2018 Giles Sutherland Rich Moot Court Competition To all UT/Austin law students: We are looking for participants for this year’s Giles Sutherland Rich IP Moot Court team. This is a unique opportunity; not only do you get to compete against teams from the best law schools around the nation, but the finals take place at the U.S. Court of Appeals for the Federal Circuit—across the street from the White House. Participating in this competition will allow you to meet and work with well- respected attorneys all over Austin, from virtually every large and boutique IP law firm in town. If your team makes it to the final round at the national competition, you will have the privilege of arguing before a panel of actual Federal Circuit Judges—an opportunity most attorneys won’t get in their entire professional careers. Each year the American Intellectual Property Law Association releases a problem for the Giles Sutherland Rich IP Moot Court Competition containing very real and very important issues in IP. The issues raised in the problem are often addressed by the Federal Circuit or the Supreme Court within one year of the problem’s issuance. In fact, during one competition, the Supreme Court issued an opinion on one of the two primary issues in the problem two days before the briefs were due. If you participate in this competition, you will tackle real issues that will put you ahead of the pack with your summer associateships or in your first year as an attorney. You will also learn advocacy skills at a rapid pace in situations you are not likely to encounter during your first five years as an attorney, again setting you apart from your peers. Our coaches this year, Peter McCabe, Jeff Mills, Meredith Fitzpatrick and Aashish Kapadia, have a combined 75 years’ experience as trial and appellate attorneys. We have bi-weekly practice rounds before local IP attorneys, professors, and even Judges. You will make contacts with partners in virtually every major firm in Austin during these practice rounds. You will receive coaching and hands-on advice from more ex-Federal Circuit clerks than you can shake a stick at! We will choose one or two teams of two individuals each (you must be at least a 2L to compete). The competition requires each team to submit a brief for both appellant and appellee. The briefs are due on February 5, 2018. All team members will spend part of their winter break working with one another while drafting the briefs. The workload for brief writing usually requires an average of 25 hours per week for 4 weeks. After briefs are filed, the time requirements drop to about 10 hours per week. We know that’s a substantial time commitment, but we promise you it will be well worth it. We begin oral argument mock rounds around the third week of January. We will continue these rounds through the regionals and then nationals on a bi-weekly basis. The rounds usually occur in the evenings at a local Austin law firm, or on campus. The regional competition will be in Houston at the Federal Courthouse from Friday, March 23 until Sunday morning, March 25. (Spring break is the week of March 12, so there’s no conflict there.) The judges at the regionals are members of the Houston Intellectual Property Law Association (IPLA), a very prestigious group of patent lawyers from the greater Houston area. The top two teams from this competition move on to the nationals in Washington. In the many years we have been involved with this competition, we can only remember three times UT did not advance to nationals. Last year’s team made it to the semi-finals. The national competition will occur from Wednesday, April 18 to Friday, April 20. This usually gives you time to get home and finish any seminar papers or study for finals with time to spare. Again, the teams which make it to the final round at nationals get to argue before a panel of actual Federal Circuit Judges. After the competition, and regardless of a team’s placement in the national competition, all competitors get to meet and mingle with the Federal Circuit panel judges and their clerks. In past years, more than one clerkship has sprung from this party. In addition to receiving a prize of $2,000, the winning UT team (and we have every intention of winning) is honored by the University by having their photograph taken in front of the Tower—which is lit burnt orange with the number one on it! This picture will be displayed for posterity on the third floor of CCJ. Since 2000, UT has won the national competition at least a half a dozen times, with our most recent win being in 2013. If you’re interested in participating, please contact Peter McCabe at [email protected] or at 312-909-0958. In order to qualify for the team, you will need to complete the application in this packet, provide a writing sample of at least five pages, and participate in a tryout (a mock oral argument) during the first week of November. For the mock oral tryout, we will provide you with briefs from both sides of an argument from a past competition. Your argument will only last seven minutes, and it will not require a great deal of preparation. APPLICATIONS ARE DUE BY 5:00 P.M. ON FRIDAY, OCTOBER 20, 2017. MOCK ORAL ARGUMENT TRYOUTS WILL OCCUR ON NOVEMBER 2, 6, AND 7, 2017. If you are at all interested in appellate advocacy, this is the premier competition. If appellate advocacy isn’t your thing, please feel free to share this information with any student who likes to argue! I understand that there are several students who fall into this category. We hope you will apply for this competition so you can showcase your advocacy skills to the very best students and practitioners from around the country. Have a great semester. Hook ‘em!
Peter McCabe Jeff Mills Meredith Fitzpatrick Aashish Kapadia Application and Tryout Process for the 2018 Giles Sutherland Rich
IP Moot Court Competition
DEADLINES: Applications are due by 5:00 PM on Friday, October 20, 2017, either via email to [email protected], or to the lockbox under the bulletin board outside of TNH 4.112. Please review the application form carefully.
For additional questions or information about this competition, contact the following team coaches: — Peter McCabe at [email protected] or 312-909-0958 — Jeffrey Mills at [email protected] or 512-457-2027 — Meredith Fitzpatrick at [email protected] or 512–826–2279 — Aashish Kapadia at [email protected] or 512-322-2554
Tryouts for this Competition:
Tryouts will be held on November 2, 2:00—5:00 pm, . and November 6 & 7, 2:00–4:30 pm (each day), in one of the law school’s practice court rooms or seminar rooms (final locations will be circulated closer to the date). All tryouts will be recorded and distributed to the coaches. Signup sheets for tryout slots will be posted on the bulletin board outside of TNH 4.112. If you cannot make it on November 2, 6, or 7, contact Peter McCabe at [email protected] to schedule a makeup date.
The material for the tryouts is the problem from last year’s GSR Competition. The briefs for both appellant and appellee from last year’s competition are also attached to this application. In preparation for the tryout, you should address only the prior user defense from last year’s problem. You may argue for either the appellant or appellee. You should act as if a three-Judge panel of the Federal Circuit is reviewing the case. You do not need to do any further research outside of the attached briefs in preparation for the tryout.
For the tryouts, choose one side and prepare an argument of approximately 5-7 minutes in length. The point of this exercise is simply to demonstrate your advocacy skills. You should not do any outside research or spend significant time on the question.
1 University of Texas 2018 Giles Sutherland Rich Intellectual Property Moot Court Student Application
Name
Telephone Number(s) Graduation Year
EXPERIENCE
COMPETITIONS (Please list the names of any advocacy competitions in which you have participated, the dates of the competitions, and your results, if any.) Response:
COURSES/EXPERIENCE (Please list any advocacy/appellate/brief-writing courses you have taken or are currently taking, and any other academic, employment or other experience you have that may be relevant to the team(s) you would like to join.) Response:
JOURNALS (Please list any experience you have with law journals or other high-level written work.) Response:
OTHER (Please list any other information or experience you would like considered.) Response:
2 ADDITIONAL REQUIREMENTS
WRITING SAMPLE (Submit a writing sample with your application. Your writing sample can be a memo or brief or any other writing you have substantially prepared. If you have taken a brief-writing course, please submit a brief you wrote for the course as your writing sample; if you have not taken a brief-writing course, you are welcome to submit any other recent writing sample. Do not include any samples written during a judicial internship if your Judge edited the writing sample in any way.)
RESUME (Submit a résumé with your application.)
OTHER TIME COMMITMENTS (Please list all major time commitments or travel commitments that might affect your ability to prepare a brief or participate as an oral advocate on a team.) Response:
ACKNOWLEGDEMENT
If I am selected to compete on an interscholastic team, I understand and agree to the following:
1. I may not be a member of any other intramural or interscholastic advocacy team with conflicting practice or competition dates/times.
2. I understand that I may be required at times to practice as much as three or more nights a week and on some weekends. I understand that failure to attend practice, chronic tardiness, or chronic lack of preparation for practice may result in my disqualification from the team, which could subject me to sanctions by the Board of Advocates. I understand that voluntary withdrawal from the team will subject me to sanctions by the Board of Advocates, unless the coach releases me from the commitment in writing.
3. I understand that each team’s coach has the discretion to select the members of the team and assign roles within the team, and I agree to accept the coach’s decision.
4. I understand that my role on the team may be that of an alternate and not an advocate, and I am willing to participate fully on the team in that role. I understand that failure to participate fully on the team in the role to which I am assigned will result in my disqualification from the team and may subject me to sanctions by the Board of Advocates.
5. I agree to complete all forms required by UT Law for travel, including an acknowledgement of travel policies, a release and indemnification agreement, proof of health insurance, and a travel release form.
Signature: Date:
3 2017 Giles S. Rich Memorial Moot Court Problem
This case involves an appeal in a patent infringement and breach of contract case captioned Syrus Associates LLP v. SQUARE.
5 Syrus Associates LLP sued a community research group called SQUARE in the US District Court for the District of Cascadia for infringement of US Design Patent D736,836 by SQUARE’s graphical user interface for cannabinoid identification software. SQUARE counterclaimed for breach of contract under the laws of the state of Cascadia, a state in the 10th Circuit, for Syrus’s unauthorized publication of SQUARE’s trade secrets in a 10 mobile application. SQUARE alleged a prior user defense under 35 U.S.C. § 273, and Syrus sought to have the state counterclaim dismissed for lack of supplemental jurisdiction and on the merits. The district court exercised jurisdiction over all claims, ultimately granting a motion for summary judgment that SQUARE infringed the ‘836 patent and was not entitled to a prior user defense and granting a cross-motion that 15 Syrus was in breach of contract.
Pursuant to 28 U.S.C. § 1295(a)(1), Syrus filed this appeal in the United States Court of Appeals for the Federal Circuit, seeking to reverse the lower court’s ruling that Syrus had breached the contract while SQUARE cross-appealed the ruling on the prior user defense and infringement. The appeal was docketed as Appeal No. 16-9999. On appeal 20 the parties stipulated to arguing only the following issues: 1) whether a prior user defense under 35 U.S.C. § 273 is available; 2a) whether the District Court properly exercised supplemental jurisdiction over the breach of contract counterclaim; and 2b) whether Syrus had breached the contract, with Syrus acting as appellant and SQUARE as appellee for all aspects of appeal.
25 Record Facts The record on appeal is generally confined to the facts presented herein. Any fact not recited is without support, except that clearly established, general facts consistent with this record may be judicially noticed.
1 Technological Background and SQUARE
Plants of the genus Cannabis have long been used for industrial and entheogenic purposes. While some uses of marijuana have been illegal in parts of the world, medical and pharmaceutical industries have recently taken greater interest in the clinical effects 5 of these plants for treating certain disease states and mitigating the impact of its recreational use. At the same time, several jurisdictions have legalized possession and use of cannabis products under particular conditions, such as for medical use. As clinical applications become more prevalent, these actors are increasingly sensitive to studying and policing production, use, and chemical characteristics of these products to 10 maximize public safety and health.
Researchers and enforcement agencies both face a problem: how to identify and characterize cannabis plants and products by their content of cannabinoids – a class of chemical compounds that act on human cannabinoid receptors. Tetrahydrocannabinol (THC) is probably the best known of the cannabinoids owing to its psychoactive effects, 15 but dozens of other cannabinoids are of interest for their impact on human health. There is a growing need for identification of cannabinoid content in field environments such as during growing and 20 harvesting of the plant to identify legal or prohibited plants by cannabinoid profile, ensure minimal levels of THC, and/or identify levels of other cannabinoids of interest.
25 Although cannabinoids have known light- absorption properties that can be used in their identification1, determination of exact cannabinoid profile conventionally
1 See, e.g., US Pat. 8,097,467 to Henderson (filed Dec. 24, 2008)
2 requires isolation of the cannabinoids in a laboratory setting, followed by chromatography or spectrometry.2 This does not lend itself well to spot-check or field verification of plants of interest, where cannabinoids exist in botanical systems matrixed among thousands of other compounds in foliage, in varying environmental conditions.
5 Remarkably, a small research group solved this problem. SQUARE, an organization of chemists and community leaders founded in the 1970s at a technical community college in what is now the state of Cascadia, a state in the 10th Circuit, to promote healthy living through science (SQUARE’s name was originally “Society for Quashing Unhealthy and Addictive Recreation or Entertainment,” which has been since abandoned for just the 10 acronym), discovered in 2011 that nearly all cannabinoids uniquely polarize incident electromagnetic radiation. That is, light reflected by a cannabinoid tends to be oriented in a single plane that is distinct to that cannabinoid. SQUARE recognized that this polarization can be used as a filter. A specific cannabinoid can be detected from reflected light intensity and spectrum in a polarization plane unique to that cannabinoid.
15 Dina Tinhail, the director of SQUARE, was eager to implement this cannabinoid- screening discovery to identify, track, and ultimately remove cannabis plants and products yielding THC. But SQUARE was a small, mission-oriented research group with a handful of botanists and chemists and no other engineers or computer programmers. While SQUARE had discovered the natural correlation between cannabinoids and light 20 polarity - and had developed a significant database identifying various cannabinoids by this property by hand - it lacked the monetary and technological resources to implement the same in software. SQUARE did not have the computer development know-how to create real-world identification devices running such software or support large-scale cannabinoid reconnaissance.
25
2 See, e.g., Hazekamp, Arno, “Chromatographic and Spectroscopic Data of Cannabinoids from Cannabis sativa L” Sept. 2005, J. of Liquid Chromatography & Related Techs.
3 The Joint Research Agreement
Like many small researchers and inventors, SQUARE sought out a larger party to develop, protect, and commercialize its discovery. SQUARE chose to partner with Syrus Associates LLP (hereinafter “Syrus”), a large computer software development and IP 5 asset holding firm headed by Mary Syrus out of Good Earth City, Cascadia. Syrus Associates was known for its work in developing software-based research and analysis tools and often worked with smaller players to develop and commercialize their software IP. Because of SQUARE’s impecunious operation, they agreed to give Syrus exclusive commercialization rights in software developed by Syrus. The commercialization rights 10 were the lynchpin of negotiations between the parties, with Syrus insisting that it be given sole rights to retail the software to third parties and patent the same, because this was the only way to recoup its investment in the contract obligations. SQUARE agreed but reserved all other rights in their discoveries, and required Syrus to keep confidential SQUARE’s removal actions that used the technology. These agreements were reflected 15 in a Joint Research Agreement (“Agreement”) between SQUARE and Syrus executed on October 12, 2011, which read in pertinent part:
Syrus Associates, LLP, a partnership organized under the laws of the state of Cascadia, and SQUARE, a not-for-profit organization under the laws of the state of Cascadia, desire to develop proprietary, large-scale 20 cannabinoid identification software and systems for the parties’ mutual benefit. Based on mutual assent and negotiated-for consideration discussed below, the parties hereby enter into a joint research, ownership, and commercialization agreement (“Agreement”) with the following terms: . . . 25 3.2 Non-transfer and Safeguarding of Trade Secrets and Confidential Information
The parties agree that no ownership or other interest in existing technology, information, know-how or other trade secret material is transferred, licensed, or otherwise granted by the terms of this Agreement . . . All 30 information, discoveries, data, concepts, inventions, and technical know- how created under this Agreement, including any of the preceding regarding cannabinoid electromagnetic polarization, cannabinoid types and distribution among differing cannabis species, identification of cannabis
4 species based on the same, and any removal actions taken against plants of the same, is and will remain a trade secret of SQUARE . . . Where the parties access or otherwise possess trade secret or other confidential information of another, the parties agree to use commercially-reasonable 5 safeguards to keep the same confidential, which, at a minimum shall be the most protective measures taken by either party in connection with their own trade secrets and other confidential information. The non-transfer and safeguarding of trade secret or confidential material shall survive this Agreement, and any physical manifestations of the same shall be delivered 10 to the owning party at the termination of this Agreement. . . . 5.1 Patenting and Commercialization
As an exception to paragraph 3.2 above, Syrus may, at its option, pursue patent rights on commercialize-able and patentable subject matter 15 developed by Syrus under this Agreement. Syrus shall be responsible for all patent or other procurement and enforcement costs on this subject matter, with SQUARE being notified of any such procurement and enforcement. Resulting patents and other rights on the commercialize-able and patentable subject matter developed by Syrus under this Agreement 20 shall be equally owned by the parties but allowed to be openly commercialized and/or licensed to third-parties only by Syrus. Syrus shall deliver to SQUARE any software embodying this subject matter developed under this Agreement, regardless of commercialization, for SQUARE’s internal use.
25 . . . the parties agree that all prior-existing subject matter and other subject matter developed under this Agreement outside of the commercialize-able and patentable subject matter developed by Syrus set out above shall remain secret and confidential under the terms of Section 3.2, including, but not limited to, SQUARE’s plant location database and any 30 enforcement/removal activities against cannabinoid-bearing plants.
The remainder of the Agreement was directed to the research and development process and contract formalities, including severability, exclusivity/non-delegation, and an operation of laws provision stating that the Agreement in all respects was governed by the laws of the state of Cascadia. The Agreement did not include an integration 35 clause. Dina Tinhail and Mary Syrus, the parties’ principals, executed the Agreement on October 12, 2011.
5 The ‘777 Patent Application
After 2 months of development, Syrus had implemented SQUARE’s cannabinoid discovery in software that could identify, categorize, and record cannabinoid-yielding plants and plant materials in the real world by cannabinoid content. Particularly, Syrus 5 programmed an algorithm that, based on received reflected light information, determined fairly accurate cannabinoid content of the reflected subject matter. This allowed identification of plants in the wild or after harvest, as well as determining presence of THC and/or other cannabinoids of interest. The software could be implemented in any computer receiving the light signals. Syrus delivered to SQUARE in 10 confidence several versions of this basic software for various platforms with light signal input / cannabinoid detection output, and efforts turned to developing an enterprise-level application with full graphical user interface (“GUI”) for commercialization.
On January 3, 2012, Syrus filed a patent application on the developed software, and notified SQUARE of the same. Syrus also filed a non-publication request under 37 15 C.F.R. § 1.213 with the application, because only US patent rights were being pursued. The USPTO assigned the application number 13/400,777, which it never published. The “Detailed Description” section and FIGS. 1 & 2 of the ‘777 application provided in relevant part:
[0016] The present invention is software-driven systems, methods, and 20 storage media for identifying cannabinoids in situ. The present invention is not, and the inventors explicitly disclaim any scope over, bare transitory signals, abstract ideas, or natural phenomena per se. Although such concepts are useable with the present invention, the present invention is limited to particular implementations of the same to improve specific 25 botanical and/or chemical technology, including specifically-configured cannabinoid-identifying devices and software. In contrast to the present invention, the few example embodiments and example methods discussed below illustrate just a subset of the variety of different configurations that can be used as and/or in connection with the present invention. . .
6 [0030] FIG. 1 [excerpted at right] is an illustration of an example embodiment system 100 for identifying 5 cannabinoids in situ. As seen in FIG. 1, reflected light 20 is collected. Reflected light 20 is light reflected from a subject 50 whose cannabinoid content 10 is of interest. . . The reflected light 20 is passed through a polarizer 105 with a known polarizing angle, such that the resultant polarized light 120 is 15 of a known polarized angle. . . . Reflected light 20 may be gathered by any light- detecting device including, for example, photo sensors like 20 CCDs, photodiodes, LEDs, photovoltaic cells, or visual inspection can be used to collect reflected light 20, coupled with a polarizer 105 to create polarized light 120 of a known polarization angle.
[0031] . . . The processing device 101, using example methods discussed below, determines the cannabinoid content of the subject 50. . . . The 25 processor 101 may also correlate the determination with a geographic location, date/time, or other related information in a database. . .
[0034] The processor 101 may be any known computer processor with associated transient and/or permanent memory that is programmable with example methods. As such, example system 100 can be implemented in 30 any computerized device receiving light data 120. For example, hand-held communications or mobile devices like cell phones and digital cameras, or laptops, GPS devices, etc. may be configured as system 100. Similarly, a drone or satellite may be configured as system 100, for example. . .
7 [0040] FIG. 2 [at left] is a flow chart of an example method for identifying cannabinoid content. As seen in FIG. 2, in 201, light reflected from the target 5 of interest, such as foliage or harvested plant products, is collected and polarized at a determinable angle of polarization. For example, polarizing filters known in the art, such 10 as polarizing PVA doped with iodine, wire-grid polarizers, birefringent polarizers, etc. may be used, as long as the resultant light is of a known angle with respect to the polarizer. 15 That is, any well-known mechanical or electronic methods for polarizing incoming light, such as those used in film and photography, may be used to collect and polarize the reflected light in 201.
[0042] . . .Several collections 201 may be performed serially or simultaneously, such as by separate photo sensors, at distinct angles of 20 polarization . . . Collections in 201 may be performed by any light sensor. . ., including photosensitive circuits or the human eye coupled with a polarizing plastic card. . . The collections in 201 may be transformed by the electronics or reported as values of their spectrum or other optical properties of interest, such as intensity and wavelengths.
25 [0043] In 202, the light collected in 201 is spectrally compared against a cannabinoid spectrum to determine presence of cannabinoids associated with each angle of polarization. For example, in 202, a computer processor may determine particular wavelengths of light particularly absorbed – i.e., missing – from the reflected light at only particular angles of polarization . . 30 . [Citation to Hazekamp, see note 2, supra] Because a cannabinoid spectrum typically shows strong absorption of light in the 650nm range (i.e., absorption of reds) but reflection of ultraviolet light, the presence or absence of specific cannabinoids for each angle of polarization may be easily determined by comparing the collected light against the cannabinoid 35 spectrum at each angle of polarization. . . . For example, [THC] polarizes at 6.11 degrees azimuthal, so particularly absent reds and well-reflected greens and ultraviolet in light from this angle of polarization relative to light from other angles correlates with strong presence of [THC] . . . Other angles of polarization for cannabinoids of interest may be determined by testing a 40 reference sample.
8 [0045] In 203 the processor reports the results of the determination to a user. The results may include specific cannabinoids associated with the angle of polarization as well as specific varieties or species of plant corresponding to the detected cannabinoids. . .
5 [0046] . . . Table 1 lists known cannabinoids with their angle of polarization.
Specific Polarization Angle Cannabinoid (degrees azimuthal) Tetrahydrocannabinol [THC] 6.11
Cannabidiol 8.5
Cannabicyclol 8.7 ...... Cannabichromene 10.0
[0049] The processor may thus determine if any number of distinct cannabinoids are present or absent in a subject based on polarizing light reflected by the subject. By using the previously-unknown property of cannabinoids to polarize reflected light at particularly-distinct angles, 10 example methods can readily identify presence of many different cannabinoids in cannabis plant foliage and products . . .
[0050] . . . For example, upon detection of [THC] with example methods, the reflecting subject may be destroyed or reported to authorities. Prior to the example method and embodiments disclosed herein, a more involved, 15 and potentially destructive, chemical test would need to be carried out on the subject to determine cannabinoid profile. . .
After minimal prosecution, the ‘777 application was allowed on April 24, 2013 with the following representative method claims:
1. A method of identifying cannabinoid presence and/or type in an article, the 20 method comprising: polarizing, at a known angle of polarization, light reflected from the article; and determining the spectrum of the polarized, reflected light, wherein a cannabinoid spectrum indicates presence of a specific cannabinoid 25 associated with the known angle.
9 2. The method of claim 1, further comprising: repeating the polarizing and determining each for a plurality of known angles of polarization so as to generate a cannabinoid profile for the article.
The Examiner stated in Reasons for Allowance that identification of a specific 5 cannabinoid associated with a known polarization angle was unknown in the prior art, rendering the claims patentable.
Prosecution Difficulties and Relationship Breakdown
On July 17, 2013, however, the Examiner withdrew the Notice of Allowance, citing developing Supreme Court § 101 caselaw. The Examiner newly rejected the claims as 10 reciting only a preemptive application of the “natural phenomenon” of cannabinoids polarizing light. Additional rounds of prosecution ensued over the next several months with amendments to the claims. The Examiner would not withdraw the § 101 rejections.
Relations soured between SQUARE and Syrus as prosecution of the ‘777 application drew out. Syrus became increasingly skeptical of potential profits if it could not get a 15 patent. As expenses mounted, Syrus dramatically slowed development and delivery of new systems or software packages. At the same time, SQUARE was frustrated by the lack of large-scale delivery of cannabinoid-identifying technology or any GUI from Syrus. While an appeal in the ‘777 application was pending, SQUARE and Syrus terminated the Agreement in the following email on April 16, 2014:
20 Mary,
I know the appeal was expensive and the changing legal landscape has thrown up more barriers than anticipated. But we both know there’s a solid opportunity of securing a patent if we wait this out or pursue rights in Europe. It’s too bad Syrus Associates lacks the vision to take on further prosecution 25 and deployment.
In light of these difficulties and Syrus’s dropping the ball on further delivery (for example, we’ve had to design our own GUI for the delivered software), it’s fair to terminate our relationship as you suggested. Consider this email SQUARE’s Notice of Termination as provided in Section 7 of the 30 Agreement.
10 It’s unfortunate for all our interests (and the state of tech in general) that things went wrong here. If anything comes of the appeal in the ‘777 application, which we still both own, we would like to revisit a future, more productive relationship. We expect all other terms of the Agreement as to 5 reserved rights to be respected.
Regards,
Dina Tinhail
Mary Syrus acknowledged the termination in a one-word reply (“Cool.”) and Syrus returned physical materials provided during development of the software to SQUARE. 10 Activities between the parties ceased.
On June 17, 2015, the Patent Trial and Appeal Board issued an opinion affirming the § 101 rejections in the ‘777 application. Syrus made no response, and the ‘777 application became abandoned on August 17, 2015 without ever being published and without any children or other related applications being filed. The relevant claims, having been 15 amended several times, were presented on appeal in the following form:
1. A method of determining a cannabinoid profile in a cannabis plant or product, the method comprising: receiving light reflected from the cannabis plant or product; polarizing, at a first angle of polarization associated with a first 20 cannabinoid, the received light to create a first polarized light; electronically converting the first polarized light to signals containing spectrum information of the first polarized light; comparing, with a computer processor, the spectrum information of the first polarized light against a cannabinoid spectrum; 25 determining, with the computer processor, whether the plant or product contains the first cannabinoid if the comparing shows the cannabinoid spectrum in the first polarized light; and reporting the results of the determining.
30 2. The method of claim 1, further comprising: polarizing, at a second angle of polarization associated with a second cannabinoid, the received light to create second polarized light; repeating the comparing and the determining for the second polarized light to create the cannabinoid profile for the cannabis plant or 35 product; and
11 associating the cannabinoid profile with a cannabis variety reported in the reporting.
6. The method of claim 1, wherein the first cannabinoid is [THC] and wherein 5 the first angle of polarization is 6.11 degrees measured from an azimuthal.
11. The method of claim 1, wherein the receiving light reflected is achieved by a photosensor on an aerial vehicle flying over the cannabis plant or product.
The Board opinion sustaining the § 101 rejections is excerpted in part below:
10 Appellant does not contest the Examiner’s finding that the claims are directed to the natural phenomenon of cannabinoids inherently polarizing reflected light at specific angles of polarization unique to the cannabinoid. Indeed, we find the claims clearly recite this natural phenomenon by receiving reflected light and then determining the light’s polarization to 15 determine associated cannabinoid content. . . nor does Appellant contest the claims use the recited cannabinoid property to compare new and stored information and categorize the new information, an abstract idea. . .
The specification confirms the invention is primarily based on the abstract use of a natural phenomenon; . . . the polarization of light by cannabinoids 20 is a natural phenomenon, and various polarizations of associated cannabinoids can even be observed by the naked eye. See Specification, ¶ [0030] (“visual inspection”). Because the claims are dominated by recitation of a natural phenomenon and the abstract idea of organizing information about the same, we turn to the next step of the Mayo/Alice test, determining 25 if the claims are confined to a specific application of this phenomenon. See Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S.Ct. 1289, 1294, 1298 (2012).
. . . the second step determines whether the claims further recite a specific application of the identified natural phenomenon or abstract idea [and do 30 not] preempt the same by covering all applications of the judicial exceptions. . . . In determining whether there is specific application, bare recitations of generic computer components, purely conventional actions, audience- identifying or field-of-use limitations, and insignificant post-solution activity are of little weight. . . Mayo, 132 S.Ct. at 1294; Alice Corp. Pty. Ltd., v. BLS 35 Bank Intern., 134 S.Ct. 2347, 2354 (2014).
None of the claims at issue recite a specific application of the natural phenomenon of cannabinoid-specific light polarization. As for claim 1, the “receiving” and “polarizing” steps are simply observational actions of the
12 natural phenomenon itself that rely on conventional polarization techniques. See Specification, ¶ [0040]. Similar to the “administering” and “determining” steps of [Mayo], actions that merely provoke a natural phenomenon in general terms do not amount to a specific application. . . Mayo, 132 S.Ct. at 5 1294; see also Ariosa Diagnostics, Inc. v. Sequenom, Inc., 2014-1139 slip.op. at 10-12 (Fed. Cir. June 12, 2015). The “electronically converting,” “comparing,” and “determining” steps are little more than translating the results of the natural phenomenon into general computer terms with clear, mental-only analogs. . . . See Cybersource Corp. v. Retail Decisions, Inc., 10 654 F.3d 1366, 1372 (Fed. Cir. 2011). The final ”reporting” step is insignificant post-solution activity; the reporting does not limit or even affect the preceding steps. Parker v. Flook, 437 U.S. 584, 590‐91 (1978). Similar to the reporting the results of the mathematical formula in Flook, “reporting” the results of any deterministic or assaying method, like those claimed here, 15 is inherent in the utility of such methods and does not limit the claims from whole preemption here. . . .
. . . Appellant’s arguments about disclaimer or disavowal in the specification are not persuasive. See Spec, ¶ [0016]. The caselaw makes clear that patentable subject matter does not depend upon the “draftman’s art” but on 20 a specific, novel application being recited in and meaningfully limiting the claims. Alice, 134 S.Ct. at 2359. . . In sum, the claims recite nothing substantively beyond the use of cannabinoid-identifying light polarization to, well, identify cannabinoids. Because claim 1 does not recite a specific application of the natural phenomenon of cannabinoid-specific light 25 polarization but instead preempts all basic uses of merely identifying cannabinoids by an inherent property of the same, claim 1 does not recite patent-eligible subject matter.
. . . the “polarizing” and “repeating” of claim 2 do nothing but repeat the patent ineligible steps of claim 1 for other cannabinoids and thus do not 30 confer patent eligibility. The “associating” step that builds a cannabinoid profile of the plant is a basic use of organizing information . . ., particularly, comparing new and old information – the built cannabinoid profile with a known cannabis plant’s profile to identify a specific plant. . . . The use of an abstract idea, a conventional comparison of new and old information, 35 cannot render [claim 2] non pre-emptive. See Classen Immunotherapies, Inc. v. Biogen Idec., 659 F.3d 1057, 1067-68 (Fed. Cir. 2011).
. . . claims [6 and 11] are [either] mere field-of-use limitations [or] audience identifiers. . . . The recitation of [THC] in claim 6 simply refers to the relevant audience, namely, pre-existing growers who have been interested in [crop 40 THC content] long before anyone presented these claims. . . Limiting the
13 claims to an aircraft as claim 11 does is nothing more than a field-of use limitation. . . Bilski v. Kappos, 130 S.Ct. 3218, 3231 (2010).
The Examiner’s rejection . . . under 35 U.S.C. § 101, is affirmed.
Post-Agreement GUI Development
5 SQUARE undertook its own efforts with the developed software from Syrus. Beginning in late 2013, as relations with Syrus were deteriorating and further work product from Syrus was not forthcoming, SQUARE’s members collectively worked on a GUI for the cannabis plant tracking and elimination program. Part of these efforts were led by a 10 SQUARE assistant director named Luce Morales, who on November 20, 2013 drew a map overlay for SQUARE’s identification software. Morales, lacking computer implementation skills, handed the GUI project 15 over to a SQUARE recent hire for programming, Ernest Temperance. Temperance re-formatted Morales’ map overlay to fit relevant information from their tracking and elimination system. Temperance 20 then implemented the GUI with appropriate programming, shown at left as it would appear on a computer or mobile device executing the software and with which a user could interact.
On December 4, 2013 SQUARE began using 25 its system and GUI to internally track and remove plants it identified in the wild, as well as report illegal cannabinoid-bearing plants on private land to relevant authorities, often for bounties in exchange for their reporting. SQUARE continually used this system with the same GUI to this day. SQUARE did not disclose its internal cannabis identification and tracking system publicly or to Syrus, and none of Morales, Temperance, or anyone 30 at SQUARE ever worked with anyone at Syrus on any GUI or knew of Syrus’s later GUI.
14 Meanwhile, Syrus presumed it was free to continue developing its own commercial cannabinoid-identifying technology following dissolution of the Agreement in April 2014. Syrus decided to pursue a mobile application and polarizing camera add-on for identifying and geotagging identified plants. The app ran on the same software as the 5 software delivered to SQUARE but with a new mobile application backend and a new geographic GUI added on. Syrus called the app Tokémon Go and billed it as “a fun new way to search out, tag, and catch different types of cannabis plants out there!” Syrus published the app through relevant outlets including the Apple Store and Google Play stores on August 26, 2015.
10 Prior to the app’s public release, on December 10, 2014, Syrus filed a design patent application for the Tokémon Go GUI. The application issued as US design patent D736,836 on September 29, 2015. The ‘836 patent included a single claim and drawing for the covered GUI:
CLAIM
15 The ornamental design for a display screen with graphical user interface, as shown and described.
DESCRIPTION
The FIGURE is a front view of a display 20 screen with graphical user interface showing a new design. The broken lines on the exterior of the figure represent the display screen and bounds of the claimed design, forming no part thereof. 25 Similarly, the broken lines shown inside the figure are for environmental purposes only and form no part of the claimed design.
Litigation
30 Shortly after the release of Tokémon Go, SQUARE became aware of Syrus’s continued use of what it regarded as its trade secret of identifying cannabinoids by their polarizing
15 effects in the app. Combined with the striking similarity between the app’s GUI and SQUARE’s developed GUI, Dina Tinhail was convinced Syrus had ripped SQUARE off and sent an angry email to Mary Syrus on September 2, 2015 about the breach of contract and screenshots of SQUARE’s GUI, suggesting Syrus had stolen that too. 5 Syrus replied on September 9, 2015, arguing that it was SQUARE who was actually infringing their patent-pending designs in the Tokémon Go GUI.
Relations did not improve from there but became increasingly adversarial. On October 7, 2015, Syrus sued SQUARE in the US District Court for the District of Cascadia for infringement of Syrus’s design patent D736,836. SQUARE answered with a prior user 10 defense under 35 U.S.C. § 273 and counterclaimed for breach of the Agreement by Syrus’s use and disclosure of the previously-delivered cannabinoid-identification software in the Tokémon Go app, alleging the District Court had supplemental jurisdiction over the state law breach claim under 28 U.S.C. § 1367. Cascadia is within the 10th Circuit’s jurisdiction and has adopted the Restatement (Second) of Contracts for 15 its state contract laws. The state has no court-developed common law to, and it looks to other states’ treatment of contracts under the Restatement as persuasive.
Before discovery, Syrus sought to have SQUARE’s breach of contract counterclaim dismissed. Syrus argued that § 1367 conveyed jurisdiction only over compulsory counterclaims. The patent infringement claim dealt with similarities in design between 20 SQUARE’s internal program and Syrus’s design patent, but the breach of contract claim was based on state law and dealt with the contents of the Syrus’s Tokémon Go application. Thus, Syrus argued that the breach of contract claim was merely a permissive counterclaim lacking an independent basis of federal jurisdiction that could not be joined by § 1367.
25 SQUARE responded that several circuits had agreed that § 1367 extended jurisdiction over permissive counterclaims too, as long as they were “related to claims in the action” so as to “form a part of the same case or controversy.” Because SQUARE’s internal program and Syrus’s Tokémon Go application used the same software, dealt with the same piece of technology, and had a shared genesis in the parties’ Agreement,
16 SQUARE argued the breach of contract counterclaim was proper under 28 U.S.C. § 1367. SQUARE also argued that, even if the claims were not sufficiently related, the breach of contract claim had independent federal question jurisdiction because the issue of “patent eligible subject matter” was federal in nature, dominated the dispute, 5 and was important to the federal system under Gunn v. Minton, 133 S.Ct. 1059 (2013).
The District Court denied Syrus’s motion in the following excerpted memorandum and order:
. . . 10th Circuit Court of Appeals law applies to federal jurisdictional issues of this District Court, as Cascadia is within the 10th Circuit. . . . State law 10 claims, such as breach of contract, are governed by the laws of the state of Cascadia, which has adopted the Restatement (Second) of Contracts . . .
. . .Syrus is correct that the breach of contract counterclaim does not arise under federal patent law. Syrus is further correct that the counterclaim is a 15 permissive, rather than compulsory, counterclaim. See FDIC v. Hulsey, 22 F.3d 1472, 1487 (10th Cir.1994) . . .. Syrus is lastly correct that prior to 1990, federal courts would not hear permissive counterclaims under the existing ancillary jurisdiction doctrine, and the 10th Circuit has never reached the question of whether the 1990 enactment of § 1367 changed this rule. 20 See Walker v. THI of New Mexico at Hobbs Ctr., 803 F. Supp. 2d 1287, 1299-1300 (D.N.M. 2011). Syrus’s correctness ends there.
As the First, Second, and Seventh Circuits (as well as several district courts within our circuit) have properly recognized, 28 U.S.C. § 1367 extends 25 supplemental jurisdiction to permissive counterclaims that are sufficiently related to the original claim and within the Constitutional case or controversy limits. See Global NAPs, Inc. v. Verizon New England Inc., 603 F.3d 71, 76 (1st Cir. 2010); Jones v. Ford Motor Credit Co., 358 F.3d at 210-14; Channell v. Citicorp Nat'l Servs., Inc., 89 F.3d 379, 384-87 (7th Cir. 1996) . 30 . .. Thus, this court has jurisdiction if the counterclaim, though permissive, is nonetheless sufficiently related to the plead claims so as to “form a part of the same case or controversy” under 28 U.S.C. § 1367(a). That “case or controversy” test merely requires that the claims all “derive from a common nucleus of operative fact.” Price v. Wolford, 608 F.3d 698, 702-703 (10th Cir. 35 2010) . . .
. . . Both the design patent infringement claims and breach of contract counterclaim derive from the same operative facts – the research
17 relationship between Syrus and SQUARE as governed by the same [Agreement]. . . All of Square’s internal tracking software with GUI, the Tokémon Go application, the Design Patent D736,836, and question of breach by disclosure of SQUARE’s trade secrets all directly spring from the 5 mutual actions of the parties taken further to the Agreement. . .
Because both the patent claim and the breach of contract counterclaim here derive from a same set of operative facts, the court will exercise jurisdiction over all claims [without regard for] the permissive bases to decline 10 jurisdiction in § 1367(c).
Following discovery, the parties filed cross motions for summary judgment under stipulations. The parties stipulated to the record as recited herein; SQUARE stipulated to infringement of the ‘836 design patent if the prior user defense under 35 U.S.C. § 273 15 was inapplicable; and Syrus stipulated to breaching the Agreement if the Tokémon Go application did not fall within paragraph 5.1 of the Agreement.
Syrus argued in its motion for summary judgment that § 273 prior user rights were inapplicable because SQUARE’s internal GUI is merely a “design” not listed in § 273(a). Syrus further argued that, because Syrus and SQUARE were subject to a joint research 20 agreement at the time SQUARE developed its GUI, the privity exception of § 273(e)(2) applied, as the developer Morales was in privity with SQUARE by virtue of the Agreement. Syrus did not seek attorney’s fees under § 273(f) for assertion of the defense. For its part, SQUARE responded that a GUI on a screen, like its internal tracking system, is a “machine” under § 273(a), which operated on only the allegedly 25 infringing subject matter and not the form of the asserted patent. SQUARE further argued that the “privity” exception of § 273(e)(2) could not apply to activities undertaken unilaterally and without agency, such as SQUARE’s GUI work.
SQUARE argued in its motion for summary judgment that Syrus had violated the Agreement with the Tokémon Go application. That application contained the 30 cannabinoid-identifying relationship and cannabinoid database in its software that Syrus was not permitted to disclose, because it was not “patentable subject matter” as evidenced by the ‘777 application’s rejection. For its part, Syrus responded that the cannabinoid-identifying functionality of the Tokémon Go application was clearly “patent
18 eligible subject matter” at the time of the Agreement or if properly claimed. As such, the application was excepted by section 5.1 of the Agreement.
On October 10, 2016, the District Court granted both motions for summary judgment, finding both parties liable to each other for varying damages. The memorandum 5 granting the cross motions is excerpted in relevant part below:
. . . 10th Circuit Court of Appeals law applies to federal jurisdictional issues of this District Court, as Cascadia is within the 10th Circuit. . . . State law claims, such as breach of contract, are governed by the laws of the state of Cascadia, which has adopted the Restatement (Second) of Contracts . . .
10 Summary judgment is appropriate under Rule 56 if there is no genuine dispute of material fact. . . . The parties have stipulated to a record without contested facts, but with much dispute as to the meaning of words in a contract and in 35 U.S.C. § 273. Such disputes are well-suited to summary judgment, as these are not factual questions. Where a contract is clear on 15 its face, as this court finds the [Agreement] is, its interpretation is a matter of law dependent only on the content of the Agreement and irrespective of external events. Restatement (Second) of Contracts § 209; see, e.g., Peterson v. The Sunrider Corp., 48 P.3d 918, 925 (Utah 2002). Of course, interpretation of the patent statutes is also a question of law. Belkin Intern., 20 Inc. v. Kappos, 696 F.3d 1379, 1382 (Fed. Cir. 2012).
The Federal Circuit has not yet had the opportunity to construe 35 U.S.C. § 273 as it was passed in the 2011 America Invents Act . . . This Court holds the prior user defense of § 273 does not apply to a mere design. . .
. . .to be sure, the alleged infringing subject matter of the ‘836 patent is only 25 a design – the ornamental elements of the GUI of SQUARE’s internal tracking system – and not the underlying pixels, screen, or hardware of that system. Section 273 clearly applies only to “subject matter consisting of a process, or consisting of a machine, manufacture, or composition of matter.” This language closely tracks the subject matter for utility patents in §§ 100 30 & 101 . . . (“process, machine, manufacture, or composition of matter”). Notably, § 273 says nothing of “ornamental designs” – the term used in § 171 for design patents. . . . Thus, the statute is clear on its face; the prior user defense can only apply to subject matter accused of infringing a utility patent.
35 Because the statute is clear, legislative history is of minimal value. Nonetheless, SQUARE’s argument falls short here too. As SQUARE would
19 have it, some statements over the past decades of legislative wrangling over the [AIA] suggest that a prior user defense should apply broadly. See, e.g., 112 H Rep. No. 98, at 44 (2011) (“The prior-use defense may be asserted against any patent (not just methods)”) This says nothing 5 specifically about design patents. . . . If anything, by scouring the legislative history, one can equally find statements suggesting designs were specifically not meant to be included by Congress. See, e.g., Matal, A Guide to the Legislative History of the America Invents Act: Part II of II, 21 Fed. Cir. B. J. 435 (2012), pp. 561-565 (showing prior user defense motivated 10 primarily for manufacturers, not graphical designers), 623 (suggesting USPTO Director Kappos recognized § 273 did not extend beyond processes and products).
. . . In sum, SQUARE’s prior user defense is inapplicable as a matter of law, and given the stipulation, summary judgment of infringement of the ‘836 15 patent is granted to Syrus. . .
The issue raised by SQUARE in its cross-motion, whether Syrus breached the [Agreement] by disclosing and commercializing the cannabinoid- identifying software embedded in its Tokémon Go application turns on the 20 phrase “patentable subject matter” [in the Agreement] . . .
The [Agreement] Section 3.2 sets out that SQUARE has ownership of all invented subject matter, which must be kept confidential. The only exception to SQUARE’s exclusive ownership and control is in Section 5.1, where “Syrus may, at its option, pursue patent rights on commercialize-able 25 and patentable subject matter developed by Syrus under this Agreement.” That Section also provides that Syrus can actually commercialize/disclose the same. . . . The use of the term “patentable subject matter” in a contract defining intellectual property rights could not be clearer – the term refers to the “Inventions patentable” in 35 U.S.C. § 101. Restatement (Second) of 30 Contracts § 222 (usage common in a field will be observed in a contract in that field, “even though particular rules are changed from time to time.”) Indeed, the Supreme Court has recently reemphasized that “patentable subject matter” is explicitly defined by § 101. E.g., Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S.Ct. 1289, 1293 (2012) (“Section 35 101 of the Patent Act defines patentable subject matter”) (emphasis added). . . . Thus, Section 5.1 only grants disclosure and commercialization rights to Syrus in what Syrus produced under the Agreement and fell under 35 U.S.C. § 101 as the Supreme Court as interpreted that statute.
20 . . . the cannabinoid-identification software developed by Syrus under the Agreement was not “patentable subject matter.” This is amply shown by the fate of the ‘777 patent, whose claims fully embraced the full scope of the subject matter developed by Syrus under the [Agreement]. The USPTO, 5 through both its Examiner and its independent PTAB, found in explicit detail that no claim in the ‘777 patent complied with § 101. [cite to PTAB opinion of Jun 17, 2015]
This Court agrees with the USPTO’s decision. Moreover, although Syrus would have this Court re-conduct the § 101 analysis anew to potentially find 10 some patentable subject matter to excuse its disclosure and breach, the fully-developed administrative record, which Syrus did not appeal, amply supplies this analysis. . . see also, B & B Hardware, Inc. v. Hargis Industries, inc., 135 S.Ct. 1293 (2015) (USPTO administrative determination precluded re-analysis of same issue in litigation).
15 . . .Nor are Syrus’s arguments about the software representing patentable subject matter in 2011 versus 2015 meritorious. The Supreme Court has made clear in its recent Mayo and Alice decisions – and even in its pre-2011 Bilski decision – that the contours of “patentable subject matter” have not changed from the precedents set decades ago in Benson, Flook, and Diehr. 20 Mayo, 132 S.Ct. at 1293 (reaffirming applicability of § 101 precedents over the past century); Flook, 437 U.S. at 590 (“patentable subject matter under § 101 is not like a nose of wax which may be turned and twisted in any direction”). . . That the USPTO may have at some time in the past granted claims like those in the ‘777 application is irrelevant. The USPTO may have 25 equally granted claims on an invention that was anticipated by a journal article the agency overlooked, but that mistake would not make the invention “novel” as that term would be interpreted in an IP contract.
The ‘777 patent application represents the full subject matter developed by Syrus during the term of the [A]greement. Because it does not represent 30 “patentable subject matter” as that term is used in the exception of Section 5.1, its contents are reserved to SQUARE. Syrus breached this reservation by using and publishing the same subject matter in its Tokémon Go application.
[Discussion of remedies omitted]
35 Syrus filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit on November 4, 2016, docketed as Appeal No. 16-9999, and SQUARE took a cross- appeal on the infringement issue.
21 On appeal, the parties stipulated to arguing only the applicability of the prior user rights defense, jurisdiction, and breach of contract. The parties further stipulated to proceeding under standard, unilateral appeal rules and forgoing cross-appeal procedures of Fed. Cir. Rule 28.1, with Syrus proceeding in all respects as the appellant and SQUARE as 5 appellee. The Federal Circuit Clerk captioned the appeal “Syrus Associates, LLP v. SQUARE.” Briefing will begin in 2017, to be followed by oral argument.
Proceedings Timeline
October 12, 2011 SQUARE and Syrus Enter Agreement
January 3, 2012 ‘777 Application Filed
April 24, 2013 ‘777 Application Initially Allowed
July 17, 2013 ‘777 Application Allowance Withdrawn
November 20, 2013 SQUARE Initially Designs Internal GUI
December 4, 2013 SQUARE Implements Internal GUI
April 16, 2014 SQUARE and Syrus Terminate Agreement
December 10, 2014 Syrus Files Application for ‘836 Design Patent
June 17, 2015 PTAB Affirms All § 101 Rejections in ‘777 Application
August 17, 2015 ‘777 Application Abandoned
August 26, 2015 Tokémon Go Application Publicly Released
September 2-9, 2015 SQUARE and Syrus Correspond on Settlement
September 29, 2015 ‘836 Design Patent Issues
October 7, 2015 Syrus Files Complaint Against SQUARE
October 10, 2016 District Court Issues Summary Judgment
November 4, 2016 Notice of Appeal to CAFC Filed
22 No. 16-9999
______UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT ______
SYRUS ASSOCIATES, LLP, Plaintiff-Appellant,
v.
SQUARE, Defendant-Cross-Appellant.
______APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CASCADIA ______
BRIEF OF PLAINTIFF-APPELLANT SYRUS ASSOCIATES, LLP ______
THOMAS LEMENS MATTHEW MELANÇON
Attorneys for Plaintiff-Appellant ______
February 6, 2017
CERTIFICATE OF INTEREST
Counsel for Plaintiff–Appellant, SYRUS ASSOCIATES, LLP, certifies the following:
1. The full name of every party or amicus represented by me is:
Syrus Associates, LLP
2. The name of the real party in interest represented by me is:
Syrus Associates, LLP
3. All parent corporations and any publicly held companies that own 10 percent
or more of the stock of the party or amicus curiae represented by me are:
None.
4. The names of all law firms and the partners or associates that appeared for
the party or amicus now represented by me in the trial court or agency or are
expected to appear in this court are:
N/A.
TABLE OF CONTENTS
TABLE OF CONTENTS ...... I
TABLE OF AUTHORITIES ...... II
STATEMENT OF RELATED CASES ...... VII
JURISDICTIONAL STATEMENT...... 1
STATEMENT OF THE ISSUES ...... 1
STATEMENT OF THE CASE ...... 2
STATEMENT OF THE FACTS ...... 3
SUMMARY OF THE ARGUMENT ...... 7
ARGUMENT ...... 9
I. THE DISTRICT COURT IMPROPERLY EXERCISED JURISDICTION OVER
SQUARE‟S COUNTERCLAIM...... 9
A. Under Tenth Circuit law, § 1367 does not grant jurisdiction over
permissive counterclaims...... 10
B. The court incorrectly found a “common nucleus of operative fact.”..... 12
C. SQUARE‟s counterclaim lacks independent jurisdiction...... 14
II. THE DISTRICT COURT INCORRECTLY GRANTED SUMMARY JUDGMENT
HOLDING SYRUS LIABLE FOR BREACH...... 15
A. The parties intended Syrus‟ ‟777 application to be “patentable subject
matter” at the time of the Agreement...... 16
B. Tokémon Go was “patentable subject matter” under 35 U.S.C. § 101 at
the time of the Agreement...... 18
C. Tokémon Go was “patentable subject matter” under 35 U.S.C. § 101 if
properly claimed...... 21
III. THE DISTRICT COURT CORRECTLY DENIED SQUARE‟S PRIOR USER DEFENSE
FOR ITS INFRINGING GUI...... 23
i A. SQUARE‟s GUI is an “ornamental design,” which falls outside the
categories protected by § 273...... 23
B. SQUARE‟s GUI is not a “machine.”...... 25
C. SQUARE developed its GUI while in privity with Syrus...... 28
CONCLUSION ...... 31
CERTIFICATE OF SERVICE ...... 32
CERTIFICATE OF COMPLIANCE ...... 32
TABLE OF AUTHORITIES CASE PAGE(S) Alice Corp. Pty v. CLS Bank Int'l., 134 S. Ct. 2347 (2014)...... 21
Alpine County v. United States, 417 F.3d 1366 (Fed. Cir. 2005) ...... 29
Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) ...... 16
Angioscore v. Trireme Med., LLC, 2016-1126, -1129, 2016 WL 6595984, *3 (Fed. Cir. 2016)...... 13
B & B Hardware, Inc. v. Hargis Industries, Inc. , 135 S. Ct. 1293 (2015)...... 19
BASCOM Global Internet Servs. v. AT&T Mobility LLC, 827 F.3d 1341 (Fed. Cir. 2016) ...... 21 Bilski v. Kappos, 561 U.S. 593 (2010) ...... 20 Burlington Indus. v. Ellerth, 524 U.S. 742 (1998) ...... 28 Burr v. Duryee, 68 U.S. 570 (1863) ...... 26
ii California Fed. Bank v. United States, 245 F.3d 1342 (Fed. Cir. 2001) ...... 16 Cellport Sys. v. Peiker Acustic GbmH, 762 F.3d 1016 (10th Cir. 2014) ...... 14 Celotex Corp. v. Catrett, 477 U.S. 317 (1986) ...... 16 Channell v. Citicorp Nat’l Servs., 89 F.3d 379 (7th Cir. 1996)...... 12 Christianson v. Colt Indus. Operating Corp., 486 U.S. 800 (Fed. Cir. 1988) ...... 14 CLS Bank Int'l v. Alice Corp. Pty, 717 F.3d 1269 (Fed. Cir. 2013), aff’d, 134 S. Ct. 2347 (2014)...... 26
ContentGuard Holdings, Inc. v. Amazon.com, Inc., 2015 U.S. Dist. LEXIS 139947 ...... 19 DDR Holdings, LLC v. Hotels.com, LP, 773 F.3d 1245 (Fed. Cir. 2014) ...... 21 Diamond v. Diehr, 450 U.S. 175 (1981) ...... 20 Digitech Image Techs., LLC v. Electronics for Imaging, Inc., 758 F.3d 1344 (Fed. Cir. 2014) ...... 26 Egyptian Goddess, Inc. v. Swisa, Inc., 543 F.3d 665 (Fed. Cir. 2008) ...... 13 Empire HealthChoice Assur., Inc. v. McVeigh, 547 U.S. 677 (2006) ...... 15 Enfish, LLC v. Microsoft Corp., 822 F.3d 1327 (Fed. Cir. 2016) ...... 22 Executive Software N. Am. v. United States Dist. Court, 24 F.3d 1545 (9th Cir. 1994)...... 11
iii
FDIC v. Hulsey, 22 F.3d 1472 (10th Cir. 1994) ...... 9 Finley v. United States, 490 U.S. 545, 556 (1989) ...... 10 Flexfab, L.L.C., v. United States, 424 F.3d 1254 (Fed. Cir. 2005) ...... 29 Florida v. Jardines, 133 S. Ct. 1409 (2013)...... 23 Gilmore v. Weatherford, 694 F.3d 1160 (10th Cir. 2012) ...... 15 Global Naps, Inc. v. Verizon New Eng., Inc., 603 F.3d 71 (1st Cir. 2010) ...... 12 Gunn v. Minton, 133 S. Ct. 1059 (2013)...... 14 In re Freeman, 30 F.3d 1459 (Fed. Cir. 1994) ...... 19 In re Nuijten, 500 F.3d 1346 (Fed. Cir. 2013) ...... 26, 27 Jones v. Ford Motor Credit Co., 358 F.3d 205 (2d Cir. 2004) ...... 12 King Fisher Marine Serv. v. 21st Phoenix Corp., 893 F.2d 1155 (10th Cir. 1990) ...... 13 LaAsmar v. Phelps Dodge Corp. Life, 605 F.3d 789 (10th Cir. 2010) ...... 16 Lab. Corp. of Am. Holdings v. Chiron Corp., 384 F.3d 1326 (Fed. Cir. 2004) ...... 23 Lee v. Dayton–Hudson Corp., 838 F.2d 1186 (Fed. Cir. 1988) ...... 26
iv Litecubes L.L.C. v. N. Light Prods., 523 F.3d 1353 (Fed. Cir. 2008) ...... 9 Madstad Eng’g, Inc., v. United States PTO, 756 F.3d 1366 (Fed. Cir. 2014) ...... 15 Mayo Collaborative Servs. v. Prometheus Labs, Inc., 132 S. Ct. 1289 (2012)...... 22 McRo, Inc. v. Bandai Namco Games Am., Inc., et al, 837 F.3d 1299 (Fed. Cir. 2016) ...... 22 Moore v. New York Cotton Exchange, 270 U.S. 593 (1926) ...... 10 Mudge v. United States, 308 F.3d 1220 (Fed. Cir. 2002) ...... 23 Nat’l R.R. Pass. Corp. v. Nat’l Ass’n of R.R. Pass., 414 U.S. 453 (1974) ...... 24 New Hampshire v. Maine, 532 U.S. 742 (2001) ...... 25 NLRB ex rel. Int’l Union of Elec., Radio, and Mach. Workers etc. v. Dutch Boy, Inc., 606 F.2d 929 (10th Cir. 1979) ...... 10 Novell, Inc. v. Microsoft Corp., 731 F.3d 1064 (10th Cir. 2013) ...... 26 Owen Equipment v. Kroger, 437 U.S. 365 (1978) ...... 12 Peacock v. Thomas, 516 U.S. 349 (1996) ...... 11 Price v. Wolford, 608 F.3d 698 (10th Cir. 2010) ...... 10 Shamrock Technologies, Inc. v. Medical Sterilization, Inc., 903 F.2d 789 (Fed. Cir. 1990) ...... 28
v Shaw v. AAA Eng’g & Drafting Inc., 138 Fed. Appx. 62 (10th Cir. 2005) ...... 11 Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010) ...... 17 Teva Pharms. USA, Inc. v. Sandoz, Inc., 135 S. Ct. 831 (2015) ...... 15 United Mine Workers v. Gibbs, 383 U.S. 715 (1966) ...... 12 United States v. Johnson Controls, 713 F.2d 1541 (Fed. Cir. 1983) ...... 29 Versata Software, Inc. v. Callidus Software, Inc., 780 F.3d 1134 (Fed Cir. 2015) ...... 9 Weber v. Fujifilm Med. Sys. U.S.A., 2011 U.S. Dist. LEXIS 19119 (Dist. Conn. 2011) ...... 12
STATUTES PAGE(S) 28 U.S.C. § 1295(a)(1) ...... 1 28 U.S.C. § 2107 ...... 1 28 U.S.C. § 1331 ...... 1 28 U.S.C. § 1367 ...... passim 35 U.S.C. § 101 ...... 3, 8, 24, 26 35 U.S.C. § 161 ...... 24 35 U.S.C. § 171 ...... 24 35 U.S.C. § 271 ...... 13 35 U.S.C. § 273 ...... passim
vi RULES PAGE(S) Fed. Cir. R. 47.5 ...... vii Fed. R. App. P. 25(b) ...... 31 Fed. R. App. P. 32(a)(7) ...... 31 Fed. R. App. P. 32(f) ...... 31 Fed. R. App. P. 4(a) ...... 1
OTHER AUTHORITIES PAGE(S) H.R. REP. NO. 101–734, at n.15 (1990), reprinted in 1990 U.S.C.C.A.N. 6860, 6874...... 10
ROBERT W. BAHR, USPTO, INTERIM GUIDANCE FOR DETERMINING SUBJECT MATTER ELIGIBILITY FOR PROCESS CLAIMS IN VIEW OF BILSKI V. KAPPOS 3 (2010) ...... 18 Restatement of Contracts (Second) § 201(3) (Am. Law. Inst. 1981) ...... 18 Restatement of Contracts (Second) § 203 (Am. Law. Inst. 1981)...... 16 Restatement of Contracts (Second) § 205 (Am. Law. Inst. 1981)...... 29 Restatement of Contracts (Second) § 220 (Am. Law. Inst. 1981)...... 13 Joe Matal, A Legislative History of the American Invents Act: Part II of II ...... 24 Thomas D. Rowe et al., Compounding or Creating Confusion About Supplementing Jurisdiction?, 40 EMORY L. J. 943 ...... 10 Rachel Stigler, Ooey GUI: The Messy Protection of Graphical User Interfaces, 12 NW. J. TECH. & INTELL. PROP. 215 (Aug. 2014) ...... 25
STATEMENT OF RELATED CASES Pursuant to Fed. Cir. R. 47.5, appellants provide as follows:
(a) There have been no previous appeals in this case.
(b) They are aware of no other case that will be directly affected by the Court‟s
decision in this case.
vii
JURISDICTIONAL STATEMENT The trial court had jurisdiction over Syrus‟ design patent infringement suit under 28 U.S.C. §§ 1331 and 1338(a). The trial court also exercised jurisdiction over SQUARE‟s breach of contract counterclaim under 28 U.S.C. § 1367, which
Syrus contests. The statutory basis for jurisdiction of this Court to hear Syrus‟ appeal is 28 U.S.C. § 1295(a)(1) and 28 U.S.C. § 1367. This appeal was timely filed in accordance with 28 U.S.C. § 2107 and Fed. R. App. P. 4(a) on November
4, 2016, within 30 days of the District Court‟s order on October 10, 2016. This is an appeal from a summary judgment holding Syrus liable for breach of contract.
STATEMENT OF THE ISSUES 1. Did the District Court improperly exercise supplemental jurisdiction over SQUARE‟s permissive counterclaim when that claim lacked a “common nucleus of operative fact” with Syrus‟ patent infringement claim?
2. Did the District Court improperly grant summary judgment that Syrus breached its Agreement with SQUARE when Syrus‟ Tokémon Go application satisfies Section 5.1 of the Agreement?
3. Did the District Court properly deny SQUARE‟s prior user defense to
Syrus‟ design patent infringement claim by holding that SQUARE‟s GUI is an
“ornamental design” that is ineligible for the defense?
1
STATEMENT OF THE CASE On October 7, 2015, Syrus sued SQUARE for infringing its design patent
D736,836 [hereinafter ‟836 patent] in the U.S. District Court for the District of
Cascadia. (R. 16:7–9). SQUARE answered this suit with a prior user defense under
35 U.S.C. § 273. (R. 16:9–10). SQUARE counterclaimed against Syrus for breach of contract under Cascadian state law. (R. 16:10). In this counterclaim, SQUARE alleged that Syrus breached the Agreement by using and disclosing cannabinoid identification software in Syrus‟ Tokémon Go application. (R. 16:11–12).
SQUARE claimed that the District Court had supplemental jurisdiction over its state law breach of contract claim under 28 U.S.C. § 1367. (R. 16:12–13).
Syrus moved to dismiss SQUARE‟s breach of contract counterclaim for lack of jurisdiction, but the District Court denied this motion. (R. 16:17–19). In exercising jurisdiction, the Court found that Syrus‟ patent infringement claim and
SQUARE‟s breach of contract counterclaim shared a common nucleus of operative fact. (R. 18:7–10). After discovery, both parties moved for summary judgment under stipulations. (R. 18:12–13). SQUARE stipulated to infringing Syrus‟ ‟836 design patent if its prior user defense under 35 U.S.C. § 273 was inapplicable.
Syrus stipulated to breaching the Agreement if Tokémon Go fell outside section
5.1 of the Agreement. (R. 18:13–16).
2
On October 10, 2016, the District Court granted both motions for summary judgment. (R. 19:3–4). The court held SQUARE‟s prior user defense inapplicable as a matter of law, rendering SQUARE liable for infringement. (R. 20:13–15). The
Court also held that Syrus could only commercialize or disclose inventions within
Agreement section 5.1, since Agreement section 3.2 reserved all other inventions to SQUARE. (R. 20:21–25). The court then found that 35 U.S.C. § 101 defined the
“patentable subject matter” that fell within Agreement section 5.1. (R. 20:27–38).
Agreeing with the USPTO that “no claim in the ‟777 patent complied with § 101,” the court found that Tokémon Go was not “patentable subject matter.” (R. 21:1–8).
Thus, the court held that Tokémon Go fell outside Agreement section 5.1, and
Syrus breached the Agreement by publishing it. (R. 21:28–33). Syrus timely appealed the court‟s judgment of breach on November 4, 2016; SQUARE cross- appealed on the court‟s infringement judgment. (R. 21:35–36).
STATEMENT OF THE FACTS In 2011, SQUARE realized that it could leverage cannabinoid light polarization to enable easy identification of cannabinoids in the field. (R. 3:10–14).
As it lacked the resources to develop software independently, SQUARE partnered with Syrus Associates, LLP, a well-known software development firm, to implement its invention into software. (R. 3:19–4:8). During negotiations,
SQUARE granted Syrus exclusive rights to commercialize the software that Syrus
3
developed. (R. 4:8–9). To cover its development costs, Syrus required the rights to pursue patents and to retail software to third parties; these rights were the lynchpin of negotiations. (R. 4:10–12). SQUARE agreed, but reserved all other rights in its original discovery. (R. 4:12–14). Based on this understanding, Syrus and SQUARE entered an Agreement on October 12, 2011. (R. 4:14–16).
Agreement section 3.2 stated that any “existing technology, information, or other know-how . . . is and will remain a trade secret of SQUARE.” (R. 4:29–5:2).
However, “as an exception to [section] 3.2,” Agreement section 5.1 allowed Syrus to pursue patent rights on “commercialize-able and patentable subject matter developed by Syrus.” (R. 5:13–15). The parties jointly owned this subject matter, but only Syrus could “openly commercialize and/or license” it to third parties. (R.
5:18–22). Any “subject matter developed under this Agreement outside of [the 5.1 subject matter]” had to remain “secret and confidential under the terms of section
3.2.” (R. 5:25–30). This Agreement had no integration clause. (R. 5:34–35).
After just two months of development, Syrus successfully created cannabinoid identification software based on SQUARE‟s database and delivered it to SQUARE for internal use. (R. 6:1–2, 9–11). Syrus then began developing an enterprise-level application with a full GUI suitable for commercialization. (R.
6:11–12). On January 3, 2012, Syrus filed Patent Application 13/400,777
[hereinafter ‟777 application] on its developed software, describing a cannabinoid
4
field identification system that used reflected polarized light. (R. 6:13–16; 7:1–15).
The system included three devices: a polarizer (105), a computer processor (101), and an unspecified display device (190). (R. 7:23–30). The method claims collected reflected light and sent its data to the processor, which compared that data against a list of cannabinoids. (R. 8:23–27). The processor determined which cannabinoids‟ spectra matched the light data, and sent matching cannabinoids‟ profiles to a display with relevant information. (R. 9:1–4). The application
“explicitly disclaim[ed] any scope over . . . abstract ideas, or natural phenomena,” limiting its scope to specific botanical and chemical improvements. (R. 6:21–26).
On April 24, 2013, the Examiner allowed the ‟777 application, as field identification of specific cannabinoids using polarized light was unknown in the prior art. (R. 9:17–18; 10:4–6). However, the Examiner withdrew this allowance on July 17, 2013, stating that § 101 case law rendered the ‟777 application a
“preemptive application” of the “natural phenomenon” of cannabinoid light polarization. (R. 10:8–12). Though Syrus amended the ‟777 application to comply with the Examiner‟s recommendations, the Examiner did not withdraw this rejection. (R. 10:11–12). On June 17, 2015, the Patent Trial and Appeal Board
[hereinafter PTAB] affirmed this § 101 rejection, finding the ‟777 application was directed to the abstract idea of cannabinoid light polarization. (R. 12:10–22). Syrus later abandoned the ‟777 application. (R. 11:12–14).
5
Because the Examiner refused to approve the ‟777 application, Syrus feared it could not recoup its investment and slowed development of the Tokémon Go software. (R. 10:15–18). As a result, SQUARE became frustrated with Syrus; in late 2013, it secretly began work on its own GUI. (R. 14:5–9). SQUARE implemented that GUI into its internal tracking system on December 4, 2013. (R.
14:9–13, 24–27). SQUARE then used its secretly-developed GUI to report illegal cannabinoids in exchange for bounties. (R. 14:24–28). This clandestine use began while Syrus appealed the Examiner‟s rejection of the ‟777 application. Id.; (R.
11:12–13). On April 16, 2014, shortly after completing its GUI, SQUARE terminated its Agreement with Syrus. (R. 10:18–28).
Syrus acknowledged this termination on the same day and returned all physical materials that it received from SQUARE. (R. 11:8–10). This termination forced Syrus to find other ways to cover its costs. (R. 4:9–12). Thus, Syrus began developing its own mobile application and GUI to identify cannabinoids. (R. 15:1–
4). Syrus filed for a design patent on its GUI on December 10, 2014; this application issued as design patent D736,836 on September 29, 2015. (R. 15:10–
12). Syrus released its application, called “Tokémon Go,” through relevant outlets such as Apple‟s App Store and Google‟s Play Store on August 26, 2015. (R. 15:7–
9). Tokémon Go repurposed the software that Syrus developed for SQUARE, but added a new mobile application backend and the ‟836-patented GUI. (R. 15:4–6).
6
On September 2, 2015, SQUARE accused Syrus of using SQUARE‟s trade secret of cannabinoid light polarization in violation of the Agreement. (R. 15:30–
16:1). SQUARE also insinuated that Syrus stole SQUARE‟s GUI, including pictures of SQUARE‟s GUI that showed it was strikingly similar to Syrus‟ GUI.
(R. 16:1–4). Syrus replied that SQUARE‟s strikingly similar, secretly-developed
GUI infringed Syrus‟ patent-pending GUI. (R. 16:5–6). Relations between Syrus and SQUARE became “increasingly adversarial,” prompting this suit. (R. 16:7–9).
SUMMARY OF THE ARGUMENT The District Court improperly exercised supplemental jurisdiction over
SQUARE‟s breach of contract counterclaim. First, the District Court held that 28
U.S.C. § 1367 grants jurisdiction over all permissive counterclaims that satisfy the
Gibbs test. This holding misreads § 1367, which enabled jurisdiction over compulsory claims against third parties. Second, the District Court found a
“common nucleus of operative fact” between SQUARE and Syrus‟ claims based on a “loose factual connection” rather than the “logical dependence” that Gibbs requires. Syrus‟ and SQUARE‟s claims are logically independent because they depend on different witnesses, evidence, and factual determinations. Finally,
SQUARE‟s counterclaim lacks independent federal–question jurisdiction under
Gunn v. Minton. Consequently, the District Court erred in exercising jurisdiction over SQUARE‟s permissive breach of contract counterclaim.
7
The District Court improperly granted summary judgment holding Syrus liable for breach of contract, finding that Tokémon Go was not “patentable subject matter” under 35 U.S.C. § 101. However, Tokémon Go was “patentable subject matter” at the time of the Agreement: both parties interpreted that term as “Syrus‟ patent applications,” not “patent claims satisfying § 101.” Tokémon Go was also patentable under 35 U.S.C. § 101 under the Bilski “useful application” standard that governed patentability when the parties signed the Agreement. Furthermore, in light of this Court‟s recent § 101 decisions, Tokémon Go was patentable if properly claimed. Since Syrus and the PTO could not litigate these precedents when Syrus applied for patent, B & B Hardware does not bar examining them.
Consequently, this Court should reverse the District Court‟s decision that Tokémon
Go was not “patentable subject matter,” and dismiss SQUARE‟s breach claim.
On the other hand, the District Court properly denied SQUARE‟s prior user defense. Contrary to SQUARE‟s argument, its GUI is not a “machine” under 35
U.S.C. § 101: it lacks “concrete structure” and does not consist of “parts of devices in any mechanical sense.” SQUARE‟s GUI, like Syrus‟ GUI, is an “ornamental design” rather than a “machine.” Therefore, it falls outside the scope of 35 U.S.C.
§ 273. Both the language of § 273 and the legislative history of the AIA indicate that § 273 does not extend to ornamental designs such as SQUARE‟s GUI.
Additionally, any prior user defense would be barred by the privity exception in §
8
273(e)(2), since SQUARE developed its GUI while in an Agreement with Syrus that governed Syrus‟ GUI development. Thus, this Court should affirm the District
Court‟s summary judgment and hold SQUARE liable for its infringement.
ARGUMENT I. THE DISTRICT COURT IMPROPERLY EXERCISED JURISDICTION OVER SQUARE’S COUNTERCLAIM. The District Court erred by holding that 28 U.S.C. § 1367 granted district courts supplemental jurisdiction over permissive counterclaims like SQUARE‟s.
Since § 1367 neither “relates to this Court‟s jurisdiction” nor raises “a procedural issue unique to patent law,” this Court applies the governing circuit‟s law. Versata
Software, Inc. v. Callidus Software, Inc., 780 F.3d 1134, 1136 (Fed. Cir. 2015); see also Litecubes L.L.C. v. N. Light Prods., 523 F.3d 1353, 1366 (Fed. Cir. 2008). As
Cascadia lies within the Tenth Circuit, that circuit‟s law governs. (R. 1:7–9). The
Tenth Circuit reviews a District Court‟s exercise of jurisdiction de novo. FDIC v.
Hulsey, 22 F.3d 1472, 1479 (10th Cir. 1994). The District Court erroneously ruled that § 1367 granted it jurisdiction over permissive counterclaims, and that
SQUARE‟s and Syrus‟ claims share a “common nucleus of operative fact.” (R.
17:30–18:9). If either of these rulings is incorrect under Tenth Circuit law, the
District Court lacked valid jurisdiction over SQUARE‟s counterclaim.
9
A. Under Tenth Circuit law, § 1367 does not grant jurisdiction over permissive counterclaims. Before Congress enacted § 1367, the Tenth Circuit barred the exercise of supplemental jurisdiction over permissive counterclaims like SQUARE‟s; § 1367 did not change this conclusion. NLRB ex rel. Int’l Union of Elec., Radio, and
Mach. Workers etc. v. Dutch Boy, Inc., 606 F.2d 929, 932 (10th Cir. 1979) (citing
Moore v. New York Cotton Exchange, 270 U.S. 593, 608–09 (1926)). Section 1367 states that “the district courts shall have supplemental jurisdiction over all other claims . . . that [] form part of the same case or controversy.” 28 U.S.C. § 1367(a).
The Tenth Circuit interprets this clause as overruling Finley and granting jurisdiction over third-party claims, not over permissive counterclaims. See Price v. Wolford, 608 F.3d 698, 702–03 (10th Cir. 2010) (stating that § 1367 grants jurisdiction over new third-party plaintiffs‟ claims, but not mentioning permissive counterclaims); see also Finley v. United States, 490 U.S. 545, 556 (1989) (barring jurisdiction over third parties‟ pendent claims). In drafting § 1367, Congress also noted that § 1367(a) “codifies the scope of supplemental jurisdiction first articulated by the Supreme Court in United Mine Workers v. Gibbs.” H.R. REP. NO.
101–734, at n.15 (1990), reprinted in 1990 U.S.C.C.A.N. 6860, 6874.
Furthermore, § 1367‟s advisory committee sought to “codify most of the pre-
Finley status quo,” hoping to avoid a major politically-charged battle over amending jurisdiction. Thomas D. Rowe et al., Compounding or Creating
10
Confusion About Supplementing Jurisdiction?, 40 EMORY L. J. 943, 948–50. Since
Congress only meant § 1367 to overrule Finley, the District Court erred by holding that § 1367 extends supplemental jurisdiction over permissive counterclaims.
In addition to the Tenth Circuit, the Supreme Court and Ninth Circuit have both suggested that § 1367 only grants jurisdiction over compulsory counterclaims.
Peacock v. Thomas, 516 U.S. 349, 358–59 (1996); Executive Software N. Am. v.
United States Dist. Court, 24 F.3d 1545, 1548–49 (9th Cir. 1994). The Supreme
Court has cautioned “against the exercise of jurisdiction over proceedings that are
„entirely new and original.‟” Peacock, 516 U.S. at 358–59. Proceedings that require relief “of a different kind or on a different principle,” such as using
“entirely new theories of liability,” are “entirely new and original.” Id.; see also
Shaw v. AAA Eng’g & Drafting Inc., 138 Fed. Appx. 62, 68–71 (10th Cir. 2005)
(analyzing Peacock). Here, SQUARE‟s counterclaim introduces an “entirely new theory of liability” by bringing a contract claim into a patent dispute, matching the standard provided in Peacock. (R. 16:7–12). Like the Tenth Circuit, the Ninth
Circuit “interprets § 1367 as merely allowing this Court, at its discretion, to exercise jurisdiction over supplemental parties,” and thus overriding Finley.
Executive Software, 24 F.3d at 1548–49. Based on these authorities, 28 U.S.C. §
1367 does not extend jurisdiction over SQUARE‟s permissive counterclaim, so the
District Court improperly exercised jurisdiction.
11
B. The court incorrectly found a “common nucleus of operative fact.” The District Court erroneously found a “common nucleus of operative fact” based on a “mere factual similarity,” rather than the “logical dependence” that
Gibbs requires. Under Gibbs, two claims “[must] ordinarily be expected to [be tried] in one judicial proceeding” and have “not mere factual similarity but logical dependence” to share a “common nucleus.” United Mine Workers v. Gibbs, 383
U.S. 715, 725 (1966); Owen Equipment v. Kroger, 437 U.S. 365, 375–76 (1978).
First, the District Court relied on the Seventh Circuit, which improperly substituted a “loose factual connection” for the “logical dependence” required by Gibbs.
Channell v. Citicorp Nat’l Servs., 89 F.3d 379, 385 (7th Cir. 1996). Second, the
District Court cited the First Circuit, which merely added an alter ego to an existing counterclaim and did not permit new counterclaims like SQUARE‟s.
Global Naps, Inc. v. Verizon New Eng., Inc., 603 F.3d 71, 76, 80–81 (1st Cir.
2010). Finally, the District Court‟s citation to the Second Circuit relies on a holding from which the Second Circuit retreated. See Weber v. Fujifilm Med. Sys.
U.S.A., 2011 U.S. Dist. LEXIS 19119 (Dist. Conn. 2011), *15–16 (discussing the
Second Circuit‟s retreat from Jones v. Ford Motor Credit Co., 358 F.3d 205, 213–
14 (2d Cir. 2004)). Thus, the District Court‟s cited cases do not establish that
Gibbs allows a “common nucleus” between claims based on a “mere factual similarity.”
12
Gibbs‟ “logical dependence” requires the claims to share witnesses, evidence, and factual determinations; SQUARE‟s counterclaim lacks these overlaps with Syrus‟ claim. King Fisher Marine Serv. v. 21st Phoenix Corp., 893
F.2d 1155, 1162–63 (10th Cir. 1990); see also Angioscore v. Trireme Med., LLC,
2016-1126, -1129, 2016 WL 6595984, *3 (Fed. Cir. 2016. SQUARE‟s counterclaim and Syrus‟ claim involve different witnesses, as neither Morales‟ nor
Temperance‟s testimony is relevant to analyzing “substantial similarity” between the two GUIs under Syrus‟ claim. See Egyptian Goddess, Inc. v. Swisa, Inc., 543
F.3d 665, 670–72 (Fed. Cir. 2008) (holding that “ordinary observer” test for design patent infringement needs no expert analysis). Likewise, the two claims involve different evidence: SQUARE‟s claim, unlike Syrus‟ claim, requires examining the parties‟ manifested intentions in their communications. Compare Restatement of
Contracts (Second) § 220 (parties‟ intentions control contract interpretation), with
35 U.S.C. § 271 (intent irrelevant to patent infringement). Finally, the two claims involve different factual determinations: Syrus‟ claim only compares its GUI with
SQUARE‟s, while SQUARE‟s claim analyzes Tokémon Go and the Agreement.
Compare (R. 20:36–21:2) (SQUARE‟s determinations), with (R. 19:27–33)
(Syrus‟ determinations). Since SQUARE and Syrus‟ claims do not share witnesses, evidence, or factual determinations, they are logically independent, and lack a
“common nucleus” justifying the District Court‟s jurisdiction.
13
C. SQUARE’s counterclaim lacks independent jurisdiction. Despite SQUARE‟s argument to the contrary, SQUARE‟s breach of contract claim also fails the federal question jurisdiction test under Gunn v. Minton. (R.
17:2–5). Gunn held that a state claim has independent federal jurisdiction if “a federal issue is necessarily raised, actually disputed, substantial, and capable of resolution . . . without disrupting [federalism].” Gunn v. Minton, 133 S. Ct. 1059,
1065 (2013) (internal numbering omitted). These issues are only “necessarily raised” if the “plaintiff's right to relief necessarily depends on resolution of a substantial question of federal patent law.” Christianson v. Colt Indus. Operating
Corp., 486 U.S. 800, 809–10 (Fed. Cir. 1988) (emphasis added). The Tenth Circuit only finds that a contractual term “necessarily raises” patent law issues if it must refer to patent law. See Cellport Sys. v. Peiker Acustic GbmH, 762 F.3d 1016,
1022–23 (10th Cir. 2014) (licensing agreement did not “necessarily raise” patent law issue because royalty term allowed royalties on non-infringing products).
Since the Agreement‟s definition of “patentable subject matter” could refer to either § 101 or Syrus‟ ‟777 application, that issue does not “necessarily depend” on patent law. Infra, Part II.A.
SQUARE‟s claim regarding the definition of “patentable subject matter” also raises no “substantial” federal issues that are important “to the federal system as a whole.” Gunn, 133 S. Ct. at 1066. An issue is “substantial” if it is “a nearly
14
pure issue of law that would govern numerous cases,” and is not “fact-bound and situation-specific.” Gilmore v. Weatherford, 694 F.3d 1160, 1174 (10th Cir. 2012)
(citing Empire HealthChoice Assur., Inc. v. McVeigh, 547 U.S. 677, 700–701
(2006)). Unlike the issues of statutory constitutionality previously held
“substantial,” the Agreement at issue in this case will not “govern numerous cases,” but will only decide this case. Compare Madstad Eng’g, Inc., v. United
States PTO, 756 F.3d 1366, 1370–71 (Fed. Cir. 2014), with (R. 10:8–10, 11:11–13,
20:28–33) (three prior rejections show scope of § 101 not substantial issue here).
Additionally, SQUARE‟s issue is highly “fact-bound”: determining whether Syrus breached the Agreement will require weighing extrinsic, factual evidence regarding the parties‟ intentions. See Teva Pharms. USA, Inc. v. Sandoz, Inc., 135
S. Ct. 831, 832 (2015). Because SQUARE‟s counterclaim is neither “necessarily raised” nor “substantial,” it fails the Gunn test. Therefore, the District Court improperly granted summary judgment on SQUARE‟s breach of contract claim, and this Court should reverse and remand that counterclaim for dismissal.
II. THE DISTRICT COURT INCORRECTLY GRANTED SQUARE’S MOTION FOR SUMMARY JUDGMENT HOLDING SYRUS LIABLE FOR BREACH. The parties agree that Tokémon Go‟s status within Agreement section 5.1 and SQUARE‟s counterclaim both depend on 5.1‟s definition of “patentable subject matter.” (R. 18:15–16). The District Court incorrectly interpreted
15
“patentable subject matter” in Agreement section 5.1 to refer to 35 U.S.C. § 101, and therefore granted summary judgment against Syrus. (R. 20:36–38, 21:29–33).
This Court reviews a District Court‟s grant of summary judgment de novo, applying the same standard as the District Court and drawing all reasonable inferences in favor of the nonmovant. Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 255 (1986). Summary judgment is improper if the evidence shows that a genuine issue exists regarding any material fact or that the moving party is not entitled to a judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317,
322 (1986). Contract interpretation is a question of law, reviewed de novo.
California Fed. Bank v. United States, 245 F.3d 1342, 1346 (Fed. Cir. 2001).
A. The parties intended Syrus’ ’777 application to be “patentable subject matter” at the time of the Agreement. The District Court erroneously concluded that the Agreement‟s “patentable subject matter” must refer to 35 U.S.C. § 101, as that conclusion contradicts the parties‟ intent at the time of the Agreement. (R. 20:27–31). “A term is ambiguous if it is reasonably susceptible to more than one meaning, or where there is uncertainty as to the meaning of the term.” LaAsmar v. Phelps Dodge Corp. Life,
605 F.3d 789, 804 (10th Cir. 2010). In examining ambiguities, Cascadian courts interpret terms to operate reasonably and effectively, prioritize explicit terms above trade usage, and favorably weigh separately negotiated terms. Restatement of
Contracts (Second) § 203 (Am. Law. Inst. 1981). Since a patent application‟s
16
disclosures are frequently broader than its patentable claims, even a successful application could breach the Agreement if “patentable subject matter” does not encompass all its contents. See (R. 9:5 (Table 1)) (disclosure of SQUARE‟s trade secret cannabinoid polarization table necessary for patent application). Thus, unless “patentable subject matter” refers to “the ‟777 application‟s entire contents,”
Syrus would inevitably breach the Agreement by exercising its “commercialization rights.” (R. 4:10–11; 5:13–15); see also (R. 8:30–35) (‟777 application products would necessarily use SQUARE‟s data to compare cannabinoids). By contrast, as the ‟777 application “embraced [everything] developed by Syrus under the
[Agreement],” both parties would receive all intended rights if “patentable subject matter” means “Syrus‟ ‟777 application.” (R. 21:3–4). Since both parties could reasonably define “patentable subject matter” as “the ‟777 application‟s subject matter,” that term is ambiguous.
Extrinsic evidence reflecting the parties‟ intentions indicates that Agreement section 5.1‟s “patentable subject matter” did not refer to 35 U.S.C. § 101. In contract cases, courts must “give effect to the contractual rights and expectations of the parties,” and “the parties‟ intentions control” interpretation of ambiguous terms. Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 682 (2010).
SQUARE noted that the rejected ‟777 application might be viable if “[we] pursue rights in Europe,” indicating SQUARE did not equate “patentable subject matter”
17
with § 101. (R. 10:22–23). Since Syrus lacked rights if “patentable subject matter” meant § 101, SQUARE‟s statement that “we still both own [the ‟777 application]” shows SQUARE did not equate those terms. (R. 11:1–5). By publishing Tokémon
Go, Syrus likewise showed it read “patentable subject matter” to mean the ‟777 application rather than § 101. (R. 15:4–9). Since the parties did not intend
“patentable subject matter” to reference § 101, the District Court improperly resolved factual issues by misinterpreting that term to grant summary judgment.
B. Tokémon Go was “patentable subject matter” under 35 U.S.C. § 101 at the time of the Agreement. When SQUARE and Syrus signed their Agreement, they believed that the
‟777 application was “patentable subject matter” under the Bilski § 101 standard.
(R. 4:14–16). Since the parties determine the meaning of a contract when they mutually assent, events after that agreement cannot change the contract‟s meaning.
See Restatement of Contracts (Second) § 201(3) (explaining that absent such mutual meaning, no contract exists). At the time of the Agreement, the USPTO allowed process claims that practically applied a natural law or recited a specific machine to perform methods. See ROBERT W. BAHR, USPTO, INTERIM GUIDANCE
FOR DETERMINING SUBJECT MATTER ELIGIBILITY FOR PROCESS CLAIMS IN VIEW OF
BILSKI V. KAPPOS 3 (2010). Following this standard, the Examiner initially allowed the ‟777 application, since it enabled “identification of a specific cannabinoid” without requiring destructive chemical tests. (R. 9:13–10:6). Though the Examiner
18
later withdrew this acceptance based on “developing § 101 case law,” those cases occurred after the Agreement entered force in 2011. (R. 4:14–16; 10:8–9). Since
Syrus‟ ‟777 application was “patentable subject matter” at the time of the
Agreement, the District Court erred by applying the later Alice/Mayo standard. (R.
21:15–19).
While the District Court relied on the USPTO‟s findings “that no claim in the ‟777 patent complied with § 101,” those findings do not preclude issue re- examination here. (R. 21:8–14) (citing B & B Hardware, Inc. v. Hargis Industries,
Inc., 135 S. Ct. 1293 (2015)). B & B Hardware held that “the determination [of an issue] is conclusive in a subsequent action between the parties,” not between unrelated parties. B & B Hardware, 135 S. Ct., at 1303 (emphasis added). Since the ‟777 prosecution involved the USPTO and Syrus, but this case involves Syrus and SQUARE, the USPTO‟s issue determinations are not preclusive on that basis.
See also ContentGuard Holdings, Inc. v. Amazon.com, Inc., 2015 U.S. Dist. LEXIS
139947, *5–6 (holding no issue preclusion in patent validity dispute because
PTAB and District Court construct claims differently). Issue preclusion requires a party to have “a full and fair opportunity to litigate [that issue] in the prior court proceeding.” In re Freeman, 30 F.3d 1459, 1467 (Fed. Cir. 1994). However, the
PTAB‟s rejection of the ‟777 application applied the preemption test of Mayo and
Alice, not the Bilski standard. (R. 12:24–37). Indeed, the PTO‟s Examiner initially
19
admitted the ‟777 application under the Bilski standard, before later rejecting it based on “developing § 101 case law.” (R. 10:4–9). Since Syrus never had a “full and fair opportunity” to litigate the issue of Tokémon Go‟s patentability under the
Bilski standard, it can argue that test here.
Under the Bilski standard governing § 101 at the time of the Agreement, an issue of material fact exists regarding the ‟777 subject matter‟s eligibility. Bilski held that “an application of [patent-ineligible subject matter] to a known structure or process may well be deserving of patent protection.” Bilski v. Kappos, 561 U.S.
593, 611 (2010). The ‟777 application applied “polarizing . . . light reflected from
[an] article” to “indicate presence of a specific cannabinoid.” (R. 9:19–25). This application improved the known process of cannabinoid identification by eliminating its need for “more involved, and potentially destructive, chemical test[s].” (R. 9:14–17). Like the valid process in Diehr, the ‟777 application under
Bilski should not have been “nonstatutory simply because it use[d] a . . . digital computer.” Diamond v. Diehr, 450 U.S. 175, 186–88 (1981). Since the ‟777 application could have been patentable under Bilski, and thus “patentable subject matter” within section 5.1, the District Court improperly granted summary judgment against Syrus.
20
C. Tokémon Go was “patentable subject matter” under 35 U.S.C. § 101 if properly claimed. In holding that Tokémon Go was not “patentable subject matter,” the
District Court relied on the PTAB‟s rejection, which did not discuss the ‟777 application‟s claims “as an ordered combination.” (R. 21:4–12); see (R. 13:21–38)
(discussing each ‟777 claim individually). Subject matter is patentable if it is not directed to an ineligible concept, or if it “transforms” an application into a patent– eligible invention. CLS Bank Int'l v. Alice Corp. Pty, 134 S. Ct. 2347, 2355 (2014).
This Court has found claims patentable “when taken together as an ordered combination” if they achieve “specific improvements in [a] recited [] technology.”
DDR Holdings, LLC v. Hotels.com, LP, 773 F.3d 1245, 1258–59 (Fed. Cir. 2014);
BASCOM Global Internet Servs. v. AT&T Mobility LLC, 827 F.3d 1341, 1348–51
(Fed. Cir. 2016). In this case, the prior art for cannabinoid identification required
“isolation of the cannabinoids in a laboratory setting, followed by chromatography or spectrometry.” (R. 3:1–2). The ‟777 application removed this costly necessity by allowing cannabinoid identification from “a photosensor on an aerial vehicle” rather than a laboratory. (R. 12:6–7). Furthermore, the ‟777 application applied cannabinoid light polarization to enable cannabinoid identification “in cannabis plant foliage and products,” where the prior art could only identify isolated cannabinoids. (R. 9:8–11). Therefore, the “ordered combination” of the ‟777
21
application‟s claims enable “specific improvements in [cannabinoid identification] technology,” and is eligible for patent under § 101.
The ‟777 application also contains an “inventive concept” that satisfies §
101‟s patentability requirements. Claims directed to unpatentable subject matter are patentable if they contain “an „inventive concept‟” that makes them “more than a patent upon the natural law itself.” Mayo Collaborative Servs. v. Prometheus
Labs, Inc., 132 S. Ct. 1289, 1294 (2012). This Court has found that applications of specific rule sets are patentable if they leverage these rules to produce technological improvements and do not preempt all similar ideas. McRO, Inc. v.
Bandai Namco Games Am., Inc., et al, 837 F.3d 1299, 1314–16 (Fed. Cir. 2016); see also Enfish, LLC v. Microsoft Corp., 822 F.3d 1327, 1336 (Fed. Cir. 2016).
The ‟777 application leveraged the rule set of “light matching cannabinoid polarization angles” to remove the need for laboratory identification of cannabinoids. (R. 8:25–27; R. 9:13–16). Since this application improves field cannabinoid identification, it does not preempt using cannabinoid light polarization in other contexts such as laboratory cannabinoid identification. (R. 6:20–26). Thus, if properly claimed, the ‟777 application meets the McRO requirements for
“patentable subject matter” under 35 U.S.C. § 101 and falls within Agreement section 5.1. Consequently, this Court should reverse the District Court‟s erroneous
22
summary judgment against Syrus and dismiss SQUARE‟s breach of contract claim on its merits.
III. THE DISTRICT COURT CORRECTLY DENIED SQUARE’S PRIOR USER DEFENSE. Since SQUARE‟s eligibility for the prior user defense rests on the legal question of statutory interpretation, this Court reviews the District Court‟s judgment de novo. Mudge v. United States, 308 F.3d 1220, 1224 (Fed. Cir. 2002).
SQUARE must prove that its GUI falls within a category eligible for the defense by “clear and convincing evidence.” 35 U.S.C. § 273(b). A procedural issue that raises substantive patent law issues, such as the applicability of § 273 to ornamental designs, follows Federal Circuit law. Lab. Corp. of Am. Holdings v.
Chiron Corp., 384 F.3d 1326, 1330 (Fed. Cir. 2004). Under Federal Circuit law, neither § 273‟s language nor its history supports extending it to cover ornamental designs.
A. SQUARE’s GUI is an “ornamental design,” which falls outside the categories protected by § 273. The District Court correctly found that § 273 excludes ornamental designs, since it “says nothing of ornamental designs – the term used in § 171 for design patents.” (R. 19:31–34). Courts interpret statutes under the expressio unius est exclusio alterius canon, where the expression of one item excludes other unstated, similar items. See, e.g., Florida v. Jardines, 133 S. Ct. 1409 (2013) (deriving a bar
23
on all physical intrusions from a separate bar on searches “[where] the Government
. . . explore[s] details of the home . . . unknowable without physical intrusion”)
(emphasis added). Like plant patents, “ornamental designs” are sufficiently similar to the categories of § 273 that the expressio canon applies. Section 273 states that
“a process . . . machine, manufacture, or composition of matter” can employ the defense, but does not mention “ornamental designs.” 35 U.S.C. § 273. This statute‟s language imitates the definition of eligible subject matter for utility patents; by contrast, design patents and plant patents are explicitly defined in separate sections. Compare 35 U.S.C. §§ 101 & 273, with 35 U.S.C. § 161 & 35
U.S.C. § 171(a). As other requirements of patentability use the term “any invention,” § 273‟s specification of categories is deliberate. See 35 U.S.C. §§ 102,
103, 112.
The expressio canon requires “clear contrary evidence of legislative intent” to overcome, but the District Court correctly found no such evidence in § 273‟s legislative history. Nat’l R.R. Pass. Corp. v. Nat’l Ass’n of R.R. Pass., 414 U.S.
453, 458 (1974); (R. 19:35–36; 20:5–7). Prior to the passage of the Leahy-Smith
America Invents Act, the prior user defense only protected “method[s] of doing or conducting business.” Joe Matal, A Legislative History of the American Invents
Act: Part II of II, 551–52 (citing 35 U.S.C. § 273(a)(3) (2006)). Congress rejected multiple efforts to expand the prior user defense to all patentable subject matter,
24
demonstrating a consistent Congressional directive against extension of § 273 coverage. Id. at 557–58. SQUARE may argue that § 273 implicitly includes ornamental designs because “the provisions of [Title 35] relating to [utility] patents shall apply to [design] patents, except as otherwise provided.” 35 U.S.C. § 171(b)
(emphasis added). Under the expressio canon, the exclusion of “ornamental designs” from § 273‟s text “otherwise provides” their exclusion under § 171(b) unless Congress‟ intent signals otherwise. Since § 273‟s legislative history does not support extending that statute to cover SQUARE‟s GUI, the District Court properly denied SQUARE‟s prior user defense.
B. SQUARE’s GUI is not a “machine.” SQUARE also asserts that its GUI is a “machine,” and falls within § 273‟s explicit language. (R. 18:23–25). Patent infringers can claim a prior user defense on a process, machine, manufacture, or composition of matter used in a manufacturing or other commercial process. 35 U.S.C. § 273. Since SQUARE did not argue below that its GUI falls within § 273‟s other explicit categories, it is estopped from claiming them here. (R. 18:23–25); New Hampshire v. Maine, 532
U.S. 742, 750–51 (2001). Thus, if SQUARE cannot prove by “clear and convincing evidence” that its GUI is a “machine,” that GUI will fall outside § 273.
The District Court correctly found that “the alleged infringing subject matter of the ‟836 patent is only a design.” (R. 19:24–27). A “graphical user interface” is
25
“a „computer environment‟ that allows a user to interact with the computer through visual elements” using specially-configured computer code. Rachel Stigler, Ooey
GUI: The Messy Protection of Graphical User Interfaces, 12 NW. J. TECH. &
INTELL. PROP. 215, 216–17 (Aug. 2014). GUIs typically receive electrical signals from a mouse, transmit those input signals to software, and send output signals to a screen. See Novell, Inc. v. Microsoft Corp., 731 F.3d 1064, 1067 (10th Cir. 2013)
(describing a typical GUI). As Syrus obtained a design patent on its GUI,
SQUARE‟s GUI must also be an “ornamental design.” (R. 15:12–17). However,
“ornamental designs” cannot be “machines”: functional elements of designs cannot be protected, while “machines” must be functional to qualify for a patent. Lee v.
Dayton–Hudson Corp., 838 F.2d 1186, 1188 (Fed. Cir. 1988); see also 35 U.S.C. §
101 (a “machine” must be “useful” to qualify for patent). Thus, the District Court properly denied SQUARE‟s prior user defense.
SQUARE‟s GUI is also not a machine because it is purely data, not a
“concrete thing.” A “machine” under 35 U.S.C. § 101 is “a concrete thing, consisting of parts, or of certain devices and combinations of devices.” CLS Bank
Int'l v. Alice Corp. Pty, 717 F.3d 1269, 1316 (Fed. Cir. 2013), aff’d, 134 S. Ct.
2347 (2014) (citing Burr v. Duryee, 68 U.S. 570 (1863)). However, “data in its purely ethereal, nonphysical form” falls outside all of § 101‟s subject matter categories. Digitech Image Techs., LLC v. Electronics for Imaging, Inc., 758 F.3d
26
1344, 1349–50 (Fed. Cir. 2014). Syrus‟ ‟777 software sent computer data to a processor, compared that data against a cannabinoid list, and sent that data to a display. (R. 7:23–30; 8:25–27; 9:1–4). SQUARE‟s GUI merely re-organized that data into Morales‟ map overlay; thus, like the invention in Nuijten, SQUARE‟s
GUI merely changes the forms of electrical signals. In re Nuijten, 500 F.3d 1346,
1349–50 (Fed. Cir. 2013); (R. 14:11–21). Both Nuijten‟s invention and SQUARE‟s
GUI merely change “purely ethereal, nonphysical” data between equally intangible forms. In re Nuijten, 500 F.3d at 1355–56; (R. 14:19–24). Thus, SQUARE‟s GUI is not a “concrete thing,” and cannot be a “machine,” so the District Court properly denied SQUARE‟s § 273 defense.
Additionally, the District Court could have correctly found that SQUARE‟s
GUI is not a “machine” because that GUI lacks “parts [or] devices” as § 101 requires. This Court requires a “machine” under 35 U.S.C. § 101 to be “made of
„parts‟ or „devices‟ in [some] mechanical sense.” In re Nuijten, 500 F.3d at 1355–
56 (emphasis added). The structure of both SQUARE‟s tracking system and Syrus‟
Tokémon Go software is fully disclosed by the ‟777 application. (R. 13:5; 21:2–4).
Both of these systems require “devices” including a “polarizer,” a “processor,” and a display unit to function. (R. 7:16–18, 23–24). Conversely, Syrus‟ GUI is merely implemented on an external display screen, as the phrase “ornamental design for a display screen with graphical user interface” indicates. (R. 15:15–17, 21–24). As it
27
is a computer program, SQUARE‟s GUI contains no device; the alleged devices of
SQUARE‟s GUI are actually the parts of the tracking system where it operates. (R.
14:11–19). Thus, SQUARE‟s GUI is not a “machine” under § 101 because it is not
“made of parts, devices, or combinations of devices.”
C. SQUARE developed its GUI while in privity with Syrus. As the District Court held SQUARE‟s GUI ineligible for a prior use defense under § 273‟s language, it never reached the issue of privity. (R. 20:13–15).
SQUARE is also ineligible for a prior user defense because “the [infringing] subject matter . . . was derived from . . . persons in privity with the patentee.” 35
U.S.C. § 273(e)(2). Privity “is determined upon a balance of the equities,” where
“the closer [the] relationship [between two parties], the more the equities will favor
[finding privity].” Shamrock Technologies, Inc. v. Medical Sterilization, Inc., 903
F.2d 789, 793–94 (Fed. Cir. 1990). Employment relationships are sufficiently close to establish privity and liability between an employer and its employee. Burlington
Indus. v. Ellerth, 524 U.S. 742, 755–59 (1998); see also Shamrock Techs., 903
F.2d at 794 (reviewing cases holding that employee‟s involvement in infringement on employer‟s behalf creates privity between them). Here, SQUARE employed
Morales and directed her to create a map overlay for the infringing GUI design, establishing direct privity between SQUARE and Morales. (R. 14:9–13).
28
Likewise, the Agreement between Syrus and SQUARE created privity between Syrus and SQUARE. This Court has found privity where one party acts as another‟s agent, where their relationship is contractually established, and where that contract holds the principal liable for the agent‟s acts. United States v. Johnson
Controls, 713 F.2d 1541, 1551 (Fed. Cir. 1983). Syrus became SQUARE‟s agent in GUI development when Syrus began “developing an enterprise-level application with full graphical user interface.” (R. 6:9–12) (emphasis added). As this agency relationship was codified in the Agreement, and the Agreement was effective when
SQUARE developed its GUI, a contractual relationship existed between Syrus and
SQUARE. (R. 14:5–9). Finally, this Agreement held SQUARE liable as a co– owner for Syrus‟ acts in developing the software that SQUARE used to support its infringing GUI. (R. 5:2–5, 18–20). Thus, as SQUARE was in privity with Syrus, and SQUARE was also in privity with Morales, Morales is in privity with Syrus.
Morales is also directly in privity with Syrus because Syrus is a third-party beneficiary of Morales‟ contract with Temperance. Privity can be satisfied either directly or indirectly, where a third-party is a beneficiary of the contract between two parties. See Alpine County v. United States, 417 F.3d 1366, 1368 (Fed. Cir.
2005) (“In order to sue for damages on a contract claim, a plaintiff must have either direct privity or third-party beneficiary status.”). “[T]o prove third-party beneficiary status, a party must demonstrate that the contract . . . reflects an
29
intention to benefit the party directly.” Flexfab, L.L.C., v. United States, 424 F.3d
1254, 1259 (Fed. Cir. 2005). Morales, as SQUARE‟s agent, employed Temperance to program a GUI compatible with Syrus‟ software. (R. 14:9–13). Since Syrus and
SQUARE would equally own any profits on Syrus‟ developed software under the
Agreement, Syrus would have benefitted from the installation of SQUARE‟s GUI.
(R. 5:18–22). Since Morales intended SQUARE‟s GUI to be compatible with
Syrus‟ software, Morales intended Syrus to benefit from that GUI. See Restatement of Contracts (Second) § 205. Thus, Syrus was a third-party beneficiary of
Temperance‟s employment under Morales, and Morales developed SQUARE‟s
GUI while in direct privity with Syrus. Since SQUARE developed its GUI in privity with Syrus, the District Court properly granted summary judgment against
SQUARE; this Court should affirm its decision.
30
CONCLUSION Since SQUARE‟s counterclaim lacked a “common nucleus of operative fact” with Syrus‟ claim, the District Court lacked jurisdiction over that counterclaim. Accordingly, this Court should reverse SQUARE‟s breach of contract claim with instructions to dismiss for lack of jurisdiction. Alternatively, this Court should dismiss SQUARE‟s breach of contract claim on its merits, since
Tokémon Go was “patentable subject matter” that Syrus could publish under section 5.1 of the Agreement. Additionally, this Court should affirm the District
Court‟s grant of summary judgment that SQUARE‟s GUI is ineligible for 35
U.S.C. § 273‟s prior user defense.
Dated: February 6, 2017 Respectfully submitted,
THOMAS LEMENS
Matthew Melançon_____ MATTHEW MELANÇON Attorneys for Plaintiff-Appellant
31
CERTIFICATE OF SERVICE We certify that on the 6th day of February, 2017, a true and correct copy of this document was served on counsel of record for all parties in compliance with Fed.
R. App. P. 25(b).
THOMAS LEMENS
Matthew Melançon_____ MATTHEW MELANÇON Attorneys for Plaintiff-Appellant
CERTIFICATE OF COMPLIANCE We certify that the foregoing brief meets the technical rules promulgated by the
Federal Circuit Court of Appeals. This brief is in double-spaced 14-point font with a one-inch margin on all sides. This 31-page, 7,037-word brief complies with the limitations set by this Court in Fed. R. App. P. 32(a)(7), given the exemptions in
Fed. R. App. P. 32(f).
THOMAS LEMENS
Matthew Melançon_____ MATTHEW MELANÇON Attorneys for Plaintiff-Appellant
32 No. 16-9999
______UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT ______
SYRUS ASSOCIATES, LLP, Plaintiff-Appellant,
v.
SQUARE, Defendant-Cross-Appellant.
______APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CASCADIA ______
BRIEF OF DEFENDANT-CROSS-APPELLANT SQUARE ______
THOMAS LEMENS MATTHEW MELANÇON
Attorneys for Defendant-Cross- Appellant ______
February 6, 2017
i
CERTIFICATE OF INTEREST
Counsel for Defendant–Cross-Appellant, SQUARE, certifies the following:
1. The full name of every party or amicus represented by me is:
Society for Quashing Unhealthy and Addictive Recreation or Entertainment
[hereinafter ―SQUARE‖]
2. The name of the real party in interest represented by me is:
SQUARE
3. All parent corporations and any publicly held companies that own 10 percent
or more of the stock of the party or amicus curiae represented by me are:
None.
4. The names of all law firms and the partners or associates that appeared for
the party or amicus now represented by me in the trial court or agency or are
expected to appear in this court are:
N/A.
i
TABLE OF CONTENTS
TABLE OF CONTENTS ...... I TABLE OF AUTHORITIES ...... II STATEMENT OF RELATED CASES ...... VII JURISDICTIONAL STATEMENT...... 1 STATEMENT OF THE ISSUES ...... 2 STATEMENT OF THE CASE ...... 3 STATEMENT OF THE FACTS ...... 5 SUMMARY OF THE ARGUMENT ...... 10 ARGUMENT ...... 12 I. The District Court Improperly Denied SQUARE‘s Prior User Defense...... 12 A. 35 U.S.C. § 273 implicitly includes ornamental designs...... 12 B. SQUARE‘s GUI is a ―machine‖ under § 273(a) because a user interacts with it. ………………………………………………………………….15 C. § 273(e)(2) does not apply because SQUARE developed its GUI unilaterally and without agency...... 17 II. The District Court Properly Exercised Jurisdiction Over The Breach Of Contract Claim...... 18 A. Section 1367 extends supplemental jurisdiction over all permissive counterclaims that satisfy Gibbs...... 18 B. SQUARE‘s counterclaim has a ―common nucleus‖ with Syrus‘ claim that satisfies Gibbs...... 20 C. The District Court erred by not exercising independent federal question jurisdiction over SQUARE‘s counterclaim...... 22 III. The District Court Correctly Held That Syrus Breached Its Agreement With SQUARE...... 24 A. The District Court correctly held that ―patentable subject matter‖ in the Agreement refers to 35 U.S.C. § 101...... 24 B. Syrus cannot re-litigate whether the Tokémon Go application is ―patentable subject matter.‖ ...... 27 C. The District Court correctly held that Tokémon Go was not ―patentable subject matter.‖ ...... 29 CONCLUSION ...... 32 CERTIFICATE OF SERVICE ...... 33 CERTIFICATE OF COMPLIANCE ...... 33
i
TABLE OF AUTHORITIES
CASE PAGE(S) Alice Corporation Pty. Ltd. v. CLS Bank International, 134 S. Ct. 2347 (2014)...... 16, 28, 30
Affinity Labs of Texas, LLC v. DIRECTV, LLC, 838 F.3d 1253, 1257 (Fed. Cir. 2016) ...... 30
Amdocs (Isr.) Ltd. v. Openet Telecom, Inc., 841 F.3d 1288, 1317 (Fed. Cir. 2016) ...... 15
Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) ...... 12
Angioscore v. Trireme Med., LLC, 2016-1126, -1129, 2016 WL 6595984, *3 (Fed. Cir. 2016)...... 21, 22
Apple v. Samsung, No. 15–777, 2016 WL 7338398, at *6–7 (2016) ...... 14
Ariosa Diagnostics, Inc. v. Sequenom, Inc., 788 F.3d 1371, 1376 (Fed. Cir. 2015), cert. denied, 136 S. Ct. 2511 (2016)...... 30
B & B Hardware, Inc. v. Hargis Industries, Inc., 135 S. Ct. 1293 (2015)...... 27
Baer v. First Options, 72 F.3d 1294, 1298–99 (7th Cir. 1995) ...... 19
Bergstrom v. Sears, Roebuck & Co., 496 F. Supp. 476, 493 (D. Minn. 1980) ...... 13
Bilski v. Kappos, 130 S. Ct. 3218, 3231 (2010) ...... 30
Bledsoe Land Co. LLLP v. Forest Oil Corp., 277 P.3d 838, 845 (Colo. App. 2011) ...... 26, 27
ii
Blonder-Tongue Labs. v. University of Illinois Found., 402 U.S. 313, 323–324 (1971) ...... 28
Borough of W. Mifflin v. Lancaster, 45 F.3d 780, 789–90 (3rd Cir. 1995) ...... 21
Burr v. Duryee, 68 U.S. 570 (1863) ...... 15
Celotex Corp. v. Catrett, 477 U.S. 317 (1986) ...... 12
Channell v. Citicorp Nat’l Servs., 89 F.3d 379 (7th Cir. 1996)...... 19
Classen Immunotherapies Inc. v. Biogen Idec., 659 F.3d 1057, 1067–68 (Fed. Cir. 2011) ...... 31
CLS Bank Int'l v. Alice Corp. Pty, 717 F.3d 1269 (Fed. Cir. 2013), aff’d, 134 S. Ct. 2347 (2014)...... 15, 29
Conyers v. MSPB, 388 F.3d 1380, 1382 (Fed. Cir. 2004) ...... 13
Cybersource Corp. v. Retail Decisions, Inc., 654 F.3d 1366, 1372 (Fed. Cir. 2011) ...... 30
Diamond v. Chakrabarty, 447 U.S. 303, 315 (1980) ...... 25
Diamond v. Diehr, 450 U.S. 175 (1981) ...... 16
Enfish, LLC v. Microsoft Corp., 822 F.3d 1327, 1334 (Fed. Cir. 2016) ...... 16
Erie R.R. v. Tompkins, 304 U.S. 64, 78 (1938) ...... 24
iii
FDIC v. Hulsey, 22 F.3d 1472, 1479 (10th Cir. 1994)...... 18
Global Naps, Inc. v. Verizon New Eng., Inc., 603 F.3d 71 (1st Cir. 2010) ...... 20
Gunn v. Minton, 133 S. Ct. 1059 (2013)...... 11, 23
In re Chung, 243 F.3d 561 (Fed. Cir. 2000) ...... 26
Intel Corp. v. U.S. Int'l Trade Comm'n, 946 F.2d 821, 838 (Fed. Cir. 1991)...... 17
Jang v. Boston Sci. Corp., 767 F.3d 1334, 1337–38 (Fed. Cir. 2014) ...... 23, 24
Jones v. Ford Motor Credit Co., 358 F.3d 205 (2d Cir. 2004) ...... 19, 20
Jones v. Intermountain Power Project, 794 F.2d 546, 549–53 (10th Cir. 1986) ...... 20
MAG Aerospace Industries, Inc. v. B/E Aerospace, Inc., 816 F.3d 1374, 1380 (Fed. Cir. 2016) ...... 15
Mayo Collaborative Servs. v Prometheus Labs., Inc. 566 U.S. 66 (2012) ...... 25
McRO, Inc. v. Bandai Namco Games America Inc., 837 F.3d 1299, 1315 (Fed. Cir. 2016) ...... 16
Microsoft Corp. v. GeoTag, Inc., 817 F.3d 1305, 1311 (Fed. Circ. 2016) ...... 18
Panduit Corp. v. All States Plastic Mfg. Co., Inc., 744 F.2d 1564 (Fed. Cir. 1984) ...... 18
iv
Parker v. Flook, 437 U.S. 584, 593 (1978) ...... 28, 29, 30, 31
Price v. Wolford, 608 F.3d 698 (10th Cir. 2010) ...... 20
Rains v. Niaqua, Inc., 406 F.2d 275, 276 (2nd Cir. 1969) ...... 12
Shamrock Technologies, Inc. v. Medical Sterilization, Inc., 903 F.2d 789 (Fed. Cir. 1990) ...... 17
SkyHawke Techs., LLC v. DECA Int'l Corp., 828 F.3d 1373, 1376 (Fed. Cir. 2016) ...... 27
Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 104 (1998)...... 18
Trading Technologies, No. 2016-1616, 2017 WL 192716 (Fed. Cir. 2017) (slip op.)...... 15
United Mine Workers v. Gibbs, 383 U.S. 715, 725 (1966) ...... 20, 21
United States v. Welden, 377 U.S. 95, 98 n.4 (1964) ...... 14
Voda v. Cordis Corp., 476 F.3d 887, 894 (Fed. Cir. 2007)...... 19
Wahlenmaier v. American Quasar Petroleum Co., 517 S.W. 2d 390, 393 (Tex. Civ. App. 1974) ...... 24
Walker v. THI of N.M. at Hobbs Ctr., 803 F.Supp.2d 1287 (D.N.M. 2011) ...... 19
v
STATUTE PAGE 28 U.S.C. § 1295(a)(1) ...... 1 28 U.S.C. § 1331 ...... 1, 3 28 U.S.C. § 1338(a) ...... 1, 3, 11, 22, 23 28 U.S.C. § 1367 ...... passim 28 U.S.C. § 2107 ...... 1 35 U.S.C. § 41 ...... 13, 14 35 U.S.C. § 100 ...... 2 35 U.S.C. § 101 ...... passim 35 U.S.C. § 141 ...... 26 35 U.S.C. § 171(b) ...... 10, 11, 12, 25 35 U.S.C. § 271(c) ...... 11 35 U.S.C. § 273 ...... passim 37 C.F.R. 90.3 ...... 28 Fed. R. App. P. 4(a) ...... 1 Fed. R. App. P. 25(b) ...... 33 Fed. R. App. P. 32(a)(7) ...... 33 Fed. R. App. P. 32(f) ...... 33 The Leahy-Smith America Invents Act, Pub. L. No. 112-29, 125 Stat. 284, at § 5(c) (2011) ...... 13
OTHER AUTHORITIES PAGE Restatement (Second) of Contracts § 202(b)(3) (Am. Law Inst. 1981) ...... 24, 25 Restatement (Second) of Contracts § 206 (Am. Law Inst. 1981) ...... 26 Restatement (Second) of Judgments § 27 (Am. Law. Inst. 1980) ...... 27
USPTO, JULY 2015 UPDATE: SUBJECT MATTER ELIGIBILITY, app. 1 at 7 ...... 15
vi
STATEMENT OF RELATED CASES Pursuant to Federal Circuit Rule 47.5, appellee provides as follows:
(a) There have been no previous appeals in this case.
(b) It is aware of no other case that will be directly affected by the Court‘s
decision in this case.
vii
JURISDICTIONAL STATEMENT The trial court had jurisdiction under 28 U.S.C. § 1331, 28 U.S.C. § 1338(a), and 28 U.S.C. § 1367. This Court has jurisdiction to hear Syrus‘ appeal and
SQUARE‘s cross-appeal under 28 U.S.C. § 1295(a)(1). This appeal was timely filed in accordance with 28 U.S.C. § 2107 and Fed. R. App. P. 4(a) on November
4, 2016, within 30 days of the District Court‘s order on October 10, 2016.
SQUARE cross-appeals from a summary judgment holding 35 U.S.C. § 273 inapplicable to ―ornamental designs.‖
1
STATEMENT OF THE ISSUES 1. Did the District Court improperly deny SQUARE‘s prior user defense to
design patent infringement because the language of 35 U.S.C. § 273 tracks
the subject matter for utility patents in 35 U.S.C. § 100 and 35 U.S.C. § 101
and § 273 says nothing of ornamental designs?
2. Did the District Court properly exercise jurisdiction over SQUARE‘s breach
of the Joint Research Agreement counterclaim by finding it shared a
common nucleus of operative fact with Syrus‘ claim?
3. Did the District Court properly held a breach of the Joint Research
Agreement by interpreting the phrase ―patentable subject matter‖ in the
Agreement to refer to § 101?
2
STATEMENT OF THE CASE On October 7, 2015, Syrus sued SQUARE in the United States District
Court for the District of Cascadia for infringement of its D736,836 design patent
[hereinafter ―´836 patent‖]. (R. 16:7–9). SQUARE answered with a prior user defense under 35 U.S.C. § 273. (R. 16:9–10). SQUARE counterclaimed for breach of contract under Cascadian state law, alleging that Syrus‘ publication of
―Tokémon Go‖ disclosed information belonging to SQUARE under their
Agreement. (R. 16:10–13, 18:26–30). The District Court had federal question jurisdiction over the patent infringement claim, and it had jurisdiction over the breach of contract counterclaim under § 1331, § 1338, or § 1367. (R. 16:25–29;
17:1–5).
Prior to discovery, Syrus attempted to dismiss SQUARE‘s breach of contract counterclaim for lack of subject matter jurisdiction, but the District Court denied
Syrus‘ motion. (R. 16:17–18). The Court held that Syrus‘ claim and SQUARE‘s
―derive[d] from a common nucleus of operative fact,‖ allowing the court to exercise jurisdiction. (R. 17:36–37). After discovery, both parties filed cross motions for summary judgment under stipulations. (R. 18:12–13). Syrus stipulated to breaching its Agreement with SQUARE if the Tokémon Go application fell outside the ―patentable subject matter‖ given to Syrus under section 5.1 of the
3
Agreement. (R: 18:13–16). SQUARE stipulated to infringing Syrus‘ design patent if its prior user defense under § 273 did not apply. Id.
The Court held that Syrus breached the Joint Research Agreement by using and publishing the cannabinoid-identifying software in its Tokémon Go application. (R. 19:3–4; 20:13–15; 21:31–33). The Court also held that SQUARE‘s prior user defense was inapplicable as a matter of law because SQUARE‘s allegedly infringing GUI was an ―ornamental design,‖ and thus not explicitly covered under § 273. (R. 19:26–29). Syrus timely appealed on November 4, 2016 and SQUARE took a cross-appeal on the infringement issue. (R. 21:35–36).
4
STATEMENT OF THE FACTS As clinical applications of cannabinoids become more prevalent, enforcement agencies and researchers increasingly seek information on their productive, usage, and chemical characteristics. (R. 2:7–10). However, since current technology requires ―isolation of the cannabinoids in a laboratory setting,‖ field identification of these cannabinoids is difficult. (R. 2:28–3:4). In 2011,
SQUARE, a small nonprofit research group, solved this problem by discovering that each cannabinoid species reflected light at a unique polarization angle. (R.
3:10–11). SQUARE also realized a device that detected polarized light could detect whether a specific cannabinoid was present in a sample based on the presence or absence of that cannabinoid‘s polarized light. (R. 8:30–35).
As SQUARE lacked the resources to create ―real-world identification devices‖ implementing this discovery, it sought a partner that would ―develop, protect, and commercialize its discovery.‖ (R. 3:21–24; 4:1–4) (emphasis added).
SQUARE selected Syrus because of Syrus‘ larger resources and experience in implementing smaller players‘ discoveries into software. (R. 4:5–8). Because
SQUARE had minimal funds, it granted Syrus exclusive commercialization and patent rights in the software that Syrus developed. (R. 4:8–9). In exchange,
SQUARE reserved all rights in its original discovery, and required Syrus to keep
SQUARE‘s removal actions confidential. (R. 4:12–14).
5
On October 12, 2011, Syrus and SQUARE entered an Agreement codifying this understanding. (R. 4:14–16). Section 3.2 of this Agreement stated that any
―existing technology, information, or other know-how . . . will remain a trade secret of SQUARE.‖ (R. 4:27–5:2). The parties also agreed ―to use commercially- reasonable safeguards to keep [that information] confidential,‖ and to return
―physical manifestations‖ of these secrets when the Agreement ended. (R. 5:2–5;
5:7–10). However, ―as an exception to [Section] 3.2,‖ Agreement Section 5.1 allowed Syrus to pursue patent rights on ―commercialize-able and patentable subject matter developed by Syrus.‖ (R. 5:13–15). Any ―subject matter developed under this Agreement outside of [the 5.1 subject matter]‖ had to remain ―secret and confidential under the terms of Section 3.2.‖ (R. 5:25–30). This Agreement lacked an integration clause. (R. 5:34–35).
After two months of development, Syrus implemented SQUARE‘s discovery into cannabinoid-identification software, which it delivered to SQUARE for SQUARE‘s internal use. (R. 6:1–2, 9–11). On January 3, 2012, Syrus began developing an application and GUI, and filed Patent Application 13/400,777
[hereinafter ―‘777 application‖] on this software. (R. 6:11–16). This application described a system for identifying cannabinoids in the field using polarized light.
(R. 7:1–15). The system included three devices: a polarizer (105), a computer processor (101), and an unspecified display device (190). (R. 7:23–30). The claims
6
disclosed methods to collect polarized light, convert that light into data, and compare that output data against known cannabinoid polarization angles to identify a cannabinoid. (R. 8:20–27; 9:1–4; 9:19–25). The application specifically disclaimed scope over natural phenomena, and allowed the use of known methods for polarization. (R. 6:21–26; 8:8–15). On April 24, 2013, the Examiner allowed the ‘777 application, as identification of specific cannabinoids in the field using polarized light was unknown in the prior art. (R. 9:17–18; 10:4–6).
However, the Examiner withdrew this allowance on July 17, 2013, stating that developing § 101 case law rendered the ‘777 patent application a ―preemptive application‖ of the ―natural phenomenon‖ of cannabinoid polarization of light. (R.
10:8–12). Syrus attempted to amend the ‘777 patent application over the next several years, but could not persuade the Examiner to withdraw the rejection. (R.
10:11–12).
During the examination of the application, Syrus slowed its development and delivery of software to SQUARE, prompting SQUARE to create its own GUI.
(R. 10:13–16; 14:5–9). On November 20, 2013, SQUARE employee Luce Morales drew a map overlay for SQUARE‘s identification software. (R. 14:9–13). Morales handed this GUI to a recently hired programmer named Ernest Temperance, who implemented it so that users could interact with Syrus‘ software on any computing device. (R. 14:13–16, 19–23). SQUARE finished its GUI on December 4, 2013,
7
over a year before Syrus filed for a design patent, and installed this GUI in its internal tracking system. (R. 14:24–27; R. 15:10). SQUARE has since used this tracking software and GUI to aid law enforcement authorities in detecting illegal cannabinoids. (R. 14:24–28). Syrus played no role in the development of
SQUARE‘s GUI, and none of SQUARE‘s employees ever worked with anyone at
Syrus on any GUI. (R. 14:29–30).
Syrus never delivered its promised large-scale cannabinoid software and
GUI; thus, with Syrus‘ consent, SQUARE terminated the Agreement on April 16,
2014. (R. 10:16–18). Syrus returned physical materials provided during development of the software to SQUARE. (R. 11:8–10). Despite the termination of the Agreement and its return of physical materials, Syrus ―presumed‖ it could continue developing its own cannabinoid-identifying technology. (R. 15:5–7).
Syrus began developing its own mobile application and GUI for identifying and geotagging cannabinoids using the same software sent to SQUARE. (R. 15:3–6).
On December 10, 2014, Syrus filed a design patent application for its GUI. (R.
15:10–11).
While secretly developing its own cannabinoid–identifying application,
Syrus appealed to the PTAB to overturn the Examiner‘s rejection of its ‘777 application. However, the PTAB affirmed the Examiner‘s rejection, holding the
‘777 application was ―based on the abstract use of [the] natural phenomenon‖ of
8
cannabinoid-specific light polarization. (R. 12:18–21). The PTAB also held that
―none of the [‘777 application‘s] claims at issue recited a specific application of
[that] natural phenomenon.‖ (R. 12:36–13:12). As the ‘777 application was unpatentable, Syrus abandoned it on August 17, 2015. (R. 11:12–14).
Syrus then released the ‘777 application‘s software, called ―Tokémon Go,‖ through multiple outlets; this application used the same software that Syrus delivered to SQUARE. (R. 15:7–9). On September 2, 2015, SQUARE informed
Syrus that Syrus‘ Tokémon Go application used SQUARE‘s trade secret cannabinoid polarization database in violation of the Agreement. (R. 15:30–16:1).
SQUARE also noted the striking similarity between Syrus‘ GUI and its own, and asked Syrus to explain the similarity between the two GUIs. (R. 16:1–4). On
September 9, Syrus asserted that SQUARE‘s GUI infringed Syrus‘ unpublished, patent-pending GUI design. (R. 16:5–6). On September 29, 2015, Syrus‘ application issued as design patent D736,836 [hereinafter ‘836 patent]; Syrus sued
SQUARE for infringing that patent a week later. (R. 15:10–12; 16:7–9).
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SUMMARY OF THE ARGUMENT The District Court erred in granting summary judgment by holding
SQUARE‘s § 273 prior user defense was ―inapplicable as a matter of law.‖ First, §
273 implicitly allows prior user defenses for infringing ornamental designs, not just for the subject matter of utility patents. Second, the District Court erroneously decided a disputed fact issue in its summary judgment. SQUARE‘s GUI is a
―machine‖ under 35 U.S.C. § 101, and thus falls within § 273(a) subject matter.
Finally, there is a disputed issue of material fact over whether Morales was in privity with Syrus based on her employment relationship with SQUARE.
Therefore, this Court should (1) vacate the District Court‘s grant of summary judgment, (2) hold that § 273 includes ornamental designs as a matter of law, and
(3) remand to the District Court to determine whether SQUARE‘s GUI falls within
§ 273(a) subject matter and whether § 273(e)(2) applies.
The District Court properly found a ―common nucleus of operative fact‖ that allowed it to exercise jurisdiction over SQUARE‘s counterclaim under § 1367.
First, § 1367 establishes the Gibbs ―case or controversy‖ standard as the only condition for admitting permissive counterclaims. While the Tenth Circuit has yet to interpret that statute, multiple Circuits and Congressional history signal
Congress‘ intent to establish broad jurisdiction over permissive counterclaims.
Second, SQUARE‘s counterclaim has a ―common nucleus‖ with Syrus‘ claim
10
under Gibbs: the two claims share a common incident that is more than background information. The District Court could also exercise federal question jurisdiction under § 1338(a), since SQUARE‘s claim is compulsory, ―arises under‖ a patent statute, and satisfies the Gunn factors. Thus, this Court should affirm the
District Court‘s exercise of jurisdiction.
The District Court properly held that Syrus breached its Agreement with
SQUARE because Tokémon Go and its predecessor ‘777 application fell outside
―patentable subject matter‖ granted to Syrus under section 5.1. The District Court properly identified ―patentable subject matter‖ under section 5.1 refers to § 101 as this technical term was used in its technical context. In addition, since the USPTO held that no claim in Tokémon Go satisfies § 101, its holding precludes Syrus from re-litigating that issue here. Finally, as Tokémon Go was directed to the ―natural phenomenon‖ of cannabinoid light polarization, it has never been patentable subject matter. Therefore, Tokémon Go is not ―patentable subject matter‖ as defined in Agreement section 5.1, and the District Court properly held Syrus liable for breaching the Agreement. Thus, this Court should affirm the District Court‘s holding that Syrus breached the Agreement.
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ARGUMENT I. THE DISTRICT COURT IMPROPERLY DENIED SQUARE’S PRIOR USER DEFENSE. The District Court erroneously granted summary judgment that held
SQUARE‘s prior user defense under § 273 ―inapplicable as a matter of law.‖ (R.
20:13). This Court reviews a District Court‘s grant of summary judgment de novo, applying the same standard as the District Court and drawing all reasonable inferences in favor of the nonmovant. Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 255 (1986). Summary judgment is proper if the evidence shows no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
A. 35 U.S.C. § 273 implicitly includes ornamental designs. The District Court held that § 273 ―only appl[ies] to subject matter accused of infringing a utility patent,‖ since it ―says nothing of ‗ornamental designs‘‖ and
―[its] language closely tracks the subject matter for utility patents.‖ (R. 19:29–34).
However, 35 U.S.C. § 171(b) states that ―the provisions of this title relating to patents for inventions shall apply to patents for designs, except as otherwise provided.‖ § 171(b) (emphasis added). Unless this ―otherwise provided‖ condition is met, ―design patents are generally governed by the same principles that apply to other patents.‖ Rains v. Niaqua, Inc., 406 F.2d 275, 276 (2d Cir. 1969). Another patent provision similarly does not include ―ornamental design‖ and ―tracks‖ the
12
language of § 101. See 35 U.S.C. § 271(c) (tracking § 101 by stating ―a component of a patented machine, manufacture, combination or composition, or a material or apparatus for use in practicing a patented process‖). Yet courts have previously held that this provision applies to design patents. See Bergstrom v. Sears, Roebuck
& Co., 496 F. Supp. 476, 493 (D. Minn. 1980) (implying that § 271 applies to design patents despite the absence of ―ornamental designs‖ from statute‘s language). By contrast, patent provisions that exclude ornamental designs explicitly use the language ―except for design, plant, or provisional applications.‖
35 U.S.C. § 41.
Second, even though § 273 does not explicitly include ornamental designs, that statute‘s legislative history also indicates that § 273(a)‘s subject matter implicitly includes design patents. Since the Leahy-Smith America Invents Act
[hereinafter AIA] was enacted in 2011, before the ‘836 patent issued on September
29, 2015, that patent is governed by the AIA-amended version of § 273. (R. 15:11–
12). The AIA added a statutory note to § 273 stating ―this section shall apply to any patent issued on or after the date of the enactment of this Act.‖ AIA, Pub. L.
No. 112-29, 125 Stat. 284, at § 5(c) (2011) (emphasis added). ―The fact that this provision was codified as a statutory note is of no moment. The Statutes at Large provide the evidence of the laws of the United States.‖ Conyers v. MSPB, 388 F.3d
1380, 1382 (Fed. Cir. 2004); see also United States v. Welden, 377 U.S. 95, 98 n.4
13
(1964) (noting that a provision must be read ―in the context of the entire Act, rather than in the context of the ‗arrangement‘ elected by the codifier‖). Had Congress intended to exclude design patents, it could easily have said so explicitly, as it did in § 41. Since Congress chose not to impose such a limitation, § 273‘s statutory note shows that Congress intended to include ornamental designs such as
SQUARE‘s GUI within § 273.
Third, even if Congress meant for the language of § 273(a) to ―track‖ § 101,
§ 273(a) still implicitly includes ornamental designs. A design patent requires, among other items, an ―ornamental design for an article of manufacture,‖ while §
273 applies to ―subject matter consisting of a . . . manufacture.‖ §§ 171, 273
(emphases added). §§ 273, 171, & 101 all contain a reference to ―manufacture.‖
And so, like the Supreme Court‘s most recent Apple v. Samsung decision holding an ―article of manufacture‖ in § 171 is consistent with § 101‘s ―manufacture,‖ then so too does § 273 and § 171 refer to the same ―manufacture.‖ Apple v. Samsung,
No. 15–777, 2016 WL 7338398, at *6–7 (2016). Thus, if an ornamental design, such as SQUARE‘s GUI, is ―for an article of manufacture,‖ such as the device displaying SQUARE‘s GUI, then the subject matter ―consists of a manufacture‖ under § 273(a). Therefore, § 273(a) implicitly includes design patents as a matter of law.
14
B. SQUARE’s GUI is a “machine” under § 273(a) because a user interacts with it. The District Court erred by granting summary judgment despite a disputed issue of fact. SQUARE‘s GUI is ―subject matter consisting . . . of a machine . . . used in a . . . commercial process.‖ 35 U.S.C § 273. The Supreme Court has defined the term ―machine‖ as ―a concrete thing, consisting of parts, or of certain devices and combinations of devices.‖ CLS Bank Int'l v. Alice Corp. Pty, 717 F.3d
1269, 1316 (2013) (citing Burr v. Duryee, 68 U.S. 570 (1863)), aff’d, 134 S. Ct.
2347 (2014). A GUI allows a user to interact with a computer through graphical elements. USPTO, JULY 2015 UPDATE: SUBJECT MATTER ELIGIBILITY, app. 1 at 7, https://www.uspto.gov/sites/default/files/documents/ieg-july-2015-app1.pdf. These graphical elements contain controls to accept user input for those processes. Id.
SQUARE‘s GUI is a machine because users interact with the GUI via a
―computer or mobile device‖ executing the underlying software. (R. 14:21–23).
This Court has held that software programs such as GUIs are ―digital machines‖ that are ―made of specific parts that interact . . . to achieve a specific result.‖
Amdocs (Isr.) Ltd. v. Openet Telecom, Inc., 841 F.3d 1288, 1317 (Fed. Cir. 2016); see also Trading Technologies, No. 2016-1616, 2017 WL 192716 (Fed. Cir. 2017)
(slip op.) (affirming that stock trading GUI falls within the ―substantive criteria of patentability‖). While Trading Technologies involved a method claim, SQUARE may claim its GUI under any category so long as that GUI is patentable. See Alice
15
Corporation Pty. Ltd. v. CLS Bank International, 134 S. Ct. 2347 (2014)
(reaffirming Mayo‘s two-step, preemption-oriented patentable subject matter analysis). A contrary holding might allow ―artful drafting [to] turn something unpatentable to patentable subject matter.‖ Diamond v. Diehr, 450 U.S. 175, 191–
92 (1981).
Furthermore, SQUARE‘s GUI modifies existing technological systems to solve known problems and is therefore patentable subject matter. This Court has found claims eligible that were ―directed to a specific improvement to the way computers operate, embodied in [a] self-referential table.‖ Enfish, LLC v. Microsoft
Corp., 822 F.3d 1327, 1334 (Fed. Cir. 2016). Similarly, SQUARE‘s GUI, which encompasses the cannabinoid-identifying software, incorporates a self-referential table in its cannabinoid database. (R. 3:20–21). Likewise, this Court has found that
―claimed process[es] us[ing] a combined order of specific rules‖ that improved existing technological processes are patentable. McRO, Inc. v. Bandai Namco
Games America Inc., 837 F.3d 1299, 1315 (Fed. Cir. 2016). Similarly, SQUARE‘s
GUI and software improves existing technology by avoiding a ―potentially destructive, chemical test‖ previously required to identify a cannabinoid. (R. 2:25–
28; 3:1–4; 9:13–17). Under the precedents of McRO and Enfish, SQUARE‘s GUI qualifies as ―patentable subject matter,‖ and falls within the scope of § 273(a).
16
C. § 273(e)(2) does not apply because SQUARE developed its GUI unilaterally and without agency. The District Court did not reach the privity question; however, Syrus argues that Morales was in privity with Syrus because SQUARE was in privity with both
Morales and Syrus. See (R. 19:6–20:15); (R. 18:19–22). Section 273(e)(2) bars alleged infringers from a prior user defense if they derived the allegedly infringing subject matter from ―persons in privity with the patentee.‖ § 273(e)(2). The existence of privity between parties depends on the nature of their relationship:
―the closer that relationship, the more the equities will favor applying the doctrine.‖ Shamrock Techs. Inc. v. Med. Sterilization, Inc., 903 F.2d 789, 793 (Fed.
Cir. 1990). Assessing the privity of a relationship involves evaluating all of that relationship‘s direct and indirect contacts. See Intel Corp. v. U.S. Int'l Trade
Comm'n, 946 F.2d 821, 838 (Fed. Cir. 1991).
Syrus‘ claimed privity between Morales and SQUARE amounts to a standard employment relationship, which is insufficient to prove privity under
Federal Circuit precedent. Where a patent assignor was directly involved in manufacturing an infringing product and his knowledge enabled the defendant‘s infringement, this Court found they were in privity. MAG Aerospace Industries,
Inc. v. B/E Aerospace, Inc., 816 F.3d 1374, 1380 (Fed. Cir. 2016). Here, by contrast, Morales could not have enabled SQUARE‘s infringement, since she lacked the computer skills necessary to implement SQUARE‘s GUI in its software.
17
(R. 14:9–16). Furthermore, since neither ―Morales . . . [n]or anyone at SQUARE ever worked with anyone at Syrus on any GUI,‖ Morales was not directly involved in SQUARE‘s alleged infringement. (R. 14:28–30; 19:11–13). Thus, Syrus cannot prove Morales‘ involvement in developing SQUARE‘s allegedly infringing GUI.
Therefore, this Court should vacate the District Court‘s grant of summary judgment, hold that § 273 includes design patents, and remand this case to the
District Court for further determinations under § 273(a) and (e)(2).
II. THE DISTRICT COURT PROPERLY EXERCISED JURISDICTION OVER THE BREACH OF CONTRACT CLAIM. A. Section 1367 extends supplemental jurisdiction over all permissive counterclaims that satisfy Gibbs. This Court reviews a motion to dismiss for lack of subject matter jurisdiction de novo. Microsoft Corp. v. GeoTag, Inc., 817 F.3d 1305, 1311 (Fed. Circ. 2016).
Because this is a matter of jurisdiction pertaining to § 1367, which is not patent specific, 10th Circuit law governs. See Panduit Corp. v. All States Plastic Mfg.
Co., Inc., 744 F.2d 1564 (Fed. Cir. 1984) (establishing that regional appellate court law should apply when the issue at hand is not unique to patent law). The Tenth
Circuit reviews an exercise of jurisdiction de novo. See FDIC v. Hulsey, 22 F.3d
1472, 1479 (10th Cir. 1994). The movant must establish that jurisdiction is proper.
Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 104 (1998). Under § 1367, the
Tenth Circuit would affirm exercising jurisdiction over SQUARE‘s counterclaim.
18
Section 1367 grants supplemental jurisdiction ―over all other claims . . . that
[] form part of the same case or controversy under Article III.‖ § 1367(a)
(emphasis added). Congress considered language limiting § 1367 to claims arising from the same ―transaction or occurrence,‖ but rejected it for the ―case or controversy‖ standard. Baer v. First Options, 72 F.3d 1294, 1298–99 (7th Cir.
1995). This choice of language indicates that Congress deliberately abrogated the judicial requirement that permissive counterclaims require independent jurisdiction. Jones v. Ford Motor Co., 358 F.3d 205, 213 (2d Cir. 2004).
Additionally, this Court has noted that § 1367(a) extends supplemental jurisdiction
―to the limits of Article III.‖ Voda v. Cordis Corp., 476 F.3d 887, 894 (Fed. Cir.
2007). Since Article III allows federal courts to hear permissive counterclaims, the
District Court correctly exercised jurisdiction over SQUARE‘s counterclaim.
As the District Court correctly noted, several other Circuits have adopted this interpretation of § 1367(a). (R. 17:23–27). Since the Tenth Circuit has not interpreted § 1367 as applied to permissive counterclaims, the District Court properly looked to these other Circuits. Id. (citing Walker v. THI of N.M. at Hobbs
Ctr., 803 F.Supp.2d 1287 (D.N.M. 2011)). The Seventh Circuit endorses this interpretation, stating that ―courts should use the language of [§ 1367] to define the extent of their powers.‖ Channell v. Citicorp Nat’l Servs., 89 F.3d 379, 385 (7th
Cir. 1996). The Second Circuit likewise holds that ―after [the enactment of] section
19
1367 . . . courts [cannot] assert . . . that permissive counterclaims require independent jurisdiction.‖ Jones, 358 F.3d at 212–13. Similarly, the First Circuit notes that ―the statute does not [differentiate] ‗permissive‘ or ‗compulsory‘ . . .
[thus] § 1367 governs supplemental jurisdiction over [all] counterclaims.‖ Global
NAPs, Inc., v. Verizon New Eng., Inc., 603 F.3d 71, 86–87 (1st Cir. 2010). Based on these authorities, the District Court properly recognized that § 1367 grants jurisdiction over SQUARE‘s counterclaim.
B. SQUARE’s counterclaim has a “common nucleus” with Syrus’ claim that satisfies Gibbs. A ―common nucleus of operative fact‖ exists where ―a plaintiff's claims . . . would ordinarily [be tried] in one judicial proceeding.‖ Price v. Wolford, 608 F.3d
698, 702–03 (10th Cir. 2010); United Mine Workers v. Gibbs, 383 U.S. 715, 725
(1966). The Tenth Circuit interprets the Gibbs test to require a common incident that gives rise to both claims‘ causes of action. See Jones v. Intermountain Power
Project, 794 F.2d 546, 549–53 (10th Cir. 1986) (upholding jurisdiction because plaintiff‘s state and federal claims arose from same breach of contract). The
District Court correctly identified this common incident in ―the mutual actions of the parties [under] the Agreement,‖ which created both parties‘ GUIs and software.
(R. 17:36–18:5). SQUARE created its allegedly infringing GUI because Syrus failed to deliver a GUI as promised under the Agreement. (R. 5:21–24; 6:9–12).
Likewise, Syrus developed the ‘777 application pursuant to its rights under the
20
Agreement, and breached the Agreement‘s non-disclosure clause by publishing
Tokémon Go. (R. 5:13–15, 25–29; 6:13–16; 15:1–6). Since both causes of action arose under the Agreement, the District Court properly found a ―common nucleus of operative fact‖ between the two claims.
Furthermore, the District Court served judicial economy, convenience, and fairness by hearing SQUARE‘s counterclaim and Syrus‘ claim together. Gibbs stated that ―considerations of judicial economy, convenience and fairness to litigants‖ may favor exercising jurisdiction; this case implicates these concerns.
Gibbs, 383 U.S. at 725. First, the District Court not only concluded pretrial proceedings, but reached judgment; re-running the entire trial would strain judicial economy. (R. 18:11–12; 19:3–4). Remanding SQUARE‘s claim to state court would be both inconvenient and unfair to the parties, who would have to litigate the same events twice. See Borough of W. Mifflin v. Lancaster, 45 F.3d 780, 789–
90 (3rd Cir. 1995). Finally, because there is a substantial federal interest in a uniform body of patent law, interpreting § 273(e)(2)‘s application to design patents is an issue of substantial federal interest. (R. 18:15–16, 31; 19:1–2). Thus, since all the Gibbs supplemental factors are met, the District Court properly exercised jurisdiction over SQUARE‘s counterclaim.
Unlike the claim rejected in Angioscore, the ―common nucleus‖ here is not mere ―background information‖ and is sufficient to uphold supplemental
21
jurisdiction. This Court has found a ―common nucleus‖ between two claims that
―involve the same witnesses, presentation of the same evidence, and determination of the same, or very similar, facts.‖ Angioscore v. Trireme Med., LLC, 2016-1126,
–1129, 2016 WL 6595984, *3 (Fed. Cir. 2016). Here, Morales can both testify to
SQUARE‘s intentions regarding the Agreement and identify the ‗ordinary observer‘ needed to judge the similarity of SQUARE‘s and Syrus‘ GUIs. (R. 14:9–
13). Likewise, Syrus‘ ‘777 application establishes whether Tokémon Go is
―patentable subject matter‖ and clarifies the proper category for SQUARE‘s GUI.
(R. 18:23–25, 31; 19:1–2). Finally, Syrus‘ claim of privity under § 273(e)(2) and
SQUARE‘s breach of the Agreement rely on the same events leading to the
Agreement‘s dissolution. (R. 18:25–31). Thus, unlike the mere ―background information‖ about the defendant‘s line of business in Angioscore, the present facts satisfy this Court‘s ―common nucleus‖ test. And therefore, under Tenth Circuit law, the District Court properly recognized the common nucleus of operative facts between Syrus‘ claim and SQUARE‘s counterclaim.
C. The District Court erred by not exercising independent federal question jurisdiction over SQUARE’s counterclaim. The District Court should also have found that Syrus‘ breach of contract counterclaim arises under federal patent law, and therefore the Court has independent federal question jurisdiction under § 1338(a). (R. 17:13–15). Section
1338 states, ―[t]he district courts shall have original jurisdiction of any civil action
22
arising under any Act of Congress relating to patents, plant variety protection, copyrights and trademarks.‖ 35 U.S.C. § 1338(a) (emphases added).
SQUARE‘s counterclaim ―arises under‖ federal patent law per the Gunn test, which this Court applies to determine whether a claim ―arises under‖ §
1338(a). See Jang v. Boston Sci. Corp., 767 F.3d 1334, 1337-38 (Fed. Cir. 2014)
(holding a patent royalty dispute met the Gunn test because the analysis required determining infringement and validity of underlying patents). Under Gunn, federal jurisdiction exists over state law claims whose federal issues are necessarily raised, actually disputed, substantial, and capable of resolution without disrupting federalism. Gunn v. Minton, 133 S. Ct. 1059, 1066 (2013). Like Jang, this case necessarily raises and actually disputes the federal issue of § 101‘s scope in the disputed ―patentable subject matter‖ term of the Agreement. (R. 18:28–19:2).
Since the issue of § 101‘s scope will determine the outcome of SQUARE‘s breach claim, it is also substantial. (R. 20:36–38; 21:29–33). Finally, maintaining Federal
Circuit jurisdiction over patent-related disputes is important to ―the federal system as a whole‖ and not merely ―to the particular parties in the immediate suit.‖ Jang,
767 F.3d at 1337–38 (citing Gunn, 133 S. Ct. at 1066). Thus, independent federal question jurisdiction exists over SQUARE‘s breach of contract counterclaim, and the District Court properly exercised jurisdiction over SQUARE‘s counterclaim.
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III. THE DISTRICT COURT CORRECTLY HELD THAT SYRUS BREACHED ITS AGREEMENT WITH SQUARE. This Court interprets contracts de novo. Cal. Fed. Bank v. United States, 245
F.3d 1342, 1346 (Fed. Cir. 2001). This Court applies Cascadian state law to interpret the Agreement. Erie R.R. v. Tompkins, 304 U.S. 64, 78 (1938). Cascadia has adopted the Restatement (Second) of Contracts, has no court-developed common law, and treats other states‘ interpretations of the Restatement as persuasive. (R. 16:13–16).
A. The District Court correctly held that “patentable subject matter” in the Agreement refers to 35 U.S.C. § 101. The District Court correctly held that ―the term ‗patentable subject matter‘ in
[the Agreement] . . . refers to . . . § 101.‖ (R. 20:27–29). ―Unless a different intention is manifested, . . . technical terms and words of art are given their technical meaning when used in a transaction within their technical field.‖
Restatement (Second) of Contracts § 202(b)(3) (Am. Law Inst. 1981). Absent such intent, courts follow a term‘s meaning ―[i]n the popular and normal sense‖; thus, courts have held that ―barrels‖ in energy contracts means ―barrels of oil,‖ not
―barrels of gas.‖ Id. at cmt. (e) (citing Wahlenmaier v. American Quasar
Petroleum Co., 517 S.W. 2d 390, 393 (Tex. Civ. App. 1974)). Here, the phrase
―patentable subject matter‖ is popularly known in the patent field to reference §
101. See, e.g., Mayo Collaborative Servs. v. Prometheus Labs., Inc., 566 U.S. 66
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(2012) (―Section 101 of the Patent Act defines patentable subject matter.‖); see also Diamond v. Chakrabarty, 447 U.S. 303, 315 (1980) (―Congress has performed its constitutional role in defining patentable subject matter in § 101‖). In light of this meaning, the District Court properly held that the ―use of the term ‗patentable subject matter‘ in a contract defining intellectual property rights [clearly] refers to
35 U.S.C. § 101.‖ (R. 20:27–29). Thus, the Restatement supports the District
Court‘s interpretation that ―patentable subject matter‖ refers to § 101.
Additionally, Cascadia looks to other states‘ treatment of contracts under the
Restatement as persuasive. Colorado courts have applied § 202(b)(3) to hold that contractual terms bear their ordinary meanings unless the contract explicitly states otherwise. See Bledsoe Land Co. LLLP v. Forest Oil Corp., 277 P.3d 838, 845
(Colo. App. 2011) (holding the term ―completion‖ in an energy lease is not ambiguous because ―nothing in the [l]ease [] would lead a reasonable person to think the term ‗completion‘ means anything other than its plain English meaning‖).
While Syrus argues that ―patentable subject matter‖ refers to something other than
§ 101, it did not explicitly redefine that term in the Agreement. (R. 18:32–33;
19:1–2). As section 5.1 of the Agreement is entitled ―Patenting and
Commercialization‖ and discusses the rights from ―[r]esulting patents,‖ Syrus meant ―patent‖ to reference § 101 in that section. (R. 5:18). Consequently, the term
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―patentable subject matter‖ should bear the standard definition of that term under §
101, since the Agreement‘s language supports that interpretation.
Furthermore, any ambiguities in the Agreement should be resolved against
Syrus because Syrus was the more experienced party. In resolving ambiguities,
Cascadian courts interpret terms ―against the party who supplies the words or from whom a writing otherwise proceeds.‖ Restatement (Second) of Contracts § 206
(Am. Law. Inst. 1981). This provision codifies a preference in interpreting contractual terms against parties who are more knowledgeable and able to protect themselves during contract drafting. See Bledsoe Land Co., 277 P.3d at 845
(disregarding offered definition of ―completion‖ because offeror knew industry meaning of term from experience). Here, Syrus is the experienced party, as it ―was known for its work in developing software-based research and analysis tools.‖ (R.
4:2–8). If Syrus meant to define the term ―patentable subject matter‖ differently from the norm, it could easily have specified that definition in the Agreement.
Syrus may argue that ―patentable subject matter‖ in section 5.1 of the
Agreement could include design patents, but even if it did, its Tokémon Go application is not included. When subject matter is ―primarily functional, rather than ornamental,‖ then the subject matter is ―not patentable subject matter under 35
U.S.C. § 171.‖ In re Chung, 243 F.3d 561 (Fed. Cir. 2000). SQUARE‘s GUI is primarily functional, and since Syrus‘ GUI is based on the same technology as
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SQUARE‘s GUI, it is also primarily functional. Therefore, even if ―patentable subject matter‖ could include design patents under § 171, then SQUARE‘s GUI is primarily functional and would not be covered under ―patentable subject matter‖ under section 5.1.
B. Syrus cannot re-litigate whether the Tokémon Go application is “patentable subject matter.” The District Court properly held that Syrus could not re-litigate Tokémon
Go‘s patentability under § 101 because Tokémon Go uses the same cannabinoid- identifying technology as the ineligible ‘777 application. (R. 21:13–14) (citing B &
B Hardware, Inc. v. Hargis Industries, Inc., 135 S. Ct. 1293 (2015)). ―When an issue of fact or law is actually litigated and determined by a valid and final judgment . . . [it] is conclusive in a subsequent action between the parties.‖
Restatement (Second) of Judgments § 27 (Am. Law. Inst. 1980). Decisions of the
Patent and Trademark Office have previously precluded litigants in subsequent actions. See B & B Hardware, Inc., 135 S. Ct. at 1310 (granting preclusive effect to
TTAB decisions if other preclusion requirements met). A party may re-argue a decision‘s key issues in a subsequent action only so long as that party has the right to appeal. See SkyHawke Techs., LLC v. DECA Int'l Corp., 828 F.3d 1373, 1376
(Fed. Cir. 2016). Here, the PTAB‘s prior judgment held that ―none of the claims‖ in Tokémon Go‘s cannabinoid-identifying software were ―patentable subject matter.‖ (R. 12:36–37; 21:6–7). Furthermore, Syrus had the opportunity to appeal
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the PTAB‘s decision under 35 U.S.C. § 141, but abandoned that right when it abandoned its rejected ‘777 application. See 37 C.F.R. 90.3 (2012); see also
Blonder-Tongue Labs. v. University of Illinois Found., 402 U.S. 313, 323–324
(1971) (noting the President's Commission on the Patent System stated that a
―patentee, having been afforded the opportunity to exhaust his remedy of appeal from a holding of invalidity, has had his 'day in court' and should not be allowed to harass others on the basis of an invalid claim‖); (R. 11:12–14).
Syrus may argue that because the parties in the previous proceeding were different—the USPTO and Syrus—there can be no issue preclusion. However,
SQUARE was a party in the previous proceeding because it was a co-owner of the patent during the appeal to the PTAB. (R. 5:18–21; 11:2–4); see Blonder-Tongue
Labs., 402 U.S. at 323–324 (―Was there a final judgment on the merits? Was the party against whom the plea is asserted a party or in privity with a party to the prior adjudication?‖). SQUARE was certainly a party to the proceeding and in privity with Syrus. Therefore, Syrus is precluded from re-litigating Tokémon Go‘s patentability.
Moreover, Syrus argues that if the ‘777 application was properly claimed then it would have fallen within ―patentable subject matter‖ under § 101. But, the §
101 exception for ―laws of nature‖ and ―natural phenomena‖ has been recognized for over 150 years. See Alice, 134 S. Ct. at 2360; see also Parker v. Flook, 437
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U.S. 584, 590 (1978) (―The concept of patentable subject matter under § 101 is not
‗like a nose of wax which may be turned and twisted in any direction . . .‘‖). Thus,
Syrus should not be able to re-litigate whether Tokémon Go contains ―patentable subject matter.‖
C. The District Court correctly held that Tokémon Go was not “patentable subject matter.” The District Court correctly held that the Tokémon Go application was not
―patentable subject matter‖ either in 2011 or in 2015. This matter pertains to the
District Court‘s interpretation of a patent statute, thus this court reviews the matter under Federal Circuit law and with a de novo standard of review. CLS Bank Int'l v.
Alice Corp. Pty, 717 F.3d 1269, 1276 (2013), aff’d, 134 S. Ct. 2347 (2014).
Step one of the Alice test ―calls upon us to look at the ‗focus of the claimed advance over the prior art‘ to determine if the claim's ‗character as a whole‘ is directed to excluded subject matter.‖ Affinity Labs of Texas, LLC v. DIRECTV,
LLC, 838 F.3d 1253, 1257 (Fed. Cir. 2016). Here, the specification only points to a method of identifying cannabinoids by the natural phenomenon of polarized light.
(R. 9:1–16). Because the specification is generally directed to detecting the presence of a natural phenomenon, then the Court should move to step two. Ariosa
Diagnostics, Inc. v. Sequenom, Inc., 788 F.3d 1371, 1376 (Fed. Cir. 2015), cert. denied, 136 S. Ct. 2511 (2016).
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Step two of the Alice test requires a determination as to ―whether the elements of the claim, considered both individually and as an ordered combination, add enough to transform the nature of the claim into a patent-eligible application.‖ Alice, 134 S. Ct. at 2355. Like the PTAB already stated, claim 1 does
―nothing substantively beyond the use of cannabinoid-identifying light polarization to, well, identify cannabinoids.‖ (R. 13:21–23); see also Ariosa, 788 F.3d at 1376;
Cybersource Corp. v. Retail Decisions, Inc., 654 F.3d 1366, 1372 (Fed. Cir. 2011);
Parker, 437 U.S. at 590–91. Next, claim 2 ―repeat[ed] the patent ineligible steps of claim 1‖ and used ―a conventional comparison of new and old information,‖ which
―cannot render [claim 2] non pre-emptive.‖ (R. 13:28–36); see also Classen
Immunotherapies Inc. v. Biogen Idec., 659 F.3d 1057, 1067–68 (Fed. Cir. 2011).
Meanwhile, claims 6 and 11 were ―mere field-of-use limitations [or] audience identifiers.‖ (R. 13:37–38); see also Bilski v. Kappos, 130 S. Ct. 3218, 3231
(2010). Individually, the claims do not transform Tokémon Go into patentable subject matter.
In combination, the specification briefly mentions that ―[p]rior to the example method and embodiments disclosed herein, a more involved, and a potentially destructive, chemical test would need to be carried out on the subject to determine cannabinoid profile.‖ (R. 9:12–16). However, this method would still interfere significantly with innovation in other fields now or in the future, such as
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the medical and pharmaceutical industries that have ―taken greater interest in the clinical effects of these plants for treating certain disease states.‖ (R. 2:2–5). The
Supreme Court cases, however, have not distinguished among different laws of nature or natural phenomena according to whether or not the principles they embody are sufficiently narrow. See, e.g., Parker, 437 U.S. at 584 (holding a narrowed mathematical formula was unpatentable). In Parker v. Flook, the
Supreme Court stated the issue in the case as follows: ―The question in this case is whether the identification of a limited category of useful, though conventional, post-solution applications of such a formula makes respondent's method eligible for patent protection.‖ Id. at 585. The answer to that question was ―no‖ because granting exclusive rights to the mathematical formula would be exempting it from any future use. Id. at 594–95. Similarly, a patent on the cannabinoid-identifying technology would preempt all uses of polarized light to identify cannabinoids. (R.
9:19–25). The District Court correctly held that ―the fully-developed administrative [‘777 application record], which Syrus did not appeal, amply supplies this analysis.‖ (R. 21:10–12). Therefore, this Court should affirm the
District Court‘s holding that Syrus breached the Agreement.
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CONCLUSION On issue one, this Court should (1) vacate the District Court‘s grant of summary judgment, (2) hold that § 273 includes ornamental designs as a matter of law, and (3) remand to the District Court to determine whether SQUARE‘s GUI falls within § 273(a) subject matter and whether § 273(e)(2) applies. On issue two, this Court should affirm the District Court‘s denial of Syrus‘ motion to dismiss for lack of jurisdiction. And on issue three, this Court should affirm the District
Court‘s holding that Syrus breached the Agreement.
Dated: February 6, 2017 Respectfully submitted,
THOMAS LEMENS
Matthew Melançon_____ MATTHEW MELANÇON
Attorneys for Defendant-Cross Appellant
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CERTIFICATE OF SERVICE We certify that on the 6th day of February, 2017, a true and correct copy of this document was served on counsel of record for all parties in compliance with Fed.
R. App. P. 25(b).
THOMAS LEMENS Matthew Melançon_____ MATTHEW MELANÇON Attorneys for Defendant-Cross Appellant
CERTIFICATE OF COMPLIANCE We certify that the foregoing brief meets the technical rules promulgated by the
Federal Circuit Court of Appeals. This brief is in double-spaced 14-point font with a one-inch margin on all sides. This 32-page, 6,851-word brief complies with the limitations set by this Court in Fed. R. App. P. 32(a)(7), given the exemptions in
Fed. R. App. P. 32(f).
THOMAS LEMENS Matthew Melançon_____ MATTHEW MELANÇON Attorneys for Defendant-Cross Appellant
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