Newsletter - Volume 53, June 2010
Business-Method Patents—Down but Not Dead
In a fractured decision, the Supreme Court's Bilski opinion (June 28,
2010) has ruled that patent law is available to secure the exclusive ownership
of certain business methods. The Court failed to provide any clear rules for
distinguishing between viable business methods for patent protection purposes
and unprotectable abstract ideas.
The Court's opinion was directed to whether patents should be available for
methods of doing business. In light of the negative press which patent law has
experienced in recent years (some, but not all, of which was with merit),
including the issue of business-method patents, it is surprising that the
opinion was not more limiting in nature. It would not have been a complete
surprise if the Court held that no business method is patentable. That was not
the case. The patent statute continues to provide that any new process (and
method) may be patentable. The majority opinion declined to read a
business-method exception into the patent statute. However, in contrast,
Justice Stevens's concurring opinion advocates that all business methods should
be carved out from the patent statute.
The majority opinion holds that the Federal Circuit's test of whether a method
or process is patentable (i.e., the machine-transformation test) is not the
sole test. The majority opinion and concurring opinion lead us to believe the
test is still viable, although it is not the sole test. The Federal Circuit's
machine-transformation test holds that a process or method must be tied to a
particular machine or apparatus, or transform a particular article into a
different state or thing to be eligible for patenting. Under the
machine-transformation test, most if not all pure business methods or processes
would not be patentable.
Further, the majority opinion interprets the scope of the patent statute broadly
or literally, holding that the term "method" may include at least some methods
of doing business. Yet, we are also warned that some business-method patents
raise special problems in terms of vagueness and suspect validity.
Notwithstanding, the petitioners seeking patent protection for a pure business
method did not prevail on the issue of patentability. Bilski claims a procedure
for instructing buyers and sellers how to protect against the risk of price
fluctuations in a discrete section of the economy. While the opinion suggests
that additional or other tests are required to be formulated by the lower
courts to decide whether a process or method is patentable, the Court relied on
its earlier decisions to find the petitioners' business method was not
patentable. Further, while the Court advocated against reading into the patent
statute exceptions as to patentable processes, the Court relied on a previously
created exception. In particular, the Court held Bilski's claims related to
abstract ideas and thus were not patentable.
Specifically, the Court acknowledged that its precedents provide three specific
exceptions to the patent statute's broad patent-eligibility principles: "laws
of nature, physical phenomena, and abstract ideas." The Court justified these
exceptions as consistent with the notion that a patentable process must be "new
and useful" and further that these exceptions have defined the reach of the
statute as a matter of statutory stare decisis going back 150 years.
Otherwise, the Court was unaware of any other "exceptions" carved out from the
patent statute without appropriate basis for doing so. Again, Justice Stevens's
concurring opinion advocated excluding all business methods as not patentable.
The majority opinion repeatedly affirmed the Court's earlier Benson, Flook,
and Diehr decisions. The Court's 1972 Benson decision
considered whether a patent application for an algorithm to convert
binary-coded decimal numerals into pure binary code was a "process" under the
patent statute. The Court held it was not a "process" but an unpatentable
abstract idea. A contrary holding would wholly preempt the mathematical formula
and in practical effect would allow a patent on the algorithm itself.
The Court's 1978 Flook decision was directed to a procedure for
monitoring the conditions during the catalytic conversion process in the
petrochemical and oil-refining industries. The Court held the process
unpatentable as the only innovation was reliance on a mathematical algorithm
and that the limitation to a particular field (petrochemical and oil-refining)
did not rescue the process from being unpatentable. Thus, the proposition that
abstract ideas are not rendered patentable with the addition of insignificant
post-solution activity.
The Court's 1981 Diehr decision was directed to an unknown method for
molding raw, uncured synthetic rubber into cured precision products using a
mathematical formula to complete some of its several steps by way of a
computer. Diehr explained that while an abstract idea, law of nature,
or mathematical formula could not be patented, an application of a law
of nature or mathematical formula to a known structure or process may well be
deserving of patent protection.
So what does it all mean? Reading the tea leaves, it would appear that a
business method may be patentable if it is somewhere between a pure business
method and one tied to a machine or which transforms a particular article.
As to computer software programs, the opinion arguably advocates patent
protection once again. Yet, it is not an unbridled position. In particular, the
opinion refers to the Diehr decision repeatedly, noting that the
majority opinion in that case held that a procedure for molding rubber that
included a computer program is within patentable subject matter. Further, the Bilski
Court noted that relying solely on the machine-transformation test would create
uncertainty as to the patentability of software, advanced diagnostic medicine
techniques, and inventions based on linear programming, data compression, and
the manipulation of digital signals.
All in all, the opinion advocates patent protection yet roughs out some vague
guidelines in which to operate, and affirms the Court's earlier decisions as to
guiding the lower courts. Thus, business methods remain potentially patentable,
but subject to further and possibly uncertain scrutiny as lower courts attempt
to interpret and implement Bilski.
Federal Circuit Court of Appeals Weighs In On Patent False Marking Statute In Solo
Cup Decision
In Pequignot v Solo Cup Company, a decision appealed from the District
Court for the Eastern District of Virginia, the Federal Circuit affirmed the
lower court's decision concerning Solo Cup's improper marking of "unpatented
articles." However, Solo Cup's lack of "intent to deceive the public" precluded
liability, enabling the Federal Circuit to avoid revisiting the issue of "what
constitutes an offense" for purposes of calculating damages. The false-marking
statute provides for recovery of damages in the amount of $500 for "every such
offense" when an "unpatented article" is marked with the word "patent" or any
other word or number importing the same meaning "for the purpose of deceiving
the public." The distinction between a rebuttable and an irrebuttable
presumption, for purposes of the intent-to-deceive element, in connection with
the preponderance-of-the-evidence standard created an escape from liability in
the present dispute. All manufacturers who have come under recent attack may
not be as fortunate as Solo Cup as to have acted in good faith on advice of
counsel in adopting and adhering to the product and packaging marking policies
that were called into question.
The record from the lower court established that Solo Cup continued to mark its
product with expired patent numbers because wholesale replacement of
manufacturing molds each time a patent expired would be costly and burdensome.
On advice of patent counsel, Solo Cup adopted and adhered to a policy under
which when manufacturing molds required replacement due to wear or damage, new
molds would not include the expired patents. Because Solo Cup's manufacturing
molds could last for many years, there was often a significant gap in time
between when a patent expired and when a manufacturing mold was replaced. Solo
Cup also, on advice of patent counsel, adopted and adhered to a policy of
marking packaging with a statement "This product may be covered by one or more
U.S. or foreign pending or issued patents. For details, contact
www.solocup.com." Solo Cup advances two theories as to why these facts did not
establish false marking under the statute: (1) a product covered by an expired
patent is not "unpatented" as required by the statute; and (2) the fact of
patent expiration is insufficient to show an intent to deceive the public. The
lower court dismissed Solo Cup's motion to dismiss finding that both marking a
product with an expired patent number and marking packaging with the "may be
covered" language could constitute false marking. The lower court did grant
Solo Cup's motion for summary judgment, finding that Solo Cup lacked an intent
to deceive by adopting its product and packaging marking policies. In its
decision, the lower court held that false marking combined with knowledge of
the falsity creates only a rebuttable presumption of intent to deceive and Solo
Cup's evidence satisfactorily rebutted this presumption. Despite having granted
summary judgment finding no liability, the lower court also granted summary
judgment finding that Solo Cup had committed at most three "offenses" for
purposes of the patent-marking statute: one offense when it continued to mark
product with each of the two expired patents in question and one additional
offense when it marked packaging with the "may be covered" statement.
On the issue of defining "unpatented" for purposes of the patent-marking
statute, the Federal Circuit affirmed that products once covered by now-expired
patents are "unpatented" within the meaning of the statute. While the Federal
Circuit modified some of the lower court's analysis, the outcome of what
constitutes "unpatented" did not change. On the issue of "intent to deceive",
Pequinot argued at the lower court level that under Supreme Court precedent,
intent had been proven if Solo Cup's statements were false and Solo Cup knew
they were false. Solo Cup responded that the inference from knowingly false
statements is rebuttable with evidence of good faith, such as advice of
counsel. The Federal Circuit agreed with Solo Cup's position, finding that the
bar for proving deceptive intent is particularly high as the false-marking
statute is a criminal one, despite being punishable with only a civil fine. A
purpose of deceit, rather than simple knowledge of falsity is required to
satisfy this element of the statute. Such a purpose of deceit must be shown by
a preponderance of the evidence. As established in the lower court record,
"Solo [Cup] acted not for the purpose of deceiving the public, but in good
faith reliance on advice of counsel and out of a desire to reduce costs and
business disruption." The Federal Circuit agreed that Pequinot provided no
credible contrary evidence. Because the Federal Circuit affirmed the lower
court's finding of no liability for the lack of intent to deceive, the "for
every such offense" element of the patent-marking statute was not examined on
appeal.
This decision should begin to slow the tide of false-marking cases brought by
plaintiff who has no real interest in the outcome of the dispute beyond the
monetary award available under the statute.
Facebook's Ongoing Struggle with Privacy
When Facebook changed its default privacy settings in late 2009 and changed the
way profile information was shared in April 2010, many privacy advocates
alleged that the social networking site had run afoul of the FTC's rules for
material changes to a privacy policy. While Facebook's actions are irksome, did
they actually break any laws under U.S. privacy regulations?
In April 2010, Facebook altered the way profile information would be shared. If
a user chose to not link certain profile information with the corresponding
Facebook Page, portions of the profile were initially deleted, rather than
allowing users to maintain "text" entries listing their likes, interests and
biographical information. Privacy and consumer protection organizations
subsequently filed a formal complaint with the FTC on May 5, 2010, alleging
deceptive trade practices and violations under consumer protection laws. This
recent complaint is in addition to an earlier complaint filed in December 2009
after changes in privacy settings. Both are led by the Electronic Privacy
Information Center, or EPIC, and joined by a number of other organizations.
Privacy law is somewhat fractured under U.S. law, where there is no general
statute governing the collection and sharing of data from users online. Privacy
law in the U.S. is generally less restrictive than in other countries,
including the European Union countries, and in many cases, applies only to
specific facts involving minors or the obligations of financial institutions.
The recent complaints, however, have approached the violations under consumer
protection laws governing unfair and deceptive trade practices. Under that
theory, a material change to a privacy policy can constitute an unfair and
deceptive trade practice when done without the user's consent. The complaints
allege that changes implemented by Facebook without users' consent "violate
user expectations, diminish user privacy, and contradict Facebook's own
representations."
There is no doubt that the increasing concern has also brought the issue of
privacy to the forefront for lawmakers as well. In April, New York Senator
Chuck Schumer proposed to the FTC that it use its authority to examine
Facebook's practices or appoint a privacy commissioner, and joined with other
Democrat Senators in a letter to the Facebook CEO, imploring that the company
make its privacy practices more transparent. More recently, the House Judiciary
Committee has asked that Facebook cooperate with its inquiries into Facebook's
privacy practices. As a result, the recent controversy has the potential to
significantly affect the landscape of privacy law in the United States in the
future.
A decision from the FTC may not come any time soon, but the recent May complaint
also comes on the heels of a security breach that enabled users to view others'
private chats, and allowed users' private data to be sent to advertisers by
mistake. In response to the growing concern that Facebook defaults to revealing
private information rather than protecting it, Facebook recently revealed a
simplified method for users to control their privacy settings, in which users
are provided with three basic options—to share certain information with anyone,
with "friends of friends", or with the user's friends only. Facebook's default
"recommended" settings share some information, like user's name, gender and
profile photo with anyone; make user's photos accessible to "friends of
friends;" and restrict access to user's contact information to "friends only."
Criticism continues over the amended approach, reiterating that the
"recommended" option should always be the most stringent settings, however
Facebook asserted that the site's primary focus is establishing and
facilitating "connections" and has maintained that Facebook is devoted to
protecting users' privacy. It remains to be seen whether the FTC complaints
will be found to have merit, or whether these recent changes will be enough to
satisfy users and keep Facebook a leader in social networking.
New gTLDs: Version 4 of Draft Applicant Guidebook from ICANN
ICANN has recently released for public comment the Fourth Draft Applicant
Guidebook for new gTLDs. As we have previously reported, the Guidebook covers
the details of ICANN's plan for the expansion of gTLDs (generic top-level
domains), introducing alternatives to the existing .COM, .ORG, .BIZ, and others
in the form of .YOURBRAND. Comments on the latest draft are being accepted at
icann.org through July 21, 2010. It is unknown how many additional
versions, if any, of the Guidebook will be issued before a Final Version is
released.
The latest Guidebook includes a number of changes and additions from the prior
version. Of particular note to trademark holders is the incorporation of
specific trademark-protection mechanisms that include: the Uniform Rapid
Suspension, the Trademark Clearinghouse, and the Post-Delegation Dispute
Resolution Proposal. In addition to the trademark protections, the Guidebook
includes background checks that can exclude applicants for "intellectual
property violations," such as being found liable in a series of cybersquatting
proceedings.
The Uniform Rapid Suspension System (URS) is a post-delegation
dispute-resolution mechanism intended to more swiftly and less costly address
the most obvious cases of trademark infringement or cybersquatting in domain
names. While it is similar to a UDRP, the burden of proof is intentionally
higher than in the UDRP, and shall be by clear and convincing evidence. The
Examiner must also find that there is no genuine contestable issue. Rather than
resulting in the transfer of the domain name as in a UDRP decision, a favorable
URS decision would result in the domain name being suspended for the balance of
the registration period, without resolving to the original web site. The
nameservers would be redirected to an informational web page provided by the
URS Provider about the URS. Penalties for abuse of the process by trademark
holders are also provided.
The Trademark Clearinghouse (TM Clearinghouse) is intended to make verification
of rights easier via a centralized database. The Guidebook makes clear however,
that inclusion of a mark in the database is not proof of any right, nor does it
create legal rights. Likewise, failure to submit trademarks to the TM
Clearinghouse should not be perceived to be lack of vigilance by a trademark
holder or a waiver of any rights. The proposed standards for inclusion in the
Clearinghouse database are for nationally or multi-nationally registered "text"
trademarks from all jurisdictions, including countries where there is no
substantive review. Additional text marks to be included are those that have
been validated through a court of law or other judicial proceeding, or those
protected by a statute or treaty currently in effect and that was in effect on
or before June 26, 2008. No common-law rights will be included in the TM
Clearinghouse database, except for court-validated common-law marks.
The Post-Delegation Dispute Resolution Procedures (PDDRP) provide an
administrative proceeding for a trademark holder to claim that one or more of
its marks have been infringed by the registry operator's manner of operation or
use of the gTLD. The "registry" is the company/organization/party that has the
rights to and operates the master database of the domain names in a particular
gTLD. However, before proceeding to the merits of a dispute against a registry
operator, a one-person Panel will perform an initial "threshold" review.
Similarly to the URS, the burden of proof is by clear and convincing evidence.
The PDDRP potentially applies to infringements by the registry operator in both
the top-level gTLDs and second-level domain names. While not necessary or
required, a hearing lasting no longer than one day may be requested by a party
or determined to be necessary by the Expert Panel.
While the above highlights the proposed trademark-protection mechanisms, the
full Guidebook can be found at icann.org,
where interested parties should voice their comments and request potential
changes.
Disclaimer: The contents of this newsletter are presented for information purpose only, and as such are not intended to constitute legal advice and should not be construed as such or acted upon without seeking advice of legal counsel. This information is not intended to and shall not create an attorney-client relationship of any kind or nature with IpHorgan Ltd. Please contact the firm with queries, concerns or for further details regarding the information presented herein. The entire contents are current only as of the date of the newsletter and are not to be interpreted as the opinions of our clients past, present, pending or future. (c)2010, IpHorgan Ltd. All Rights Reserved.
Newsletter Volume 72, January 2012
