IP Update, Vol. 16, No. 2, February 2013

IP UPDATE: Edited by Paul Devinsky and Rita Weeks

IN THIS ISSUE

Patents

Supreme Court: State Court Has Jurisdiction over a Legal Malpractice Claim

Nothing Non-Obvious About Applying Pre-Existing Technology to the Internet

The Federal Circuit Is Not the Place for Side Bets

Early Resolution Through Focus on Claim Construction

Acts of Direct Infringement Not Required to Establish Case and Controversy of Indirect Infringement

Federal Circuit Rules Assignor Estoppel is a Shield, Not a Sword

Covenant Not to Sue Is Not Discharged in Bankruptcy

Appellee Can Rely on Any Ground Supported by the Record to Defend the Decision Appealed from

Federal Circuit to District Courts: Decide Transfer Motions Early

Federal Circuit Rules on Pleading Standard for Infringement of Design Patents

Federal Circuit Finds New "Respect" for Patent, but not that "Each" of Plaintiff's Claims Are Plausible

USPTO Releases Final Rules to Implement the First to File Provisions of the AIA and New Fee Schedule

Trademarks

Second Circuit Affirms Willful Infringement of Fendi's Trademark

Copyrights

Mattel v. MGA Entertainment —The BRATZ Saga Continues

Use of Candid Photo in Poster Not Infringing

Trade Secrets

Adverse Inference Based on Destruction of Computer Evidence

Exclusive License Not Required for Standing to Claim Misappropriation of a Trade Secret Involving Subway Car Brakes

Patents / Federal Circuit Jurisdiction

Supreme Court: State Court Has Jurisdiction over a Legal Malpractice Claim

by Christopher M. Koepke and Paul Devinsky

The U.S. Supreme Court determined that a state court had jurisdiction over a legal malpractice claim, even though resolving the claim required the state court to address an issue of federal patent law. Gunn v. Minton, Case No. 11-1118, Feb. 20, 2013 (Roberts, C. J.).

In a unanimous decision the Supreme Court held that 28 U.S.C. § 1338(a) did not deprive a state court of subject matter jurisdiction over a legal malpractice claim that required the resolution of an issue of federal patent law. Under § 1338(a), "[n]o State court shall have jurisdiction over any claim for relief arising under any Act of Congress relating to patents." However, the Supreme Court concluded state legal malpractice claims will seldom, if ever, arise under federal patent law for the purposes of assessing jurisdiction under § 1338(a). According to the Court, such claims are unlikely to have sufficient significance to the federal system to give the federal courts exclusive jurisdiction.

Minton brought a lawsuit in Texas state court alleging that his patent practitioner and the other petitioners committed legal malpractice in a case in which Minton had developed a computer program and telecommunications network designed to facilitate securities trading and then leased it to a securities brokerage. According to Minton, the failure of his attorneys to raise the experimental-use argument in a timely manner caused him to lose a lawsuit and resulted in the invalidation of his patent. Minton's former lawyers contended that the experimental-use exception did not apply to Minton's case and thus that raising the experimental-use argument earlier would not have affected the outcome of Minton's patent infringement case. The trial court granted summary judgment in favor of Minton's former lawyers, concluding that Minton had not put forth sufficient proof that the lease was for an experimental purpose.

On appeal to a Texas appellate court , Minton argued for the first time that the state trial court did not have jurisdiction over his legal malpractice claim under 28 U.S.C. § 1338(a), which prevents state courts from exercising jurisdiction over claims "arising under" federal patent law. According to Minton, the legal malpractice claim arose under federal patent law because it was based on an alleged error in a patent case. Thus, Minton contended that the district court's order should be vacated and the case dismissed, allowing Minton to assert his claim of legal malpractice in federal court. A divided panel of the Court of Appeals of Texas rejected Minton's jurisdictional argument and affirmed the judgment of the trial court on the merits.

Minton appealed again, and the Supreme Court of Texas reversed the judgment of the Texas Court of Appeals. The Supreme Court of Texas concluded that the state trial court did not have jurisdiction over Minton's malpractice claim, determining that Minton's claim raised a substantial federal issue that should be resolved by a federal court. Justice Guzman of the Texas Supreme Court dissented and was joined by Justices Medina and Willett.

The Supreme Court of the United States reversed the judgment of Supreme Court of Texas, applying the test set out in Grable & Sons Metal Products v. Darue Engineering & Manufacturing. Under Grable, a state law claim arises under federal law when (1) the state law claim necessarily raises a federal issue (2) that is actually in dispute, (3) has substantial importance to the federal system as a whole and (4) can be resolved by a federal court without disturbing the balance between federal and state judicial responsibilities.

The Supreme Court acknowledged that the first two Grable factors were met but that the third and fourth Grable factors were not. According to the Court, the resolution of Minton's malpractice claim did not implicate any significant federal interest. The federal patent question raised in Minton's legal malpractice action was merely hypothetical: If Minton's attorneys had raised the experimental-use argument in a timely fashion, would the outcome of his patent infringement lawsuit have been different? Because Minton's patent would remain invalid, regardless of the outcome of his malpractice lawsuit, the malpractice action would neither affect the prior federal patent litigation nor affect the development of a uniform body of patent law.

The Court also rejected Minton's contention that federal courts' expertise regarding patent law would make federal court the proper forum for resolving Minton's legal malpractice claim. According to the Court, the possibility that a state court could err in applying federal patent law, standing alone, is not enough to require that federal courts have exclusive jurisdiction over claims of legal malpractice.

Finally, the Court determined that the fourth Grable factor was not met since Minton's malpractice claim did not implicate a substantial federal interest. The Court, however, identified states' great interest in regulating the conduct of lawyers practicing within the state. Consequently, the Court reasoned that resolution of Minton's malpractice claim in federal court would upset the balance between federal and state judicial responsibilities.

Patents / Obviousness

Nothing Non-Obvious About Applying Pre-Existing Technology to the Internet

by D. Jeremy Harrison

Addressing the issue of obviousness of patents directed to Internet-based software, the U.S. Court of Appeals for the Federal Circuit reversed a district court's finding of non-obviousness, reasoning that performing previously known methods through an internet web browser is obvious. Soverain Software LLC v. Newegg Inc., Case No. 11-1009 (Fed. Cir., Jan. 22, 2013) (Newman, J.).

The dispute arose from three patents directed to software system entitled "Transact" which facilitates electronic commerce or "e-Commerce." Individuals who purchase products online are familiar with this technology wherein a merchant's products are offered and purchased online through computers interconnected by a network. Upon acquiring the Transact software and patents, plaintiff Soverain sued Newegg and several other online retailers for patent infringement. While the other online retailers took paid-up licenses to the patents, Newegg refused to pay a license.

At the close of evidence, the district court removed the question of obviousness from the jury citing insufficient evidence and then found that the claims were not obvious. The jury found Newegg liable for infringement of two of the three patents, but not liable for infringement of the third. The district court subsequently granted Soverain's motion for judgment as a matter of law (JMOL) of infringement of the third patent. Newegg appealed.

On appeal, the Federal Circuit upheld the district court's decision to remove the obviousness question from jury consideration. Under KSR, the Court concluded that although both sides had presented witnesses and evidence on obviousness, removing the obviousness question from the jury was proper since the content of the prior art, the scope of the patent claims and the level of ordinary skill in the art were not in material dispute. The Federal Circuit, however, reversed the district court's decision of non-obviousness in view of the evidence presented by Newegg, finding that each disputed claim element was disclosed by the prior art.

Soverain argued that the asserted claims were not obvious because its product, Transact, was adapted for use on the internet, while Newegg's cited prior art either pre-dated the internet or otherwise operated on a pre-internet network. The Federal Circuit rejected this argument, reasoning that conducting previously known methods through an internet web browser is obvious since it amounts to no more than applying the use of the internet to existing electronic processes at a time when to do so was commonplace. Accordingly, the Court concluded that routine incorporation of internet technology into existing processes can be considered an obvious modification of a prior art reference.

Patents / Mootness

The Federal Circuit Is Not the Place for Side Bets

by Daniel R. Foster

Addressing an appeal on non-infringement, inequitable conduct and sanctions after the parties had reached a settlement, the U.S. Court of Appeals for the Federal Circuit dismissed a patent holder's appeal as moot, finding the settlement's $50,000 "bet" to go to the winner of the appeal did not make it a...