How The Courts Have Shaken Up The Intellectual Property Legal Landscape

This spring, within the space of a week, the Court issued two decisions that will have big implications for patentees (patent holders), their customers, and their legal adversaries.

At the appellate level, one of the federal circuit courts also issued a major decision recently that could spell trouble for online service providers and internet service providers.

Patent owners’ rights disappear when they sell their product.

The Court’s most recent tech decision, Impression Products, Inc. v. Lexmark International, Inc., dealt with the exhaustion of patent rights. When there is an authorized sale of a patented item, what rights does a patentee (patent-holder) give up to the purchaser? And what rights does the patentee retain after the sale?

Lexmark International sells refillable printer cartridges. Impression Products purchases the used cartridges, refills them, and sells them for a lower price. Not liking this practice, Lexmark sued Impression for infringement. Following a line of precedent from other cases, the Federal Circuit ruled in Lexmark’s favor, finding that the company retained some of its post-sale rights.

But the Supreme Court recently overturned that decision. It held that all of a patentee’s rights are exhausted at the time of the first authorized sale. After that occurs, patentees have no further rights. This is true whether the first sale takes place in or out of the United States.

This decision changes 20 years of precedent. It’s made patent law simpler and more consumer-friendly. The lack of restrictions after the sale might mean result in lower prices for used goods.

At the same time, this ruling might force patentees to rethink how they do business. Because the Court didn’t say that Lexmark has no cause of action. It simply said patent exhaustion precludes there from being a cause of action for infringement.

In order to be able to retain certain rights, companies might need to change their agreements with their licensees and customers. They may also need to revisit some of their strategies, especially those related to pricing.

The implications are big, and will start making themselves clear as fewer patent exhaustion cases emerge.

But Impression Products was actually the second consumer-friendly patent ruling handed down by the Supreme Court recently…

The venue for a patent lawsuit must be convenient for the defendant.

In TC Heartland LLC v. Kraft Foods Group Brands LLC, the Court unanimously limited the venues (locations) in which a patentee could sue an infringer. Previously, a plaintiff could effectively bring suit wherever it sold products.

The court found that there’s only one venue statute that’s relevant for patent matters. The statute, 28 U.S.C. § 1400(b), states that “[a]ny 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 Court ruled that because a corporation’s “residence” is the place it’s incorporated, a suit can be brought either there, or in a place where the defendant has a physical place of business.

Traditionally, the view has always been that a plaintiff should have its choice (with some limitations) of where to file a suit. TC Heartland is a big blow to a lot of patentees who like to bring suit in the Eastern District of Texas. Delaware, where many businesses are incorporated, is now preparing for an influx of IP cases. This decision will also have the result of transferring a lot of the costs of litigation from defendants to plaintiffs.

What other impact will TC Heartland have? As with everything else law-related, it will probably take some time to tell.

Can websites be liable for content posted by third parties?

Have you ever wondered why certain websites don’t get sued for the information they publish? Those sites are protected by a “safe harbor” provision of the Digital Millennium Copyright Act (“DMCA”). That provision specifies that online services providers (“OSP”s) and internet service providers (“ISP”s) are protected from liability for infringement so long as certain requirements are met.

Part of the theory behind the safe harbor provision is that it would be impractical for an OSP or ISP to be responsible for everything that appears thereon. For example – Google, the company, cannot possibly be aware of everything that appears on Google, the website. Nor should Google be expected to know what material, of everything posted on the site, is infringing on someone else’s copyright.

Therefore, the law shields OSPs and ISPs from liability for infringing acts that are committed by third parties. But, in order for a service provider to qualify for the safe harbor provision, the infringers must truly be third parties. The OSP or ISP cannot have hand in the infringement or any right or ability to control the actions of the infringer.

But what if a website that accepts third-party content has moderators for that content? Are the moderators acting on behalf of the website in question? Is the website exercising control over the infringement? This is the question asked by Mavrix Photographs LLC v. LiveJournal, Inc.

LiveJournal is a website that accepts user content; the content is moderated by volunteers before going live online. Mavrix Photographs brought suit against LiveJournal for infringing 20 of its photographs. LiveJournal moved to have the suit dismissed on the grounds of the safe harbor provision of the DMCA, and the district court granted the motion.

However, the appellate court disagreed. LiveJournal has a process for reviewing photos before they’re posted, a list of resources not to post from, and a tool which blocks all posts from a certain source. As such, the appellate court determined that the ISP might have a right or ability to control the infringement through the moderators. And if that’s true, then the ISP can’t enjoy immunity from liability under the safe harbor provision.

The appellate court reversed the judgment for LiveJournal and sent the case back to the lower court, where LiveJournal will have to prove that it has no role in the infringement in order to be shielded from liability.

OSP and ISP operators are understandably nervous about this case. We’ll be keeping an eye on it as it makes its way through the court system.

Our attorneys have worked on cases dealing with infringement liability and the DMCA. We’ve also helped our clients update their legal contracts to keep pace with changes in the law. To set up a free consultation to discuss your matter – whether related to copyrights, trademarks, patents, trade secrets, entertainment law, or business law – call The Lomnitzer Law Firm today at 561.953.9300 or inquire through our website.