Impression Products v. Lexmark: Supreme Court (Again) Cuts Back Patent Rights

On May 30, 2017, the Supreme Court issued its decision in Impression Products v. Lexmark (available here). The Court decided two issues. First, if a patentee sells an item under an express restriction on the purchaser’s right to reuse or resell the product, the patentee cannot enforce that restriction through an infringement lawsuit. Second, a patentee exhausts its patent rights by selling its products outside of the United States, where American patent laws do not apply. The Court concluded that “a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose or the location of the sale.”

In the case, Lexmark sold its toner cartridges for “full price” (which allowed the purchaser to do as it wished with the cartridges) and at 20% off through Lexmark’s “Return Program” (which required the purchaser to refrain from transferring the empty cartridge to anyone but Lexmark). To enforce this restriction, Lexmark installed a microchip on each Return Program cartridge that prevents reuse once the toner in the cartridge runs out.

Toner remanufacturers acquired Return Program cartridges and figured out a way around the microchips. The remanufacturers then sold the used cartridges to purchasers. Lexmark’s contracts, of course, were not with the remanufacturers, but with the original purchasers.

Lexmark sued remanufacturer Impression Products for patent infringement with respect to two groups of cartridges – one group concerning Return Program cartridges sold by Lexmark within the United States, and the second group concerned Return Cartridges that Lexmark sold overseas (and that Impression subsequently imported into the United States). Impression asserted exhaustion as a defense—according to Impression, Lexmark’s sales inside and outside of the United States exhausted Lexmark’s patent rights in the cartridges, so Impression could refurbish, resell and import them.

The Federal Circuit, sitting en banc, ruled for Lexmark with respect to both groups of products. The Supreme Court reversed, ruling against Lexmark with respect to both groups.

With respect to the United States cartridges, “The single-use/no-resale restrictions in Lexmark’s contracts with customers may have been clear and enforceable under contract law, but they do not entitle Lexmark to retain patent rights in an item that it has elected to sell.” “Once sold, the Return Program cartridges passed outside of the patent monopoly, and whatever rights Lexmark retained are a matter of the contracts with its purchasers, not the patent law.”

The Court noted that patentees may still impose restriction on licensees:

A patentee can impose restrictions on licensees because a license does not implicate the same concerns about restraints on alienation as a sale. Patent exhaustion reflects the principle that, when an item passes into commerce, it should not be shaded by a legal cloud on title as it moves through the marketplace. But a license is not about passing title to a product, it is about changing the contours of the patentee’s monopoly: The patentee agrees not to exclude a licensee from making or selling the patented invention, expanding the club of authorized producers and sellers. Because the patentee is exchanging rights, not goods, it is free to relinquish only a portion of its bundle of patent protections.

In the end, “[o]nce a patentee decides to sell—whether on its own or through a licensee—that sale exhausts its patent rights, regardless of any post-sale restrictions the patentee purports to impose, either directly or through a license.”

With respect to the second question – overseas sales – the Court found that “[a]n authorized sale outside the United States, just as one within the United States, exhausts all rights under the Patent Act.”

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Former Magistrate Judge Kaplan Issues Order On Privilege Dispute In Nerium Case

On September 5, 2017, former Magistrate Judge Kaplan, acting as special master in Nerium Skincare v. Nerium Biotechnology, issued Special Master Order No. 13 (available here) dealing with a privilege objection concerning plaintiffs’ communications with a public relations firm. In support of their objection, plaintiffs submitted a privilege log identifying eight e-mails withheld from production, an affidavit, and about 1,400 pages of documents to Judge Kaplan for his in camera review.

Judge Kaplan noted, among other things, that the party asserting privilege must provide “a detailed description of the materials in dispute and state specific and precise reasons for their claim of protection from disclosure.” In camera inspection “is appropriate only after the burdened party has submitted detailed affidavits and other evidence to the extent possible.” (emphasis in original).

Judge Kaplan concluded that plaintiffs failed to adduce sufficient evidence to establish that the relevant communications were protected by the attorney-client privilege:

Other than a privilege log and the documents themselves, the only evidence submitted by Plaintiffs is the affidavit of one of its lawyers, Alexander Toney, who states: “My communications with Levick Strategic Communications, LLC have been for the purpose of gathering evidence from the Internet for use in briefing and giving legal advice to the client. These communications were and remain confidential. I have directed Levick not to perform any public relations work.”

As an initial matter, the Special Master observes that Toney addresses only his communications with Levick. Most of the emails withheld from production are neither to nor from Toney. More importantly, the Toney affidavit fails to show how each document, or category of documents, falls within the scope of the attorney-client privilege.

Notwithstanding this failure of proof, the Special Master has reviewed a sampling of the 1,386 pages of documents submitted by Plaintiffs in an attempt to glean information that might shed additional light on the privilege issue. Some of the documents and attachments, such as court filings and public relations materials, clearly are not privileged. However, in most instances, the Special Master has been left to speculation and guess-work in interpreting the documents. Without evidence explaining these documents and the information contained therein, Plaintiffs cannot establish their claim of privilege.

As such, Judge Kaplan ordered the production of the requested documents.

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Judge Boyle Transfers Trademark Infringement Case Where Personal Jurisdiction Found Lacking And Denies Jurisdictional Discovery

On July 14, 2017, Judge Boyle issued an Order (available here) in Springboards to Education v. Hamilton County transferring the case out of the Northern District of Texas due to lack of personal jurisdiction. The case involved allegations of trademark infringement. Plaintiff argued that defendant (a county in Tennessee) was subject to specific personal jurisdiction in the Northern District on account of its website—i.e., that defendant “transacts a sufficient amount of business in Texas through[] the use of its interactive website and promotional materials.” Judge Boyle rejected this argument: “That argument fails because Plaintiff has not alleged that a single disinterested Texas resident used Defendant’s website at all, let alone purchased an infringing product through it.”

In rejecting the argument, Judge Boyle set forth the test applied by the Fifth Circuit for personal jurisdiction vis-à-vis websites (based on the famed Zippo case), as follows:

The Fifth Circuit has adopted what is known as the Zippo sliding scale test for determining whether internet-based contacts establish personal jurisdiction over a nonresident defendant. The aim of the Zippo test is to measure an internet site’s connection to a forum state, using a three-point spectrum of connectivity: low, medium, or high. On the low end where a website is nothing more than a passive advertisement, the court must decline to exercise personal jurisdiction. Conversely, on the high end where a website facilitates contractual relationship and the knowing and repeated transmission of computer files on the Internet, personal jurisdiction is proper. And in the middle where a website falls somewhere in between, the exercise of jurisdiction is determined by the level of interactivity and commercial nature of the exchange of information that occurs on the website.

(citations and quotations omitted).

Judge Boyle determined that defendant’s website fell in the middle of the Zippo spectrum, as the website states that any individual, no matter his or her place of residence, may register for the relevant event, donate books and to make monetary donations. The website also had a link to download the relevant app from the Apple App Store or the Android App on Google Play. But the website mainly provides contact information and volunteer resources; it does not allow the ordering of goods or services, one to enroll in memberships, or otherwise interact with defendant’s staff members. As such, the Court found that, while the website is more than a passive advertisement, it is not a “virtual store” facilitating contractual relationships.

Ultimately, the Court found that, “[t]ogether, Plaintiff’s allegations—that Defendant has national partnerships, allows people to register for a reading pledge, takes donations, and offers apps for download—fail to meet the minimum threshold for specific jurisdiction. Under Zippo, personal jurisdiction is based on actual internet sales to forum residents, not the mere possibility of sales. Plaintiff fails to allege, let alone offer prima facie proof, that a single disinterested Texas resident purchased an infringing product on Defendant’s website or, for that matter, accessed the website at all.” (quotations omitted; emphasis in original).

Judge Boyle also denied the plaintiff jurisdictional discovery. “When seeking jurisdictional discovery, a plaintiff must make a preliminary showing of jurisdiction.” (quotations omitted). Because “Plaintiff has not pled, let alone with particularity, any sales to, donations by, downloads by, or website access by Texas residents” but only “described a largely, if not entirely, non-commercial website with no tie to Texas residents other than being accessible on the web—in short, a site of the variety insufficient to confer personal jurisdiction under Zippo”, the plaintiff had not made a preliminary showing of jurisdiction and jurisdictional discovery was unwarranted.

Because the Court, when it finds lack of personal jurisdiction, may either dismiss the lawsuit or transfer it to a district in which it could have been brought, and courts generally prefer transfer to dismissal, the Court decided to transfer the case to Tennessee, where defendant is based.

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Karen Gren Scholer and Matthew Kacsmaryk Nominated To Serve On N.D. Tex. Bench

Three days ago, the White House announced that Karen Gren Scholer and Matthew Kacsmaryk have been nominated to serve as Northern District of Texas judges. Ms. Scholer had previously been nominated by President Obama to a judgeship in the Eastern District of Texas. As I understand it, Mr. Kacsmaryk would fill the Amarillo judgeship vacancy.

According to the White House:

  • “If confirmed, Karen Gren Scholer of Texas will serve as a District Judge on the U.S. District Court for the Northern District of Texas. Karen Scholer is a principal and serves as the co-managing partner in the Dallas law firm of Carter Scholer PLLC, where her practice focuses on complex business, tort, and other civil litigation in State and Federal courts. Before joining the firm, she was a partner at the law firm of Jones Day. In 2000, she was elected, and in 2004 reelected, by the people of Texas to serve for eight years as a State District Judge in Dallas County, where she presided over thousands of cases, including more than 100 cases tried to jury verdict. In 2007, she also served as the Presiding Judge for the Dallas County Civil District Judges. Ms. Scholer has been identified as one of the Top 50 Women Lawyers in Texas by Thomson Reuters’ Super Lawyers, and she has received awards for professional excellence from a number of Asian-American community and service organizations. Ms. Scholer earned her B.A. from Rice University and her J.D. from Cornell University Law School.”
  • “If confirmed, Matthew J. Kacsmaryk of Texas will serve as a District Judge on the U.S. District Court for the Northern District of Texas. Matthew Kacsmaryk is Deputy General Counsel to First Liberty Institute, where his practice focuses on religious liberty litigation in federal courts and amicus briefs in the U.S. Supreme Court. From 2008 through 2013, he served as an Assistant United States Attorney in the Northern District of Texas, where he was lead counsel in over 75 criminal appeals and co-counsel in high-profile criminal and terrorism trials. In 2013, Mr. Kacsmaryk received the Attorney General’s Award for Excellence in Furthering the Interests of U.S. National Security for his work in United States v. Aldawsari. From 2003 to 2008, he was an associate in the Dallas office of Baker Botts LLP, where he focused on commercial, constitutional, and intellectual property litigation. In 2005, he received the firm’s Opus Justitiae Award for Outstanding Commitment to Pro Bono Work. He earned his J.D. with honors from the University of Texas School of Law in 2003 and his B.A., summa cum laude, from Abilene Christian University in 1999.”

Congratulations to Ms. Scholer and Mr. Kacsmaryk on their respective nominations!

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Judge Fitzwater Dissolves TRO, Clearing Way for City of Dallas to Remove Robert E. Lee Statue In Dallas’ Lee Park

On September 7, 2017, Judge Fitzwater dissolved the TRO he had previously entered restraining the City of Dallas from removing a statue of Robert E. Lee in Dallas’ Lee Park. This new ruling (available here) clears the way for Dallas to continue the process it had begun to remove the Lee statute from the park.

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Judge Kinkeade Orders Parties To Meet And Confer To Narrow Disputed Patent Claim Terms Down From 19, Suggests 8 Or Fewer Is Appropriate Amount

On July 20, 2017, Judge Kinkeade entered an Order (available here) in Berman v. DirectTV. In the case, the parties had submitted 19 disputed claim terms/phrases to the Court for construction. Upon review of the parties’ briefing, Judge Kinkeade determined that this number could be reduced. Accordingly, the Court required the parties to meet and confer to narrow the number of disputed claim terms or phrases. The Court further suggested that 8 or fewer terms/phrases would be a more reasonable number for a jury to comprehend and resolve. Judge Kinkeade ordered the parties to, within 14 days, file a revised joint claim construction chart.

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N.D. Tex. Judge Fitzwater Grants Temporary Restraining Order Prohibiting The City of Dallas From Removing Statue of Robert E. Lee in Dallas’ Lee Park

This afternoon, the Northern District of Texas’ Judge Fitzwater issued a Temporary Restraining Order (available here) prohibiting the City of Dallas from removing its statue of Robert E. Lee that sits in the City of Dallas’ Lee Park. The City’s work crew had straps around the statue and had been chiseling away at its base at the time the TRO issued. Various news outlets were live streaming the process, and a relatively large crowd had gathered to watch it.

The TRO came about as a result of a lawsuit (available here) brought by Hiram Patterson and the Sons of the Confederate Veterans, Inc. Plaintiffs allege that, this morning, the Dallas City Council voted to remove the statute, but the Council’s actions violate the First Amendment. According to the lawsuit:

The Confederate Monument was erected to express a controversial political opinion. The City’s plan to remove the Monument in a matter of hours is an imminent and unconstitutional attempt to curtail free speech by ordaining what mute political symbols must mean. The City’s planned suppression of the Monuments’ political speech is a first step in a totalitarian move to determine authorized forms of political communication and to punish unauthorized political speech. The City has expressed no compelling interest in the abridgment of this core political speech.

The lawsuit also alleges that the Council’s actions violated the Constitution’s Due Process clause because, per Plaintiffs,

The Dallas City Council is preventing meaningful hearing of public opinion on the removal of Confederate Monuments by voting on the Monuments’ removal in a manner not permitted under City Council Rules. These Rules were promulgated in order to provide fair notice and opportunity to appear before the Council. However, when the City Council votes in a briefing session and not during an agenda session, the City Council is purposefully avoiding public participation of a highly controversial issue that public polling shows favors the retention of these Confederate Monuments. The Council’s removal votes in a procedurally improper hearing creates unfairness to the public that the Council represents.

Judge Fitzwater has set a hearing on Plaintiffs’ TRO request for tomorrow (September 7, 2017) at 1:30 p.m. While I generally avoid commenting on the merits of lawsuits, I give this one no chance of success. The Plaintiffs may lack standing to bring the lawsuit, and, of course, a city can generally determine what monuments its wishes to erect—or keep—on its own property.

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Former Dallas Cowboy Deion Sanders Sanctioned, Ordered To Show Cause in N.D. Tex. Qui Tam Case

On August 11, 2017, Magistrate Judge Ramirez sanctioned former Dallas Cowboys player Deion Sanders and ordered him to show cause in a qui tam case brought against Sanders. In the sanctions Order (available here), Judge Ramirez noted that Sanders failed to attend a court hearing after being ordered to personally attend. (Note to self: If I’m ever ordered to personally attend a hearing by a court and miss it, I’d better be dead or in the hospital.) Sanders further failed to comply with an earlier order that ordered him to provide certain discovery. Judge Ramirez assessed costs and fees against Sanders in the amount of $2,200, and ordered him to provide his discovery responses and documents by August 25, 2017.

In the Order to Show Cause (available here), Judge Ramirez ordered Sanders to show cause at an evidentiary hearing why his pleadings should not be stricken and default entered as a discovery sanction for failure to comply with past discovery orders and his failure to comply with the Court’s Order requiring him to appear at the discovery hearing.

The evidentiary hearing was set for Friday, September 1, 2017. On September 1, the Court entered the following minute entry: “ELECTRONIC Minute Entry for proceedings held before Magistrate Judge Irma Carrillo Ramirez: Evidentiary Hearing NOT HELD on 9/1/2017. Deion L Sanders did no[t] appear or otherwise notify the court.” If I were a betting man, I’d say that things are not going to end well for Sanders.

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Judge Godbey Grants Summary Judgment In AT&T’s Favor In Suit Brought By Advanced Media Networks

On August 25, 2017, Judge Godbey issued an Order (available here) granting AT&T summary judgment in Advanced Media Networks v. AT&T Mobility. Judge Godbey began by noting that his Markman opinion had found that the claim phrase “ethernet packet switching protocol” did not encompass “internet protocol.” Accordingly, because AT&T’s accused devices do not use an ethernet packet switching protocol, summary judgment was appropriate in AT&T’s favor.

Additionally, the plaintiff had conceded that a construction of “ethernet packet switching protocol” that did not include internet protocol would render new claims that the plaintiff had added during reexamination invalid. As such, the Court found that those claims were invalid.

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N.D. Tex. Jury: Nintendo Must Pay $10.1 Million For Infringing ILife’s Patent

On August 31, 2017, a jury in Chief Judge Lynn’s court found that Nintendo infringed a patent held by iLife Technologies through the sale of Nintendo’s Wii and Wii U video game systems and software, and that Nintendo failed to prove that the patent is invalid. (Verdict form available here.) For damages, the jury awarded $10,100,000 in a lump sum reasonable royalty. Rolling Stone wrote an article about the case (available here). The article indicates that Nintendo plans to raise infringement and invalidity with post-trial motions and, if unsuccessful before the district court, on appeal.

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