It’s that time of year when the Supreme Court hurries to clear the docket before adjourning for summer.
And this spring, within the space of a week, SCOTUS issued two decisions that will have big implications for patentees, their customers, and their legal adversaries. The Ninth Circuit also issued a major decision recently that could spell trouble for online service providers and internet service providers.
Here’s what you may have missed:
Patent Rights are Completely Exhausted at the Time of Sale.
The Court’s most recent tech decision, Impression Products, Inc. v. Lexmark International, Inc., dealt with the issue of exhaustion doctrine for patent rights. When there is an authorized sale of a patented item, what rights does a patentee give up to the purchaser? And what rights does the patentee retain after the sale?
Lexmark International sells refillable printer cartridges. Impression Products purchases used Lexmark 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 Fed 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, holding instead that all of a patentee’s IP rights are extinguished at the time of the first authorized sale. This is true whether the first sale takes place in or out of the United States.
The decision changes 20 years of legal precedent. It’s also 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 will force patentees to rethink how they do business. (The Court didn’t say that Lexmark has no cause of action; it simply said patent exhaustion precludes a cause of action for infringement.) In order to retain certain rights, Patentees 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 (like Lexmark’s discount pricing program in the case).The full implications will become clearer as post-sale patent infringement cases come to a halt.
Patentees Have Limited Venue Options for Bringing Suit.
In TC Heartland LLC v. Kraft Foods Group Brands LLC, the Court unanimously limited the venues in which a patentee could sue an infringer. Previously, a plaintiff could effectively bring suit wherever a defendant could be subject to personal jurisdiction.
The Court found that the only relevant venue statute for patent matters is 28 U.S.C. § 1400(b). The statute specifies 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.”
Because a corporation’s “residence” is the place it’s incorporated, the court ruled that a suit can be brought in either there, or in a place where the defendant has a place of business.
TC Heartland goes against the traditional view that a plaintiff should have its choice of venue. The holding is a big blow to a lot of patentees who like to bring suit in the Eastern District of Texas. Delaware is now preparing for an influx of IP cases. And this decision will also transfer a lot of litigation costs from defendants to plaintiffs.
What other impact will TC Heartland have? As with everything else law-related, it will take some time to tell.
An Exception to the Safe Harbor Rule for Internet Service Providers?
SCOTUS doesn’t get all the glory. The Ninth Circuit just issued a bombshell decision with the potential to affect scores of website operators.
You may have noticed that 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”). The 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 an OSP or ISP isn’t responsible for everything that appears thereon. Google, the company, cannot possibly be aware of everything that appears in the search results on Google, the website. Nor should it be expected to know which material on the site is infringing.
Hence, 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.
Which leads to the question: what if a website that accepts content from third parties has moderators that process the content? Are the moderators acting on behalf of the website in question? Is the website exercising control over the infringement? These are the questions asked by the court in 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 for summary judgment on the grounds of the safe harbor provision of the DMCA, and the district court granted the motion.
However, the Ninth Circuit 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 court determined that the ISP might have a right or ability to control the infringement through its agents (the moderators). And if that’s true, then the ISP can’t enjoy immunity from liability under the safe harbor provision.
The 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.
As a litigation and transactional firm, we have worked on cases involving infringement liability and the DMCA. Our attorneys have also dealt with matters where venue is at issue, and we’ve helped clients restructure agreements when it’s beneficial for them to do so (or when the law requires).
Our firm focuses on copyright, trademark, patents, trade secrets, entertainment law, and business law. We are located in Boca Raton, and would be happy to discuss your matter with you. Contact us at (561) 953-9300 or visit us online at https://www.lomnitzerlaw.com for your free consultation.