Copyrights and Patents at the Supreme Court

It is IP month at the Supreme Court this month, with two decisions issued (Star Athletica v. Varsity Brands and SCA Hygiene Prods. v. First Quality Baby Prods.) and two cases being argued (Impression Prods., Inc. v. Lexmark International, Inc. and TC Heartland LLC v. Kraft Foods Group Brands LLC). Of these, Impression Products and TC Heartland are likely to have the largest impact.

Impression Prods., Inc. v. Lexmark International, Inc.

In Impression Products, Lexmark sold printer cartridges overseas subject to a declaration that they could not be refilled, but instead had to be returned to the company. Impression lawfully bought the cartridges, refilled them, and imported them into the United States. (NB: I mentioned Impression Products last week in the context of commenting on one of the amicus briefs and its associated economic analysis.)

The key issue in Impression Products is "patent exhaustion" - the doctrine that a patent holder exhausts all rights in a patented product when there is an authorized, lawful sale. Unlike in copyright, where the "first sale" doctrine has been codified for about a century, patent exhaustion is largely a matter of federal common law.

What further complicates this case is the fact that the sales were overseas. Patent law is territorial; patent exclusivity only applies within the borders of a nation where a patent has been granted. It is not clear whether an authorized sale in another jurisdiction would exhaust rights within the US.

Impression Products was argued earlier this week, and it is somewhat unclear which way the court will go. Justice Breyer made a number of comments about not restricting trade, and I think that the Court will be very mindful of the potential transaction costs it may impose if downstream buyers need to run a patent clearance on each item (and each patentable subcomponent of each item) that they buy. My best guess is that this will be the key policy issue that the justices will focus on.

That said, the extraterritoriality is a significant hurdle for Impression Products. In some ways it doesn't make sense or seem "fair" that a sale in another jurisdiction would result in "spooky action at a distance" using up patent rights in the United States. I would not be surprised at all if the Court tries to split the difference on this issue somehow (perhaps the "sale" occurs where it was authorized?).

TC Heartland LLC v. Kraft Foods Group Brands LLC

TC Heartland has the biggest opportunity to upset the existing order in the patent world. Technically, this is about the venue statute relative to patents - i.e., where it is acceptable to sue a corporation for patent infringement. I'll quote from the amicus brief filed on behalf of the Internet Association and others:

In the nineteenth century, Congress passed a statute to restrict venue in patent cases, 28 U.S.C. § 1400(b), in order to correct the abuses under the general venue statute that allowed alleged infringers to be sued almost anywhere. This Court repeatedly interpreted the statute narrowly, but has not considered the statute since the Nixon Administration. More recently, the Federal Circuit has concluded that venue in patent cases is synonymous with personal jurisdiction. Combined with its embrace of an expansive theory of personal jurisdiction, the Federal Circuit effectively has held that venue over an alleged corporate infringer is proper in almost any district in the country. Stated differently, the statute that was passed to restrict venue in patent cases has now been interpreted to allow more expansive venue over corporations in patent cases than in non-patent cases.

Extensive statistical evidence and academic research demonstrate that the Federal Circuit’s approach has resulted in rampant forum shopping. By 2001, 29% of all patent cases were filed in only five of the 94 districts, and 44% of a ll patent cases were filed in 10 districts. Since that time, forum shopping has dramatically accelerated. Between 2007 and 2015, 52% of all patent cases were filed in only five districts, and 66% of all patent cases were filed in 10 districts. In the first half of 2015, 52% of all patent cases were filed in only two districts, the Eastern District of Texas and the District of Delaware, the district in which this case arose. In 2015, a single judge in the Eastern District of Texas handled one-third of all patent cases nationwide. Recent studies have concluded that the most popular patent districts compete to adopt procedures that will—and do—attract plaintiffs to their districts.

The "single judge" that the brief refers to is Rodney Gilstrap, sitting in the Federal Courthouse in Marshall, Texas. Judge Gilstrap's court has become an effective national court for patent litigation, and his court rules affect litigation against companies located nation- (and world-)wide. The Federal Circuit has been aware of the concentration of patent cases in the Eastern District of Texas for many years, but they have not only refused to act, but have found that venue is proper, leading to the current case.

My sense—and I'm definitely not alone in this—is that the Supreme Court didn't take this case to agree with the Federal Circuit's interpretation. A summary affirmance could have done that. The question for me is how far does the opinion go. Will it say that venue has never been appropriate for many of these companies? If so, that may result in a loss of subject matter jurisdiction for some cases, forcing the courts to dismiss cases that are in process. We'll see.

Star Athletica v. Varsity Brands

In Star Athletica, the court was asked to determine whether copyright law protected cheerleader's uniforms. This was an unsettled question because copyright law explicitly excludes functional works, and clothes have usually been considered to be primarily functional. But that doesn't mean that any artwork on clothing is unprotected. Rather, the copyright statute says:

"...the design of a useful article, as defined in this section, shall be considered a pictorial, graphic, or sculptural work only if, and only to the extent that, such design incorporates pictorial, graphic, or sculptural features that can be identified separately from, and are capable of existing independently of, the utilitarian aspects of the article.

In the case of cheerleader's uniforms, the artistic aspects are so mixed with the functional aspects that it was unclear whether those artistic elements were sufficiently independent of the utilitarian aspects of the uniforms.

The Supreme Court declined to impose a strict rule, saying that copyright would apply: "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 in some other medium if imagined separately from the useful article." The Court also said that not all clothing designs would be protectable under copyright, but that the cheerleading designs in this case passed the test.

This seems to me to be a case of the Court exercising judicial restraint. The decision simply re-emphasized the already-existing rule within the statute and didn't make any sweeping pronouncements. There will definitely be a new crop of lawsuits trying to figure out what it might mean for a design to be distinct enough to be "imagined separately" from the underlying article, but the answer to the question of copyright in clothing designs ends up being a rousing "it depends."

SCA Hygiene Prods. v. First Quality Baby Prods.

In SCA, the court ruled on an defense called laches and whether it applies in patent cases. Laches is an "equitable" (i.e., judicially-created) defense that amounts to "use it or lose it" - you might lose your ability to file a lawsuit if there is an unreasonable delay in filing. It is the common-law version of a statute of limitations.

In this case, the Court said that the time frame for damages in the patent statute was effectively the same as a statute of limitations, and so laches should not apply.

This is slightly odd logic, in that the six-year lookback for patent damages is a "reverse" statute of limitations, running backwards from filing rather than forward from the time that the injury (i.e., patent infringement) first occurred. However, the practical impact will probably be slight. For the past several decades, courts have only allowed laches as a defense when there were extraordinary circumstances leading to reliance by the accused infringer.