker- gross negligence standard is more products. dealers and ATSs. The operations appropriate. Typically, the cloud How To Protect The Data In of broker-dealers, ECNs, and ATSs service provider may insist on a bold The Cloud? fall into two categories–those that faced disclaimer and a modest cap cannot be outsourced, and those that on its liability. Such limitations can The client may want guarantees that can with proper supervision. Broker- be outright rejected or countered its data will remain uncorrupted and dealers cannot outsource regulatory with carve outs for failures to meet

56 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 support obligations that clearly fall indemnification from the cloud for its respective technology. Each will in the hands of the cloud. Given any breach of a covenant to provide want to maintain full ownership to that traders, as end-users, will not support level obligations and to all of its intellectual property. Clients necessarily have a direct relationship, ensure that products will perform in may seek a fully paid, perpetual much less a direct agreement, with accordance with their specifications license, to any software developed the cloud, broker-dealers, ECNs, and not infringe the intellectual by or with the cloud in connection and ATSs will bear the brunt of property rights of others. The with providing services under their customers’ fury if the cloud parties may also consider insurance the agreement. fails. The cloud will typically insist policies to cover indemnities, to What If The Relationship With on disclaiming any liability for mitigate hefty potential damages in the The Cloud Sours? consequential damages; at the very event of an infringement finding. The least, clients could seek a carve-out relative economics of the transaction Clients will need to plan for the for the cloud’s gross negligence or appropriately will play a big part in termination of service provider willful misconduct. how liabilities are allocated between agreements where services the parties. repeatedly fail or regulatory changes A “cloud computing” structure cannot be accommodated. The could involve significant software Who Owns The Intellectual cloud may create a tangled web that integration between the client and Property In The Cloud? makes terminating a relationship the cloud, perhaps even sharing Clients and cloud service providers difficult. Availability of transition source code. The cloud may want might cross-license software to services should be a consideration at full indemnification from any claims provide an integrated solution, for the time of entering any agreement. or lawsuits arising out of use of the example, when both the client and Ideally, services should be portable software on its servers. Clients service provider have intellectual with minimal costs when moving should seek to limit indemnifications property that the other can use. to a new provider. The agreement to claims covering acts or omissions Under a cross-license, each party should allocate costs and require the that are within their control. gives its counterparty a license to use cloud to provide its full cooperation In turn, clients should also seek

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 57 in the transition. Moreover, the cloud face increased regulatory scrutiny, of computer science at Hunter College and the client should anticipate how intellectual property lawsuits, and (CUNY). The views expressed herein transition and termination provisions technical issues. Clients need to are not legal advice, are solely those of could be interpreted in the event of meticulously analyze, understand, the authors, and may not be attributed either’s insolvency. and provide for the potential issues to Milbank or its clients. when clouds are selected and This article casts a few rays of agreements negotiated. light through the clouds. These transactions are not one-size-fits-all. Mr. Sharp is a partner and Messrs. They require careful planning and Kurzer and Reese are associates in thoughtful negotiations. As more the Litigation Department of Milbank, broker-dealers, ECNs, and ATSs Tweed, Hadley & McCloy LLP. Mr. Reese look to the clouds, the industry will is also an adjunct assistant professor

58 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 Judicially Re(de)fining Software Patent Eligibility: A Survey of Post-Bilski Jurisprudence

By I. Introduction by more courts, could cause material Blake Reese invalidity challenges to many patents. On June 1, 2009, the United States See, e.g., CyberSource Corp. v. Retail This article was originally Supreme court granted certiorari to Decisions, Inc., No. C 04-03268, published in Social Science hear the landmark Bilski v. Kappos 2009 WL 815448 (N.D. Cal. Research Network in May 2010. case. Awaiting the Supreme court’s May 26, 2009); Every Penny Counts, decision, some district courts have Inc. v. Bank of America Corp., No. exercised restraint by delaying their 2:07-cv-042, slip op. (M.D. Fla. ruling on patent eligibility issues until May 27, 2009); DealerTrack, Inc. the perceived uncertainty clears. For v. Huber, 657 F. Supp. 2d 1152, instance, one court has explained that 1153 (C.D. Cal. July 7, 2009); see “[a]fter the Supreme court issues its also Assoc. for Molecular Pathology Bilski opinion, this court will likely v. USPTO, No. 09 Civ. 4515, 2010 have clear direction on the precise U.S. Dist. LEXIS 30629 (S.D.N.Y. standard to be applied in evaluating March 29, 2010). This paper briefly the patentability of method claims. reviews the Federal Circuit’s In With that guidance, the court will re Bilski decision and details the be able to efficiently consider and Federal Circuit’s and district courts’ evaluate [the accused infringer’s] responses to it. argument that the [patent-at-issue] is invalid.” Lincoln Nat’l Life Ins. Co. v. Transamerica Fin. Life Ins. Co., II. In re Bilski in Brief No. 1:08-CV-135-JVBRBC, 2010 The claim at issue in In re Bilski was WL 567993, at *1 (N.D. Ind. Feb. directed to “a method of hedging risk 12, 2010) (citing Arrivalstar S.S. v. in the field of commodities trading.” Canadian Nat’l Ry. Co., No. 08 C In re Bilski, 545 F.3d at 949. The claim Blake Reese is an attorney in the 1086, 20008 WL 2940807, at *2 read as follows: Intellectual Property Group of the (N.D. Ill. July 25, 2008)). This may Litigation Department of Milbank, be a prudent course, as the Federal A method for managing the Tweed, Hadley & McCloy LLP. He is Circuit court of Appeals even consumption risk costs of a also an adjunct assistant professor of “recognize[d] that the Supreme commodity sold by a commodity computer science at Hunter College court may ultimately decide to of the City University of New York provider at a fixed price comprising alter or perhaps even set aside [the (CUNY). Mr. Reese may be reached the steps of: by email at [email protected]. Bilski machine-ortransformation] (a) initiating a series of transactions The views expressed in this article test to accommodate emerging between said commodity are solely those of the author and technologies.” In re Bilski, 545 F.3d may not be attributed to Milbank 943, 956 (Fed. Cir. 2008) (en banc) provider and consumers of or its clients. Mr. Reese thanks said commodity wherein said However, other courts have Jeff Leider, an attorney at Milbank, consumers purchase said for his gracious help in preparing this interpreted the Federal Circuit’s commodity at a fixed rate based article. guidance in a manner that, if adopted upon historical averages, said

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 59 fixed rate corresponding to a risk Circuit’s test also requires that the objects or substances, there is no position of said consumer; use of a machine or transformation danger that the scope of the claim provides “meaningful limits” on the would wholly pre-empt all uses of (b) identifying market participants claim’s scope and not merely involve the principle. Id. at 963. On the other for said commodity having a “insignificant post-solution activity.” Id. hand, “purported transformations” counterrisk position to said that only add a data gathering step consumers; and As no “machine” was present in the to an algorithm or that allegedly claim at issue, the court declined (c) initiating a series of transactions transform “public or private legal to give further guidance on what obligations or relationships, business between said commodity constitutes a “particular” machine. Id. provider and said market risks, or other such abstractions” will at 962 (“We leave to future cases the not satisfy the transformation prong participants at a second fixed rate elaboration of the precise contours of of the machine-or-transformation such that said series of market machine implementation, as well as test. See Id. The court stressed that participant transactions balances the answers to particular questions, such alleged transformations “cannot the risk position of said series of such as whether or when recitation meet the test because they are consumer transactions. Id. of a computer suffices to tie a process not physical objects or substances, The Federal Circuit held that the claim to a particular machine.”). and they are not representative of physical objects or substances.” Id. “machine-or-transformation” test The court did, however, explain that Nonetheless, the court “decline[d] is the sole analysis to use when “a process for chemical or physical to adopt a broad exclusion over determining whether a process qualifies transformation of physical objects or software or any other such as patentable subject matter. See In substances is patent-eligible subject category of subject matter beyond re Bilski, 545 F.3d 943, 961 (Fed. Cir. matter.” Id. (emphasis in original). To the exclusion of claims drawn to 2008) (en banc). The test requires reach the threshold of a “electronic fundamental principles set forth by courts and the United States Patent transformation,” the Federal Circuit the Supreme Court.” Id. at 960. and Trademark Office to ensure that noted that [s]o long as the claimed a process claim either is tied to a process is limited to a practical The Federal Circuit held the claim at “particular” machine or transforms an application of a fundamental principle issue invalid for claiming, in whole, article into a different state or thing in to transform specific data, and the non-statutory subject matter because order to satisfy patent eligibility under claim is limited to a visual depiction the claim admittedly was not tied to 35 U.S.C. §101. See Id. The Federal that represents specific physical

60 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 any machine and only purportedly “‘concrete thing, consisting of parts, transformed “public or private legal or of certain devices and combination obligations or relationships, business The Federal of devices … includ[ing] every risks, or other such abstractions….” Circuit held that mechanical device or combination of Id. at 963-64. the “machine-or- mechanical powers and devices to perform some function and produce a III. Post-In re Bilski transformation” certain effect or result.’” Id. (quoting Jurisprudence test is the sole In re Nuitjen, 500 F.3d 1346, 1355 (Fed. Cir. 2007) (quoting Burr v. A. Federal Circuit Cases analysis to use when Duryee, 68 U.S. (1 Wall.) 531, 570, 17 determining whether L. Ed. 650 (1863); Corning v. Burden, 1. In re Ferguson a process qualifies as 56 U.S. (15 How.) 252, 267, 14 L. Ed. The claims at issue in In re Ferguson 683 (1853)). Using this definition, the were directed to a process for patentable subject court held that “a marketing force is “marketing a product … using matter. not a machine or apparatus.” Id. a shared marketing force” and In addition, the Federal Circuit a “paradigm for marketing a explained that the claims did not company….” In re Ferguson, 558 F.3d markets software from a plurality “transform any article into a different 1359, 1361 (Fed. Cir. 2009). The of different independent and state or thing.” Id. Specifically, claims read as follows: autonomous software companies, and carries out and pays for methods of “organizing business or [claim 1] A method of marketing operations associated with legal relationships in the structuring of a product, comprising: developing marketing of software for all of a sales force (or marketing company)” a shared marketing force, said said different independent and do not transform “physical objects or shared marketing force including autonomous software companies, substances” or “representati[ons] of at least marketing channels, which in return for a contingent share physical objects or substances.” Id. enable marketing a number of of a total income stream from Regarding the “paradigm” claims, the related products; marketing of the software from court held that they do not fit into all of said software companies, using said shared marketing force any of the four categories of statutory while allowing all of said software to market a plurality of different subject matter under 35 U.S.C. companies to retain their products that are made by a §101: process, machine, article autonomy. Id. plurality of different autonomous of manufacture, or composition producing company, so that The Federal Circuit generally agreed of matter. See Id. at 1365-66. The different autonomous companies, with the Board of Patent Appeals and court held the claims were: (i) not having different ownerships, Interferences (BPAI) that the claims “directed to processes, as ‘no act or respectively produce said related at issue were not drawn to statutory series of acts’ is required”; (ii) not a products; subject matter. See Id. at 1366. “manufacture” because a marketing company “cannot itself be an ‘article obtaining a share of total profits Regarding the method claims, the [ ] resulting from the process of from each of said plurality of court proclaimed that its “recent manufacture’”; (iii) not a “machine” as different autonomous producing decision in Bilski is dispositive” “you cannot touch the company”; and companies in return for said and determined that the method (iv) “certainly not a composition of using; and claims failed to satisfy the machine- matter.” Id. at 1366. ortransformation test. Id. at 1366. obtaining an exclusive right to The applicants argued that the 2. Prometheus Labs., Inc. v. Mayo market each of said plurality of “shared marketing force” limitation Collaborative Servs. products in return for said using. constituted a sufficient tie to a The claims at issue in Prometheus * * * particular machine. Id. at 1364. Labs were directed to “methods Relying on In re Nuitjen, the Federal [claim 24] A paradigm for for calibrating the proper dosage of Circuit applied a nineteenth century thiopurine drugs, which are used marketing software, comprising: definition of machine, that is, a a marketing company that for treating both gastrointestinal

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 61 and nongastrointestinal autoimmune claims….” Id. The court found the diseases.” Prometheus Labs., Inc. v. transformation had this attribute Mayo Collaborative Servs., 581 F.3d The Federal Circuit because “a significant part of the 1336, 1339 (Fed. Cir. 2009). The “made clear that the claimed method of treatment” representative claim reads as follows: patent eligibility of constituted the transformative subject matter. Id. The court A method of optimizing a claim as a whole further explained that inclusion therapeutic efficacy for treatment should not be based of mental steps does not “negate of an immunemediated on whether selected the transformative nature of prior gastrointestinal disorder, steps.” Id. at 1348. Such analysis can comprising: limitations constitute be simplified to a single question: (a) administering a drug providing patent-eligible “What did the applicant invent?” Id. 6-thioguanine to a subject subject matter.” (quoting In re Grams, 888 F.2d 835 having said immune-mediated (Fed. Cir. 1989) (citation omitted)). In gastrointestinal disorder; and the present case, the court answered human body following administration “a series of transformative tests (b) determining the level of of a drug and the various chemical that optimizes efficacy and reduces 6-thioguanine in said subject and physical changes of the drug’s toxicity of a method of treatment for having said immune-mediated matabolites that enable their particular diseases using particular gastrointestinal disorder, concentrations to be determined.” drugs.” Id. wherein the level of 6-thioguanine Id. Unlike mere “data-gathering The court did not analyze the claims less than about 230 pmol per steps,” “[t]he asserted claims are in under the machine prong of the test 8x10 8 red blood cells indicates effect claims to method of treatment, because it found that the claimed a need to increase the amount which are always transformative methods satisfy the transformation of said drug subsequently when a defined group of drugs prong. See Id. at 1346. administered to said subject; and is administered to the body to ameliorate the effects of an undesired B. District Court Cases wherein the level of 6-thioguanine condition.” Id. greater than about 400 pmol 1. Transamerica Life Ins. Co. v. per 8x10 8 red blood cells The court emphasized that Lincoln Nat’l Ins. Co. indicates a need to decrease the “[t]he invention’s purpose to treat The claim at issue in Transamerica amount of said drug subsequently the human body is made clear in the Life Ins. Co. was directed to “a administered to said subject. specification and the preambles of five-step computerized method Id. at 1340. the asserted claims.” Id. The court for administering a variable annuity noted that the administration of plan having, inter alia, a guaranteed The Federal Circuit “made clear drugs, like the ones embodied in the minimum payment feature associated that the patent eligibility of a claim claims, causes “the human body … with a systematic withdrawal as a whole should not be based to undergo[ ] a transformation.” Id. program.” Transamerica Life Ins. Co. on whether selected limitations (“The drugs do not pass through the v. Lincoln Nat’l Life Ins. Co., No. C constitute patent-eligible subject body untouched without affecting it.”) 06-110-MWB, 2010 WL 785905, at matter.” Id. at 1343 (citing Bilski, In addition, the court described the *2 (N.D. Iowa March 8, 2010). The 545 F.3d at 958 (citing Diamond v. “determining” step as transformative claim read as follows: Diehr, 450 U.S. 175, 188 (1981); because the levels could not “be Parker v. Flook, 437 U.S. 584, 594 determined by mere inspection. 35. A computerized method (1978)). For determining whether a [Rather, s]ome form of manipulation for administering a variable process is eligible for patenting, the … is necessary to extract the annuity plan having a guaranteed court reaffirmed the machine-or- metabolites from a bodily sample and minimum payment feature transformation test as the sole test determine their concentration.” associated with a systematic for such inquiry. See Id. at 1342-43. Id. at 1347. withdrawal program, and for periodically determining an The Federal Circuit found that the The Federal Circuit focused on amount of a scheduled payment claims are indeed transformative as whether the transformation was to be made to the owner under that “[t]he transformation is of the “central to the purpose of the the plan, comprising the steps

62 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 of: a) storing data relating to a Co v. Lincoln Nat’l Life Ins. Co., 590 506 (E.D.N.Y. 2009). The claims read variable annuity account, including F. Supp. 2d 1093, 1097 (Fed. Cir. as follows: data relating to at least one of 2008). While the court did not grant 1. A method of increasing the an account value, a withdrawal leave to amend, it did interpret the oral bioavailability of metaxalone rate, a scheduled payment, a Federal Circuit’s decision. See Id. at to a patient receiving metaxalone payout term and a period of 1103. In particular, the court stated therapy comprising administering benefit payments; b) determining that the “machine-or-transformation to the patient a therapeutically an initial scheduled payment; test” is the sole test to determine the effective amount of metaxalone c) periodically determining the patent eligibility of method claims. As in a pharmaceutical composition account value associated with the a result, the court explained that the with food. plan and making the scheduled “Freeman- Walter-Abele” and “useful, payment by withdrawing that concrete, and tangible result” tests 21. The method of claim 1, amount from the account value; are no longer good law and their further comprising informing the d) monitoring for an unscheduled associated case law is abrograted. patient that the administration withdrawal made under the plan Id. Nonetheless, the court did not of a therapeutically effective and adjusting the amount of the grant the motion because the “court amount of metaxalone in a scheduled payment in response understands Bilski to clarify which one pharmaceutical composition with to said unscheduled withdrawal; of several tests previously applied by food results in an increase in the and e) periodically paying the the courts should apply to determine maximal plasma concentration scheduled payment to the ‘patent-eligible subject matter,’ rather (Cmax) and extent of absorption owner for the period of benefit than to make a new test out of whole (AUC(last)) of metaxalone payments, even if the account cloth.” Id. compared to administration value is exhausted before all without food. Id. at 506, 512. 2. King Pharm., Inc. v. Eon Labs, Inc. payments have been made. Id. The court did not review The claims at issue in King Pharm., The alleged infringer moved for leave independent clam 1 for whether Inc. were directed to a method to amend its pleadings to include it claims statutory subject matter, of “administering metaxalone to a new invalidity defenses because of as it found claim 1 unpatentable as patient with food.” King Pharms., Inc. the Federal Circuit’s holding in In anticipated by the prior art. See Id. v. Eon Labs, Inc., 593 F. Supp. 2d 501, re Bilski. See Transamerica Life Ins.

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 63 at 506-10. The court did, however, creating a plurality of deedshares first interest being held by the analyze claim 21, which depends from by dividing title in the real estate third party; independent claim 1, under Bilski. See portfolio into a plurality of tenant- identifying deedshares having a Id. at 512-13. in-common deeds of at least one second value equal to or greater predetermined denomination, than the first value and subject In its analysis, the court seemed to each of the plurality of to a second debt equal to or imply that because the limitation deedshares subject to a provision greater than the first debt as a of the independent claim was in the master agreement for replacement property within anticipated and the dependent claim reaggregating the plurality of a specified number of days of wholly contained nonstatutory subject tenant-in-common deeds after a transferring title to the first matter, the dependent claim can be specified interval. invalid under 35 U.S.C. §101. See interest in investment real estate, Id. (“Because the food effect is an * * * the deedshares comprising an undivided tenant-in-common inherent property of the prior art 11. A method of performing interest in investment real and, therefore, unpatentable, then a tax-deferred exchange of estate that is subject to a informing a patient of that inherent investment real estate under master agreement including a property is likewise unpatentable.”) .sctn.1031 of the Internal The court held that dependent provision reaggregating title claim 21 failed the machine-or- to the investment real estate transformation test, as “the act of In its analysis, the represented by the deedshares at informing another person of the a specified time; court seemed to good effect of metaxalone does not closing the sale of the deedshares transform the metaxalone into a imply that because within a second specified number different state or thing.” Id. The court the limitation of the of days of transferring title to the also noted that the claim’s recitation independent claim first interest in investment real of “a particular transformation … estate; and must not constitute mere ‘insignificant was anticipated and postsolution activity.’” Id. at 513 transferring the deedshares and (quoting In re Bilski, 545 F.3d at 957 the dependent claim the second debt from the third (quoting Parker v. Flook, 437 U.S. 584, wholly contained party to the exchanger. 590 (1978))). Accordingly, the court nonstatutory * * * found claim 21 invalid. See Id. at 515. subject matter, the 22. A method of creating a real 3. Fort Props., Inc. v. Am. Master estate investment instrument Lease, LLC dependent claim can adapted for performing tax- The claims at issue in Fort Props., Inc. be invalid under 35 deferred exchanges comprising: were directed to a “method for U.S.C. §101. acquiring real property; creating an investment instrument encumbering the real property out of real property.” Fort Props., Inc. with a master agreement; and v. Am. Master Lease, LLC, 609 F. Supp. creating a plurality of deedshares 2d 1052, 1053 (C.D. Cal. 2009). The Revenue Code comprising: independent claims read as follows: by dividing title in the real transferring a first interest in property into a plurality of tenant- 1. A method of creating a real investment real estate having a in-common deeds of at least one estate investment instrument first value and being subject to predetermined denomination, adapted for performing tax- a first debt from an exchanger each of the plurality of deferred exchanges comprising: to a third party; deedshares subject to a provision aggregating real property to form using the third party to transfer for reaggregating the plurality of a real estate portfolio; title to the first interest in tenant-in-common deeds after a encumbering the property in the investment real estate to a buyer specified interval. real estate portfolio with a master in exchange for money, proceeds * * * agreement; and of the transfer of the title to the

64 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 32. A method of creating a real estate investment instrument adapted for performing tax- deferred exchanges comprising: acquiring real property; encumbering the real property with a master agreement; and using a computer to generate a plurality of deedshares by generating a plurality of tenant- in-common deeds of at least one predetermined denomination that divide title in the real property into a plurality of tenant-in- common interests, each of the (citations omitted). for detecting fraud in a credit plurality of tenant-in-common card transaction between a deeds being subject to a provision For the transformation prong, the court found that, like in Bilski, the consumer and a merchant over in the master agreement for claims at issue “involve only the the Internet, wherein execution reaggregating the plurality of transformation or manipulation of of the program instructions by tenant-in-common deeds after a legal obligations and relationships.” one or more processors of a specified interval. Id. at 1056. In particular, those claims computer system causes the one U.S. Pat. No. 6,292,788 B1. “only transform or manipulate legal or more processors to carry out The court applied the machine-or- ownership interests in real estate” the steps of: and, therefore, “[u]nder Bilski, the transformation test to the claims at a) obtaining credit card [c]ourt [could not] find that those issue. See Fort Props., Inc., 609 F. Supp. information relating to 1 claims transform an article or thing.” 2d at 1054-56. For process claims, transactions from the consumer; Id. The court rejected the patentee’s the court explained that the patentee and must show that her “claim is tied to argument that “[t]he creation of a particular machine” or “transforms the deedshare certainly qualifies as b) verifying the credit card an article.” Id. at 1055 (quoting Bilski, the ‘transformation and reduction information based upon values 545 F.3d at 961). Furthermore, “two of an article,’” as deedshares do of plurality of parameters, in considerations were important to not “represent physical objects or combination with information substances.” Id. (citing Bilski, 545 F.3d [this] analysis….” Id. “First, ‘the use of that identifies the consumer, and at 963). As a result, the court held a specific machine or transformation that may provide an indication the claims at issue invalid under Bilski. of an article must impose meaningful whether the credit card See Id. limits on the claim’s scope to transaction is fraudulent, 4. CyberSource Corp. v. Retail impart patent-eligibility.’ Second, wherein each value among Decisions, Inc. ‘the involvement of the machine or the plurality of parameters is transformation in the claimed process The claims at issue in CyberSource weighted in the verifying step must not merely be insignificant Corp. were directed to “a method and according to an importance, as extra-solution activity.’” Id. (quoting system for detecting fraud in a credit determined by the merchant, Bilski, 545 F.3d at 961-62). card transaction between a consumer of that value to the credit card For the machine prong, the patentee and a merchant over the internet.” transaction, so as to provide the “acknowledged during” prosecution 620 F. Supp. 2d at 1070. The claims merchant with a quantifiable and in its opposition brief that read as follows: indication of whether the credit “the recited methods need not 2. A computer readable medium card transaction is fraudulent; be performed by a computer.” Id. containing program instructions

1 In its analysis, the court noted that the initial patent examiner rejected the claims at issue for failing to be “in the technological arts”; however, that examiner “apparently left the U.S. Patent Office, and the application was assigned to another patent examiner … who ultimately allowed the claims….” Id. at 1055 (citation omitted). Although the notice of allowance did not mention patent eligibility issues, a summary of an examiner interview echoed the applicant’s assertion that the claims were eligible under the “useful, concrete, and tangible result” test. Id. (citation omitted). Thus, the court found that the examiner’s “decision to allow the claims relied in large part on the ‘useful, concrete, and tangible result’ test rejected by Bilski.” Id.

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 65 wherein execution of the transaction; (emphasis added). The court found program instructions by one or that performing the method “over the b) constructing a map of credit more processors of a computer Internet” was not a tie to a particular card numbers based upon the system causes the one or more machine because “the internet is an other transactions; and processors to carry out the abstraction … as [o]ne can touch a further steps of; c) utilizing the map of credit card computer or a network cable, but one cannot touch ‘the internet.’” obtaining information about other numbers to determine if the Id. at 1077 (citing Ferguson, 558 F.3d transactions that have utilized an credit card transaction is valid. at 1366). The court enhanced its Internet address that is identified Id. at 1071. Claim 3, inter alia, reasoning by explaining that, under with the credit card transaction; was a method performed “over Bilski, “the use of the internet does constructing a map of credit the Internet” and, claim 2 was a not impose meaningful limits on the card numbers based upon the Beauregard-type claim.2 See Id. The scope of the claims.” Id. (citing Bilski, other transactions; and utilizing court applied the Bilski machine-or- 545 F.3d at 961). Similarly, the court the map of credit card numbers transformation test to both claims. noted that otherwise unpatentable to determine if the credit card See Id. at 1073-81 (“Like claim 3, subject matter “does not become transaction is valid. claim 2 is subject to the machine- patentable by tossing in references to * * * ortransformation test for patent internet commerce.” Id. eligibility.”). 3. A method for verifying In its “transformation” analysis of the validity of a credit card For the method claim, the court the method the claim, the court transaction over the Internet explained in its “machine” inquiry ruled that collecting data into a comprising the steps of: that “[t]he Bilski court specifically “map” (a data structure) was not left it to future cases to determine an adequate “transformation” of an a) obtaining information about ‘whether or when recitation of a “article,” because an article is “any other transactions that have computer suffices to tie a process physical object or substance, or an utilized an Internet address that claim to a particular machine.’” Id. at electronic signal representative of is identified with the credit card 1076 (quoting Bilski, 545 F.3d at 962) any physical object or substance.”Id.

2 Beauregard-type claims are typically drafted to include a computer readable storage medium containing program instructions, where execution of those instructions causes one or more processors to perform a method.

66 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 at 1073 (citing Bilski, 545 F.3d at The court found recent decisions follows: 964). The court stated that a mere of the BPAI persuasive: “Following 1. A method of configuring a “manipulation” of data (manipulating Bilski, the Board has rightly held system in a computer system credit card numbers to create a that simply appending ‘A computer comprising the steps of: data structure) did not satisfy the readable media including program threshold of a “transformation.” Id. instructions…’ to an otherwise non- defining a structural model Rely on Bilski, the court explained statutory process claim is insufficient hierarchy comprised of composite that even if the steps constituted a to make it statutory.” Id. (quoting Ex and container hierarchies and transformation, a credit card number parte Cornea-Hasegan, 89 U.S.P.Q.2d port relationships substructures; is not – and does not represent – a physical object or substance. See Id. at instantiating in said computer 1074-75. The court further searched system a configuration instance; for a “visual depiction” as “required The court enhanced modifying said configuration by the Bilski” opinion, but did not find instance in response to a request such limitations in the claims. Id. at its reasoning by by creating in said configuration 1076 (citing Bilski, 545 F.3d at 963). explaining that, instance instances of one or more Nontheless, the court noted that under Bilski, “the model elements based on said “[e]ven if the … process visually request; depicted a credit card, and even use of the internet if this step otherwise met the storing said modifications in a list transformation prong, it would have does not impose of modifications; no utility.” Id. at 1076 n.7. Without meaningful limits examining said instances to resolving it, the court also framed on the scope of the determine if a constraint exists; “the legal question of whether the step purportedly meeting the claims.” satisfying in said computer said transformation prong must, to do so, constraint when said constraint contribute to the claimed process’s exists; usefulness.” Id. satisfying in said computer a For the Beauregard-type claim, the 1557, 1561 (B.P.A.I. 2009)). component constraint of said court also ruled it did not transform component hierarchy when articles. Id. at 1080. Both the “over The court concluded its analysis with an interesting statement regarding said instances are constrained the Internet” and “one or more by said component constraints; processors” limitations in the so-called business method patents: Beauregardtype claim were deemed “Bilski’s holding suggests a perilous satisfying in said computer to be inadequate ties to a particular future for most business method container constraints of said machine. Id. at 1076-78. The court patents…. The closing bell may be container hierarchy when further noted that the specification ringing for business method patents, said instances are constrained failed to describe the processors or and their patentees may find they by said container constraints; a computer. See Id. at 1076 (“the have become bagholders.” satisfying in said computer written description includes nary Id. at 1081. connection constraints of said a detail about the ‘one or more 5. Versata Software, Inc. v. port relationship when processors’ recited by claim 2”). Sun Microsystems, Inc. said instances are constrained In its analysis, the court explained that by said connection constraints; The claims at issue in Versata In re Beauregard, 53 F.3d 1583 (Fed. Software, Inc. were “directed to Cir. 1995), “was not a decision on the committing said modifications to a computer-based configuration merits of patentability.” Id. at 1079. said configuration instance and system.” Versata Software, Inc. v. Sun Moreover, In re Alappat, 33 F.3d 1526 removing said modifications from Microsystems, Inc., No. 2-06-CV- said modifications list when no (Fed. Cir. 1994), was “abrogated by 358 (TJW), Memorandum Opinion constraint exists and when all Bilski” because it did not employ the & Order, Dkt. No. 90, at p. 2 (E.D. constraints associated with said machine-ortransformation test. Id. at Tex. Aug. 19, 2008). Representative instances are satisfied; and 1080 (citing Bilski, 545 F.3d at 959). independent claims at issue read as

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 67 removing said modifications from (c) examining said instances to model having information about said configuration instance and determine if a constraint exists; elements available for inclusion in said modifications list when any a system configuration; and (d) satisfying in said computer said constraint associated with said constraint when said constraint a configurator coupled to instances is not satisfied. exists; said CPU, said configurator * * * configured to select a plurality (e) committing said modifications of said elements of said model 2. A method of configuring a to said configuration instance and for inclusion in said system system in a computer system removing said modifications from configuration in response to comprising the steps of: said modifications list when no configuration requests. constraint exists and when said defining a structural model constraint is satisfied; and * * * hierarchy comprised of composite and container hierarchies and (f) removing said modifications 40. In a computer system, port relationships substructures; from said configuration instance a method of generating a and said modifications list when configuration for a system instantiating in said computer said constraint is not satisfied. comprising the steps of: system a configuration instance; * * * defining an element model (a) modifying said configuration consisting of elements used instance in response to a request 30. A configuration apparatus to configure said system and by creating in said configuration comprising: structural relationships between instance instances of one or more a central processing unit (CPU); said elements in said model; model elements based on said request; a modeling system coupled creating a plurality of components to said CPU, said modeling of said system that are instances (b) storing said modifications in a system configured to define a of one or more elements of list of modifications;

68 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 said model in response to infringer’s motion for judgment on A system, comprising: configuration requests; the pleadings. See Versata Software, a network; Inc. v. Sun Microsystems, Inc., No. identifying one or more of said 2-06-CV-358 (TJW), 2009 WL plurality of components that can entry means coupled to said 1084412, at *1 (E.D. Tex. March satisfy constraints of said plurality network for entering into the 31, 2009). The accused infringer of components; and network an amount being paid in contended that the Bilski decision a transaction by a payor; creating a second plurality of invalidated the claims at issue. See components to satisfy constraints Id. Specifically, that “the claimed identification entering means in if said constraints cannot be methods do not satisfy the ‘machine’ said entry means and coupled satisfied by said one or more of portion of the test because they can to said network for entering an said plurality of components. be performed entirely within the identification of the payor; human mind, or using pencil and said network including computing * * * paper.” Id. And, “the claimed methods means having data concerning do not satisfy the ‘transformation’ 41. An article of manufacturing the payor including an excess portion of the test because they comprising: determinant established by the do not transform any article into a payor for the accounts; a computer usable medium having different state or thing.” computer readable program code said computing means in said The court rejected these arguments embodied therein for generating network being responsive to based on its “interpretation of Bilski” a configuration for a system, said said data and said identification not being “so broad as” the accused system configuration specifying entering means for determining infringer’s. Id. The court explained a plurality of components that an excess payment on the basis that the Federal Circuit: comprise said system comprising; of the determinant established by the payor; and computer readable program Decline[d] to adopt a broad exclusion over software or any code configured to cause a said computing means in said other such category of subject computer to define a model that network being responsive to the matter beyond the exclusion of includes a definition for each of a excess payment for apportioning, claims drawn to fundamental plurality of components selectable at least a part of the excess principles … [and noted] the for inclusion in said system payment amount said accounts process claim at issue in the configuration and constraints on on the basis of the excess appeal is not, in any event, a said plurality of components; determined and established by software claim. Thus, the facts the payor and on the basis of computer readable program code here would be largely unhelpful commands established by the configured to cause a computer in illuminating the distinctions payor and controlled by other to receive a configuration between those software claims than the payee. Id. at p.2. request; computer readable that are patent-eligible and those program code configured to that are not. The accused infringer in Every Penny cause a computer to create an Counts, Inc. moved for summary Id. (quoting Bilski, 545 F.3d at 959 n. instance of a component in said judgment of invalidity based on the 23 (internal citations omitted)). system configuration in response Federal Circuit’s Bilski decision. Id. to said configuration request; and Accordingly, the court denied the at 2-3. Previously, the court construed “computing means” as computer readable program code motion. “the bank or card issuing institution’s configured to cause a computer 6. Every Penny Counts, Inc. v. central computer, with a keypad and to satisfy a plurality of constraints Bank of Am. Corp. display, that is programmed to carry of said component. U.S. Pats. out the algorithm disclosed in” the Nos. 5, 515, 524; 5,708,798; The claim at issue in Every Penny patent’s figures. Every Penny Counts, 6,002,854. Counts, Inc. was directed to “a system whereby consumers can save and/or Inc. v. Bank of Am. Corp., No. 2:07-cv- The court in Versata Software, Inc. donate a portion of a credit or debit 042, Opinion & Order, Dkt. No. 174 provided insight into its interpretation transaction.” Slip op. at 1. The claim (M.D. Fla. Sept. 29, 2008). of Bilski in response to the accused read as follows:

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 69 While the claim was drafted as funding decision data from at 545 F.3d at 943). The patentee argued a system claim with structural least one of the remote funding each of the following structures elements, the court applied Bilski’s source terminal devices to the established a tie to a particular machine-or-transformation test to remote application entry and machine under Bilski: (i) “remote analyze whether the claim was drawn display device; wherein the application entry and display device” to sufficient statutory subject matter. selectively forwarding the credit and (ii) “terminal device.” Id. at See Every Penny Counts, Inc. slip op. application data step further 1155-56. Respectively, the court at 3-5. The court explained that “the comprises: sending at least a construed those terms as (i) “any ‘system’ described by the claim at portion of a credit application to device, e.g., personal computer or issue ‘has no substantial practical more than one of said remote dumb terminal, remote from the application except in connection funding sources substantially at central processor, for application with’ computers, cash registers, and the same time; sending at least entry and display”; and (ii) “any networks, but it is not comprised of a portion of a credit application device, e.g., personal computer or those devices. The [patent at issue] is to more than one of said remote dumb terminal, located at a logical or a process, not a machine.” Id. at 4-5. funding sources sequentially until physical terminus of the system.” Id. a finding source returns a positive at 1156. In its “machine” analysis, the court funding decision; sending at least found that the alleged ties to a portion of a credit application The court relied on In re Alappat for machines were merely “insignificant to a first one of said remote the notion that “a general purpose extra-solution activity.” Id. at 5 funding sources, and then, after a computer in effect becomes a (quoting Bilski, 545 F.3df at 961-62). predetermined time, sending to special purpose computer once it is In particular, the claimed “process” at least one other remote funding programmed to perform particular includes “a mathematical algorithm source, until one of the finding functions pursuant to instructions [that] uses machines for data input sources returns a positive funding from program software.” Id. at and data output and to perform the decision or until all funding 1155 (quoting In re Alappat, 33 F.3d required calculations.” Id. But, “those sources have been exhausted; at 1545). Nevertheless, based on machines do not … impose any limit or sending the credit application its analysis, in part, of CyberSource, on the process itself.” Id. from a first remote funding Inc. and a string of BPAI cases, the court found that each of the The patentee did not contend that source to a second remote structures construed above were not claim at issue was transformative. finding source if the first funding a “particular machine” pursuant to See Id. As a result, the court held the source declines to approve the Bilski. Id. (citing CyberSource, Inc., claim at issue invalid under Bilski. credit application. U.S. Pat. No. 620 F. Supp. 2d at 1077; Ex parte See Id. 7,181,427. Gutta, No. 2008-3000 at 5-6, 2009 7. DealerTrack, Inc. v. Huber The accused infringer in DealerTrack, WL 112393 (BPAI Jan. 15, 2009); Inc. moved for summary judgment of Ex parte Nawathe, No. 2007-3360, The claims at issue in DealerTrack, invalidity of the claims at issue under 2009 WL 327520, at *4 (BPAI Inc. were directed to “a computer Bilski. See DealerTrack, Inc, 657 Feb. 9, 2009); Ex parte Cornea- aided method of managing a credit F. Supp. 2d at 1154 (citing Bilski, Hasegan, No. 2008- 4742 at 9-10, application.” 657 F. Supp. 2d at 1152 2009 WL 86725 (BPAI Jan. 13, (internal quotation omitted). The 2009)). The court noted that the independent claim at issue read as In its “machine” patent “does not specify precisely follows: how the computer hardware and analysis, the court database are ‘specially programmed,’ 1. A computer aided method of and the claimed central processor is managing a credit application, the found that the nothing more than a general purpose method comprising the steps of: alleged ties to computer that has been programmed receiving credit application data machines were in some unspecified manner.” Id. from a remote application entry and display device; selectively merely “insignificant The patentee conceded that forwarding the credit application extra-solution the claims at issue were not data to remote funding source activity.” transformative. See Id. at 1154. terminal devices; forwarding Accordingly, the court held the claims

70 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 at issue invalid under Bilski. See Id. gray scale value, derived from the function when every position at 1156. continuous tone image, will be of the mask has one and only compared to a single pixel of a one threshold value ] which is 8. Research Corp. Techs., Inc. v. mask to determine whether a dot designed to produce [acting Microsoft Corp. is turned on at the corresponding with deliberated or explicit intent The claims in Research Corp. Techs., pixel location in the resultant to create or deliver a desired Inc. “relate to image halftoning halftone image ] of the image outcome ] visually pleasing technology used in computers and against a blue noise mask [a dot profile is visually pleasing printers.” 2009 WL 2413623, at *1. [a halftone mask with wraparound if it possesses the collection of The representative claims at issue, properties that produces blue properties that must include: as construed by the court, read as noise and visually pleasing dot (1) aperiodicity; (2) isotropy follows: profiles at any level of gray ] in (low anisotropy); and (3) lack of which the blue noise mask is lowfrequency graininess ] dot (1) A method for the halftoning comprised of a random non- profiles [the binary dot pattern [the simulation of a continuous deterministic [an entity, such resulting from performing a tone image, such as a shaded as a quantity, event, or thing halftoning operation at a constant drawing or photograph, with (e.g., a number, or a position of gray level ] when thresholded groups or cells of color or black a dot) that is not predictable in [the result of comparing an dots. The dots are placed in such outcome, i.e., there is no fixed or operand against a fixed threshold a way that they appear to the known or determinable rule that, and setting an operand less than human eye to be a single color ] by observation of the previous the threshold to one value and an of gray scale images [collection examples of the entity alone, operand greater than or equal to of numerical gray scale values, as allows the prediction of any future the threshold to another value ] stored in a computer, for the gray example of the entity ], non-white at any level of said gray scale tone pixel measurements of an noise [all of the power spectrum images [collection of numerical image ] by utilizing a pixel-by- values are not approximately gray scale values, as stored in a pixel comparison [a threshold equal ] single valued function computer, for the gray tone pixel operation in which a single pixel [a halftone mask is a single value measurements of an image].

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 71 (2) The method of claim 1, of said color image against a isotropy (low anisotropy); and (3) wherein said blue noise mask is blue noise mask [a halftone lack of lowfrequency graininess] used to halftone a color image. mask with wraparound properties dot profiles [the binary dot that produces blue noise and pattern resulting from performing a (11) A method for the halftoning visually pleasing dot profiles at any halftoning operation at a constant [the simulation of a continuous level of gray ] in which the blue gray level ] when thresholded tone image, such as a shaded noise mask is comprised of a [the result of comparing an drawing or photograph, with groups random non-deterministic [an operand against a fixed threshold or cells of color or black dots. The entity, such as a quantity, event, or and setting an operand less than dots are placed in such a way thing (e.g., a number, or a position the threshold to one value and an that they appear to the human of a dot) that is not predictable operand greater than or equal to eye to be a single color ] of color in outcome, i.e., there is no the threshold to another value ] at images [an image that is formed fixed or known or determinable any level of said color images, and captured in more than one rule that, by observation of the wherein a plurality of blue noise wavelength of light ], comprising previous examples of the entity masks are separately utilized the steps of utilizing, in turn, a alone, allows the prediction of to perform said pixel-by-pixel pixel-by-pixel comparison any future example of the entity], comparison and in which at [a threshold operation in which non-white noise [all of the least one of said blue noise a single pixel gray scale value, power spectrum values are not masks is independent and derived from the continuous tone approximately equal ] single uncorrelated [dot profiles are image, will be compared to a valued function [a halftone mask generated by random processes single pixel of a mask to determine is a single value function when that possess no statistical whether a dot is turned on at the every position of the mask has dependence and no statistical corresponding pixel location in the one and only one threshold value] correlation ] with the other blue resultant halftone image ] of each which is designed to provide noise masks. of a plurality of color planes visually pleasing [a dot profile [the decomposition of a color is visually pleasing if it possesses * * * image into separate primary color the collection of properties that (1) A method for the halftoning components, called planes, for each must include: (1) aperiodicity; (2) member of a set of primary colors] [the simulation of a continuous

72 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 tone image, such as a shaded is synonymous with unpredictable, (2) A method for halftoning drawing or photograph, with or lacking the ability to be [the simulation of a continuous groups or cells of color or black predicted ] non-white noise [all tone image, such as a shaded dots. The dots are placed in such of the power spectrum values are drawing or photograph, with groups a way that they appear to the not approximately equal ] single or cells of color or black dots. The human eye to be a single color ] valued function [a halftone mask dots are placed in such a way of color images [an image that is a single value function when that they appear to the human is formed and captured in more every position of the mask has eye to be a single color ] image than one wavelength of light ] one and only one threshold value] information [any information which comprises the step of which is designed to provide obtained from a continuous tone utilizing, in turn, a pixel-by- visually pleasing [a dot profile is image ] which comprises the pixel comparison [a threshold visually pleasing if it possesses step of comparing [the function operation in which a single pixel the collection of properties that performed by a comparator: a must include: (1) aperiodicity; device, (or collection of operations, (2) isotropy (low anisotropy); as in software) that compares an ...the claims at and (3) lack of lowfrequency input number (called the operand) issue that merely graininess ] dot profiles [the to a number prestored in the binary dot pattern resulting from comparator (called the threshold) “assembl[ed] … performing a halftoning operation and produces as output a binary gray scale images to at a constant gray level ] when value (such as “0,” zero) if the generate final dot thresholded [the result of input is algebraically less than comparing an operand against the threshold, and produces the profiles” were a fixed threshold and setting an opposite binary value (such as “1,” not transformative operand less than the threshold to one) if the input is algebraically one value and an operand greater greater than or equal to the because they did not than or equal to the threshold to threshold ] such information “mandate a further another value ] and wherein said against at least one array visual display or step of utilizing said pixel-by- [an ordering of a set of quantities, pixel comparison is used to such as numbers, in a regular image….” produce a halftoned image. format, e.g., the ordering of numbers in a two-dimensional * * * gray scale value, derived from the structure of rows and columns ], continuous tone image, will be (11) A method for the wherein said at least one array compared to a single pixel of a halftoning of color images is comprised of multibit mask to determine whether a dot which comprises the step of threshold values [values used in is turned on at the corresponding utilizing, in turn, a pixel-by- threshold operations that possess pixel location in the resultant pixel comparison of each of a multiple bits of significance ], halftone image ] of each of a plurality of color planes of said and said at least one array, plurality of color planes [the color image against a respective when thresholded [the result decomposition of a color image into one of a plurality of masks in of comparing an operand against separate primary color components, which each respective mask a fixed threshold and setting an called planes, for each member comprises a non-deterministic, operand less than the threshold to of a set of primary colors ] of said non-white noise single valued one value and an operand greater color image against a mask function which is designed to than or equal to the threshold [an ordering of a set of values in a provide visually pleasing dot to another value ], produces regular format in a twodimensional profiles when thresholded and a dot pattern according to a structure of rows and columns that wherein said step of utilizing said substantially blue noise power is used for halftoning an image by pixel-by-pixel comparison is spectrum [a power spectrum comparison of image pixels against used to produce a halftoned which has small or negligible low corresponding mask pixels ] in image. frequency in the low frequency which the mask comprises a region adjacent the ordinate of the non-determinate [the meaning * * * frequency plot; a transition region

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 73 from the low frequency region; and is a single value function when a high frequency region which has every position of the mask has an absence of strong or dominate The court explained one and only one threshold spikes sensed as artifacts in the that the machine-or- value ] which is designed to spatial domain ] and wherein said provide visually pleasing step of comparing is used to transformation test is [a dot profile is visually pleasing produce a halftoned image. one “for determining if it possesses the collection of properties that must include: (6) A method for halftoning of whether a process (1) aperiodicity; (2) isotropy an image which comprises the claim is ‘tailored (low anisotropy); and step of comparing information narrowly enough to (3) lack of low-frequency derived from said image graininess ] dot profiles [the [any information obtained from a encompass only a binary dot pattern resulting from continuous tone image ] against particular application performing a haftoning operation at least one array, wherein of a fundamental at a constant gray level ] when said at least one array, when thresholded [the result of thresholded, produces a pattern principle rather than comparing an operand against that exhibits a power spectrum to pre-empt the a fixed threshold and setting an substantially characteristic of a operand less than the threshold to blue noise power spectrum principle itself.’” one value and an operand greater and wherein said step of than or equal to the threshold to comparing is used to produce a another value ] at any level of said in which a single pixel gray scale halftoned image. color images, wherein an output value, derived from the continuous of said comparator is used to * * * tone image, will be compared to a produce a halftoned image. (29) Apparatus for the halftoning single pixel of a mask to determine [the simulation of a continuous whether a dot is turned on at the (42) An apparatus for halftoning tone image, such as a shaded corresponding pixel location in image information [any drawing or photograph, with the resultant halftone image ], a information obtained from groups or cells of color or black plurality of color planes [the a continuous tone image ], dots. The dots are placed in such decomposition of a color image into comprising a comparator for a way that they appear to the separate primary color components, comparing such information human eye to be a single color ] called planes, for each member of a against at least one array [an of color images [an image that set of primary colors ] of said color ordering of a set of quantities, such is formed and captured in more image against a blue noise mask as numbers, in a regular format, than one wavelength of light ] [a halftone mask with wraparound e.g., the ordering of numbers in comprising a comparator [a properties that produces blue noise a two-dimensional structure of device, (or collection of operations, and visually pleasing dot profiles rows and columns ], where said as in software) that compares an at any level of gray ] in which the at least one array is comprised input number (called the operand) blue noise mask is comprised of of multibit threshold values to a number prestored in the random non-deterministic [an [values used in threshold operations comparator (called the threshold) entity, such as a quantity, event, or that possess multiple bits of and produces as output a binary thing (e.g., a number, or a position significance ], and said at least value (such as “0,” zero) if the of a dot) that is not predictable in one array, when thresholded, input is algebraically less than outcome, i.e., there is no fixed or produces a dot pattern according the threshold, and produces the known or determinable rule that, by to a substantially blue noise opposite binary value (such as “1,” observation of the previous examples power spectrum [a power one) if the input is algebraically of the entity alone, allows the spectrum which has small or greater than or equal to the prediction of any future example of negligible low frequency in the threshold ] for comparing [the the entity ], non-white noise [all low frequency region adjacent function performed by a of the power spectrum values are the ordinate of the frequency comparator ], on a pixel-by- not approximately equal ] single plot; a transition region from the pixel basis [a threshold operation valued function [a halftone mask low frequency region; and a high

74 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 frequency region which has an The court interpreted the Federal absence of strong or dominate Circuit’s discussion of In re Abele in spikes sensed as artifacts in the Bilski as providing two requirements spatial domain ] and wherein an for a claimed process to output of said comparator is be transformative: “it should be used to produce a halftoned (1) limited to transformation of image. specific data, and (2) limited to a visual depiction representing specific (72) An apparatus for halftoning objects or substances.” Id., at *9. a color image, comprising a comparator for comparing Based on its interpretation of information derived from at least Bilski, the court analyzed the one component color of such representative claims at issue under image against at least one array, the machine-or-transformation wherein said at least one array, test. See Id., at *11-17. It found that when thresholded, exhibits a all the claims at issue failed the power spectrum substantially “machine” prong of the test, as characteristic of a blue noise the claims “state[d] no particular power spectrum and wherein machine [that] is required for [the an output of said comparator claimed] algorithm….” Id., at *13. is used to produce a halftoned Notably, the court explained that its image. Id., at *11-17 (emphasis in interpretation of “comparator”– “[a] original). device (or collection of operations, as in software)” – could include The court explained that the software per se and, therefore, a machine-or-transformation test “comparator” was not a “particular” data” that “is further limited to a is one “for determining whether machine. Id., at *17 (citation visual depiction which represents a process claim is ‘tailored omitted). In other words, the court specific objects.” Id. In addition, the narrowly enough to encompass expressed that “the potential for use only a particular application of a court found that even the “recitation on a machine is not the equivalent fundamental principle rather than to of the production of an image as a of being tied to a machine.” Id. pre-empt the principle itself.’” Id., at result of the comparison of numbers” Moreover, “the term ‘device’ is not *6 (quoting Bilski, 545 F.3d at 954). rose to the level of performing a synonymous with machine.” Id. It added that “[t]he machine-or- “transformation.” Id. However, transformation test solves the issue In its transformation analysis, the the claims at issue that merely of inappropriate preemption….” Id., court found that the claims at issue “assembl[ed] … gray scale images to at *8 (citing Bilski, 545 F.3d at 957). which recite “the production of an generate final dot profiles” were The court noted that the machine- image as a result of the comparison not transformative because they did or-transformation test accomplishes numbers” are transformative. Id., not “mandate a further visual display this result, in part, based on “[t] at *15. Specifically, “the comparison or image….” Id., at *10. wo corollaries”: (1) “post-solution between the halftoned color images As a result, the court invalidated the and [(2)] field-in-use limitations and each of the color planes against claims under Bilski that were both are insufficient to make a claim to a mask which is designed to produce not transformative and not tied to a a fundamental principle process visually pleasing dot profiles to finally particular machine. See Id., at *18. patent eligible.” Id. at *7. It cited prior produce a halftoned image” or “the precedent for what may constitute comparison of a halftoned image 9. Abstrax, Inc. v. Dell, Inc. “postsolution activities:” “a simple against an array, or an ordering of The claims at issue in Abstrax, Inc. were recordation step in the middle of the umbers, and that the array produces “directed to a method for assembling claimed process”; and “a presolution a pattern when it undergoes another a product having components wherein step of gathering data….” Id. (citing comparison through thresholding, the variable portions of a set of In re Schrader, 22 F.3d 290, 294 (Fed. and that the step of comparing those abstract assembly steps are resolved Cir. 1994); In re Grams, 888 F.2d 835, numbers produces a halftones image” in accordance with data from a desired 839-40 (Fed. Cir. 1989)). claim “a transformation of specific

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 75 configuration.” Abstrax, Inc. v. Dell, Inc., product to have the requested No. 2:07-CV- 221-DF-CE, 2009 WL configuration.” Id. Notably, the court 3255085, at *2 (E.D. Tex. Oct. 7, 2009). In its transformation mentioned that “transformation Representative claim 10 read as follows: analysis, the court of ‘configuration model’ impose[d] meaningful limits on the claim’s 10. A method, performed by found that the claims scope” because both parties a computer, for assembling a at issue which recite proposed the term “configuration product having components, the model” for claim construction. Id. method comprising the steps of: “the production of (“Ostensibly, a claim term that both (a) providing one or more an image as a result parties feel warrants construction would impose limits on a claim and abstract assembly steps for of the comparison would not be merely extra-solution assembling the product, numbers” are activity.”) the abstract assembly steps containing variable transformative. As a result, the court found the portions for assembling the claims at issue satisfied Bilski. See Id. product with potentially different configurations, the constitute ‘articles’ such that their 10. Fuzzysharp Techs. Inc., variable portions including transformation is sufficient to impart 3D Labs Inc., Ltd. variable parameters capable patent-eligibility under §101.” Id., at The claims in Fuzzysharp Techs. Inc. of representing different *3 (quoting Bilski, 545 F.3d at 962). were directed to “mathematical component information; Furthermore, the court noted that algorithms that can be used to “today’s ‘articles’ are often electronic reduce the number of calculations (b) obtaining a configuration signals and electronically manipulated model corresponding to a data….” Id., at *3. required to determine whether requested configuration of a 3D surface is visible or invisible the product, the configuration Rejecting the accused infringer’s on a display screen.” Fuzzysharp model including one or more argument that the data at issue Techs. Inc. v. 3D Labs Inc., Ltd., of the component information was too broadly claimed, the court No. C 07-5948 SBA, 2009 WL expressed that “[t]he rejected lines corresponding to one or 4899215, at *1 (N.D. Cal. Dec. 11, claim in Abele ‘did not specify any more components utilized in the 2009). The representative claims at particular type of nature of data; nor requested configuration; and issue, as construed by the court, read did it specify how or from where as follows: (c) applying the configuration the data was obtained or what the model to the abstract assembly data represented.’” Id. (quoting Bilski, 1. A method of reducing the steps provided for assembling 545 F.3d at 962). The court held visibility related computations the product by inserting that the data in claim 10 “represents in 3-D computer graphics, the component information from the physical and tangible objects and visibility related computations component information lines into their respective structures” because being performed on 3-D surfaces the variable parameters of the it concerns “how parts, pieces, or or their sub-elements, or a variable portions of the abstract components of a product fit together selected set of both, the method assembly steps to produce one and how they are configured.” Id. comprising: or more assembly instructions Additionally, “the claims indicate [a] identifying grid cells which for assembling the product to that the data is obtained form the are under or related to the have the requested configuration. component information lines in the projections or extents of Id., at *2-3.3 configuration model.” Id. projections associated with at The court also rejected the accused The court in Abstrax, Inc. reviewed least one of said 3-D surfaces or infringer’s argument that the claim the claim 10 under the Bilski their sub-elements; did not contain a sufficient “visual machine-ortransformation test. depiction.” Id., at *4. “Here, the raw [b] comparing data associated Id., at *2-4. In its transformation data is transformed into assembly with said at least one of 3-D analysis, the court explained that instructions for assembling the surfaces or their sub-elements the issue is “what sorts of things

3 The author notes the irony of a software patent holder both using the claim limitation “abstract” and having a tradename including “Abstrax”.

76 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 with stored data associated with visibility computations, at least an surface which is unable to be the grid cells; occlusion relationship calculation determined with certainty as to for at least one entity that has whether it is either unoccluded [c] determining which of said at been determined to be invisible or hidden; exempting from least one of 3-D surfaces or their in said computing step. said occlusion or invisibility subelements is always invisible or relationship computation those always visible to a viewpoint or a * * * surfaces which are either always group of viewpoints by projection 1. A method of reducing the unoccluded or always hidden; based computations prior to a complexity of visibility calculations maintaining a record of said visibility computations; and required for the production remaining surface; and carrying [d] ignoring said determined at of multi-dimensional computer out occlusion or invisibility least one of the 3-D surfaces or generated images, said method relationship computations on said their subelements during said performed on a computer, said remaining surfaces. visibility computation. method comprising the steps of: * * * prior to an occlusion or invisibility * * * relationship computation (known 4. A method as claimed in 12. A method of reducing a step per se) being carried out on a Claim I, wherein said images are of visibility computations in plurality of surfaces from each selected from a group consisting 3-D computer graphics from a viewpoint to be calculated: for of graphic images, computer perspective of a viewpoint, the selected ones of said surfaces, vision data, abstract data and method comprising: determining for said viewpoint physical data. whether each said selected 5. A method as claimed in Claim [a] computing, before said step surface is: and from said perspective, the I, wherein the reduction in visibility of at least one entity (a) an always unoccluded surface, complexity involves a reduction selected from 3-D surfaces an always hidden surface, or a in the number and/or visibility of and sub-elements of said 3-D remaining surface; or visibility calculations. Id., at *1-2. surfaces, wherein said computing (b) an always unoccluded surface, The court in Fuzzysharp Techs. Inc. step comprises: or a remaining surface; or analyzed the claims at issue under the Bilski machine-or-transformation [i] employing at least one (c) an always hidden surface, or test. See Id., at *2-5. The main issue projection plane for generating a remaining surface; wherein was whether the claims at issue projections with said selected said remaining surface is a set of 3-D surfaces and said were tied to a “particular” machine. sub-elements with respect to said perspective;

[ii] identifying regions on said at least one projection plane, wherein said regions are related to the projections associated with said selected 3-D surfaces, said sub-elements, or bounding volumes of said 3-D surfaces or said subelements;

[iii] updating data related to said regions in computer storage; and

[b] deriving the visibility of at least one of said 3-D surfaces or said subelements from the stored data in said computer storage; and skipping, at said step of

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 77 Id., at *4. The patentee argued that WL 3006497, at *8-9 (BPAI Sept. 18, 2010 WL 771595, at *2 (D. Del. 2010). the limitations, “computations” 2009); Ex Parte Nick M. Mitchell and The claims at issue read as follows: and “computer storage,” and Gary S. Sevitsky, 2009 WL 460662, 1. A system for generating constructions that referenced “using at *6 (BPAI Feb. 23, 2009); Ex Parte tasks to be performed in an a data structure in a computer” Sandeep Nawathe and Vaishali Angal, insurance organization, the and “projecting 3D images ‘on 2009 WL 327520, at *4 (BPAI Feb. system comprising: an insurance a computer screen’” established a 9, 2009)) (“Though the calculations transaction database for sufficient tie to a particular machine. may be ‘performed on a computer,’ storing information related to Id. The court rejected this argument they are not tied to any particular an insurance transaction, the noting “[t]he salient question is not computer.”)4 insurance transaction database whether the claims are tied to a comprising a claim folder computer,” but “[r]ather, as Bilski As a result, the court found the containing the information makes clear, the question is whether claims at issue invalid under Bilski. related to the insurance the claims are ‘tied to a particular See Id., at *5. transaction decomposed into machine.’” Id. (quoting Bilski, 545 F.3d 11. Accenture Global Servs. GmbH a plurality of levels from the at 961) (emphasis in original). The v. Guidewire Software Inc. group comprising a policy court stated “the claims are not tied level, a claim level, a participant to a particular computer, but simply The claims at issue in Accenture Global level and a line level, wherein make a generally [sic] reference to ‘a’ Servs. GmbH were directed to “a the plurality of levels reflects a computer. Courts applying Bilski have computer program for developing policy, the information related concluded that the mere recitation component based software for the to the insurance transaction, of ‘computer’ or reference to using insurance industry. The program claimants and an insured person a computer in a patent claim us [sic] includes a data component, a in a structured format; a task insufficient to tie a patent claim to client component, and a controller library database for storing a particular machine.” Id. The court component. The client component is rules for determining tasks found DealerTrack, Inc., CyberSource, responsible for allowing users to edit to be completed upon an and three BPAI cases persuasive for tasks, add new tasks, and ‘achieve occurrence of an event; a client this notion. See Id., at *4-5 (citing an insurance-related goal upon component in communication DealerTrack, Inc., 2009 WL 2020761, completion,’ as well as to generate a with the insurance transaction at *3; CyberSource, 620 F. Supp. 2d historical record of completed tasks.” database configured for providing at 1077; Ex Parte David Myr, 2009 Accenture Global Servs. GmBH v. Guidewire Software Inc., – F. Supp. 2d –, information relating to the

4 The patentee conceded that the claims were not transformative. See Id., at *4.

78 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 insurance transaction, said client level, wherein the plurality a file note, said information component enabling access by of levels reflects a policy, the comprising at least one suffix an assigned claim handler to a information related to the indicating a type of insurance plurality of tasks that achieve insurance transaction, claimants coverage for a participant in a an insurance related goal and an insured person in a claim and identification of the upon completion; and a server structured format; transmitting participant, wherein the at least component in communication the determined task to a task one suffix is preselected from with the client component, the assistant accessible by an one or more types of insurance transaction database and the assigned claim handler, wherein coverage applicable to the claim; task library database, the server said client component displays obtaining a selection of fields of a component including an event the determined task; allowing first set of fields from a user, the processor, a task engine and an authorized user to edit and selection identifying information a task assistant; wherein the perform the determined task for a second set of fields; event processor is triggered by and to update the information displaying in the second set of application events associated related to the insurance fields, the information identified with a change in the information, transaction in accordance with by selection of field of the first and sends an event trigger to the the determined task; storing the set of fields; permitting the user task engine; wherein in response updated information related to to add data to a predefined text to the event trigger, the task the insurance transaction; and area related to each field of the engine identifies rules in the generating a historical record of second set of fields based on the task library database associated the completed task. selected fields; generating a file with the event and applies the note that contains the first set of * * * information to the identified fields, the second set of fields, rules to determine the tasks to 1. A method for generating a and the data in the predefined be completed, and populates on file note for an insurance claim, text area; identifying a level of a task assistant the determined comprising the steps of, executed significance of the file note; and tasks to be completed, wherein in a data processing system, storing the file note with the the task assistant transmits the of: prefilling a first set of fields identified level of significance in determined tasks to the client with information identifying a claim database including file component. notes associated with the claim.

8. An automated method for 9. A method for generating generating tasks to be performed The patentee argued a file note for an insurance in an insurance organization, that the limitations, claim folder, comprising: the method comprising: providing on a display device a transmitting information related “computations” claim folder screen depicting to an insurance transaction; and “computer attributes associated with a determining characteristics storage,” and claim, the attributes comprising of the information related to at least one suffix indicating the insurance transaction; constructions that a type of insurance coverage applying the characteristics of referenced “using a for a participant in the claim; the information related data structure in a permitting the selection of at to the insurance transaction to least one attribute associated rules to determine a task to be computer” with a claim on the claim completed, wherein an event and “projecting 3D folder screen; providing on a processor interacts with an display device a file note screen insurance transaction database images ‘on depicting the selected at least containing information related a computer screen’” one attribute in a criteria section, to an insurance transaction established a and a text entry section, wherein decomposed into a plurality of the text entry section is based levels from the group comprising sufficient tie to a on the selected at least one a policy level, a claim level, particular machine. attribute in the criteria section; a participant level and a line receiving from a user information

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 79 associated with the text entry a claim database including file machine within the meaning of section; generating the file note notes associated with the claim. Bilski.” Id. (citing Every Penny Counts, based on information received Id. Inc., 2009 U.S. Dist. LEXIS 53626, from the user; identifying a level at *6; Research Corp. Tech., Inc., While the court in Accenture Global of significance of the file note 2009 WL 2413623 at *17) In other Servs. GmbH stayed trial “until such according to information received words, “the patent claims implicate time as a decision is issued in Bilski from the user; and storing the file the use of a machine, but a machine v. Doll,” it issued an opinion one note with the identified level of does not impose any limit on the week later to “briefly illuminate significance in a searchable claim claimed methods themselves.” Id. [ ] several of its concerns regarding database, the claim database Nonetheless, the court conceded the patentability of the [claims at associating the file note being that “[i]t is unclear to the court issue] under the Bilski framework.” with a file note index indicating whether (and how) the claims maybe Accenture Global Servs. GmbH v. changes to the file note. interpreted to define a particularly- Guidewire Software Inc., No. programmed computer.” Id., at *17. * * * 07-826-SLR, 2010 WL 723003, at *1 (D. Del. Feb. 26, 2010); Id. The court held that although “it is 13. A system for generating a not self evidence that the patents are file note for an insurance claim, In its transformation analysis, drawn to tangible inventions rather comprising: prefilling means for the court found that the claims than to concepts, … [t]he court may prefilling a first set of fields with manipulated “non-tangible revisit the issue upon defendant’s information identifying a file information” such as “the cost of renewed motion should the Supreme note, said information comprising automobile repair, hours worked, or court validate the Bilski framework.” at least one suffix indicating the amount of medical expenses.” Id., Id. at *19. a type of insurance coverage at *16. Accordingly, “even if a tangle for a participant in a claim and visual ‘display’ [was] provided, that IV. Conclusion identification of the participant, visual image would not represent any wherein the at least one suffix is specific tangible objects (or type of Almost three decades have preselected from one or more data).” Id. passed since the Supreme court types of insurance coverage has substantively ruled on patent In its machine analysis, the court applicable to the claim; obtaining eligibility. District courts have explained that limitations such as means for obtaining a selection of balanced the costs of adjudicating “claim database,” “a display device,” fields of a first set of fields from outstanding material issues against “a file note screen,” a “searchable a user, the selection identifying the benefits of waiting for further claim database,” and “a claim folder,” information for a second set clarification of the Federal Circuit’s while construed “as computer- of fields; displaying means for Bilski holding from the Supreme related,” “do not imply a specific displaying in the second set of court. The district courts that felt computer having any particular fields, the information identified compelled to rule on patent eligibility programming – they are descriptive by selection of field of the first issues have had to fill in the gaps of of a general computer system at set of fields; permitting means the Federal Circuit’s Bilski decision best.” Id., at *17. Moreover, the claim for permitting the user to add as necessary to rule on the cases term – “a data processing system data to a predefined text area before them. During this process, comprising a memory, secondary related to each field of the the law of patent eligibility for storage device, central processing second set of fields based on the software and business methods has unit, input device and video display; selected fields; generating means become refined in some instances the memory contains a program for generating a file note that and redefined in others. Patent for automatically generating file contains the first set of fields, the practitioners, investors, intellectual notes” – also does not rise to the second set of fields, and the data property asset managers, and specificity of a particular machine. in the predefined text area; and business decision-makers alike all See Id. Relying on Every Penny Counts, identifying means for identifying anxiously await the Supreme court’s Inc. and Research Corp. Tech., Inc., a level of significance of the file opinion to see if such refining or the court expressed that “[i]f the note; and storing means for redefining controls. architecture of the computer is of no storing the file note with the import, it is unclear how the claimed identified level of significance in methods are drawn to a specific

80 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 CLEAN ENERGY

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 81 82 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 ITC patent dispute over wind turbines turns political

By high stakes for the renewable energy Lawrence T. Kass sector, the added political overtones and scrutiny increased the need Reprinted with permission from The case developed to quickly appreciate and address the January 25, 2010 edition of THE NATIONAL LAW JOURNAL into a battleground sensitive economic and political issues © 2010 ALM Media Properties, of public policy, when litigating cleanenergy patents. with members of The ITC began an investigation in Congress weighing March 2008 based on GE’s complaint that Mitsubishi was importing and in. selling wind turbines that allegedly infringe three GE patents. On Aug. 7, 2009, an ITC administrative law judge (ALJ) issued an initial It’s not easy being green. The determination that, for some clean-technology revolution presents (not all) asserted claims in two of new challenges and opportunities three GE patents, Mitsubishi was somewhat unique to green energy infringing and violating §337 of the innovation, project development Tariff Act of 1930 by importing and finance. Clean-tech companies, and selling its accused turbines financiers and their counsel must and components. Facing possible understand and appreciate more than exclusion of its turbines from the U.S. ever how to navigate and even avail market, Mitsubishi petitioned the themselves of the interplay among full commission to review the ALJ’s public policy, politics and intellectual adverse initial determinations. property. The patent litigation between General Electric Co. and An investigative staff attorney from Mitsubishi Heavy Industries Ltd. at the the ITC’s Office of Unfair Import Lawrence T. Kass is a partner U.S. International Trade Commission Investigations also weighed in with a in the Intellectual Property Group (ITC) over certain wind turbines is petition for review, disagreeing with of Milbank, Tweed, Hadley & a case in point. The case concluded some of the ALJ’s determinations. McCloy LLP in New York. He may on Jan. 8, when the full commission The staff attorney questioned the be reached at (212) 530-5178 or issued a final determination of no infringement findings on certain [email protected]. violation by Mitsubishi. patent claims and expressed concern about whether GE itself practices During the past several months, the other claims in the U.S. wind case developed into a battleground of turbine market, thereby satisfying public policy and politics, with various a “domestic industry” requirement senators and representatives weighing for a §337 violation. On the other in for one side or the other. Already hand, the staff attorney said, the a closely watched case due to its

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 83 public interest should not preclude Nov. 20, 2009. The market and the capacity as the industry endeavors an exclusion order if Mitsubishi loses, need for turbines is only expected to meet the Obama administration’s even though Mitsubishi plans to open to increase; indeed, the Obama wind generation goal for 2030. a $100 million manufacturing plant in administration has set a goal of Other politicians also wrote letters Arkansas for wind turbines. However, generating 20% of U.S. electricity tending to favor GE. They largely the staff attorney argued that, if through wind energy by 2030. represent states such as South Mitsubishi did lose, it nevertheless Carolina, home to a large GE facility should be allowed to supply turbines for manufacturing wind turbines; to one wind farm project in Texas Georgia, home to GE Energy; and that received $114 million in federal New York, the global headquarters stimulus money. It may be fairly questioned how for GE Wind’s business. In view of the petitions, the The first was a Dec. 8 letter from full commission announced on much the input Rep. Bob Inglis (R-S.C.), followed Oct. 8, 2009 that it would review the from politicians on Dec. 23 by Sen. Lindsey Graham ALJ’s initial determination. As part of (R-S.C.). Graham argued that the case the order for review, the commission influenced the ITC’s is vitally important to the nation’s noted that, if it were to contemplate determination. ability to attract investment in clean some form of remedy against energy. He explained that attracting Mitsubishi, it would have to consider companies like GE to invest in the remedy’s effect upon the public clean-energy research and interest. The notice explained that a Politicians On Both Sides development, engineering, testing, violation could mean excluding the manufacturing, servicing and accused turbines from the United With renewable energy being such a installation skills, requires strong States and/or requiring Mitsubishi hot political and public policy issue, protection of intellectual property. to cease and desist from their a number of politicians submitted importation and sale. The commission letters to the commission. The Sens. Saxby Chambliss (R-Ga.) and invited public submissions to address, letters tended to favor the company Johnny Isakson (R-Ga.) wrote a among other things, any potential that maintains a major presence in brief letter on Dec. 23, pointedly remedy as well as its effect on the the politician’s respective state or suggesting that the dispute “may public. Written submissions by the district. Senators, representatives have become politicized” and parties and public were due on and the governor of Arkansas came urging the commission to Nov. 2, with replies due on Nov. 9. out in force for Mitsubishi. They decide the case on its merits. The commission twice extended its sent no fewer than seven letters, Sen. Charles Schumer (D-N.Y.), own deadlines, finally announcing that many including co-signatures of Sen. Kirsten Gillibrand (D-N.Y.) and it would render a determination by congressional colleagues outside Rep. Paul Tonko (D-N.Y.) wrote on Jan. 8. Arkansas. Most met the commission Jan. 6 that weakening IP relating to deadlines of Nov. 2 or 9. clean technology poses a substantial The considerable economic, political and public interest in the outcome For example, Sen. Blanche Lincoln risk of inhibiting “creation of new of the case is undeniable. The U.S. (D-Ark.) wrote a letter on Oct. 2, along green jobs and the transition to a market for wind turbines is expected with Sen. Ron Wyden (D-Ore.), urging green economy.” to reach $60.9 billion by 2013. the commission to look closely at The six letters for GE seemed GE is the largest U.S. manufacturer the initial determination’s “significant somewhat belated, however. None and supplier to that market. public policy implications.” They of them met the commission’s Mitsubishi is one of the largest argued that the ALJ’s infringement Nov. 2 and 9 deadlines. The earliest importers, and it continued to take determination was contrary to the was dated Dec. 8, three were dated on large U.S. orders while seeking staff attorney’s views. On Nov. 9, Dec. 23, one was dated Jan. 5 and investment in projects for its wind Lincoln wrote a follow-up letter one was dated Jan. 6–just two turbines despite the ALJ’s initial with Sen. Mark Pryor (D-Ark.) days before the commission’s final determination. Jessica Dye, commending the ITC for ordering determination target date of Jan. 8. “ITC Extends Mitsubishi Wind the full commission review. They Turbine Investigation,” Law 360, emphasized a potential shortfall of

84 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 Policy, Politics And IP commission to conduct a particularly team possessing not only litigation careful review of the merits. To the capacity, but also broad experience The commission issued a largely extent they did have any effect, one and insight into the economics and procedural three-page notice on may question whether the belated public policies of renewable energy, Jan. 8, simply stating that it had input from the politicians for GE was can be a valuable asset. decided to terminate the investigation too little, too late. with a final determination of no For example, project finance violation and that an opinion would Although not all situations will present counsel in this sector have valuable issue shortly. This took many by the same high stakes and draw the insight into the underlying market surprise. same level of attention, the GE/ economics, including significant data, Mitsubishi litigation illustrates that the trends, dynamics, policies and players It may be fairly questioned how interplay among public policy, politics relating to investments in clean much the input from politicians and intellectual property can be energy throughout the country. The actually influenced the commission’s particularly important in clean-energy ability to perceive opportunities for determination. Arguably, the public cases. This interplay is not limited to public interest support in a litigation interest should affect only the remedy ITC litigation because, for example, and to quickly, effectively mobilize upon finding a violation and should district courts also consider the public stakeholders may be aided by such have no bearing if the commission interest when evaluating whether to capacities. determines there was no violation. issue an injunction. Appreciation for Yet the letters also clearly urged the this interplay, as well as a diverse legal

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 85

BANKRUPTCY

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 87 88 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 International Trade Commission Intellectual Property Investigations: An Exception to the Bankruptcy Code’s Automatic Stay?

By the U.S. Bankruptcy Code. In both James R. Klaiber cases, the bankruptcy courts held and Attorneys James that the automatic stay did apply Bradley S. Friedman to ITC investigations involving the R. Klaiber and importation of goods that allegedly Reproduced with permission from Bradley S. Friedman infringed on otherwise valid U.S. BNA’s Bankruptcy Law Reporter, patents. However, on appeal, each 22 BBLR 1647, 12/09/2010. of Milbank, Tweed, of the respective district courts Copyright © 2010 by The Bureau Hadley & McCloy LLP, overturned those holdings, one on of National Affairs, Inc. (800-372-1033) http://www.bna.com. New York, review the merits and the other as moot. two recent cases These decisions, and the arguments testing whether the of the parties, provide insight into how to strategically prepare or intellectual property continue patent-related litigation infringement lawsuits when confronted with defendants in the International that file for bankruptcy protection in the United States. Trade Commission are exempt from II. The Bankruptcy Code’s the automatic stay Automatic Stay provisions of the Perhaps the most prominent protection Bankruptcy Code. provided to a debtor in a bankruptcy case is what is commonly known as the automatic stay. Section 362 of the Bankruptcy Code provides I. Introduction that upon the filing of a bankruptcy In two recent cases, In re Qimonda petition–the document that a debtor and In re Spansion, bankruptcy courts files to initiate a bankruptcy case–the were asked to determine whether debtor’s estate and the debtor are International Trade Commission (“ITC”) automatically protected from, among investigations, a regulatory other things, the commencement or enforcement action often strategically continuation of suits on prepetition 1 and contemporaneously brought claims and from lien enforcement. with a private intellectual property In particular, the actions that are infringement suit, are exempted subject to the automatic stay include, from the automatic stay provisions of among other things: (a) a judicial or administrative action or proceeding

1 See 11 U.S.C. §362(a).

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 89 against the debtor that was or could but empowers the U.S. Customs have been commenced before In particular, the ITC personnel to stop the infringing goods the filing for bankruptcy; (b) the from crossing U.S. borders. enforcement, against the debtor or argued that although Typically, an ITC investigation of IP against the property of the debtor’s LSI, a private infringement brought under Section estate, of a judgment obtained before complainant, brought 337 of the Tariff Act is instituted the filing for bankruptcy; (c) any act based on a complaint filed by the to obtain possession of property of its allegations to the holder of such rights. The statute the estate or to exercise control over attention of the ITC, requires that an investigation should the property of the estate; and a formal Section 337 be completed at the ‘‘earliest (d) any act to create, perfect, or practical time,’’7 enforce a lien against property of the investigation can which usually means debtor’s estate.2 within 12 to 18 months after its only be instituted institution. The ITC has recently While the list of acts subject to by the ITC, a become an increasingly popular forum the automatic stay is broad, the governmental unit, for U.S.-based entities (and others Bankruptcy Code expressly provides with a significant U.S. presence) to exceptions to and safe harbors from by a vote of the enforce their IP rights against the the automatic stay.3 One of the commissioners. manufacturers and importers of enumerated exemptions relates to infringing goods, given the backlog of proceedings by a ‘‘governmental unit’’ cases in many U.S. district courts.8 to enforce its ‘‘police and regulatory III. The ITC and Section 337 power.’’4 Under this ‘‘Police Powers Actions IV. In re Qimonda Exception’’ a governmental unit may pursue certain actions against the The ITC is an independent federal debtor or the estate, but it may not agency having broad investigative A. Background enforce a money judgment or seize powers in matters of international On April 18, 2008, LSI Corp., owner or seek control over property of the trade. The ITC routinely conducts of U.S. Patent No. 5,227,335, filed estate without first obtaining relief investigations of the impact of unfair a complaint with the ITC alleging from the stay.5 trade practices, including subsidies, dumping, and the infringement of that certain named respondents In determining whether an action intellectual property rights, on U.S. had imported into the United States is covered by the Police Powers commerce. infringing semiconductor integrated Exception, courts have developed circuits using tungsten metallization in two tests: (a) the pecuniary The ITC was originally formed in violation of Section 337 of the Tariff purpose test, which asks whether the early 20th century to police Act of 1930. Following a preliminary the governmental unit is pursing a U.S. customs tariffs, but the Tariff investigation, the ITC ordered a matter of public safety and welfare as Act of 1930 empowered the ITC to formal investigation of LSI’s complaint opposed to a governmental pecuniary issue exclusion orders barring the on May 14, 2008. Thereafter, interest; and (b) the public policy test, importation of goods that violate the Qimonda AG (‘‘Qimonda’’) was which asks whether the government patent, copyright, or trademark rights named as an additional respondent. action is designed to effectuate a of a U.S. entity having a domestic public policy rather than to adjudicate industry. An exclusion order is similar private rights.6 to an injunction against importation,

2 Id. The listed actions that are subject to the automatic stay are as follows: the commencement of a claim that arose or could have been brought against the debtor before the filing of the bankruptcy petition ((a)(1)); enforcement of a judgment (against the debtor or the estate’s property) issued before the petition ((a)(2)); acts to ‘‘obtain possession’’ of property of the estate, or to ‘‘exercise control’’ over such property ((a)(3)); acts to create, perfect, or enforce liens against such property ((a)(4)); acts to create, perfect, or enforce liens against the debtor’s property to secure claims arising before the petition ((a)(5)); acts to recover a claim against the debtor arising before the petition ((a)(6)); setoff of debt owing to the debtor arising before the petition ((a)(7)); and proceedings before the U.S. Tax Court concerning either a corporate or individual debtor’s tax liability ((a)(7)). 3 See generally 11 U.S.C. §362(b); Id. at §§553, 555-557, 559-561. 4 11 U.S.C. §362 (b)(3). 5 Collier on Bankruptcy 362.05[5][a]. 6 Berg v. Good Samaritan Hospital Inc. (In re Berg), 230 F.3d 1165 (9th Cir. 2000). 7 19 U.S.C. §1337 (b)(1). 8 The average number of Section 337 investigations in calendar years 2000-2004 was 21, compared to an average of 34 for 2005-2009. As of November 2010, there were already 52 investigations instituted. See http://www.usitc.gov/intellectual_ property/documents/cy_337_institutions.pdf (retrieved Nov. 23, 2010); http://www.usitc.gov/ press_room/337_stats.htm (retrieved Nov. 23, 2010).

90 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 On June 15, 2009, Qimonda filed a Section 362(b)(4) of the Bankruptcy proceeding qualifies as an exercise petition for recognition of its pending Code was inapplicable to an ITC of ‘‘police and regulatory authority,’’ German insolvency proceeding under investigation. and therefore, it is exempt from the Chapter 15 of the Bankruptcy Code.9 automatic stay under Section 362(b)(4) Rather, the bankruptcy court held The U.S. Bankruptcy Court for the of the Bankruptcy Code. The ITC that no exceptions to the automatic Eastern District of Virginia entered provided a broad overview of the stay applied because (i) LSI, and not an order granting Qimonda’s petition statutory background to the the ITC, controlled the litigation, and on July 22, 2009 (the ‘‘Recognition Section 362(b)(4) exception and (ii) the remedy sought in the ITC Order’’), at which time the Chapter concluded that a Section 337 proceeding–preventing infringing 15 filing automatically stayed under investigation is both (i) conducted articles from being imported in the Section 362(a) of the Bankruptcy by a governmental unit, and United States–was not a sufficient Code all pending U.S. litigation, (ii) promotes an important public public policy under the police or including the ITC investigation against interest. regulatory power exception. Qimonda.10 In particular, the ITC argued that The ITC filed a timely notice of appeal On July 13, 2009, LSI filed a notice of although LSI, a private complainant, on Feb. 26, 2010.11 appeal of the court’s order granting Meanwhile, the brought its allegations to the attention Qimonda’s Chapter 15 petition. In ITC issued a final determination in of the ITC, a formal Section 337 mid-July, both LSI and the ITC also March 26, 2010, finding that the ‘335 investigation can only be instituted 12 filed an objection to entry of the patent was invalid for obviousness. by the ITC, a governmental unit, by a Recognition Order. On Feb. 16, vote of the commissioners. Further, 2010, the bankruptcy court rejected B. The ITC’s Arguments the ITC contended that a Section 337 investigation advances the important the ITC’s argument that a Section On appeal to the U.S. District Court public interest of protecting U.S. 337 investigation is exempt from for the Eastern District of Virginia, industries from imports that an automatic stay, holding that the the ITC contended that a Section 337 police and regulatory exception under infringe valid U.S. patents, which is

9 For a brief overview of Chapter 15 and Qimonda’s case see Blake Reese and Bradley S. Friedman, Back to the Future (Lubrizol): Qimonda Bankruptcy Provides Debtors With a Windfall at the Expense of Their IP Licensees (22 BBLR 316, 3/4/10), and Back to the Future (Lubrizol) Part II: An Update on the Qimonda Bankruptcy(22 BBLR 1101, 8/12/10). 10 No. 09-14766-RGM, 2009 WL 2210771 (Bankr. E.D. Va. July 16, 2009), rev’d, International Trade Commission v. Jaffe, No. 1:10cv367, 2010 WL 2636096 (E.D. Va. June 28, 2010). 11 LSI was not a party to the ITC’s appeal. 12 See In the Matter of Certain Semiconductor Integrated Circuits by Using Tungsten Metallization, Inv. No. 337-TA-648, 73 Fed. Reg. 29534 (May 21, 2008). It thus appears that the ITC proceeded with its investigation without giving any effect to the bankruptcy court’s order enforcing the automatic stay.

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 91 independent of, and in addition to, Although Spansion later filed any private rights afforded to patent voluntary Chapter 11 and holders. Highlighting Chapter 15 petitions on March 1, certain Third 2009 and April 30, 2009, respectively, C. Qimonda’s Arguments with the U.S. Bankruptcy Court Circuit precedent, for the District of Delaware, Qimonda argued that in light of Samsung and the a bankruptcy court-approved the ‘335 patent’s then-forthcoming ITC argued that the stipulation modified the automatic expiration in July 2010, and the stay, permitting Samsung to proceed current liquidation of Qimonda’s bankruptcy court with its pre-petition counterclaims. estate, the ITC’s appeal would soon Despite the stipulation, Samsung be moot and the appellate court should apply the withdrew its district court should decline to consider it. In the pecuniary purpose/ counterclaims and instead filed a alternative, Qimonda relied on and public policy test for new postpetition ITC action against incorporated all arguments from its Spansion for patent infringement on reply brief before the bankruptcy determining whether July 31, 2009. court, which argued that the the exception automatic stay applied because LSI applies. Upon the filing of motions by initiated the ITC investigation, the various Spansion noteholders, on Section 337 proceeding was brought Oct. 1, 2009, the bankruptcy court by a private individual rather than a issued orders staying Samsung’s governmental unit and benefited after the ITC determined that the LSI ITC action against Spansion, holding a single party rather than the complaint warranted an investigation, that the automatic stay applied. general public. and LSI’s filing of the complaint did According to the bankruptcy not transform the ITC investigation court, none of the Section 362(b) into an action by a private party; D. Virginia District Court exceptions applied. Decision and (iii) the ITC’s investigation vindicates a public interest because Specifically, the bankruptcy court On June 28, 2010, Judge T.S. Ellis the ITC has no pecuniary interest in cited the Qimonda bankruptcy court’s of the U.S. District Court for the Qimonda’s estate and the statutes decision and held that the police Eastern District of Virginia issued an and regulations governing a and regulatory powers exception order overturning the bankruptcy Section 337 investigation require the to the automatic stay under Section 13 court’s decision. In reviewing ITC and the president, in consultation 362(b)(4) did not apply because the novel question of whether with other agencies, to consider the the filing of the ITC complaint was Section 362(b)(4) of the Bankruptcy effect an ITC determination will have purely for the benefit of Samsung, Code operates to except a Section on the public health, welfare, and and only incidentally serves the goal 337 proceeding from an automatic competition. of protecting the public from unfair stay, the court determined that competition. Both Samsung and the the bankruptcy court had erred in V. In re Spansion ITC filed separate briefs appealing applying the automatic stay to the the bankruptcy court’s decision to ITC’s investigation because the ITC A. Background stay the ITC action. proceeding was an action brought by a governmental unit to enforce its In November 2008, Spansion, Inc. B. Spansion’s Arguments police and regulatory power. (“Spansion”) initiated parallel patent infringement actions in a federal Spansion maintained that the After providing a detailed synopsis of district court and with the ITC against ITC action was properly stayed the statutory framework governing Samsung Electronics Co. (“Samsung”) because it would have violated both Section 337, Ellis determined that Shortly thereafter, on Jan. 16, 2009, Sections 362(a)(1) and (3) of the (i) the ITC is a federal agency created Samsung asserted patent infringement Bankruptcy Code. First, Spansion by Congress, and therefore qualifies counterclaims against Spansion in the pointed to Samsung’s withdrawal as a governmental unit; (ii) the formal district court action. of its prepetition district court ITC investigation commenced only counterclaims as evidence that

13 International Trade Commission v. Jaffe, No. 1:10cv367, 2010 WL 2636096 (E.D. Va. June 28, 2010).

92 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 these same claims could have been from the automatic stay under filing the ITC action on July 31, 2009, commenced with the ITC prior to the Section 362(b)(4) of the Bankruptcy Samsung only purported to resolve bankruptcy under Section 362(a)(1). Code. Despite the fact that the ITC post-petition claims occurring on is a governmental entity, Spansion and after that date, therefore falling Second, Spansion contended that the stressed that the ITC action could outside of Section 362(a)(1). ITC action was an attempt potentially benefit Samsung’s private Samsung further argued that the by Samsung to exercise control interests, and the ITC would merely ITC action did not run afoul of over estate property under be adjudicating private rights. Thus, Section 362(a)(3) of the Bankruptcy Section 362(a)(3) of the Bankruptcy Spansion concluded that the ITC is Code because injunctive relief in Code. Although the nature of an not an independent entity exercising the form of an ITC exclusion order ITC remedy is injunctive, Spansion police or regulatory power on behalf would not result in a monetary asserted that if its goods were of the general public interest. excluded from the U.S., the net effect award to Samsung, nor allow it to would be adverse control over ‘‘the gain possession of estate property. C. Arguments of Samsung core business and property.’’ Similarly, this type of relief would not and the ITC affect any Spansion products already Following the reasoning in the Regarding Section 362(a)(1)’s in the United States that would Qimonda bankruptcy court’s earlier appropriately be the subject of a 14 application to prepetition claims, opinion, Spansion contended district court action. that the ITC action was not a valid Samsung argued that because patent exercise of police or regulatory infringement is a continuing tort, a Both Samsung and the ITC stressed power and therefore was not exempt separate cause of action accrues with that the ITC action falls within the each instance of infringement. By

14 No. 09-14766-RGM, 2009 WL 2210771 (Bankr. E.D. Va. July 16, 2009), rev’d, International Trade Commission v. Jaffe, No. 1:10cv367, 2010 WL 2636096 (E.D. Va. June 28, 2010). 15 United States v. Nicolet, 857 F.2d 202 (3d Cir. 1988). 16 Samsung Electronics Co. v. Ad Hoc Consortium of Floating Rate Noteholders, No. 09-0836 (RBK), 2010 U.S. Dist. LEXIS 64499 (D. Del. June 29, 2010). 17 Id. at **5-6. 18 Id. at *6. 19 Id. Meanwhile, as in Qimonda, it appears the ITC proceeded with the investigation at issue, after initially instituting a limited stay. See Certain Flash Memory and Products Containing Same, Inv. No. 337-TA-685 (Order No. 10, March 17, 2010), http://www.itc337update.com/uploads/file/PDF_031710-1.pdf (retrieved November 23, 2010).

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 93 police or regulatory power exception Appeals for the Federal Circuit, and parties’ rights in future litigation.21 and therefore is exempt from the president’s power to overturn an the automatic stay under ITC exclusion order based on policy VI. Application of the Section 362(b)(4) of the Bankruptcy concerns. Automatic Stay to Cases Code. Highlighting certain Third Seeking Injunctive Relief Circuit precedent, Samsung and the ...exclusion of ITC argued that the bankruptcy court As noted above, the U.S. District should apply the pecuniary purpose/ infringing goods will Court for the District of Delaware public policy test for determining protect U.S. industry did not reach the merits of Spansion’s whether the exception applies. Under and jobs proves argument that injunctive relief in the that test, an action is not exempt from form of an ITC exclusion order does the automatic stay if the government that the action is not fall within Section 362(a)(3) of will gain a pecuniary benefit from advancing public the Bankruptcy Code, which applies excluding the goods, or if public policy to actions seeking ‘‘control’’ over will not be sufficiently advanced by the policy. a debtor’s property. Several courts injunction.15 Additionally, Samsung and determined, however, that IP owners the ITC asserted that not only will the seeking injunctive relief from a debtor government not receive any money D. Delaware District Court should be able to pursue their claims from the ITC action, but the fact that Decision in a district court. the exclusion of infringing goods will On Jan. 28, 2010, while the parties’ protect U.S. industry and jobs proves In Larami Ltd. v. Yes! Entertainment appeals were pending, the bankruptcy 22 that the action is advancing public Corp., the U.S. District Court for court issued an order regarding the the District of New Jersey declined to policy. 16 ITC action based on a stipulation apply an automatic stay as requested Samsung and the ITC argued that between the parties–the net effect by debtor Yes! Entertainment Corp. while a Section 337 complaint is of which was termination of the stay (“Yes”) against plaintiff Larami’s initially filed by a private party, such in the Chapter 15 case on April 30, patent infringement action, which a procedural feature does not alone 2010 and termination of the stay in sought injunctive relief. The court resolve the regulatory/ police power the Chapter 11 case on May 10, 2010, held that because Larami did not inquiry. They cited several examples the latter of which was the effective seek to control any of Yes’s inventory 17 where a private party may incidentally date of the reorganization plan. As or equipment, and Yes remained in benefit from a government action, a result of the order, Spansion argued possession of its existing inventory and the proceeding itself is still that Samsung’s and the ITC’s appeals with the opportunity to modify 18 exempt from the automatic stay– were moot. The ITC responded such equipment in order to avoid i.e., Equal Employment Opportunity by filing a letter brief requesting a future infringement, Section 362(a) Commission, National Labor vacatur of the bankruptcy court’s (3) did not prevent the court from Relations Board, and Federal Trade order if the appeals were judged entertaining Lamari’s patent suit. 19 Commission actions. moot. The court noted that, ‘‘[a]t its core, plaintiff’s suit is an attempt to Further, Samsung and the ITC argued The U.S. District Court for the prevent allegedly unlawful conduct, that other procedural differences District of Delaware held that the not an attempt to directly exercise from a private lawsuit also reinforced appeals were moot because no case control over the property of the the conclusion that an ITC action is or controversy existed after the bankruptcy estate.’’23 The court regulatory in nature, such as the ITC’s effective date of the plan because further concluded that, ‘‘[i]f [Section power to institute an investigation the automatic stay was no longer 362(a)(3)] were read to prevent the upon its own initiative, the ITC’s in place.20 The court also vacated injunctive relief sought here, bankrupt status as the sole appellant on any the bankruptcy court’s prior rulings businesses which operated post- appeals before the U.S. Court of on this issue so as to preserve the

20 Id. at **7-8. 21 Id. at **8-9. Additionally, the vacatur effectually negates the bankruptcy court’s decision, which could have otherwise been used as harmful precedent against the ITC and complainants seeking to continue their cases and investigations during a bankruptcy. 22 244 B.R. 56 (D. N.J. Feb. 3, 2000). 23 Id. at 59. 24 Id. at 60. 25 2010 U.S. Dist. LEXIS 39636 (S.D. Ohio Mar. 25, 2010).

94 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 petition could violate patent rights held that debtor Amplifier’s tort suit In opposition to the enforcement of with impunity.’’24 against a rival company, EMCO, was the automatic stay, these decisions not subject to the automatic stay. suggest that IP owners threatened The U.S. District Court for the Amplifier sought to enjoin further with an ‘‘automatic’’ stay of an ITC Southern District of Ohio recently publication of an allegedly defamatory investigation instituted after the reached a similar conclusion in report by EMCO. EMCO argued filing of a bankruptcy petition can Dominic’s Restaurant of Dayton Inc. that injunctive relief would fall within argue that the ‘‘control’’ provision of 25 v. Mantia. There, the debtor was Section 362(a)(3) because prohibiting Section 362(a)(3) does not apply, and accused of infringing the trademark publication and circulation was that the regulatory power exception of plaintiff Dominic’s Restaurant of tantamount to exercising control under Section 362(b)(4) does apply. Dayton Inc. (“Dominic”) and, after over the estate property. The court filing for bankruptcy, attempted to disagreed and instead sought to clarify VII. Practice Tips stay Dominic’s infringement action. In the meaning of ‘‘control’’ under declining to apply an automatic stay, Section 362(a)(3)29, noting that No appellate court has addressed the court noted that application of ‘‘[w]hat Amplifier seeks to ‘control’… the issue of whether the ‘‘regulatory the automatic stay would permit the is the commission of torts. It does power’’ exception to the ‘‘automatic’’ debtor to continue to commit the not seek to own EMCO’s report, stay provisions of the Bankruptcy tort of trademark infringement–an determine how EMCO uses its report Code applies to ITC investigations, or activity not protected by the internally, share in the proceeds of whether the exclusion orders sought Bankruptcy Code.26 The court further the report, use the report itself, or in such investigations constitute noted that while an assessment of prevent any legal use of the report. It ‘‘control’’ under those provisions. monetary damages against the debtor just wants EMCO to stop its tortious The Delaware district court has for its continuing tort may have been acts.’’ The court also added that if considered only the first of these prevented by the automatic stay, it were to read Amplifier’s request issues. ‘‘injunctive relief regarding the use for injunctive relief as an attempt In view of the arguments made by the of the property in the commission to control EMCO’s property it of a tort’’ is not prevented by parties, and the decisions of district would produce a ‘‘bizarre result’’30 Section 362(a)(3) of the Bankruptcy courts addressing similar issues, it and ‘‘effectively permit a bankrupt Code.27 seems that IP plaintiffs have strategic company which stays in business options to continue to seek injunctive Finally, in Amplifier Research Corp. v. post-petition to commit torts with relief, in the form of an ITC exclusion Hart,28 the U.S. District Court for impunity, a privilege not afforded to order, even if an infringer threatens or 31 the Eastern District of Pennsylvania non-bankrupts.’’ filed for bankruptcy protection.32

26 Id. at * 6. 27 Id. 28 114 B.R. 693 (E.D. Pa 1992). 29 Id. at 694–95. 30 Id. at 695. 31 Id. 32 In any event, IP plaintiffs should always retain competent bankruptcy and restructuring counsel familiar with these issues.

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 95 Back to the Future (Lubrizol): Qimonda Bankruptcy Provides Debtors With a Windfall at the Expense of Their IP Licensees

By certain safeguards that the U.S. Bankruptcy Code typically provides Blake Reese Debtors who file for and to non-debtor licensees. Bradley S. Friedman bankruptcy abroad I. 11 U.S.C. §365(n)– Reproduced with permission may be able to enjoy from BNA’s Patent,Trademark & the protection of U.S. Protections for Non-Debtor Copyright Journal, 79 PTCJ 488, Licensees 2/26/10, 02/26/2010. Copyright © bankruptcy law while 2010 by The Bureau of National avoiding some of the Intellectual property licenses are Affairs, Inc. (800-372-1033) usually executory contracts, and http://www.bna.com. safeguards available debtors have the right to assume to non-debtor or reject executory contracts in a bankruptcy case. Before Section intellectual property 365(n) of the U.S. Bankruptcy Code, licensees. 11 U.S.C. §365(n), if a debtor- licensor rejected its licensee’s license, then the licensee would merely have Qimonda AG, an Infineon a claim for money damages. Technologies AG spinoff, was once the world’s second largest Unless this claim was secured against manufacturer of dynamic random an asset, it usually was unsecured access memory, or DRAM. However, debt, and the licensee got pennies on this German giant felt the woes the dollar. of the DRAM market and filed for Meanwhile, the licensee had no further bankruptcy in a German court in rights to exploit the debtor-licensor’s January 2009. intellectual property, while the With the boom of global debtor was free to sell or license the Blake Reese is an associate in restructurings in the great recession, underlying intellectual property assets the Intellectual Property Group this story thus far, unfortunately, to the highest bidder. Companies that of the Litigation Department, lacks a unique storyline. However, spent millions of dollars on intellectual and Bradley S. Friedman property licenses and invested in is an associate in the Financial the Qimonda bankruptcy may have infrastructure and a longterm business Restructuring Department, of quietly struck a rather astonishing model based on these licenses were Milbank, Tweed, Hadley & blow to intellectual property McCloy LLP. Reese is also an adjunct licensees’ rights. not content with having their rights assistant professor of computer abruptly cut off. science at Hunter College of the That is, IP-licensor debtors may file This result occurred in the Fourth City University of New York. The for bankruptcy abroad, yet still enjoy Circuit’s landmark Lubrizol Enterprises views expressed herein are not some of the protections of U.S. legal advice, are solely those of the bankruptcy law under Chapter 15 of Inc. v. Richmond Metal Finishers Inc. authors, and may not be attributed the Bankruptcy Code, while avoiding (In re Richmond Metal Finishers Inc.) to Milbank or its clients. 96 96 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 case and led to Congress passing representative to petition a U.S. Section 365(n), which gave certain bankruptcy court for recognition of protections to non-debtor licensees In other words, the German proceeding. The foreign and licensors if the debtor counter- ‘‘a real patent right representative filed a petition under party rejects their license.1 to exclude only Chapter 15, and the U.S. court recognized the case as a ‘‘foreign Those protections include the option arises from the legal main proceeding,’’ meaning that for the nondebtor copyright or right granted and it is pending in the country where patent licensee to continue satisfying the debtor has ‘‘the center of its its obligations (e.g., paying royalties) recognized by the main interest’’– here, Germany. As in exchange for having the ability to sovereign within a result of this recognition, the U.S. keep exploiting the debtor-licensor’s bankruptcy court enjoyed jurisdiction 2 whose territory copyrights or patents. Although over Qimonda’s U.S. assets.5 the licensee is not entitled to any the right is located.’’ prospective rights under the license, Shortly after recognizing the German such as maintenance or upgrades, proceeding, the U.S. bankruptcy it may continue using licensed Chapter 15 opens the door for a court issued an order stating that, technology. foreign debtor to administer its pursuant to Chapter 15, ‘‘the U.S. assets, enforce contracts, following sections [of the Bankruptcy While the use continues under and effectuate claims. Chapter 15 Code] are also applicable in this the duration of the license, often provides, among other things, an proceeding: §§305-307, 342, 345, these rights allow the licensee to ancillary proceeding in the United 349, 350, 364-366, 503, 504, 546, plan a prudent transition to a new States to a bankruptcy case taking 551, 558.’’6 About two and a half technology platform or provider. place in a foreign court. months later, Qimonda moved to amend the order to strike the II. Chapter 15 Often, U.S. law will afford the foreign debtor some of the more reference to Section 365 or to limit the application of Section 365 so that Congress codified Chapter 15 of prevalent protections under the U.S. the debtor’s rejection of licenses the Bankruptcy Code as part of the Bankruptcy Code. For instance, a would be governed by German Bankruptcy Abuse Prevention and U.S. bankruptcy court typically will bankruptcy law. Consumer Protection Act of 20053 give the foreign debtor relief under the automatic stay, which, for the in order to provide ‘‘cooperation Predictably, many of the significant most part, keeps creditors away from between’’ U.S. courts, trustees, licensees objected to Qimonda’s the U.S. assets during the bankruptcy. examiners, debtors, and foreign motion to amend, as German courts ‘‘involved in crossborder Chapter 15 provides the court with bankruptcy law lacks the safeguards insolvency cases’’; ‘‘greater legal a wide range of discretion in granting that Section 365 affords non-debtor certainty for trade and investment’’; various forms of relief at the request licensees. Specifically, Section 103 of ‘‘fair and efficient administration of the ‘‘foreign representative.’’ This the German Insolvency Code allows of cross-border insolvencies that discretion formed the crux of the the debtor to elect nonperformance protects the interests of all creditors, dispute between the licensees and of executory contracts. and other interested entities, licensor in the Qimonda bankruptcy. including the debtor’’; ‘‘protection So, as in Lubrizol, Qimonda could elect nonperformance of all its and maximization of the value of the III. Qimonda’s Chapter 15 debtor’s assets’’; and ‘‘facilitation licenses and then liquidate the Bankruptcy of the rescue of financially troubled underlying intellectual assets to businesses, thereby protecting After Qimonda commenced an the highest bidder. investment and preserving insolvency proceeding in Germany, Despite the fact that Qimonda availed employment.’’4 the German court appointed a foreign itself of the automatic stay provisions

1 756 F.2d 1043, 226 USPQ 961 (4th Cir. 1985). 2 Trademark licensees are not afforded protection under Section 365(n). For a brief discussion of what is and what is not governed by Section 365, see, e.g., J. Klaiber & B. Reese, Chapter IP: Protecting Your IP When Your Licensee (or Licensor) is Bankrupt, THE DEAL (April 17, 2009). 3 Chapter 15 stemmed from the United Nations Commission on International Trade Law’s Model Law on Cross-Border Insolvency. 4 15 U.S.C. §1501. 5 It is instructive to note that the licenses at issue involved U.S. patents and that at least one of those licenses was expressly entered into under U.S. law, for example, New York state law. 6 Emphasis added.

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 97 right granted and recognized by the sovereign within whose territory the right is located.’’

The court even noted that the Paris Convention ‘‘clearly expresses the independence of each country’s sovereign patent systems and their systems for adjudicating those patents,’’ as ‘‘[n]othing in the Paris Convention contemplates nor allows one jurisdiction to adjudicate the patents of another, and as such, our courts should not determine the validity and infringement of foreign patents.’’

‘‘Regardless of the strength of the harmonization trend,’’ the court said, ‘‘[p]ermitting our district courts to exercise jurisdiction over infringement claims based on foreign patents … would require [the Federal of the U.S. Bankruptcy Code; despite various nations in which the licensees Circuit] to define the legal boundaries Congress’s clear intent in enacting or licensors may be located or of a property right granted by another Section 365(n) to safeguard licensees operating, there will be many sovereign and then determine in good standing against harsh inconsistent results. In fact, the same whether there has been a trespass to ‘‘Lubrizol-esque’’ outcomes; despite a idea, process or invention may be that right.’’ court order dictating the applicability dealt with differently depending on of Section 365 in the Chapter 15 which country the particular ancillary Just as the Federal Circuit ruled that case;7 and despite express provisions proceeding is brought.’’ U.S. courts are not equipped to 10 in the licenses that called for the adjudicate foreign patents, foreign application of Section 365(n) and IV. Conclusion courts are not equipped to administer New York law,8 the U.S. bankruptcy U.S. patent assets, especially under court granted Qimonda’s motion and While the U.S. Court of Appeals for foreign law. the Federal Circuit has refused to amended its order. While foreign insolvencies occur allow lower courts to litigate foreign more frequently and more The amended order states that patent disputes under supplemental bankruptcy courts interpret their ‘‘Section 365(n) applies only if the jurisdiction theories, the reasoning it discretion under Chapter 15, patent Foreign Representative rejects an used to reach that result seems to run licensees should pay close attention executory contract pursuant to contrary to the bankruptcy court’s to how these courts administer Section 365 (rather than simply rationale. For instance, in Voda v. patent licenses and the underlying exercising the rights granted to the Cordis, the Federal Circuit stated assets. After all, all the time spent in Foreign Representative pursuant to that ‘‘[a] patent right is limited by the carefully negotiating and drafting a the German Insolvency Code).’’ metes and bounds of the jurisdictional license becomes moot when foreign territory that granted the right to The U.S. bankruptcy court reasoned law allows outright rejection of the include.’’ 9 that ‘‘[i]f the patents and patent license with no continuing rights for licenses are dealt with in accordance In other words, ‘‘a real patent right the licensee to exploit the licensed with the bankruptcy laws of the to exclude only arises from the legal technologies.

7 On the other hand, the bankruptcy court arguably included Section 365 in the original order to give the debtor the right to assume or reject executory contracts, not necessarily to protect the creditor-licensee’s interests. 8 U.S. bankruptcy law generally prohibits ipso facto clauses, which are terms of a contract that are triggered by a company’s insolvency or bankruptcy filing. However, some contractual provisions that deal with the parties’ obligations in bankruptcy under Section 365 remain enforceable. See 11 U.S.C. §365(e)(2)(A). 9 476 F.3d 887, 81 USPQ2d 1796 (Fed. Cir. 2007) (73 PTCJ 397, 2/9/07). 10 Even when they cover identical subject matter as their U.S. brethren.

98 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 Back to the Future (Lubrizol) Part II: An Update on the Qimonda Bankruptcy

By it could avoid certain safeguards Blake Reese typically afforded to non-debtor and Attorneys Blake licensees under Chapter 11 in the Bradley S. Friedman Reese and Bradley S. name of harmonizing the treatment of a foreign debtor’s intellectual Reproduced with permission from Friedman of Milbank, property throughout the world.1 BNA’s Bankruptcy Law Reporter, Tweed, Hadley & In particular, that German law 22 BBLR 1101, 08/12/2010, and governed the fate of its licenses and, BNA’s Patent, Trademark & McCloy, New York, in thus, Qimonda could effectively Copyright Journal, 80 PTCJ 557, Part II of their article 08/20/2010. Copyright © 2010 by breach its license agreements and, The Bureau of National Affairs, on the Qimonda unlike under U.S. law, its licensees Inc. (800-372-1033) bankruptcy case, would not have rights to continue http://www.bna.com exploiting the underlying patents. discuss how the The ultimate adjudication of this ultimate adjudication case will have a huge impact on cross-border commerce in general, of this case might as well as Qimonda’s licensees have a significant that rely on rights to at least 4,000 impact on cross- U.S. patents and 1,000 U.S. patent applications. The licensees appealed border commerce the bankruptcy court’s ruling in favor in general, as well as of Qimonda to the district court, which, on July 2, 2010, issued an on Qimonda’s patent opinion regarding this issue of first licensees. impression.2

I. Section 365(n)– Blake Reese is an associate in Qimonda AG, once the world’s Protections for Non-debtor second largest DRAM manufacturer, the Intellectual Property Group Licensees of the Litigation Department, filed for bankruptcy in a German and Bradley S. Friedman court in January 2009. In February, Intellectual property licenses are is an associate in the Financial the authors described how Qimonda, usually executory contracts, and Restructuring Department, of by way of Chapter 15 of the U.S. debtors have the right to assume Milbank, Tweed, Hadley & McCloy Bankruptcy Code, was able to or reject executory contracts in a LLP. Reese is also an adjunct convince a bankruptcy court that bankruptcy case. Before Section assistant professor of computer science at Hunter College of the City University of New York. The views expressed herein are not 1 See Back to the Future (Lubrizol): Qimonda Bankruptcy Provides Debtors With a Windfall at the Expense of Their IP Licensees (22 BBLR 316, 3/4/10)(79 PTCJ 488, 2/26/10). legal advice, are solely those of the 2 Micron Technology Inc. v. Qimonda AG (In re Qimonda AG Bankruptcy Litigation), E.D. Va., Nos. 1:10cv26, 1:10cv27, authors, and may not be attributed 1:10cv28, 7/2/10 (22 BBLR 975, 7/22/10). to Milbank or its clients. MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 99 365(n), if a debtor-licensor rejected and licensors if the debtor counter- examiners, debtors, and foreign courts a license, then the licensee would party rejects their license.3 ‘‘involved in crossborder insolvency merely have a claim for money cases’’; ‘‘greater legal certainty for damages. Unless this claim was Those protections include the option trade and investment’’; ‘‘fair and secured against an asset, it usually was for the nondebtor copyright or efficient administration of cross-border unsecured debt and got pennies on patent licensee to continue satisfying insolvencies that protects the interests the dollar. its obligations (e.g., paying royalties) of all creditors, and other interested in exchange for having the ability to entities, including the debtor’’; Meanwhile, the licensee had no keep exploiting the debtor-licensor’s ‘‘protection and maximization of 4 further rights to exploit the debtor- copyrights or patents. Although the value of the debtor’s assets’’; licensor’s intellectual property, the licensee is not entitled to any and ‘‘facilitation of the rescue of while the debtor was free to sell or prospective rights under the license, financially troubled businesses, thereby license the underlying intellectual such as maintenance or upgrades, protecting investment and preserving property assets to the highest bidder. it may continue using licensed employment.’’6 Companies that spent millions of technology. While the use continues dollars on intellectual property under the duration of the license, Chapter 15 opens the door for a licenses and invested in infrastructure often these rights allow the licensee foreign debtor to administer its and a longterm business model based to plan a prudent transition to a new U.S. assets, enforce contracts, on these licenses were not content technology platform or provider. and effectuate claims. Chapter with having their rights abruptly cut 15 provides, among other things, off. This result occurred in the Fourth II. Chapter 15 an ancillary proceeding in the Circuit’s landmark Lubrizol Enterprises United States to a bankruptcy case Inc. v. Richmond Metal Finishers Inc. Congress codified Chapter 15 of taking place in a foreign court. (In re Richmond Metal Finishers Inc.) the Bankruptcy Code as part of the Often, U.S. law will afford the case and led to Congress passing Bankruptcy Abuse Prevention and foreign debtor some of the more 5 Section 365(n), which gave certain Consumer Protection Act of 2005 prevalent protections under the U.S. protections to non-debtor licensees in order to provide ‘‘cooperation Bankruptcy Code. For instance, the between’’ U.S. courts, trustees,

3 756 F.2d 1043 (4th Cir. 1985). 4 Trademark licensees are not afforded protection under Section 365(n). For a brief discussion of what is and what is not governed by Section 365, see, e.g., J. Klaiber & B. Reese, Chapter IP: Protecting Your IP When Your Licensee (or Licensor) Is Bankrupt, THE DEAL (April 17, 2009). 5 Chapter 15 stemmed from the United Nations Commission on International Trade Law’s Model Law on Cross-Border Insolvency. 6 11 U.S.C. §1501.

100 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 U.S. bankruptcy court typically will The amended order states that give the foreign debtor relief under ‘‘section 365(n) applies only if the the automatic stay, which, for the In pointing out a Foreign Representative rejects an most part, keeps creditors away from ‘‘somewhat anemic executory contract pursuant to the U.S. assets during the bankruptcy. section 365 (rather than simply Chapter 15 provides the court with record,’’ the district exercising the rights granted to the a wide range of discretion in granting court explained that Foreign Representative pursuant to various forms of relief at the request the bankruptcy court the German Insolvency Code).’’ The of the ‘‘foreign representative.’’ This bankruptcy court reasoned that ‘‘[i] discretion formed the crux of the did not give proper f the patents and patent licenses dispute between the licensees and reasoning to support are dealt with in accordance with licensor in the Qimonda bankruptcy. its conclusory the bankruptcy laws of the various nations in which the licensees III. Qimonda’s Chapter 15 statements of the or licensors may be located or Bankruptcy apparent interests of operating, there will be many inconsistent results. In fact, the same After Qimonda commenced an the parties. idea, process or invention may be insolvency proceeding in Germany, dealt with differently depending on the German court appointed a foreign which country the particular ancillary Predictably, many of the significant representative to petition a U.S. proceeding is brought.’’ licensees objected to Qimonda’s bankruptcy court for recognition of motion to amend, as German the German proceeding. The foreign The licensees appealed the bankruptcy law lacks the safeguards representative filed a petition under bankruptcy court’s decision. that Section 365 affords non-debtor Chapter 15, and the U.S. court licensees. Specifically, §103 of the recognized the case as a ‘‘foreign IV. The District Court’s German Insolvency Code allows the main proceeding,’’ meaning that Decision debtor to elect nonperformance it is pending in the country where of executory contracts. So, like the debtor has ‘‘the center of its On appeal, the district court in Lubrizol, Qimonda could elect main interest’’– here, Germany. As reviewed whether the bankruptcy non-performance of all its licenses a result of this recognition, the U.S. court (1) properly ensured that the and then liquidate the underlying bankruptcy court enjoyed jurisdiction appellants were sufficiently protected intellectual assets to the highest over Qimonda’s U.S. assets.7 in modifying the discretionary relief bidder. granted; (2) erred in concluding that Shortly after recognizing the Section 365(n) does not automatically Despite the fact that Qimonda availed proceeding, the bankruptcy court apply in a Chapter 15 proceeding; itself of the automatic stay provisions issued an order stating that, pursuant and (3) erred in granting comity to of the U.S. Bankruptcy Code; to Chapter 15, ‘‘the following the German Insolvency Code, which despite Congress’s clear intent in sections [of the Bankruptcy Code] treats executory intellectual properly enacting Section 365(n) to safeguard are also applicable in this proceeding: license contracts differently from licensees in good standing against §§305- 307, 342, 345, 349, 350, licensees protected under harsh ‘‘Lubrizol-esque’’ outcomes; 364-366, 503, 504, 546, 551, 558.’’8 Section 365(n). despite a court order dictating the About two and a half months later, applicability of Section 365 in the Qimonda moved to amend the Chapter 15 case;9 and despite express A. Balancing the Parties’ order to strike the reference to provisions in the licenses that called Interests Under Chapter 15 Section 365 or limit the application of for the application of Section 365(n) Section 365 so the debtor’s rejection The district court explained that and New York law,10 the bankruptcy of licenses would be governed by Chapter 15 allows a bankruptcy court granted Qimonda’s motion and German bankruptcy law. court discretion in ‘‘grant[ing] any amended its order. appropriate relief’’ necessary to

7 It is instructive to note that the licenses at issue involved U.S. patents and, at least one formed under U.S. law, for example, New York state law. 8 (Emphasis added). 9 On the other hand, the bankruptcy court arguably included Section 365 in the original order to give the debtor the right to assume or reject executory contracts, not necessarily to protect the creditor-licensee’s interests. 10 U.S. bankruptcy law generally prohibits ipso facto clauses, which are terms of a contract that are triggered by a company’s insolvency or bankruptcy filing. However, some contractual provisions that deal with the parties’ obligations in bankruptcy under Section 365 remain enforceable. See 11 U.S.C. §365(e)(2)(A).

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 101 ‘‘effectuate the purpose of this in this case, [the licensees] would C. Public Policy and the chapter and to protect the assets retain valid cross-licenses to certain Comity of German Law of the debtors or the interests Qimonda patents, and accordingly of the creditors.’’ Furthermore, any ‘splintering’ of Qimonda’s patent The district court addressed whether the bankruptcy court, on its own portfolio would have no effect on granting comity to German law or at the request of the foreign [the licensees] intellectual property (i.e. not applying Section 365(n) and representative or an affected party, interests.’’ On the other hand, the applying the German Insolvency ‘‘may’’ modify or terminate such bankruptcy court did not provide Code) was properly decided or an discretionary relief. In modifying sufficient reasons why the debtor’s abuse of the bankruptcy court’s or terminating such relief, the demanding that the licensees pay discretion. The court noted the bankruptcy court must ensure that new licensing or royalty fees was two components of Chapter 15: ‘‘the interests of the creditors and an ‘‘unfortunate but an inevitable (1) that the bankruptcy court ‘‘shall other interested entities, including the result’’ of Qimonda’s insolvency. grant comity or cooperation to the debtor, are sufficiently protected.’’ Furthermore, the bankruptcy court foreign representative’’; and (2) that failed to consider any information nothing in Chapter 15 ‘‘prevents the about the nature of the licensed U.S. court from refusing to take an action ...the district court patents and whether cancellation of governed by this chapter if the action noted the need the licenses for those patents would would be manifestly contrary to the put at risk the licensees’ investment in public policy of the United States.’’ to address two manufacturing or sales facilities in this Reading these two complementary country for products embodied by main factors: (1) sections in pari materia, the district those patents. whether the foreign court held that any analysis must focus on whether Section 365(n) proceeding is B. Discretionary (Non- embodies ‘‘the fundamental public procedurally unfair; Automatic) Application of policy of the United States, such Section 365(n) that subordinating section 365(n) to and (2) whether the German Insolvency Code §103 is application of the Through its statutory interpretation, an action ‘manifestly contrary to the foreign law would the district court determined that public policy of the United States.’’’ Section 365 applies within the Citing to the legislative history of ‘‘severely impinge discretion of the bankruptcy court Section 365(n) and paying particular the value and import and not automatically in Chapter 15 attention to Congress’s affirmative proceedings. This determination was steps to change the outcome of the of a U.S. statutory or based on Chapter 15’s explicitly Lubrizol decision, the district court constitutional right.’’ referencing Sections 361-363 and noted the need to address two main not Section 365 as provisions that factors: (1) whether the foreign automatically apply in a Chapter 15 proceeding is procedurally unfair; In pointing out a ‘‘somewhat anemic proceeding. The court explained and (2) whether the application of record,’’ the district court explained that while Section 363(l) references the foreign law would ‘‘severely that the bankruptcy court did not Section 365, ‘‘it does so only in the impinge the value and import of a give proper reasoning to support context of rendering ipso facto clauses U.S. statutory or constitutional right.’’ its conclusory statements of the unenforceable.’’ The district court Referencing the sparse bankruptcy apparent interests of the parties. With reasoned that not every sale under court record, the district court noted respect to protecting the debtor’s Section 363 implicates agreements that the bankruptcy court must interests, the bankruptcy court did with ipso facto clauses and, therefore, first determine whether the relief not articulate why application of Section 365 is only applied within the granted violates fundamental U.S. Section 365(n) would unavoidably discretion of the bankruptcy court policies under Chapter 15 because ‘‘splinter’’ or ‘‘shatter’’ the Qimonda and not automatically in every sale. the application of the German patent portfolio ‘‘into many pieces In other words, bankruptcy courts Insolvency Code and the conditioning can subject asset sales in Chapter 15 that can never be reconstructed’’ of Section 365(n), seemingly without proceedings to Section 365, but, if the which would render the portfolio qualification, appear to be at odds bankruptcy court does not exercise effectively unsalable. In fact, as the with Congress’s intent to reject its discretion, Section 365 will not Lubrizol. district noted, ‘‘were 365(n) to apply apply.

102 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 As a result, the district court while the bankruptcy court will be Section 365, it will be operating remanded this case to the bankruptcy forced to justify its decision to modify within its discretion. Accordingly, court in order for it to more fully its initial order to apply Section licensees will be anxiously awaiting explain its basis for modifying the 365 to the Chapter 15 proceeding, the bankruptcy court’s finding of discretionary relief previously granted the district court has made clear whether an application of foreign and determine whether the relief that a bankruptcy court can avoid law that conflicts with Section 365(n) granted violated fundamental U.S. such justification by altogether is improper under Chapter 15 for public policies. avoiding the application of Section violating fundamental U.S. public 365 in a Chapter 15 proceeding. In policies. V. Conclusion other words, if a bankruptcy court does not modify or terminate an The district court has laid the order requiring the application of framework for the bankruptcy court’s 365, and, instead, never speaks of analysis. Under this framework,

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 103

OTHER HOT ISSUES

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 105 106 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 A (Markup) Language Barrier – i4i v. Microsoft

By defendants at trial are based on prior Christopher Chalsen art that was not cited by USPTO examiners during prosecution. Reproduced with permission Supreme Court from Inside Counsel. to decide major i4i is a software consulting company issue relating to that customizes software for other companies. i4i obtained U.S. Patent the presumption No. 5,787,449 (the 449 patent), of validity of U.S. which claims an improved method patents for editing documents that contain markup languages. Markup languages use tags, called metacodes, that provide information about the On November 29, the U.S. Supreme content of text or how text should Court granted Microsoft’s petition be displayed. The invention claimed for writ of certiorari in its dispute in the 449 patent involves a data with i4i Limited Partnership, which structure called a metacode map questioned the legal basis for the that stores the metacode and a data Federal Circuit’s long-standing structure that stores the documents’ precept that the presumption of content, called mapped content. validity of a patent can only be One of i4i’s software products is a overcome by clear and convincing software “add-on” to Microsoft Word evidence. As Microsoft requested, that expands Word’s ability to edit the Court will decide whether the documents containing the markup evidentiary standard for invalidating language XML. Certain versions a patent should be lessened to a of Microsoft Word have XML preponderance of the evidence when editing capability. In 2007, i4i filed the asserted invalidating prior art was an action asserting that Microsoft’s Christopher Chalsen is a not considered by the U.S. Patent and manufacture, use, offer to sell, sale partner in the Intellectual Property Trademark Office (USPTO) during and importation of any Microsoft Group of Milbank, Tweed, Hadley & prosecution. McCloy LLP, resident in the Word with the capability of New York office. The grant of certiorari is sending handling custom XML infringed the shockwaves through the patent 449 patent. world, as the Court’s decision may The district court denied Microsoft’s make it easier for challengers to motion for judgment as a matter of invalidate a substantial percentage of law on the issue of infringement, the outstanding U.S. patents. Indeed, willfulness and validity. The jury found most invalidity arguments asserted by that the 449 patent was not invalid,

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 107 that Microsoft Word infringed the explained that no requirement for Practice head Christopher 449 patent, that Microsoft’s corroboration of the inventors’ infringement was willful and awarded testimony exists in responding Chalsen concentrates on $240 million in damages. After trial, to an attack on the validity of a litigation and licensing work the district court denied Microsoft’s patent. The court further found relating to semiconductor, renewed motions for judgment as sufficient evidence in the record for a matter of law and granted i4i’s a reasonable jury to conclude that telecom, electronic and motion for a permanent injunction. the sale of the S4 software program computer technology. did not anticipate the ’449 patent by On appeal, Microsoft challenged the clear and convincing evidence. He has experience in ITC district court’s claim construction, Section 337 cases and in the jury’s findings of infringement The presumption of patent validity pre-litigation and licensing and validity, the jury’s $240 million is statutory, found at 35 U.S.C. 282. damages award and the district The assignment of the burden of work in Japan. court’s entry of a permanent proving invalidity based on clear – Chambers USA 2010 injunction. The Federal Circuit and convincing evidence has a long affirmed the verdict in all respects, history in Federal Circuit decisions, affirmed the issuance of the based on the Court’s deference to injunction, and modified the effective the USPTO’s ability to do its job. date of the injunction. However, the specific allocation of the “clear and convincing” standard In its decision, the Federal Circuit is not explicitly stated in the statute. stated, inter alia, that all of The Supreme Court’s decision, if it Microsoft’s obviousness arguments recognizes that the higher standard involved questions of fact that should not be applicable to situations must be resolved against Microsoft where the PTO examiners did not and affirmed the jury verdict on consider the prior art asserted to obviousness. Regarding anticipation, prove invalidity, could make it easier Microsoft argued that the sale of a for alleged patent infringers to prior software program called invalidate accused patents. Under the S4 invalidated the 449 patent by reduced standard of preponderance violating the on-sale bar under of the evidence, the alleged infringers 35 U.S.C. §102(b). Microsoft would only have to show that it is specifically contended that i4i could more likely than not that the accused not rebut Microsoft’s prima facie patent is invalId. Thus, the Court’s case of anticipation by the testimony decision could have a profound effect of the inventors of the S4 software on challenges to existing patents program alone. The court rejected in situations where the asserted Microsoft’s argument because the prior art was not considered by the inventors of the S4 software program USPTO. provided testimony that the S4 software program did not Milbank associate Blake Reese practice all of the steps of the contributed to this column. claimed method. The court also

108 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 Divided Congress May Create Perfect Storm for Patent Reform

By forum shopping and eliminated false Mark C. Scarsi marking suits where the plaintiff could not show competitive damage. All Reproduced with permission Both democrats and in all, the 2010 Act was seen as pro from Inside Counsel. republicans have a business and a good first step towards history of ignoring much needed systemic change. patent reform The Act also had broad support. when they control In September 2010, a bipartisan group of 25 senators (14 Democrats, Congress, but the 10 Republicans and one Independent) current divide could sent a letter to Senate Majority lead to action. Leader Harry Reid encouraging him to bring the Act to the Senate floor for consideration. In making their case, the bipartisan group promoted The promise of Patent Reform their view that a well functioning reminds me a bit of Lucy’s perennial patent system would help stimulate football prank on Charlie Brown in the economy and create jobs. the Peanuts comic strip. Every year Unfortunately, with a majority in both Congress tees up a reform package houses and a Democrat in the White designed to cure the ills of the Patent House, Senator Reid had bigger fish System, patent practitioners and to fry. Reid’s office issued a statement business owners get excited about indicating that while Patent Reform the first real reform of the patent was “an important issue, we have system in decades and then, like Lucy, many items to consider before the Congress yanks the ball away by end of the year and not much time to closing its legislative session without consider them.” Mark Scarsi is a partner in the taking action. Intellectual Property Group of Senator Reid’s failure to take up Milbank, Tweed, Hadley & This past year was no different. Patent Reform while the Democrats McCloy LLP, resident in the In March, the Senate introduced had control of Congress is not Los Angeles office. the Patent Reform Act of 2010. The without precedent. In fact, the Act included a number of measures Republicans failed to pass the Patent to provide clarity in the patent Reform Act of 2006 when they had system and to curb patent litigation control of both houses and President abuses. For example, the 2010 Bush sat in the Oval Office. If there Act provided guidance on patent is a lesson to be learned from these damages, raised the bar for finding failures, it might be that Patent willful infringement, discouraged

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 109 Reform is just not partisan enough to have also pledged bipartisan As luck would have it, the bipartisan make it to the top of either party’s cooperation, but have promised to group of senators who urged Majority agenda. If that’s the case, the current hold their position on hot button Leader Reid to take up Patent Reform divided Congress may create the topics such as tax cuts, health care last September have largely survived perfect storm for action on Patent and new spending. Patent Reform the recent election. If they can be Reform. implicates none of these issues. While encouraged to renew their efforts, most commentators dismiss the 2011 could finally be the year when The Democrats in the new Congress promises of bipartisanship and predict Congress breaks the “Lucy-and-the- have pledged to work toward nothing but gridlock from the new football” cycle and enacts Patent bipartisan cooperation to help the Congress, Patent Reform would seem Reform. economy and create jobs. Both to be one issue where Democrats parties agree that Patent Reform and Republicans can come together. meets these goals. The Republicans

110 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 Obvious to the Most Casual Observer?

By Starting in 1983, the Federal Christopher Chalsen Circuit developed successively more objective refinements of the Reproduced with permission Common sense test obviousness test, culminating in the from Inside Counsel. has been applied in teaching-suggestion-motivation (TSM) some obviousness test. Under TSM, a patent claim could be found obvious based on a arguments, but combination of prior art references its overall weight only if a teaching, suggestion or motivation to combine those has been relatively references was also in the prior art. limited. While the objectivity of this test was laudable, its strict application lead to some perplexing results, for example, patents on such seemingly obvious One of the most frustrating inventions as crust-less peanut butter expressions I came across in my and jelly sandwiches or methods of college mathematics texts was “and, swinging on toy swings. Even such as would be obvious to the most casual observers as the Wall Street casual observer…” I always thought Journal and the New York Times began to myself, “What? Obvious to you to take note. maybe.” So, in KSR Intl. Co. v. Teleflex Inc., Later, I became exposed to a new the Supreme Court rejected the kind of analysis that also used rigid TSM approach to obviousness. the word “obvious” – the non- Although finding the TSM test to obviousness test for patentability be a “helpful insight,” the Court under 35 U.S.C. Sec. 103. This test held that it had been applied by Christopher Chalsen is a seemed simple enough: Would a the Federal Circuit in an overly partner in the Intellectual Property claimed invention have been obvious formalistic manner inconsistent Group of Milbank, Tweed, Hadley & at the time it was made to a person with prior precedents. Cautioning McCloy LLP, resident in the of ordinary skill in the art? Since it New York office. that courts must still conduct an was an objective analysis based on explicit obviousness analysis, the the differences between the prior Court explained that factors such art and the claimed invention, it as design needs, market demands, seemed eminently more rationale and “common sense” may provide than “obvious to the most casual sufficient reasons for combining prior observer” test. But, of course, its art elements. application was far from simple.

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 111 In the last few years, the latter factor, technology and stated that no expert try, and the Federal Circuit affirmed a “common sense,” has received testimony was needed to apply the holding that claims to a fan blade used considerable attention since some disclosure of the prior art to the on a jet engine were not obvious. feared that reliance on common asserted patent. Common sense here sense could bring about widespread was akin to taking judicial notice of Similarly, blind reliance on common rulings of obviousness based on the combination of elements. sense without sufficient reasoning hindsight. Generally speaking, these has been found insufficient. In TriMed concerns have not been realized Common sense has also been used Inc. v. Stryker Corp., the Federal – yet. While common sense has to supply a missing claim element. Circuit reversed a grant of summary been used in certain obviousness In Perfect Web Techs., Inc. v. judgment where the district court arguments, its overall weight in the InfoUSA, Inc., the patented technology provided only conclusory reasoning inquiry has been reasonably limited. involved a four-step method of that the prior art combination was a handling and processing bulk e-mail common sense solution. The Federal Courts have employed the common where the first three steps were Circuit admonished the lower court: sense consideration for different disclosed in the prior art. The last “saying that an invention is a logical, uses. In Wyers v. Master Lock Co., the step involved repeating the earlier common sense solution to a known Federal Circuit found that common steps until a specified number of problem does not make it so.” In sense provided the motivation for e-mails have been successfully other words, simply saying something combining the prior art even where received. The Court found the last would have been obvious to the most expert testimony was not presented step of repeating a known procedure casual observer is not a particularly on one of the prior art references. until achieving success to be simply a helpful or convincing step in a proof. The Court had no problem with such matter of common sense. logic as results were predictable. Milbank associate Nate Browand However, where possible solutions contributed to this column. Similarly, in Sundance, Inc. v. Demonte to a problem were numerous, as in Fabricating Ltd., the Court found Rolls-Royce, PLC v. United Techs. Corp., retractable tarpaulins used to common sense reasoning did not cover truck trailers to be a simple make a particular solution obvious to

112 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 The Central District of California: Effectively Navigating the New Home for Patent Litigation

By Eastern District of Texas. Attorneys Mark Scarsi must be prepared to operate within a The Northern and new set of guidelines and get to know Reproduced with permission a new group of judges, each with from BNA’s Patent, Trademark & Central Districts of their own preferences, expectations, Copyright Journal, 80 PTCJ 522, California became a 8/13/10, 09/13/2010. Copyright and interpretations of the rules. © 2010 by The Bureau of National preferred venue for Affairs, Inc. (800-372-1033) the growing number The Move From California http://www.bna.com. of patent cases that to Texas–A Brief History accompanied the California has a rich history of patent litigation. With many of the high-tech boom. high-tech companies that sprang up in the 1990s based on the West Coast (either in the L.A. Basin Introduction or the Bay Area), the Northern and Central Districts of California In recent months, the U.S. District became a preferred venue for the Court for the Central District of growing number of patent cases that California has seen a marked increase accompanied the high-tech boom. in patent cases. This district has long ranked in the top five in the nation in In fact, the Northern District sensed terms of patent litigation, but it now the coming surge of patent cases sits in the number one slot with more and began adopting specialpurpose patent cases than any district in the rules to more effectively handle their country. This shift comes on the heels expanding caseload. Those rules of changes occurring in the Eastern required mandatory disclosures along District of Texas, which has long a particular schedule and led to a Mark Scarsi is a partner been an attractive forum to plaintiffs consistency in the Northern District at Milbank, Tweed, Hadley & in patent cases, as well as a sudden with regard to the management of McCloy LLP, Los Angeles. He is a increase in the number of plaintiffs’ patent cases. This put the Northern litigator in the firm’s intellectual firms in the Los Angeles area filing suit property litigation and technology District on the map as an example of close to home. department. an innovative and interesting model of patent case management. The Central District of California brings about new issues and a Around 2004, the Eastern District different way of operating for of Texas emerged as an attractive many attorneys who have become alternative forum for patent cases. comfortable with the rules, The appeal of this district centered on the judges, and the certainty of the the rules it adopted to govern patent

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 113 cases, similar to those instituted in the district that is increasingly jammed. Northern District of California years With only three judges throughout earlier; however, the rules governing The Eastern District the district, all with full dockets, the Eastern District of Texas allowed of Texas became the speed that was once such an for a faster litigation process. appealing aspect of the district is no legendary for never longer its biggest draw. Attorneys What would take 60 days in California transferring cases, are now more likely to get a case would now take 30 days in East and over time, transferred out of East Texas, and Texas. Additionally, there was also plaintiffs are more likely to look a notion that juries in East Texas attorneys simply elsewhere in their attempt to ensure were more likely to side with patent a speedy trial. holders due to a perception that stopped attempting they had more trust in government a petition for transfer While the Eastern District of and would have more respect for a because they were Texas has decreased in patent case patent issued by a government-run popularity, the Central District of entity. This perception, coupled with almost guaranteed a California is experiencing a clear the speed the rules provided, led to a denial. upward trend in the number of patent growing number of plaintiffs filing suit cases filed. It is now first in the nation in this district to ensure a faster, more with the most patent cases filed. successful trial. by the Federal Circuit, however, is Led by the growing number of changing that trend. In In re TS Tech plaintiffs firms that have opened in Patent Litigation Has No USA Corp., 551 F.3d 1315, 89 USPQ2d the Los Angeles area over the past 1567 (Fed. Cir. 2008) (77 PTCJ 243, Permanent Address few years, this district has seen a 1/9/09), the fears of many patent case rising number of patent cases filed by Perhaps one of the most interesting litigants came true as the appellate attorneys more comfortable with the aspects of patent cases is that they court cited the reasoning in a non- Los Angeles courts that are close to can literally occur in any state and patent case and transferred a case out home. district in America. Because products of the Eastern District of Texas. entered into the stream of commerce in the United States can end up in any Courts in that district have relied Navigating Patent state, there is no bar against filing a on TS Tech in granting an increasing Litigation’s New Home patent lawsuit in any district of the number of transfer motions. See, United States, as long as there can be e.g., S.E.C. v. Rizvi, No. 4:09cv00371, Whereas the Eastern District of Texas personal jurisdiction. 2010 WL 2949311 (E.D. Tex. July and the Northern District of California 2, 2010); Orinda Intellectual Property have a defined set of rules that govern Any court can have subject matter USA Holding Group Inc. v. Sony Corp., their patent cases, the Central District jurisdiction, and the only measure No. 2:08cv00323, 2009 WL 3261932 of California does not. Each case that available to regulate this is the (E.D. Tex. Sept. 29, 2009); and Odom is tried is unique, and judges have nonconveniens motion under 28 v. Microsoft Corp., 596 F. Supp. 2d 995 more flexibility surrounding what rules U.S.C. §1404, which allows for (E.D. Tex. 2009). they choose to adopt. petitions to move a patent trial to a more convenient location. However, In fact, there is now a somewhat Judges in the Central District fall courts have a great deal of latitude greater chance that if your case is into three broad categories: 1) those when it comes to transferring filed in the Eastern District of Texas, who choose to adopt the rules of cases, and it is ultimately up to the and there is no real connection to the Northern District of California discretion of the court whether or that forum, the court may grant on a consistent basis; 2) those who not to transfer a case. a motion to transfer to a more will adopt those rules upon request convenient location. of the parties involved; and 3) those The Eastern District of Texas became who prefer the flexibility of no legendary for never transferring The Move Back to California specific patent rules. One of the most cases, and over time, attorneys simply important things to be aware of when stopped attempting a petition for The shift in transfer decisions in facing patent litigation in the Central transfer because they were almost the Eastern District of Texas has District is which category your judge guaranteed a denial. Recent action coincided with a docket in that falls within.

114 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 There are certainly advantages and the court to look at issues such as More cooperation is required disadvantages to each category. For inventorship early on. between the parties, and a strong example, if a court adopts the rules working relationship with opposing Another important note is that there of the Northern District, there is counsel must be established early are between 20 to 30 judges in the a greater sense of certainty about on. For example, you must file a joint Central District (compared to three how the case will proceed. On the statement that identifies the discovery in the Eastern District of Texas). other hand, for courts giving you the dispute, and both sides must submit While this leads to a faster schedule option of whether or not to operate portions of the joint statement. than other districts, with trial dates within those rules, you must make This requires working on the filing set a year and a half to two years sure that those rules will work to the together. Accordingly, a professional out, this also makes it impossible to relationship with opposing counsel greatest benefit of your client before predict where your case will land– will be of great service to your client. proceeding. making it essential to take the time to Courts operating independently of familiarize yourself with each judge. Conclusion the rules can often provide a flexibility Know their temperament, their that does not commonly accompany The Central District of California expectations of counsel, and what patent cases. This can lead to more offers attorneys facing patent litigation rules govern their courtroom. This creative litigation and provides an numerous advantages as long as they is a fairly strict district, with high opportunity to make things happen are fully prepared and informed expectations for counsel and a firm earlier than you could in a district before they enter the courtroom. respect for the rules. Being prepared governed by strict schedules. Flexibility, speed of schedule, more and informed will help you to operate creative litigation, and a larger pool So if you are before a judge that effectively here. Attorneys facing of judges all make this an attractive doesn’t adopt the patent rules, you patent litigation in the Central District district for patent cases, and its have the flexibility to try to bring should also be aware of the difficulty popularity will likely continue to about some leverage early in the that discovery motions pose. There expand in the coming months case. Examples of this include trying is an elaborate and detailed meet and and years. to get the court to rule on summary confer process that makes it more If this trend is maintained over the judgment early in the case by doing difficult to succeed on a discovery long term, patent litigation may a partial construction of some of the motion, and working with opposing ultimately find a new district to claim terms or attempting to get counsel is essential. call home.

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 115 Predicting the Future of Patent Misuse Remedies

By A common-law defense to patent Patent litigators should be cognizant James R. Klaiber infringement is the ‘‘patent misuse’’ of the recent developments, too, and doctrine, which is designed to especially when devising patent Jeffrey W. Lesovitz remedy anti-competitive actions misuse remedies for courts to adopt of patent owners who attempt to at trial. Reproduced with permission impermissibly broaden the scope of from Antitrust & Trade Regulation their patent grants. Report, 99 ATRR 298, 09/03/2010. An Overview of the Patent Copyright © 2010 by The Although patent misuse has been Misuse Doctrine Bureau of National Affairs, Inc. alluded to for over a century, the Patent misuse is an affirmative (800-372-1033) http://www.bna.com. U.S. Supreme Court did not establish defense to a claim of patent 1 the doctrine until 1942. Since then, infringement where the patentee the patent misuse doctrine has has ‘‘impermissibly broadened developed significantly. But even the physical or temporal scope of the today, the doctrine is plagued with patent grant with anti-competitive inconsistent standards and unresolved effect.’’2 Application of the doctrine issues. For instance, courts have remains controversial. struggled to devise a universal remedy under the doctrine, one that Notably, its significant overlap with strikes a balance between curtailing antitrust law has spawned a debate anti-competitive effects and the over whether misuse and antitrust innovative purpose of U.S. patents. are, in fact, coextensive. While some argue that all instances of genuine Recently, the Federal Circuit further patent misuse necessarily constitute defined the concept of patent misuse antitrust violations, others believe and tailored appropriate remedies misuse encompasses behavior beyond for the defense. Notably, the court the scope of antitrust. endorsed limited, compulsory James R. Klaiber and licensing as a practical remedy in Generally speaking, there are two Jeffrey W. Lesovitz are other patent contexts, and it may types of prohibited activity that can attorneys in the intellectual property be inclined to extend such a remedy lead to a finding of patent misuse: group of Milbank, Tweed, Hadley to misuse cases, too. Transactional (1) antitrust violations sufficiently & McCloy LLP. The authors wish attorneys and in-house counsel related to the patent in question to to thank Nicholas G. Atwood, a should be aware of this recent case sustain a misuse finding; and summer associate at Milbank and a law when negotiating and drafting (2) instances in which a patent owner student at Harvard Law School, for seeks to extend its exclusive rights his assistance in the preparation of intellectual property licenses, so they this article. The opinions expressed can avoid common mistakes that beyond those guaranteed by the herein are the opinions of the often lead to patent misuse findings. patent grant. These two categories authors and are not attributable to 1 See Morton Salt Co. v. G.S. Suppiger Co., 314 U.S. 488 (1942). Milbank or its clients. 2 Va. Panel Corp. v. MAC Panel Co., 133 F.3d 860, 868 (Fed. Cir. 1997) (quoting Windsurfing Int’l, Inc. v. AMF, Inc., 782 F.2d 995, 1001 (Fed. Cir. 1986)).

116 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 roughly track the ‘‘two basic … Early courts viewed tying perceived evils’’ with which the Though the Federal arrangements as per se patent misuse: patent misuse doctrine is concerned, as long as a defendant could prove namely, ‘‘the use of patents to Circuit has defined some form of tying arrangement, undermine competition’’ and ‘‘the patent misuse as misuse was assumed, regardless expansions of patent rights beyond of the patentee’s market power in their lawful scope.’’3 behavior with an the tying product market, the tying ‘‘anti-competitive arrangement’s actual anticompetitive Over the years, courts have identified effect, or the relationship between several prohibited practices that effect,’’ the standard the tied items. Liberal acceptance of constitute per se patent misuse. of proof for such a tying claims culminated in Mercoid The first category involves tying Corp. v Mid-Continent Invention Co., arrangements where the patent showing is unclear. where the Supreme Court found owner requires in a license misuse based on the tying of a agreement that the licensee of the variety of factors, including specific product (a combustion switch) that patent also purchase a separate, information about the relevant was essential to and had no use staple good. The second category business, its condition before and beyond the patented invention includes arrangements allowing after the restraint was imposed, (a domestic heating system).8 patent owners to effectively extend and the restraint’s history, nature, and the terms of their patents, such as by effect.’’4 The rule of reason seeks to Since Mercoid, Congress has limited requiring royalty payments after the determine whether the challenged the scope of the misuse doctrine with patents have expired. actions promote or suppress the 1952 Patent Act (distinguishing When an action alleged to constitute competition. A patent holder’s prohibited tying of ‘‘staple’’ goods patent misuse is not per se patent actions that suppress competition from potentially legitimate tying of misuse, a court may still find a may result in a patent misuse finding. ‘‘non-staple’’ goods) and the 1988 violation. The court may determine Patent Misuse Reform Act (requiring if the patent holder’s actions are Tying Arrangements a showing of ‘‘market power’’ before reasonably within the patent grant, tying becomes misuse).9 Subsequent i.e., if they relate to subject matter Most patent misuse cases involve case law reflects this legislative within the scope of the patent claims. an allegedly prohibited ‘‘tying’’ reform, with courts validating tying If the alleged actions are reasonably arrangement. claims only where the separate item within the patent grant, the practice allegedly tied to the patented item is Traditional ‘‘patent-to-product’’ tying likely does not have the effect of a staple item in commerce and the arrangements are those in which a broadening the scope of the patent patentee has market power in the patent owner uses the market power claims and thus may not constitute tying product market.10 conferred by the patent to compel patent misuse. customers to purchase or lease a The Modern Patent Misuse On the other hand, if a practice has product in a separate market that the the effect of extending the patent customer might otherwise purchase Doctrine: Inconsistencies owner’s exclusive rights, and does or lease from a competitor.5 Classic and Unresolved Issues so with an anti-competitive effect, examples include conditioning the Notwithstanding efforts by the the conduct may be analyzed in lease of a patented salt depositing Federal Circuit to standardize accordance with the ‘‘rule of reason.’’ machine on the purchase of salt application of the patent misuse The fact finder may decide whether from the patentee,6 and the refusal doctrine and a general trend towards the questioned practice imposes to permit use of a meat processing constricting its use, uncertainty ‘‘an unreasonable restraint on patent unless the user leases the persists even today.11 competition, taking into account a patentee’s ‘‘macerator’’ machine.7

3 Herbert Hovenkamp et al., IP and Antitrust §3.2 at 3-7 (2009). 4 State Oil v. Khan, 522 U.S. 3, 10 (1997). 5 U.S. Philips Corp. v. Int’l Trade Comm’n, 424 F.3d 1179, 1190 (Fed. Cir. 2005). 6 Morton Salt, 314 U.S. at 488. 7 Senza-Gel Corp. v. Seiffhart, 803 F.2d 661, 663 (Fed. Cir. 1986). 8 320 U.S. 661, 667-68 (1944). 9 35 U.S.C. §271(d)(5). 10 Senza-Gel, 803 F.2d at 667-69. 11 Senza-Gel, a tying case, is the only case in which the Federal Circuit actually found patent misuse. Id. at 661. This was before the 1988 Patent Misuse Reform Act; it is unclear what result the court would reach in that case today.

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 117 For instance, in the tying context patent hinders competition beyond Unlike the panel in Engel Industries v. it is still unresolved as to what is the point contemplated by patent Lockformer,16 which denied a misuse necessary to satisfy the statutory law (a threshold which, presumably, defense on grounds that the licensing requirement that ‘‘the patent owner strikes an optimal balance between agreement at issue was voluntary, the has market power in the relevant innovation and competition). To the Philips panel based its misuse analysis market for the patent or patented extent the patent misuse doctrine primarily on the competitive effects of product on which the license or sale originated in antitrust, one might the licensing arrangement, declining is conditioned.’’12 While the Supreme assume antitrust standards would to find misuse despite indications Court has provided guidance on be at least relevant in making of involuntariness. According to this issue in the antitrust setting,13 this determination. Authorities one commentary, Philips ‘‘signals an some authorities disagree over the remain split on the issue, however, inclination on the court to replace the standard applied in patent misuse with some calling for wholesale unworkable voluntariness standard cases and whether a ‘‘market power’’ importation of antitrust doctrine, and with a more economically reasonable requirement forecloses findings of others advocating for use of antitrust alternative.’’17 per se patent misuse. analysis while setting a lower ‘‘anti- competitive effect’’ threshold for a Searching for an Though the Federal Circuit has finding of patent misuse.14 defined patent misuse as behavior Appropriate Form of Relief with an ‘‘anti-competitive effect,’’ the Another point of uncertainty involves Even when patent misuse is found, standard of proof for such a showing the use of coercion in package there is no precise methodology for is unclear. Patents (and package license cases. In Philips Corp. v. Int’l determining an appropriate remedy. licenses in particular) present a unique Trade Comm’n, the Federal Circuit theoretical challenge, since they can jettisoned an earlier analytical The traditional remedy for patent be characterized as naturally anti- framework that focused on the misuse is effectively a royalty-free, competitive. To find misuse, courts ‘‘voluntariness’’ of package license compulsory license to anyone that must determine the point at which a deals when evaluating misuse claims.15 used the patent at issue. A court

12 35 U.S.C. §271(d)(5). 13 Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28 (2006) (rejecting per se rule of illegality in antitrust cases involving tying arrangements, and requiring plaintiff to prove defendant has market power in tying product) 14 See, e.g., USM Corp. v. SPS Techs., Inc., 694 F.2d 505, 512 (7th Cir. 1982); Windsurfing Int’l Inc. v. AMF, Inc., 782 F.2d 995, 1001 (Fed. Cir. 1986); Mark A. Lemley, The Economic Irrationality of the Patent Misuse Doctrine, 78 Cal. L. Rev. 1599 (1990); see also C.R. Bard, Inc. v. M3 Systems, Inc., 157 F.3d 1340, 1372 (Fed. Cir. 1998); B. Braun Med. Inc. v. Abbott Labs., 124 F.3d 1419, 1428 (Fed. Cir. 1997); Va. Panel, 133 F.3d at 869; Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700, 708 (Fed. Cir. 1992). 15 424 F.3d 1179, 1187 (Fed. Cir. 2005). 16 96 F.3d 1398 (Fed. Cir. 1996). 17 Herbert Hovenkamp et al., IP and Antitrust §3.2 at 3-7 (2009).

118 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 will neither enjoin infringement of of illegal acquisitions or, in rare cases, the patent nor award damages to Hybrid cases tend to a compulsory license where the the patentee, regardless of whether licensee receives reasonable royalties the patent is otherwise valid, and adopt more flexible, determined by the court? even where the party claiming the targeted remedies Adding further complexity to the affirmative defense was not itself issue of appropriate remedies are harmed by the misuse. The offending than those applied in hybrid cases in which courts ruled patentee forfeits its rights until it patent misuse cases. on antitrust violations that would abandons the prohibited behavior and likely have constituted patent misuse the effects of the misuse have ‘‘fully the issue, while making it harder if raised as affirmative defenses to dissipated.’’18 to succeed on a misuse claim, does infringement allegations. Indeed, it is Yet federal courts have not fully not mitigate the significant unclear what weight the discussion clarified the scope of the patent back-end incentive for bringing such of remedies in these hybrid cases misuse remedy. Does the compulsory a claim. Indeed, where the contours should carry. First, there is the license always extend to the world of ‘‘misuse’’ approach those of problem of characterizing the cases. upon a finding of patent misuse, or antitrust violations, the patent misuse The Supreme Court’s decision in U.S. can courts limit it to a certain group remedy is increasingly an outsized v. Glaxo Group Ltd. is illustrative.21 of accused defendants? Can the court anachronism, arguably rewarding There, the majority cited two impose a reasonable royalty to be (in the name of equity) infringers who ‘‘hybrid’’ cases for the proposition paid on the compulsory license? If would lack standing under any legal that ‘‘mandatory selling on specified so, who decides what the reasonable antitrust theory. terms and compulsory patent licensing royalty is? When is misuse ‘‘fully at reasonable charges are recognized The introduction of an ‘‘anti- dissipated’’? The Federal Circuit has antitrust remedies’’; however, Justice competitive effect’’ requirement for not squarely addressed these issues. William Rehnquist, in his dissent, a showing of patent misuse further relied on the same two cases in In fact, only one case was found in raises the question: What behavior arguing that ‘‘compulsory licensing is which the Federal Circuit affirmed does the patent misuse doctrine a recognized remedy in patent misuse a finding of patent misuse. In doing deter that is not already deterred by 22 so, the court simply restated the antitrust law? One possibility, cases.’’ Nonetheless, regardless of traditional patent misuse remedy suggests Judge Richard Posner, ‘‘is how hybrid cases are categorized, without further instruction: ‘‘All that that the doctrine of patent misuse, it appears the Federal Circuit could a successful defense of patent misuse unlike antitrust law, condemns any today tailor its misuse remedies using means is that a court of equity will patent licensing practice that is such cases as precedent. not lend its support to enforcement even trivially anti-competitive, at Additionally, hybrid cases tend of a mis-user’s patent.’’19 least if it has no socially beneficial to adopt more flexible, targeted effects … .’’20 And yet, if this is remedies than those applied in Arguably, the Federal Circuit has the case, why is the patent misuse patent misuse cases. For example, made a strategic choice to curtail the remedy stricter than the remedy in International Salt Co. v. U.S., patent misuse doctrine by narrowing for antitrust violations? Why should the Supreme Court sanctioned the definition of ‘‘misuse’’ itself (i.e., misuse be a complete affirmative a compulsory license based on by focusing on ‘‘market power’’ and defense to infringement, whereas ‘‘anti-competitive’’ effects), rather antitrust remedies are restricted to reasonable royalties, noting the than narrowing the remedy for treble damages, injunctions against district courts’ ‘‘large discretion to misuse. This focus on the front end of anti-competitive conduct, divestiture model their judgments to fit the

18 B.B. Chemical Co. v. Ellis, 314 U.S. 495, 498 (1942). Some courts have characterized patent misuse as an application of the equitable doctrine of ‘‘unclean hands’’ –i.e., one who uses his patent grant to subvert the patent system’s underlying public policy goals ‘‘may not claim protection of his grant by the courts.’’ See, e.g., Morton Salt, 314 U.S. at 492. The analogy is tenuous, however, since the remedy for patent misuse bars both equitable and legal relief, whereas the unclean hands doctrine bars only equitable relief. Furthermore, the patent misuse doctrine, unlike the unclean hands doctrine, requires no showing of relationship between the plaintiff’s act and the recovery he is denied. 19 Senza-Gel, 803 F.2d at 668. 20 USM, 694 F.2d at 511. 21 410 U.S. 52 (1973). 22 Id. at 64, 72 n.5 (emphases added) (citing International Salt Co. v. U.S., 332 U.S. 392 (1947), and Hartford-Empire Co. v. U.S., 323 U.S. 386 (1945)). In International Salt, the patentee conditioned machine leases on the purchase of the patentee’s salt (a staple good), while in Hartford-Empire the defendant used a combination of machine patents to control the price and volume of unpatented glassware. As a technical matter, the majority’s categorization of the cases as antitrust-innature is correct–while both International Salt and Hartford-Empire involve behavior that closely resembles the tying arrangements at issue in classic patent misuse cases, neither involves an affirmative defense to infringement, and therefore neither constitutes a patent misuse case per se.

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 119 exigencies of the particular case’’ and International Trade Commission that the defendant’s ability to appeal for the patent misuse doctrine did not modification of the decree after a Despite the Federal bar U.S. Philips Corp. (‘‘Philips’’) showing of relevant facts.23 In Besser Circuit’s decision in from enforcing certain patents against Mfg. Co. v. U.S., another hybrid Princo, one cannot Princo Corp.30 The patents-insuit case, the Court granted compulsory (the ‘‘Raaymakers patents’’) covered licenses to existing lessees, with ‘‘fair help but speculate certain technology used to practice royalties’’ determined by a four- as to the appropriate the ‘‘Orange Book’’ industry standard person committee selected by both governing CD-R/RW technology, defendant and plaintiff.24 remedy if patent which was jointly developed by misuse had been Philips and Sony . Philips and Sony had The Supreme Court limited the scope designed a package-licensing scheme of antitrust remedies in Hartford- found. whereby they agreed to license the Empire Co. v. U.S., holding that Raaymakers patents in a patent pool compulsory licensing at a ‘‘price to 26 that also included the ‘‘Lagadec’’ be fixed by the court’’ is confiscatory compression standard. Although patent. According to Princo, the in effect and unwarranted.25 While the 2008 decision was technically Lagadec patent was incompatible the Court enjoined prosecution of not based on the misuse doctrine with the Orange Book standard and infringement actions pending at the itself, it nonetheless reflects the covered technology that was a viable time of the suit, and granted standard Federal Circuit’s disfavor of broad alternative to the standard. royalty licenses to accused infringers, equitable remedies that do not constitute ‘‘a fair, just and equitable it held that the remedy should On appeal, Princo claimed that response reflective of the offending not deny recovery for postdecree Philips’ and Sony’s licensing scheme conduct.’’27 Notably, the Qualcomm infringements of patents unrelated to was an attempt to suppress the court reversed a district court those immediately at issue. In short, competing Lagadec technology and ruling that would have rendered the Hartford-Empire Court limited thus constituted patent misuse. remedies to those entities affected by plaintiff’s patents unenforceable ‘‘to the offending behavior and to those the world.’’ Finding the scope of The Federal Circuit disagreed, patents involved in the offense. this remedy too broad, the Federal cautioning that the patent misuse Circuit conducted a ‘‘patent misuse’’ doctrine has not been applied remedy analysis.28 This resulted in Qualcomm and Princo: expansively in the past and that the the court vacating and remanding the legislative history of 35 U.S.C. Products, Standards, and case with ‘‘instructions to narrow §271(d) showed Congress’s intent Patent Pools the scope of unenforceability’’ to to ‘‘cabin’’ the doctrine. The court products that satisfied a specific Two recent cases on appeal have held that an anti-competitive nexus requirement–i.e., products that given the Federal Circuit a chance agreement between companies to complied with a technical standard to further consider the scope of suppress a given technology would related to the patent holder’s the patent misuse doctrine and its not constitute misuse of a patent inequitable conduct.29 This remedy is, available remedies. covering alternative technology in effect, a royalty-free compulsory being promoted by the companies. In the first case, Qualcomm v. license for all manufacturers of Thus, although the Philips-Sony Broadcom, the Federal Circuit held products meeting the relevant agreement might be vulnerable to several patents unenforceable under industry standard. challenge under the antitrust laws, the affirmative defense of waiver the court refused to characterize Just recently, on August 29, 2010, because the patent holder failed to the agreement as misuse of the the Federal Circuit issued an en banc disclose its patents to an industry Raaymakers patents. Philips could still opinion in Princo Corp. v. Int’l Trade standard-setting organization enforce its patents against Princo. Comm’n, sustaining a decision by the responsible for the H.264 video

23 332 U.S. 392, 400-01 (1947). 24 343 U.S. 444, 448-89 (1952). 25 323 U.S. 386, 412-13 (1945). 26 548 F.3d 1004 (Fed. Cir. 2008). 27 Id. at 1026. 28 Id. (finding patent misuse remedies ‘‘instructive’’). 29 Id. 30 No. 07-1386 (Fed. Cir. Aug. 30, 2010), available at http://www.cafc.uscourts.gov/images/stories/opinions-orders/07-1386.pdf.

120 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 Future Patent Misuse the patent.’’31 What would constitute court’s inherent power to fashion Remedies: Applying ‘‘purge’’ in the Princo case? Did the a compulsory license in the Qualcomm and Paice to misuse inhere in the inclusion of infringement context would appear the Lagadec patent, or in a competing to apply equally to a case of patent Princo standard’s failure to emerge? If the misuse. Accordingly, if misuse was Despite the Federal Circuit’s latter, willingness to independently found to have occurred in the Princo decision in Princo, one cannot help license the Lagadec patent would case, the lower court could have but speculate as to the appropriate certainly not ‘‘dissipate’’ the effect of relied on the holdings in Qualcomm remedy if patent misuse had been misuse. But what would? and Paice to order a reduced-rate found. compulsory license available to all Could the court have ‘‘re-priced’’ manufacturers of products meeting Could the court have enforced the the existing package based on the Orange Book standard. standard misuse remedy (i.e., a consideration of the effects of a royalty-free, compulsory license to hypothetical competing standard? Because the Federal Circuit dismissed the world) in the wake of Qualcomm? Such a remedy would not be Princo’s patent misuse claims, the If not, and the court narrowly tailored without supporting precedent. In court did not examine the possible its remedy, what would it be? Would Paice LLC v. Toyota Motor Corp., the remedies that may be available upon the court limit unenforceability to Federal Circuit itself approved a a finding of misuse. And because products that used the Orange Book courtordered, ongoing licensing fee–a the court does not appear to be standard, or to those that used any compulsory license–as a remedy for historically predisposed toward patent within the pool? Could Sony patent infringement.32 According findings of patent misuse, it is unclear still enforce the Lagadec patent to the Federal Circuit, the lower when it will have another opportunity following an unenforceability decision court could allow the parties to to do so. Nevertheless, practitioners in Princo? determine a reasonable royalty (as in should be aware of the Federal Besser), and if the parties could not Circuit’s recent endorsement of Qualcomm reminds us that patent reach agreement, it could make the court-imposed compulsory licenses misuse only renders the patent determination itself. in other contexts, and should be unenforceable ‘‘until the misuse is ready to request (or counter) such a purged; it does not, of itself, invalidate This recognition of a district remedy in future misuse cases.

31 548 F.3d at 1025. 32 504 F.3d 1293, 1315 (Fed. Cir. 2007) (holding that district court could, in absence of party agreement, ‘‘step in to assess a reasonable royalty in light of the ongoing infringement,’’ but must provide reasons for its rate); Id. at 1316 (‘‘District courts have considerable discretion in crafting equitable remedies, and in a limited number of cases, as here, imposition of an ongoing royalty may be appropriate. Nonetheless, calling a compulsory license an ‘ongoing royalty’ does not make it any less a compulsory license.’’) (J. Rader, concurring).

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 121 To Mark, Or Not To Mark

By “Patented” - everyone has seen to a suspected infringer because Chris L. Holm the word. It appears on cardboard the owner is not prepared to bring protectors around our morning cup an infringement action. Providing This article appeared in the of coffee, and in the manuals for our infringement notice may expose January 15, 2010 issue of the televisions. It is “marking.” There the patent owner to declaratory Los Angeles Daily Journal. www.dailyjournal.com are benefits and risks for marking judgment jurisdiction. “Patented” on products. A recent The marking provision of the Patent Federal Circuit decision clarifies some Act provides a solution to some of the risks. Forest Group, Inc. v. of these problems. With proper Bon Tool Co., No. 2009-1044, “marking,” U.S. Patent owners can 2009 WL 5064353 (Fed.Cir. effectively serve notice of their patent Dec. 28, 2009). rights to all competitors, allowing One of the benefits that comes from the patent owner to collect up to marking products as “Patented” six years of past damages. Under relates to past infringement damages. the U.S. Patent Act: “Patentees, and Although patent owners often ascribe persons making, offering for sale, or prestige value to a U.S. Patent, the selling within the United States any value lies in excluding others from patented article for or under them, practicing the patent claims. Those or importing any patented article into who practice the claims of a valid the United States, may give notice U.S. Patent without a license infringe to the public that the same is that patent. If successfully sued, the patented, either by fixing thereon infringer is generally liable for past the word ‘patent’ or the abbreviation infringement damages, and/or the ‘pat.,’ together with the number infringer may be enjoined from future of the patent, or when, from the infringement. character of the article, this cannot be done, by fixing to it, or to the package Chris L. Holm is a senior A successful patent owner can collect wherein one or more of them is associate in the Intellectual Property infringement damages extending six contained, a label containing a like Group of Milbank, Tweed, Hadley & years prior to the complaint filing notice.” 35 U.S.C. Section 287(a). McCloy LLP in Los Angeles. He may date. 35 U.S.C. Sections 284 and 286. be contacted at However, to collect for six years of Thus, by simply affixing the word [email protected]. past damages the infringer must have “Patented” or “Pat.” with a notice of infringement that also begins corresponding U.S. Patent number, at least six years prior. Actual notice the patent owner can service notice to the infringer is certainly sufficient. to all competitors who might make, However, patent owners may not offer for sale, sell, or import a know of every infringement. Or, product that infringes on the owner’s they may not want to provide notice U.S. Patent.

122 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 There are financial penalties for In holding that the current false intentionally marking products marking statute of the Patent Act as “Patented” if the products are False marking now sets a $500 maximum fine on a per not actually covered by the patent has a potential for article basis, the Federal Circuit claims, or the patent is invalid, or in Forest Group looked at the the patent has expired. Recognizing increased penalties, history of the false marking statute. that the mere presence of the word calculated on a per Before a 1952 change, the false “Patented” on a product could chill marking statute instead required competition, Congress included a article basis. a $100 minimum penalty. Courts penalty provision for falsely-marking interpreting that previous statute a product as “Patented.” Under the had determined that if the $100 statute: “Whoever marks upon, or stilts. Forest Group sold its own minimum fine was calculated on a affixes to, or uses in advertising in construction stilts and marked those per article basis, with many falsely- connection with any unpatented stilts with that U.S. Patent number. marked articles, the penalty could be article the word ‘patent’ or any Bon Tool had been purchasing inequitable, particularly for products word or number importing the construction stilts from a licensed with modest value. The 1st Circuit same is patented, for the purpose of supplier, but when Bon Tool stopped in London concluded “[i]t can hardly deceiving the public;”…“Shall be fined purchasing from that licensed supplier have been the intent of Congress not more than $500 for every such and started purchasing from an that penalties should accumulate as offense.” 35 U.S.C. Section 292. unlicensed supplier, Forest Group fast as a printing press or stamping sued for patent infringement. machine might operate.” London v. Until recently, many district courts Everett H. Dunbar Corp., 179 F. 506, As typically happens in a patent considering the penalty for false 508 (1st Cir. 1910). Accordingly, case, there was a claim construction marking interpreted the Patent Act under the prior statute, “the hearing and order. In that claim as requiring a $500 fine for a single continuous false marking of multiple construction order, the district court decision to falsely-mark. Under that articles should constitute a single interpreted the asserted claims to interpretation, even with thousands offense subject to a distinct penalty.” require a particular feature. That of falsely-marked products, if there However, although Congress feature was not present in either the was only a single decision to falsely changed the falsemarking statute in accused stilt products or in the apply a patent number to the 1952 from a minimum $100 penalty Forest Group stilt products. As products, the maximum penalty was to a maximum $500 penalty, many limited to $500. mentioned, Forest Group had marked their own construction stilts with the courts continued to apply the earlier Some courts recognized that a $500 asserted patent number. reasoning from the London holding, maximum fine for a single marking applying the penalty on a per marking decision would eviscerate the statute After learning that its own decision basis, instead of a per article and adopted a time-based approach construction stilts did not practice basis. to falsemarking. Under such an the asserted patent, Forest Group In reversing and remanding, the approach, the penalty might be placed a new construction stilt order, Federal Circuit in Forest Group applied for each day, week or month but those stilts continued to list the noted the differences and changes that falsemarking occurred. Although asserted patent number. The district in the statutory language and also these time-based approaches resulted court determined that by placing a the minimal deterrent effect that in somewhat larger penalties, they new order after learning that the a single $500 penalty for false were not uniformly applied. asserted patent did not cover the construction stilts, and failing marking might have if there was Under the Forest Group holding, a to effectively remove the asserted only a single marking decision, but patent owner’s potential financial patent number from the construction multiple articles. Under the proper penalties for false marking are not stilts in that new order, Forest Group analysis, the Federal Circuit in Forest limited to $500 for a single decision. had engaged in a single incident of Group held that “Section 292 clearly A penalty must be calculated on false marking. The district court requires a per article fine.” However, a per falsely-marked article basis. assessed a $500 fine against the Federal Circuit also noted that Forest Group owned a U.S. Patent Forest Group for false marking. “[b]y allowing a range of penalties, on a feature used in construction Bon Tool appealed that decision. the statute provides district courts the discretion to strike a balance

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 123 between encouraging enforcement false marking statute continues to implicate false marking penalties if the of an important public policy and require intent to falsely-mark by the underlying patent application never imposing disproportionately large patent owner. So long as the patent issues as a patent and is abandoned, penalties for small, inexpensive items owner has established and maintains while the patent pending marking produced in large quantities. In the a goodfaith basis for marking, the remains on the product. case of inexpensive mass-produced risk of a false marking penalty should articles, a court has the discretion to remain very low. However, the patent determine that a fraction of a penny owner must remain diligent with per article is a proper penalty.” respect to patent expiration dates, and any lapse due to non-payment So, false marking now has a potential of maintenance fees. Similarly, for increased penalties, calculated marking as patent pending could on a per article basis. However, the

124 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 MILBANK INTELLECTUAL PROPERTY TEAM

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 125

MILBANK INTELLECTUAL PROPERTY TEAM To discuss our Intellectual Property practice capabilities, please visit our website at www.milbank.com or contact any of the attorneys listed below. PARTNERS

Christopher E. Chalsen, Practice Group Leader Christopher J. Gaspar John M. Griem, Jr. +1-212-530-5380 +1-212-530-5019 +1-212-530-5429 [email protected] [email protected] [email protected]

Lawrence T. Kass Robert J. Koch Mark C. Scarsi +1-212-530-5178 +1-202-835-7520 +1-213-892-4580 [email protected] [email protected] [email protected]

Errol B. Taylor Fredrick M. Zullow +1-212-530-5545 +1-212-530-5533 [email protected] [email protected]

OF COUNSEL

Jay I. Alexander +1-202-835-7591 [email protected]

ASSOCIATES

Stephanie Amoroso Anna Brook Nathaniel T. Browand +1-202-835-7589 +1-212-530-5607 +1-212-530-5096 [email protected] [email protected] [email protected]

Vina Ha Hannah Cannom Wayne Chang +1-212-530-5456 +1-213-892-4590 +1-212-530-5054 [email protected] [email protected] [email protected]

MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 127 Chris L. Holm James R. Klaiber Emily J. Kunz +1-213-892-4406 +1-212-530-5363 +1-212-530-5093 [email protected] [email protected] [email protected]

Michael D. Kurzer Enrique D. Longton William J. McNamara +1-212-530-5442 +1-202-835-7525 +1-212-530-5137 [email protected] [email protected] [email protected]

Arie M. Michelsohn Jennifer Miremadi Miguel Ruiz +1-202-835-7519 +1-213-892-4589 +1-213-892-4596 [email protected] [email protected] [email protected]

Renée Sekino Suni Sreepada Einar Stole +1-212-530-5225 +1-212-530-5459 +1-202-835-7553 [email protected] [email protected] [email protected]

Sally Teng Dana Roitberg Weir +1-202-835-7548 +1-212-530-5486 [email protected] [email protected]

PATENT AGENTS

Lisa Coward Edward J. Mayle +1-202-835-7504 +1-202-835-7535 [email protected] [email protected]

128 MILBANK INTELLECTUAL PROPERTY YEAR IN REVIEW 2010 OFFICES WORLDWIDE

New York One Chase Manhattan Plaza New York, NY 10005 +1-212-530-5000

Beijing Munich Units 05-06, 15th Floor, Tower 2 Maximilianstrasse 15 China Central Place (Maximilianhoefe) 79 Jianguo Road, Chaoyang District 80539 Munich Beijing 100025, China Germany +8610-5969-2700 +49-89-25559-3600

Frankfurt São Paulo Taunusanlage 15 Av. Paulista 1079, 8th Floor 60325 Frankfurt am Main São Paulo, SP Germany Brazil +49-69-71914-3400 +55-11-2787-6282

Hong Kong Singapore 3007 Alexandra House 30 Raffles Place 18 Chater Road #14-00 Chevron House Central, Hong Kong Singapore 048622 +852-2971-4888 +65-6428-2400

London Tokyo 10 Gresham Street 21F Midtown Tower London EC2V 7JD 9-7-1 Akasaka, Minato-ku, England Tokyo, 107-6221 Japan +44-20-7615-3000 +813-5410-2801

Los Angeles Washington, DC 601 South Figueroa Street International Square Building 30th Floor 1850 K Street, NW Los Angeles, CA 90017 Suite 1100 +1-213-892-4000 Washington, DC 20006 +1-202-835-7500

www.milbank.com