The Party’s Over: The Death of Patent Cases In the Eastern District of Texas

Today, the Supreme Court released its much-anticipated decision in TC Heartland v. Kraft Foods (decision available here). The Supreme Court reversed decades of Federal Circuit case law that essentially allowed a patent-infringement defendant to be sued wherever it sold the accused products. Federal Circuit case law, in practice, meant that an exceptionally large number of defendants were sued in the Eastern District of Texas—a venue thought to be favorable for patent owners (including non-practicing entities).

No longer. The Supreme Court today held that “resides” in 28 U. S. C. §1400(b)—the patent venue statute—means only a corporation’s state of incorporation. This means that, on a go-forward basis, a patent defendant may only be sued (i) in its state of incorporation, or (ii) where the defendant both (a) has a regular and established place of business and (b) has committed acts of infringement.

The practical effect of TC Heartland is that Delaware will see a dramatic increase in patent-infringement cases (as it is the top state where corporations incorporate, and it, like the Eastern District of Texas, is thought to be plaintiff friendly). And the Eastern District of Texas will see a dramatic drop in patent-infringement filings (simply because most corporations are not incorporated in Texas, nor do they have, in East Texas, regular and established places of business where they commit alleged patent infringement). I also expect to see a rise in patent-infringement lawsuits in venues such as the Northern District of Texas, the Southern District of New York and the Northern District of California—i.e., places where large numbers of major corporations are headquartered. I further predict that we’ll see an increase in Delaware cases being transferred out of Delaware, including mandamus decisions from the Federal Circuit directing the District of Delaware courts to transfer cases.

At issue in TC Heartland was 28 U. S. C. §1400(b), which states: “Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” The Supreme Court held that “resides” means only a corporation’s state of incorporation. It rejected the argument that “resides” incorporates the broader definition of corporate “residence” contained in the general venue state, 28 U. S. C. § 1391(c). Section 1391 provides that a corporation “shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question[.]” The Federal Circuit had held, in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F. 2d 1574 (Fed. Cir. 1990), that § 1391(c) allowed a patent-infringement defendant to be sued anywhere it was subject to personal jurisdiction. This, in practice, meant that a patent-infringement defendant could be sued anywhere it sold the accused product. And because most companies sell their products nationwide—including in East Texas—they could be sued anywhere in the United States. This led to the rise of the Eastern District of Texas as the patent infringement “hot spot.” Now, however, it will be exceptionally difficult to file a patent-infringement case in East Texas.

One final item to note: TC Heartland confined itself only to domestic corporations. It did not address venue for foreign corporations or non-corporate entities.

Posted in Developing Law, Federal Circuit Court of Appeals, Non-N.D. Tex. Notable Decisions, U.S. Supreme Court | Comments Off on The Party’s Over: The Death of Patent Cases In the Eastern District of Texas

Judge Kinkeade Invalidates Investpic’s Patent Under Alice

On May 18, 2017, Judge Kinkeade issued an Order (available here) that invalidated a patent owned by Investpic. SAP filed a declaratory-judgment lawsuit against Investpic seeking a declaratory judgment that the patent was not infringed and invalid. SAP then moved for judgment on the pleadings that all claims of the patent were invalid for claiming unpatentable subject matter under 35 U.S.C. § 101 and Alice Corp. Pty v. CLS Bank Int’l, 134 S. Ct. 2347 (2014).

Judge Kinkeade agreed. The patent “discloses the invention of a method and system for statistical analysis, display, and dissemination of financial data over a network.” Judge Kinkeade found that all of the patent’s claims were directed toward the abstract ideas of mathematical calculations and data manipulation, and they do not contain any inventive concept that results in the claims addressing patentable subject matter.

The decision provides a good overview of the current state of Section 101 jurisprudence, and is worth a read for those who litigate patents.

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Judge Lindsay Tosses High School Student’s Lawsuit Over Bringing “Clock” to School

On May 18, 2017, Judge Lindsay entered an Order (available here) that dismissed a lawsuit brought on behalf of a high-school student who was arrested and suspended in 2015 from his high school in the Irving Independent School District “after he brought to school a homemade contraption containing wires and batteries that made a beeping sound.” At the time, the student was a 14-year-old freshman. When his English teacher heard a beeping sound coming from the device, she asked whether it was a bomb. The student stated that it was an alarm clock.

Subsequently, the student’s father filed a federal lawsuit on his behalf, asserting claims premised on racial and religious discrimination and seeking compensatory and punitive damages. Judge Lindsay found that the complaint failed to state a claim due to, e.g., “wholesale conclusory and speculative statements.”

The Court also found that the school’s principal was entitled to qualified immunity:

Public officials are entitled to qualified immunity unless it is shown that their actions are objectively unreasonable. One may consider a three-day suspension imposed on [the student] to be harsh and unreasonable, but the court is not prepared to conclude that Principal Cummings’s actions were objectively unreasonable based on the allegations of the Complaint. A principal’s fate is not so hapless that, on the one hand, by not taking action he is faced with the gruesome prospect of death or serious injury of persons had the device actually been a bomb and exploded; and, on the other hand, he is faced with a federal lawsuit for denial of a student’s constitutional rights because the device turned out not to be a bomb. Woe unto the principal who fails to act on a potential threat that later becomes a reality! To hold Principal Cummings, or any other administrator, to this standard places him between the dreaded Scylla and Charybdis.

(emphasis in original).

With respect to those claims dismissed without prejudice, Judge Lindsay gave the plaintiff an opportunity to amend the complaint.

p.s. Judge Lindsay quoted one of his prior decision’s discussions of Scylla and Charybdis (for which those of us who have forgotten our Greek mythology are thankful):

According to Greek mythology, Scylla was originally a beautiful nymph who was later turned into a monster by Circe, an enchantress. Glaucus, a sea god, fell in love with Scylla; however, she wanted no part of him. When Scylla rebuffed Glaucus’s efforts to spark her, he enlisted the aid of Circe to persuade Scylla that she should love him. Circe, however, had ideas of her own and tried to convince Glaucus to love her instead of Scylla. When Glaucus spurned Circe’s amorous efforts, she became enraged and turned Scylla into a monster to spite Glaucus.

After being turned into a monster, Scylla lived in a cave overlooking the Strait of Messina, which separates the island of Sicily from Italy. Immediately opposite the cave where Scylla lived was the whirlpool Charybdis. When mariners navigated the Strait of Messina, they were faced with the . . . repugnant alternatives of either (1) being devoured by Scylla, or (2) being sucked into and drowned by the deadly waters of the whirlpool Charybdis.

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PWC’s 2017 Patent Litigation Study

PWC’s 2017 Patent Litigation Study is out (available here) and worth a read for those who litigate patent cases. Notable aspects of the study include that 2016 saw 9% fewer patent cases filed when compared to 2015, median time-to-trial is 2.5 years, and median damages awards were down to $6.1 million in 2016 from $10.2 million in 2015.

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Two Practice Tips

I recently came across two (non-N.D. Tex.) decisions, both involving the same well-known defendant. The decisions highlight two useful reminders.

First, be sure to study the applicable local rules and any presiding judge’s individual rules of practice. In the first case (available here), the court found that defendant violated the presiding judge’s individual rules of practice by using 24-point spacing, rather than double-spacing, thus allowing the defendant to submit a substantially longer memorandum that what was provided for by the judge’s individual rules. Because the subversion of the individual rules was found to be deliberate, the court sanctioned defendants’ counsel $1,048.09 (the cost of what it took defendant to prepare a compliant memorandum).

Second, when filing a motion for an extension—even if it is unopposed—make sure to specify the good cause supporting the extension request. Don’t simply assume that the court will grant the motion. In the second case (available here), the defendant filed a motion seeking its third extension of time to answer (or otherwise respond to) the complaint. Although the defendant filed the motion on the day the responsive pleading was due, the motion did not demonstrate diligence and did not set forth good cause for an extension. The court accordingly denied the motion and, because filing an extension motion itself does not serve to extend the relevant deadline, directed the clerk to enter a default judgment against the defendant. (The court did, however, ultimately set aside the default judgment (order available here).)

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Judiciary Appreciation Luncheon / CLE To Be Held On June 16, 2017

The Federal Bar Association and the Judicial Committee of the Dallas Bar Association are hosting the annual Judicial Appreciation Luncheon on June 16, 2017 at the Belo Mansion. Chief Judge Lynn will facilitate a panel discussion amongst other district, bankruptcy, and magistrate judges. The discussion has been approved for 1 hour of CLE. The event’s registration form is here.

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New(ish) N.D. Tex. Patent Cases

Here’s a list of patent cases filed in the Northern District of Texas since the last time I posted about new patent cases:

  • Collin Street Bakery v. Landmark Technology (Complaint available here);
  • Commscope Technologies v. Communication Components, Inc. and Communications Components Antenna Inc. (Complaints available here and here);
  • Dexas International v. Hitt Enterprises (Complaint available here);
  • Dr. Ford Albritton v. Acclarent (Complaint available here);
  • Fatboy v. The Gadget Snob and Zuru (Complaints available here and here);
  • Galderma v. Seegharm, Actavis, and Teva (Complaints available here, here and here);
  • Integrity v. Rapid EPS (Complaint available here);
  • Iron Oak v. Fujitsu, Toshiba, Acer, ASUS, Lenovo, Samsung and Pantech (Complaints available here, here, here, here, here, here and here);
  • Richell v. Primetime Petz (Complaint available here);
  • Ring Wrap v. Commemorative Brands (Complaint available here);
  • SAP America v. InvestPic (Complaint available here);
  • Smartrac v. Safeguard Business System (Complaint available here);
  • TNA Australia v. PPM Technologies (Complaint available here);
  • UTEX Industries v. Garlock Sealing Technologies (Complaint available here); and
  • Varidesk v. Lumi Legend and Ningbo Loctek (Complaints available here and here)
Posted in New Lawsuits Filed | Comments Off on New(ish) N.D. Tex. Patent Cases

Supreme Court Rules That Designs On Surface Of Cheerleading Uniforms Are Copyright Eligible

On March 22, 2017, the Supreme Court issued its decision in Star Athletica v. Varsity Brands (decision available here). The Court held that the arrangement of “lines, chevrons, and colorful shapes appearing on the surface of [] cheerleading uniforms” are eligible for copyright protection “as separable features of the design of those cheerleading uniforms.” The question was vexing because useful articles—e.g., clothing, shovels—are generally not copyrightable. The designs-at-issue are available here.

The Court articulated the relevant test as follows:

We hold that a feature incorporated into the design of a useful article is eligible for copyright protection only if the feature (1) can be perceived as a two- or three-dimensional work of art separate from the useful article and (2) would qualify as a protectable pictorial, graphic, or sculptural work—either on its own or fixed in some other tangible medium of expression—if it were imagined separately from the useful article into which it is incorporated.

As to the first requirement (separate identification), the requirement is “not onerous.” “The decisionmaker need only be able to look at the useful article and spot some two- or three-dimensional element that appears to have pictorial, graphic, or sculptural qualities.”

The second requirement (independent-existance) is “ordinarily more difficult to satisfy. The decisionmaker must determine that the separately identified feature has the capacity to exist apart from the utilitarian aspects of the article. In other words, the feature must be able to exist as its own pictorial, graphic, or sculptural work as defined in §101 once it is imagined apart from the useful article. If the feature is not capable of existing as a pictorial, graphic, or sculptural work once separated from the useful article, then it was not a pictorial, graphic, or sculptural feature of that article, but rather one of its utilitarian aspects.”

“[C]opyright protection extends to pictorial, graphic, and sculptural works regardless of whether they were created as free-standing art or as features of useful articles. The ultimate separability question, then, is whether the feature for which copyright protection is claimed would have been eligible for copyright protection as a pictorial, graphic, or sculptural work had it originally been fixed in some tangible medium other than a useful article before being applied to a useful article.”

Only the designs on the uniforms, not the uniforms themselves, were copyrightable:

To be clear, the only feature of the cheerleading uniform eligible for a copyright in this case is the two-dimensional work of art fixed in the tangible medium of the uniform fabric. Even if respondents ultimately succeed in establishing a valid copyright in the surface decorations at issue here, respondents have no right to prohibit any person from manufacturing a cheerleading uniform of identical shape, cut, and dimensions to the ones on which the decorations in this case appear. They may prohibit only the reproduction of the surface designs in any tangible medium of expression—a uniform or otherwise.

Finally, the Court abandoned a prior test that some courts and commentators had advanced:

Because we reject the view that a useful article must remain after the artistic feature has been imaginatively separated from the article, we necessarily abandon the distinction between “physical” and “conceptual” separability, which some courts and commentators have adopted based on the Copyright Act’s legislative history. According to this view, a feature is physically separable from the underlying useful article if it can “be physically separated from the article by ordinary means while leaving the utilitarian aspects of the article completely intact.” Conceptual separability applies if the feature physically could not be removed from the useful article by ordinary means.

The statutory text indicates that separability is a conceptual undertaking. Because separability does not require the underlying useful article to remain, the physical-conceptual distinction is unnecessary.

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Goodbye Laches Defense In Patent Cases

On March 21, 2017, the Supreme Court issued its decision in SCA Hygiene Products v. First Quality Baby Products (decision available here). In SCA, the patent owner accused the defendant of infringement in 2003. The defendant responded, claiming that the defendant’s own patent invalidated the patent owner’s patent. The patent owner then (in 2004), without notifying the defendant, placed its own patent into reexamination to determine whether the patent was valid in light of the defendant’s patent. In 2007, the PTO issued a certificate confirming the validity of the patent owner’s patent. In 2010, the patent owner filed suit against the defendant (seven years after it had first accused the defendant of infringement). The defendant moved for summary judgment based on laches (i.e., an unreasonable, prejudicial delay in commencing suit), which the district court granted (and the federal circuit upheld).

The Supreme Court reversed, holding that laches cannot defeat a damages claim brought within the period prescribed by the Patent Act’s statute of limitations. Accordingly, under current law, the patent owner can generally seek up to six years’ worth of damages.

Importantly, the Supreme Court did not address whether laches could serve as a defense to a claim seeking equitable relief. The Supreme Court also suggested that equitable estoppel “provides protection against some of the problems that [defendant] highlights, namely, unscrupulous patentees inducing potential targets of infringement suits to invest in the production of arguably infringing products.”

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Supreme Court’s Life Technologies v. Promega Decision

On February 22, 2017, the Supreme Court issued its Life Technologies v. Promega decision (available here). The Patent Act (Section 271(f)(1)) prohibits the supply from the United States of “all or a substantial portion” of the components of a patented invention for combination abroad. The question before the Court was whether a party that supplies a single component of a multicomponent invention for manufacture abroad can be held liable under § 271(f )(1). The Court held that that a single component does not constitute a substantial portion of the components that can give rise to liability under § 271(f )(1).

Notably, the Court did not consider how to identify the “components” of a patent or whether and how that inquiry relates to the elements of a patent claim. In the instant case, the parties agreed that the accused product contained five components and that all but one component was manufactured in the United Kingdom, so the issue did not present itself.

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