Background Analysis of the Acts

Overview of the PROTECT IP Act (“PIPA”)

Following an earlier stalled attempt at passing similar legislation, on May 12, 2011, Senator Leahy introduced the Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act (the PROTECT IP Act or “PIPA”).

The Act contained language that would authorize the Attorney General to initiate a civil forfeiture proceeding against a nondomestic domain name that is used in the U.S. and is associated with an Internet website “dedicated to infringing activities.” The Act defined an “Internet site dedicated to infringing activities” as an Internet site that has no significant use other than, or is marketed by its operator primarily as a means for, enabling or facilitating the reproduction, distribution or performance of copyrighted works. If a court grants an injunction, law enforcement officials can then serve court orders to operators of non-authoritative domain name servers to direct them to prevent access to seized domain names through the least burdensome technically feasible means. Non-authoritative domain name servers are intermediary servers used to resolve a domain name to its IP address; usually, they are general Internet service providers. An injunction also allows a law enforcement official to serve a court order to financial transaction providers (including credit card companies and PayPal), Internet advertising services, and information location tools (search engines) to require them to cut off service to the Internet site.

Perhaps the most important addition to PIPA was its inclusion of a private right of action for IP owners. For domestically registered domain names, the Act allowed the owner of an IP right harmed by the activities of an Internet site to bring suit against a person who registered the site’s domain name. The Act also allowed for an IP owner to bring suit against a nondomestic domain name that is being used by a site dedicated to infringing activities. A federal court can then issue an injunction against the domain name if it is used within the U.S. to access the website. An IP holder could then use this injunction to order financial transaction providers and Internet advertising services to stop providing service to the website.

In contrast to earlier legislation, the language of PIPA no longer required action by domain name registries to cut off access to an infringing site. Instead, the Act required action by nonauthoritiative domain name servers. The Act also required potential plaintiffs to make an effort at identifying a person connected with the infringing website before proceeding against the domain name itself.

Overview of the Stop Online Piracy Act (“SOPA”)

Seeking to introduce a bill in the House of Representatives that corresponded with the Senate’s PIPA, Representative Lamar Smith introduced the Stop Online Piracy Act on October 26, 2011. While SOPA contained several provisions that correspond with PIPA, it also had some key differences, most notably in respect to its private action provisions.

SOPA contained two main titles, the first of which was originally called the E-PARASITE Act. Title I was designed to encapsulate most of the enhanced copyright protection provisions of PIPA. In accordance with this, § 102 of SOPA authorized the Attorney General to take action in federal court against foreign websites that are dedicated to offering infringing content. The bill allowed courts to order ISPs, payment network providers (such as credit card companies and PayPal), search engines, and advertising services to take “technically feasible and reasonable measures” to prevent U.S. citizens from accessing the content.

SOPA’s provisions relating to private causes of action had some importance differences from those found in PIPA. SOPA’s § 103 creates a framework for rights holders to initiate such proceeding orders themselves, in a manner similar to the DMCA’s notice and take down procedures. Under SOPA, a rights holder could send a take-down notice to the accused website’s ISP or payment provider, stating that a website “engages in, enables or facilitates” infringement. Importantly, websites that deliberately acted to “avoid confirming a high probability” that the site is used to commit infringement also qualified for take-down notices. The ISP or payment provider would then have to forward the take-down notice to the website owner, who could respond via a counter notice if he had reason to object to the conclusion that the site was engaged in infringement. If a counter notice was received, then the ISP or payment provider would not have to cut off service. The rights holder would then have to pursue the action in federal court. In an important difference from PIPA, IP rights holder could initiate these proceedings against both U.S. and foreign-based websites under SOPA.

Title II of SOPA dealt primarily with creating increased penalties for the online streaming of infringing content. It was meant to be the House’s encapsulation of another bill recently introduced into the Senate, the so-called “illegal streaming bill.” The Act amended § 506(a)(1)(B), making a public performance by means of digital transmission a felony when the total retail value of the performance is more than $1,000. The Act also amended § 596(a)(1)(c) to add public performance “of a work being prepared for commercial dissemination” as an offense, an alteration from the statute’s current reference to “commercial distribution.”

Initial Opposition to the Bills

From the start, numerous technology advocacy organizations, including the Electronic Frontier Foundation and Public Knowledge, voiced concern and opposition to both bills. Over 100 law professors, lawyers and practitioners signed letters against both PIPA and SOPA, expressing concerns that the bills were overly broad and would result in a curtailing of technical innovation and free speech on the Internet.

Several technical groups and commentators also expressed concern that the bills would have a potentially disastrous effect on the Internet. Kent Walker, the Senior VP of Google, provided Congressional testimony that “DNS blocking itself could affect the Internet’s reliability, security, and performance.” In addition, others pointed out that the bills’ domain blocking approach would be ineffective, as the sites will still be accessible through their IP addresses.

Notably, the Electronic Frontier Foundation stated that not only would the bills “sabotage the domain name system,” they would “effectively eliminate the DMCA safe-harbor provisions that have spurred much economic growth and online creativity.” EFF also voiced concern that the bill’s broad definitions of a website “engaged in or facilitating” infringement could be used to cut off support for services like Tor, which has been instrumental in providing tools for anonymous free expression, but can also be used to mask the identities of illegal downloaders. Numerous public interest groups pointed out that the bill would allow IP rights-holders to cut off a website’s support system without any proceedings ever taking place in court.

The bills also faced stiff criticism from several technology trade groups. Fred Wilson, Principal of Union Square Ventures, expressed concern that SOPA would alter the DMCA safe-harbor landscape that has been instrumental in allowing start-up companies like Facebook and Twitter to avoid squandering money on litigation. The Future of Music Coalition refused to support SOPA, claiming that it “raises serious concerns about unintended consequences.” The Consumer Electronics Association, NetCoalition, and the Communications Industry Association sent a letter to the House expressing their opposition to the Act.

The Blackout Movement

Despite these numerous criticisms, both bills moved through their respective committees in Congress, enjoying broad bipartisan support and appearing to be on a fast track towards becoming law. Numerous websites soon began organizing days of protest as the bills moved through the legislative process. On November 16, 2011, the day that SOPA was debated in the U.S. House Committee on the Judiciary, Internet companies such as Mozilla, Techdirt and Tumbler took part in the “American Censorship Day” by displaying black banners over their site logos. In addition, after it was revealed that Internet domain name registration company GoDaddy.com supported the legislation, Internet users lead by the website Reddit staged a boycott of the site on December 29, 2011. This boycott resulted in GoDaddy.com changing its position to oppose the SOPA/PIPA legislation.

January 18, 2012 Blackout

Following these initial protest efforts, discussion began to formulate about a worldwide day of online protest against the bills. In December 2011, Wikipedia founder Jimmy Wales began discussion about the possibility of shutting down the popular user-contributed online encyclopedia. The social news website Reddit announced on January 10, 2012 that it would blackout the site for 12 hours on January 18, the day that one of its co-founders would testify before Congress about SOPA. Following a vote by the community in support of the proposal, Wikipedia announced that the English version of the website would be blacked-out for 24 hours on January 18, 2012.

An estimated 75,000 websites from around the world joined in on the blackout effort. Websites that blacked out their sites for the day included Boing Boing, the icanhazCheezburger Network, Oreily.com, Imgur, Mozilla, and numerous others. Many other websites dramatically altered the appearance of their website while urging visitors to contact their Congressional representatives. Popular websites Google, Craigslist, Flicker all took part in such censoring efforts. The website sopastrike.com contains a list of all websites that took part in the blackout effort.

Public Reception of the Blackout and Congressional Reaction

The blackout effort received a large amount of media coverage from around the world and was widely viewed as a success. A reported 1 billion visitors were blocked from visiting websites. Over 10 million signatures, 8 million calls and 4 million emails were sent to Congressional representatives expressing opposition to the bill. Discussion of the blackout took over most online social services, with Twitter reporting over 2.4 million tweets about the subject. Media reports varied in their coverage of the blackout, with some hailing the effort as a success and others calling the effort a “hissy fit.” The New York Times described the blackout as ‘Noted, but as a brief inconvenience.” Leaders from the content industry, including representatives from the Motion Picture Association of America and the Recording Industry Association of America, voiced opposition to the blackout, calling it an “abuse of power.”

The online opposition movement triggered a response from Washington before the blackout even officially began, with President Obama announcing his opposition to the bills. Following the blackout 18 Senators (including six of the bill’s original sponsors) and more than 20 Representatives switched their positions on the bills. Time reported that before the day had ended, “the political dominoes [in support of the bills] began to fall.”

While a floor vote on SOPA was scheduled to take place on January 24, 2012, the vote was postponed. Senate Majority Leader Harry Reid instructed the bill’s main sponsor to work out a compromise between the interests of the content industries and the concerns of online protesters. Similarly, the House Judiciary Subcommittee announced that further voting on PIPA would be put off until a consensus could be reached. Subsequently, several media outlets reported that both bills have been shelved indefinitely.

The Future of Online Protesting and Copyright Law Reform Movements

What may prove to be the most interesting and important aspect of the blackout movement is the fact that it represents the first time the technology and Internet communities have come together to form a political movement. Commentators have noted that the movement “epitomizes a promising new turn in American politics, as critics of intellectual property law finally find an audience and, more important, the makings of a political constituency.” Indeed, the blackout movement caused Harvard law professor and intellectual property scholar Lawrence Lessig to proclaim that “for the first time ever, the Internet ha[s] taken on Hollywood extremists and won.” The blackout efforts eventually caused major media outlets to stop and investigate the story behind the new ‘Silicon Valley Coalition’ that had successfully halted legislation that enjoyed broad bipartisan support. “A new and profoundly different political force has emerged in the last few months,” wrote one commentator, “a constituency that identifies itself not by local interests but as citizens of the Internet.”

While the blackout movement definitely appears to be a significant moment in the history of the Internet and the future of copyright legislation, it is also clear that challenges lie ahead for this newly minted political contingency. Importantly, the movement has to determine and agree on what to do next, which may prove to be no small feat for what has traditionally been a decentralized environment. It is clear that creative content producers will continue to lobby for new legislation to protect their interests on the web. The question that remains is whether the Internet community will begin to exert the political force necessary to make sure that any such future legislation will not protect creative content at the expense of the continued evolution of the Internet.

In reaching this decision, the Court relied upon In re Grand Jury Subpoena to Boucher, 2007 WL 4246473 (D. Vt. Nov. 29, 2007) (Boucher I) and In re Grand Jury Subpoena to Boucher, 2009 WL 424718 (D. Vt. Feb. 19, 2009) (Boucher II). The Boucher decisions, in turn, relied upon the Supreme Court’s decision in United States v. Doe, 487 U.S. 201 (1984).

Doe distinguished between compelling the testimony of new information to the government (not permitted under the Fifth Amendment) and compelling giving access to existing information (permitted so long as the act of production results in no new facts). Thus, a defendant may be compelled to provide a key to a wall safe. In contrast, a defendant may not be compelled to provide a combination since the combination itself would constitute new information. Therefore, the government may compel a defendant to provide access to a computer’s contents once it knows the defendant has the ability to access the computer. But it may not compel production of a password.

This may seem like a distinction without a difference, but there could be scenarios where information like the password is itself incriminating — for instance, if the password was “ImGuiltyScrewTheFeds.” Moreover, to the extent that people frequently reuse passwords, providing a password to the government could enable unsanctioned fishing expeditions across the Internet.

Although civil liberties groups have expressed concern about the decision, it will have little impact on tech savvy computer users. The defendant here used an encryption program called PGP Desktop. She could easily have avoided her current dilemma by using comparable encryption software with a “hidden container” feature, such as TrueCrypt. In effect, TrueCrypt permits its users to encrypt their computers with two different passwords. Using the first password to decrypt the system would reveal one set of data. Using the second password would reveal an additional hidden set of data. TrueCrypt is designed in such a way as to render it technically infeasible to detect the presence of the hidden data, absent the second password.

Absent any other information, the owner of a computer encrypted in such manner may plausibly deny the existence of hidden data. Moreover, the Fifth Amendment bars the government from compelling access to this hidden data since to do so would confirm that the hidden data exists.

That said, the government may compel access to hidden data should the government discover its existence through other means. In Fricosu, the court pointed to a recorded conversation between the defendant and her ex-husband as evidence that the defendant was capable of decrypting the laptop in question. While technology like TrueCrypt can make it technically impossible to tell if hidden data exists, revealing that fact to others could make it a moot point.

1st Prize: $2,000 & Publication in the Fall 2012 Issue of BTLJ

2nd Prize: $750

3rd Prize: $500

Aldo J. Test Award for Best Berkeley Law Submission: $1000

Topics: We will accept submissions on a wide variety of topics at the intersection of law and technology, including but not limited to: intellectual property, antitrust, First Amendment, entertainment and new media, telecommunications, biotechnology, internet, and cybercrime.

Deadline: Submissions must be received by 5pm PST on February 24, 2012.

The competition is open to all J.D. candidates.

Each student may submit only one entry.

Submitted papers must be unpublished. Papers must be no more than 50 pages long, including footnotes. Do NOT use endnotes. Margins should be 1?, minimum. Body text must be double-spaced. Font must be Times New Roman or a similar serif font, and 12 point. Footnotes may be 10 pt and single-spaced but there should be a space between notes. Citations must conform to the 19th Ed. of The Bluebook.  Submissions are judged anonymously, so the authors name should not appear anywhere on the paper.

To submit electronically, please send the completed cover sheet and a copy of your paper in .doc format, not pdf.  Submissions MUST include a signed cover sheet that may be downloaded from the Journal website.

Submit an electronic copy of your (1) paper and (2) cover sheet to:

btljwritingcompetition@gmail.com

Winners will be notified and final results will appear on the Journal’s website in late spring. Due to the large number of entries, the Journal cannot contact other entrants.

*To be eligible for publication, the winning article must meet the Journal’s publication standards.*

In its ruling, the Court said that “a process which involves removal of a stem cell from a human embryo at the blastocyst stage, entailing the destruction of that embryo, cannot be patented. The use of human embryos for therapeutic or diagnostic purposes which are applied to the human embryo and are useful to it is patentable, but their use for purposes of scientific research is not patentable.”

Case Background

Professor Bruestle, a German neurology professor and one of the leading stem cell research pioneers, is the holder of the disputed German patent. The patent, filed on December 19th 1997, concerns isolated and purified neural precursor cells, methods for the production of such neural precursor cells from embryonic stem cells, and the use of such neural precursor cells for the treatment of neural defects such as Parkinson or Alzheimer. The patent seeks to resolve the technical problem of using embryonic stem cells to produce an almost unlimited quantity of isolated and purified precursor cells having neural or glial properties. Professor Brustle’s patent was issued in Germany as DE 19756864 in 1999. 

Greenpeace e.V. sought a fundamental decision on how the protection of human embryos is to be laid out under EU (patent) law, and therefore chose to oppose Professor Bruestle’s patent. Greenpeace wanted the patent to be declared invalid for moral reasons (“ordre public”), in light of ethical objections to the commercialization of human life. In its view, § 2 II 2 of the German Patent Act (“PatG”) and the German Stem Cell Act would not allow patent DE 19756864. On application by Greenpeace e.V., the Bundespatentgericht (Federal Patent Court, Germany) ruled on December 5th, 2006 that Prof. Bruestle’s patent was invalid in so far as it covers processes for obtaining precursor cells from human embryonic stem cells. Professor Bruestle appealed the Federal Patent Court’s decision to the Bundesgerichtshof (Federal Court of Justice, Germany).

Relevant Aspects of EU and German National Law

The Bundesgerichtshof, hearing Prof. Bruestle’s appeal, decided to refer several questions to the European Court of Justice (“ECJ”) for a preliminary ruling. Referral to the ECJ was necessary as the patentability of Bruestle’s patent under the PatG, depended on the definition of certain terms under the EU directive on which the pertinent part of the PatG was based. According to Article 267 of the Treaty on the Functioning of the European Union, a national court shall bring the interpretation of acts of the institutions of the Union (Directive 98/44/EC in this case) in a pending case in front of the ECJ. In its role as the highest European Court, the ECJ decides questions concerning the interpretation of EU Law in order to guarantee a common understanding within the European Union. The need for a uniform application of the European Union law requires that the terms of a provision of European Union law, which makes no express reference to the law of the Member States for the purpose of determining its meaning and scope, must normally be given an independent and uniform interpretation throughout the EU. Thus the national law, the German Patent Act, has to be in accordance with the Directive.

Specifically, the outcome of the application for annulment by Greenpeace depended on the interpretation of the concept of ‘human embryo’ as used in the EU Directive (98/44/EC) on the Legal Protection of Biotechnological Inventions. This so-called EU Biotechnology Directive rules out patentability for certain inventions, including “uses of human embryos for industrial or commercial purposes.”

On a fundamental level, the issue was whether the technical teaching of Brustle’s patent was excluded from patentability under § 2 II 1 No. 3, of the German Patent Act, which states: “patents shall not be granted in respect of the uses of human embryos for industrial or commercial purposes.” The answer to this question, in turn, depended on the interpretation that should be given to Article 6 (2) (c) of the EU Biotechnology Directive 98/44/EC, which states: “inventions shall be considered unpatentable where their commercial exploitation would be contrary to ordre public or morality . . . in particular uses of human embryos for industrial or commercial purposes . . . shall be considered unpatentable.”

§ 2 II 1 No. 3, of the German Patent Act is derived from this EU Directive. EU Directives harmonize law within the EU, and the Member States have to implement the legal meaning of the Directive into their national statutes – in this case into the German Patent Act – a process that leaves space for interpretation, legal uncertainties and disputes such as this one.

Article 6 (2) (c) of the Directive does not allow the Member States any discretion regarding the fact that the processes and uses listed therein are not patentable. In other words, § 2 II of the German Patent Act – in particular the concept of embryo which it uses – cannot be interpreted differently from that of the corresponding concept in Article 6 (2) (c) of the Directive.

Holding

One of the questions that the Bundesgerichtshof asked the ECJ to address was the meaning of the term “human embryos.” The EU Directive itself, as the primary legal source, does not define the term “human embryo.” The ECJ underlined that an autonomous concept of European Union law must be applied when looking for the definition for the purposes of a uniform interpretation of law within the EU: “The lack of a uniform definition of the concept of human embryo would create a risk for the authors of certain biotechnological inventions being tempted to seek their patentability in the Member States which have the narrowest concept of human embryo and are accordingly the most liberal as regards possible patentability, because those inventions would not be patentable in the other Member States.” ECJ Judgment at ¶ 28. This result would create an obstacle to inter-Community trade and thus be contra-productive for the Internal Market, one of the major goals of the European Union (as laid out in Article 26 of the Treaty on the Functioning of the European Union).

Thus the Court sought the definition within the EU law and concluded that “the concept of ‘human embryo’ has to be understood in a wide way” because “the European Union legislature intended to exclude any possibility of patentability where respect for human dignity could be thereby affected.” Id. at ¶ 34. “[Al]though [the EU] seeks to promote investment in the field of biotechnology, use of biological material originating from humans must be consistent with regard for fundamental rights and, in particular, the dignity of the person.” Id. at ¶ 32. Therefore “any human ovum after fertilization, any non-fertilized human ovum into which the cell nucleus from a mature human cell has been transplanted and any non-fertilized human ovum whose division and further development have been stimulated by parthenogenesis constitute a ‘human embryo’ within the meaning of Article 6(2)(c) of the Directive.” Id. at ¶ 38.

Furthermore “the concept of ‘uses of human embryos for industrial or commercial purposes’ within the meaning of Article 6(2)(c) of the Directive also covers the use of human embryos for purposes of scientific research.” Id. at ¶ 39.

In addition to this, “Article 6(2)(c) of the Directive excludes an invention from patentability where the technical teaching which is the subject-matter of the patent application requires the prior destruction of human embryos or their use as base material, whatever the stage at which that takes place and even if the description of the technical teaching claimed does not refer to the use of human embryos.” Id. at ¶ 52. “The fact that destruction may occur at a stage long before the implementation of the invention, as in the case of the production of embryonic stem cells from a lineage of stem cells the mere production of which implied the destruction of human embryos is, in that regard, irrelevant.” Id. at ¶ 49.

Outlook

After having received clarification regarding the interpretation of EU law, the Bundesgerichtshof must now decide on Bruestle’s appeal on the annulment of his patent. As the ECJ pointed out, “[a]s regards stem cells obtained from a human embryo at the blastocyst stage, it is for the [Federal Court of Justice] to ascertain . . . whether they are capable of commencing the process of development of a human being and, therefore, are included within the concept of ‘human embryo.’” Id. at ¶ 37. Given Germany’s broad understanding of the beginning and end of “human life” for historical and ethical reasons, it seems very likely that Bruestle’s appeal will not be successful, and his patent will remain invalid.

Implications

The ECJ’s decision only ruled upon the unpatentability, but not the research with stem cells itself. Prof. Bruestle commented on the ruling that “[i]t means that fundamental research can take place in Europe, but that developments that follow from that cannot be implemented in Europe. It means European researchers can prepare these things, but others will pick the fruits in the US or Asia. That is very regrettable.”

Paradoxically, stem cell research has been broadly funded by the European Union in recent years. Consequently, many pharmaceutical and biotechnological companies locate their research headquarters in Europe – often next to very good universities or national laboratories where the necessary highly qualified and specialized human resources can be found. Therefore, the decision might not directly affect European stem cell research in the way Professor Bruestle fears. In fact, the pharmaceutical and biotechnology industry’s reaction towards the decision in various newspaper statements has not been that negative. The industry will simply have to patent its inventions in the rest of the world.

by Claudia Langer, Attorney at Law admitted to the German Bar, Ph.D. Researcher and Visiting Scholar at UC Berkeley Law School

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Google’s market dominance has attracted the attention of the press, competitors, and now the federal government. Recent articles, cases, and hearings seem to point toward an inevitable collision between the industry giant and the Sherman Act, the federal statute governing antitrust issues. Complaints from competitors have thus far yielded little, but what happens if the government decides to turn its discussion into litigation? Recent history might provide some clues as to what lies ahead.

A Tale of Two Venues

Two recent courtroom victories for Google highlight the importance of proper pleading, especially when leveling antitrust accusations against one of the most recognized brands on the web. In the first case, TradeComet v. Google, the Second Circuit affirmed the Southern District of New York’s grant of Google’s motion for summary judgment based on a forum selection clause in Google’s contract with the operator of a business-to-business search engine. Citing Rules 12(b)(1) and 12(b)(3) of the Federal Rules of Civil Procedure, Google argued that a clause in the contract specifying that all lawsuits between the parties must be brought in Santa Clara County called for dismissal of the case. After considering the option of transferring the case to California, the Southern District of New York granted Google’s motion and dismissed the case.

The Court of Appeals held that the trial court was not required to convert a Rule 12(b) motion to dismiss into a § 1404(a) motion to transfer, and upheld dismissal of the complaint. This meant that Google was never forced to address the merits of the case itself, which alleged that Google AdWords violated the Sherman Act through its monopolistic business practices. In this instance, poor venue choice by the plaintiff and solid lawyering by Google further validated a forum selection clause aimed at avoiding a proliferation of suits in multiple fora.

The second case, Google v. MyTriggers, saw Google venture outside of its home court in California to sue a client for nonpayment, only to be waylaid by antitrust counterclaims. Google, the plaintiff in this case, originally filed its complaint in Franklin County, Ohio, in an attempt to collect outstanding advertising fees from myTriggers, an Ohio-based “vertical search” site that had a line of credit for its use of Google’s AdWords platform. MyTriggers responded by ambushing Google with four counterclaims, the first of which was that they had violated Ohio’s antitrust statute, the Valentine Act. By citing the Valentine Act rather than the more familiar Sherman Act, myTriggers was able to maintain the case in an Ohio court. Trying the case in a state court reduced the risk of transfer from Ohio, and saddled Google with a trial in the court it chose based on original jurisdiction over a simple collections case. This put the normally venue-conscious Google in the awkward position of defending itself on the merits of the case away from its home court in Santa Clara County.

As in the TradeComet case, Google relied on Rule 12(b), meticulously dissecting myTriggers’s counterclaims to show that they lacked merit. First, Google argued that the antitrust claims were vague and unspecific, and persuaded the court that the Valentine Act was intended to eliminate trusts – as in groups of entities working to control the market – and did not, therefore, apply to a corporation acting unilaterally. Next, it persuaded the court that the counterclaims of breach of contract, estoppel, and rescission were equally without merit. The court responded by granting Google’s motion to dismiss in its entirety. Google once again avoided a potentially disastrous trial in an unfriendly locale by making sure the case was never argued before a jury.

A Government Job

Though both cases contained complaints of antitrust violations against Google, neither made much of a splash before it was dismissed. But the fact that the cases were dismissed did little to quiet the murmurs of monopoly that hound Google tirelessly. It seemed appropriate, then, that the dismissal of both cases coincided neatly with the Federal Trade Commission’s (“FTC”) recently launched formal investigation of Google. This is not, of course, Google’s first brush with the FTC, but it does mark a much broader line of questioning from the government agency with regard to search and advertising business practices. Past inquiries have focused on specific acquisitions, but this investigation seems to be based on an amalgamation of complaints from various competitors.

As if the attention of the FTC were not enough to satisfy Google’s critics, the Senate Judiciary Subcommittee on Antitrust, Competition Policy & Consumer Rights recently called on CEO Eric Schmidt to defend his company’s business practices. In two appearances this year, he testified that Google does not “stack the deck” with regard to its search algorithms and pointed to very healthy competition on a number of fronts to downplay antitrust concerns. It remains unclear how the FTC and Congress plan to proceed with these inquiries, but recent precedent could certainly provide clues.

Deja Vu All Over Again

On May 8, 1998, a the U.S. Department of Justice (“DOJ”) and 20 states filed suit against Microsoft, alleging abuse of monopoly power based on its integration of the Internet Explorer browser into its Windows operating system. After a lengthy trial (which included alleged code of conduct violations by the presiding judge), Microsoft settled with the DOJ. The settlement included provisions for sharing of Microsoft’s application programming interfaces with third parties and strict oversight procedures to make sure Microsoft was not abusing its market power. Missing from the settlement, however, was any effort to address the issue that prompted the original suit – bundling the browser with the operating system.

The parallels between Microsoft and Google are apparent – both are industry heavyweights who came under scrutiny for swallowing their competition through acquisition – but the differences are just as obvious. Microsoft was often portrayed as an evil empire of sorts; Google’s informal slogan is, “Don’t be evil.” During the Microsoft trial, CEO Bill Gates came across as a combative, obfuscating, aloof techie with little regard for those who stood in his way; Google CEO Eric Schmidt has generally been accommodating, cooperative, and diplomatic during his interactions with the government. And while Microsoft’s bundling scheme was a classic bit of market-bullying, Google’s search service presents a bit of a conundrum for those who point to it as monopolistic. It is, after all, free.

Enforcement of antitrust laws is based on the social policy of maintaining an efficient free market and preventing artificially high pricing due to total control of supply. Since Google’s search services are freely available to anyone with access to a web browser, there is no price to fix. Without competitive harm to consumers by way of inflated prices, it might be difficult to build a solid case for antitrust regulation. How does one protect consumers if they are not at risk of monetary harm?

The answer to that question may lie in Google’s search algorithm. If the government could prove that Google’s algorithm is influenced by a desire to quash competition (by excluding certain sites) or to generate revenue unethically (by ranking business partners higher based on backroom deals), it could have a strong case. Furthermore, Google’s utter dominance in online advertising – as well as its expansion-by-acquisition into areas like video and localized offerings – makes the lack of revenue from searching seem like a footnote.

Implications

Will more competitors (like TradeComet and myTriggers) continue to nip at the outer edges of Google’s monopolistic image? Most likely, yes – particularly as enmity from companies like Yelp, Expedia, and Nextag evolves. Even Microsoft has met with federal antitrust investigators and filed a complaint against Google in Europe, perhaps setting the stage for future actions in the U.S. As Brad Smith, Microsoft’s General Counsel, noted recently, “We appreciate the irony.”

On November 8, 2011, the United States Supreme Court heard oral arguments in United States v. Jones, a case involving the warrantless placement of a GPS device on Antoine Jones’ vehicle by law enforcement and the subsequent tracking of Jones’ movements in his vehicle. While the Court has not yet delivered a ruling, the arguments brought up both by counsel and the justices provide insight into the critical issues of privacy at stake. These issues include the fear of giving law enforcement too much leniency in their tracking procedures and the question of whether GPS reveals any information that is not normally exposed to the public.

United States v. Maynard (United States v. Jones): D.C. Circuit Decision

The case currently before the Supreme Court arose out the D.C. Circuit’s decision in United States v. Maynard, 615 F.3d 544 (D.C. Cir. 2010) cert. denied, 131 S. Ct. 671, 178 L. Ed. 2d 500 (U.S. 2010) and cert. granted, 131 S. Ct. 3064 (U.S. 2011). Maynard addressed the appeal of Antoine Jones and Lawrence Maynard regarding their convictions for conspiracy to distribute cocaine, and possession with intent to distribute. Id. The D.C. Circuit held that the lower court had erred in admitting evidence obtained by law enforcement agents through the use of a GPS device placed on Jones’s vehicle and thus reversed Jones’s conviction while separately affirming Maynard’s conviction. Id. at 568.

In its analysis of whether or not to admit the evidence obtained from the GPS device, the D.C. Circuit set the stage for the case currently before the Supreme Court. Jones argued that the police had violated the Fourth Amendment’s prohibition of “unreasonable searches” when they installed a GPS device on his vehicle without a valid warrant and tracked his movements for four full weeks. Id. at 555. Specifically the court questioned (1) whether the use of GPS indeed constituted a search against Jones’s “reasonable expectation of privacy,” (2) whether Jones’s locations recorded by the GPS constituted private information, and (3) whether Jones could have properly held a reasonable expectation of privacy for his movements in the four weeks police tracked him. Id. at 555-565.

The court’s key argument was that the totality of Jones’s movement tracked by the GPS device over the four weeks indeed constituted private information not exposed to the public. The court reasoned that “unlike one’s movements during a single journey, the whole of one’s movements over the course of a month is not actually exposed to the public because the likelihood anyone will observe all those movements is effectively nil. [And], the whole of one’s movements is not exposed constructively even though each individual movement is exposed, because that whole reveals more—sometimes a great deal more—than does the sum of its parts.” Id. at 558.

In their amicus brief, the American Civil Liberties Union (ACLU) of the Nation’s Capital and the Electronic Frontier Foundation (EFF) voiced their concerns for the broader implications in Jones’s conviction and warned against the possible abuse by law enforcement of their power to continuously track citizens’ physical location without a warrant justifying such surveillance. While the D.C. Circuit agreed with the amicus and reversed Jones’s conviction, the Supreme Court’s pending decision could grant law enforcement the blanket GPS tracking ability that the ACLU and the EFF fear.

United States v. Jones: Supreme Court Oral Arguments

During oral arguments, the Justices made clear that they understood the concerns articulated in the ACLU’s amicus brief and repeatedly asked counsel for both sides where the line should be drawn regarding the use of GPS to track suspected criminals. In addition, the Court also questioned whether Congress or the individual state legislatures should instead determine the exact procedures regarding the use of GPS tracking. United States v. Jones, No. 10-1259, official oral argument transcript, 51-53.

Michael Dreeben, arguing on behalf of the United States, stated that the Court’s past decisions authorized the ability to track citizens’ movements in vehicles on public roadways because they could not reasonable expect privacy while traveling in public. Id. at 20. Justice Breyer noted a significant difference between the tracking traditionally done by law enforcement agents—rarely following a suspect 24 hours a day—and what could be accomplished by GPS devices. Id. at 13.

Speaking to the practical effect of a reinstatement of Jones’ conviction, Chief Justice Roberts asked of the counsel for the United States “So your answer is yes, you could tomorrow decide that you put a GPS device on every one of our cars, follow us for a month; no problem under the Constitution?” Id. at 10.

Stephen Leckar argued, on behalf of Antoine Jones, that such GPS tracking should inherently be viewed as an unreasonable invasion of privacy because the human element of the surveillance has been removed. Id. at 43. While Leckar did not argue that law enforcement should be limited to using less efficient means of tailing suspects, Leckar did state that the removal of the human element goes beyond the type of surveillance society expects when driving on public roadways. Id.

Addressing the very issue of societal expectations, Justice Alito rhetorically questioned whether technology, including GPS, has changed people’s expectations of privacy. Id. Considering the future, Justice Alito stated: “Suppose we look forward 10 years, and maybe 10 years from now 90 percent of the population will be using social networking sites and they will have on average 500 friends and they will have allowed their friends to monitor their location 24 hours a day, 365 days a year, through the use of their cell phones.” Id.

Implications of the Pending Decision

As both the oral arguments in front of the Supreme Court and the analysis of the D.C. Circuit recognize, much more is at stake in United States v. Jones than Jones’s conviction. In its forthcoming decision, the Court will determine where to drawn the line between the general public’s right to privacy and the law enforcement’s interest in efficiently tracking suspected criminals.

The extremely polarized arguments put forth by counsel for both sides contain problematic implications that the Justices’ quickly seized on. On the one hand, the Justices’ expressed their unease with a blanket acceptance of law enforcement’s ability to track citizens’ indefinitely and without a warrant. On the other, the court also recognized that such GPS tracking did not vary significantly from the suspect tailing deemed legal in previous cases—apart from the added efficiency that GPS units provide.

Attorney Dreeben remarked in his closing rebuttal that the Court should decide the case of universal surveillance and broad application when such a case comes before it and to constrain its ruling in the present case to the limited surveillance of one person suspected of criminal drug activity. Id. at 57. The danger of following Dreeben’s suggestion is that a ruling constrained to the facts of Jones will nonetheless set a precedent favoring the use of warrantless GPS tracking without the benefit of broader guidance or policy considerations. This may well realize the fears expressed by the ACLU in its amicus brief.

David Kravets of Wired magazine reflected on the gravity of the Court’s impending decision by stating: “As it turns out, our culture has voluntarily joined the Surveillance Society, leaving reasonable expectations behind. And only a fool would deny that. Perhaps all that we can hope for now is the Supreme Court finding a reasonable way to save us from our unreasonable selves.”

Kraveats’ reflection correctly assesses current American culture as one of voluntarily trading privacy expectations for the latest technology. However, a distinct difference exists between voluntarily submitting location data through cell phones or social media and having law enforcement agents use devices to track citizens’ movements. This involuntary submission of data represents the key issue in Jones and the Court will likely acknowledge that Americans would generally find such tracking to be invasive of their privacy. As such, the Court will likely find that GPS tracking without a warrant violates the Fourth Amendment. Additionally, the Court will more than likely leave the question of the legality of GPS tracking with a proper warrant to either Congress or the individual states to legislate.

The Supreme Court’s recent declination to hear an appeal from the American Society of Composers, Authors and Publishers (“ASCAP”) regarding the Second Circuit’s decision in United States v. American Society of Composers, Authors and Publishers, 627 F.3d 64 (2d Cir. 2010), has provided the digital music industry with a steadfast digital adaption to the definition of what constitutes a “public performance” — a definition within which song downloads to do not fall. Moreover, the Second Circuit’s decision, untouched by the Supreme Court, provides some guidance for how the district court should properly calculate the royalties that ASCAP should receive from companies that stream music from ASCAP’s musical repertory.

Licensing Music and Public Performance

ASCAP protects the rights of its over 420,000 members by controlling the licensing of the use of its members’ copyright-protected music and helping to collect and distribute the appropriate royalties for public performances of the music. Potential licensees can either license the use of specific musical works or they can negotiate a blanket license fee for the use of ASCAP’s full musical repertory, as was the situation in the instant case. Under copyright law, ASCAP and its largest competitor Broadcast Music, Inc. (“BMI”) have the exclusive right to play their members’ music publicly and to permit others to do the same.

Traditionally, a public performance of a musical work meant a performance for “a substantial number of persons outside of a normal circle of a family and its social acquaintances.” 17 U.S.C. §101. In the present age of technology, a public performance is understood to mean the transmittance or communication of a musical work “to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.” Id. Thus, the broadcast of ASCAP or BMI copyright-protected music on a television show, over the radio, or streaming online requires the broadcaster to construct a licensing agreement with the respective organization. In the instant case, ASCAP argued that digital downloads should fall within the second definition of a public performance that generally covers electronic broadcasting.

Settling the Legal Standard

In United States v. ASCAP, the Second Circuit addressed the royalties that Yahoo! and RealNetworks should pay ASCAP for online use of its copyright-protected music in digital downloads and online streaming. Both Yahoo! and RealNetworks agreed that they should pay royalties for digital downloads as copies of the musical works. However, ASCAP argued that digital downloads are also “public performances” and, accordingly, that the companies should compensate ASCAP with additional royalties for such “public performances.”

The Second Circuit held that digital downloads do not constitute “public performances” because “[t]he downloaded songs are not performed in any perceptible manner during the transfers; [thus,] the user must take some further action to play the songs after they are downloaded.” 627 F.3d at 73. In effect, the Court interpreted a “public performance” to be something that is “contemporaneously perceived by the listener” and since digital music downloads cannot be listened to during the actual electronic transfer, they do not meet that standard. Id. This electronic transmission understanding of “public performances” differs from the broadcast transmission by television and radio stations — covered by the statutory definition of “public performance” discussed above — for which the ASCAP can earn royalties. As a result of this holding, ASCAP cannot collect additional royalties for digital downloads apart from the royalties they currently receive for the downloads as copies of copyrighted music.

Issues Still in Dispute

Unlike the dispute over whether or not digital music downloads constitute public performances, all of the parties in the instant case agreed that streaming music online does constitute a public performance. However, the proper royalty rate for online streaming as a public performance was disputed.

In a separate holding in the opinion, the Second Circuit found that the district court’s analysis for determining the blanket license fees that ASCAP can charge Yahoo! and RealNetworks for the use of online music streaming was unreasonable, and provided some guidance on how to properly determine the fees. Conceptually, the Second Circuit agreed with the lower court that relevant factors for consideration include: what the Internet companies would pay for the blanket music license in a competitive market, ASCAP’s monopolistic hold on the market for music rights, ASCAP’s agreements with similar parties in the digital music industry, ASCAP’s competitor BMI’s agreements with similar parties, and most importantly, the portion of each Internet company’s ad revenue that can be attributed to the company’s use of the copyright-protected music. 627 F.3d at 76-77. However, the Second Circuit disagreed with the lower court’s actual analysis of these factors in determining the reasonable royalty fees.

On remand, the Second Circuit suggested that the district court’s calculation should better reflect how both Yahoo! and RealNetworks actually derive their advertising revenue from their use of the copyright-protected music. Id. at 79.  The Court noted that the advertising revenue cannot be calculated based simply on the amount of time music is streamed, because time does not correlate with the advertising revenue. Id. As an alternative, the Court suggested that the district court should take a more tailored approach for assigning the proper royalty rate for each company, reflecting actual advertising practices. Id. For example, Yahoo! charges a lower rate for ads appearing in its music player than it does for ads on its homepage or other areas of its website, because users often minimize the player and  view other websites while the music streams.  However, the Court left the ultimate decision for how to correct the rate calculation to the district court on remand.

Implications for ASCAP and the Digital Music Industry

ASCAP voiced both disappointment and hope in a statement following the Second Circuit’s decision. Other songwriters, composers and music publishers in the digital music industry around the country will likely share in ASCAP’s sentiments. The Supreme Court’s denial to hear the case on appeal, as encouraged by the Obama administration in its brief in opposition to the ASCAP’s writ of appeal, essentially establishes the case’s broad application in other jurisdictions. Thus, even were ASCAP to reach a favorable decision in a different Circuit, the Supreme Court would likely resolve such a circuit split in favor of the Second Circuit. It seems that digital downloads of music files will never be deemed “public performances” for royalty calculation purposes.

However, the Second Circuit’s decision still leaves open the issue of calculating proper royalty rates for online music streaming to further discussion and litigation. ASCAP announced its optimism for reaching a “fair and favorable” licensing agreement with both Yahoo! and RealNetworks as it works with the district court to more properly align the royalty rate with actual ad revenue practices. Other music creators and musical copyright holders should share this optimism. Although the more precise calculation falls below the original rates proposed by the ASCAP in its first round of litigation with the Internet companies, the calculation marks a significantly higher rate than the Internet companies proposed.

High Frequency Trading

High frequency trading involves the use of computerized algorithms and highly sophisticated programs to trade securities. Firms that engage in such trading hold onto positions for seconds at a time, and generally end a trading day with no net positions. Decisions are made through high-speed mathematical analysis of market data, taking advantage of trading opportunities that open up for fractions of a second. The field is technologically complex, highly competitive, and very lucrative. High frequency trading systems require significant time and resources to develop and maintain. Court documents in the Aleynikov case estimate that it would cost roughly $10 million and two years to build a high frequency trading system from scratch.

Aleynikov – Theft, Subversion, and Espionage

Goldman Sachs employed Sergey Aleynikov as a programmer from May of 2007 to June of 2009, when he accepted an offer from a Chicago-based startup called Teza. About two months prior to his last day at Goldman Sachs, Aleynikov began uploading proprietary data to a subversion site on a German server. He went out of his way to avoid detection, deleting his encryption key and attempting to clear his bash history. The files he stole included, in the court’s words, components “connecting to the various securities exchanges; reading the incoming price data; pricing algorithms; trading strategies; the infrastructure for routing the trading decisions back to the exchanges; and applications for monitoring the performance of all of these intricate parts of the trading system.”

Members of the Goldman Sachs security team noticed Aleynikov’s theft of proprietary files shortly after he left the company, and immediately notified the authorities. On July 3, 2009, the FBI arrested Aleynikov at Newark airport as he was returning from a meeting with Teza in Chicago. He was carrying a thumb drive and laptop computer containing Goldman Sachs’ proprietary source code. His home desktop computer also held proprietary code. While in Chicago, he had uploaded at least two files containing proprietary Goldman Sachs source code to a Teza server. In an e-mail to his Teza colleagues, he implied that the source code contained in the two files he uploaded was his own, tacitly taking credit for Goldman Sachs’ proprietary work.

In December of 2010, a jury found Aleynikov guilty of three counts of theft of trade secrets under the EEA of 1996, and interstate transportation of stolen property under the NSPA of 1934.

Code as “Merchandise”

Perhaps the most innovative aspect of the court’s decision in the Aleynikov case was its focus on the statutory semantics of the NSPA. Unlike the EAA, whose enactment was meant to provide statutory protection for intellectual property, the NSPA was originally intended to protect more concrete interests.

The full title of § 2314 – the section of U.S. Code that contains the act – is “Transportation of stolen goods, securities, moneys, fraudulent State tax stamps, or articles used in counterfeiting.” It states, in relevant part: “[w]hoever transports, transmits, or transfers in interstate or foreign commerce any goods, wares, merchandise, securities or money, of the value of $5,000 or more, knowing the same to have been stolen, converted or taken by fraud . . . [s]hall be fined under this title or imprisoned not more than ten years, or both.” In his motion for dismissal, Aleynikov seized upon the words “goods, wares, merchandise” and argued that this was an indication that intangible items like source code are not covered by the NSPA. The court found that the evidence of a thriving market for high frequency trading systems, as well as the fact that such systems are designed for interstate commerce, confirmed that the stolen source code constituted a “good” under the statute.

Sentencing – Setting an Example

Just prior to Aleynikov’s trial, a former Societe Generale programmer named Samarth Agrawal was tried for a similar theft of trade secrets under the EEA. Agrawal was accused of stealing proprietary source code for Societe Generale’s high frequency trading system with the intent to sell it to Tower Research Capital, LLC, a hedge fund. There are two key differences between the outcome in Agrawal’s case and the outcome in Aleynikov’s case. The first difference is that Agrawal was prosecuted under the EEA, but avoided the NSPA by virtue of the fact that he never crossed state lines with his stolen source code; both his employer and the hedge fund he was hoping to do business with were in New York City. The second is that Agrawal was sentenced to three years, whereas Aleynikov was given a much stiffer 97 months. Judge Denise L. Cote noted that Aleynikov deserved “a significant sentence because the scope of his theft was audacious — motivated solely by greed, and it was characterized by supreme disloyalty to his employer.”

Judge Cote’s words could just as easily be applied to Agrawal’s case. Why, then, the disparity in sentencing? It seems possible that the Southern District of New York, noticing two cases with similar fact patterns involving theft of trade secrets in the area of high frequency trading systems, decided to make an example of Aleynikov by enforcing a sentence much closer to the statutory maximum of ten years. As the court described, the market for high frequency trading algorithms and source code is significant, and barriers to the market are high. High frequency trading is certainly a market that could be very attractive to ambitious corporate spies and aspiring thieves. An eight-year sentence could be viewed as a significant deterrent to anyone considering actions similar to Aleynikov’s.

Implications

This case provides evidence of the court’s intent to protect the intellectual property of firms engaged in the development of high frequency trading systems. High frequency trading is a lucrative business, and a methodology that has become vital to the daily activities of many securities markets. Future cases involving high frequency trading will likely be handled with the same level of care, with a strong reliance on the EEA.

The most intriguing aspect is the court’s conception of source code as a “good, ware or merchandise,” which sets a strong precedent with regard to acknowledging the tangible value of non-tangible goods. The invocation of the NSPA was a bold indication of the court’s willingness to impose criminal penalties in cases where all or part of a product’s source code is compromised by theft, expanding existing protection of such code beyond the scope of the Copyright Act and Patent Act. Future cases involving sophisticated programming and technical concepts – whether for high frequency trading, gaming, or mobile devices – could benefit from the clarity provided by the court’s rational approach to source code in this case.

The Court of Appeals for the Federal Circuit (“CAFC”) decision in Cordis Corp v. Boston Scientific Corp., 2011 (“Cordis”), is the latest episode in the ongoing Stent Wars, and provides an example of CAFC review of JMOL verdicts and review of the intent prong of inequitable conduct under the new standard in Therasense.

The Stent Wars involve four major players: Abbott Labs, Boston Scientific, Medtronic, and Johnson & Johnson.  These manufacturers have been engaged in bitter patent lawsuits against each other since the mid 1990s. A stent is a small tubular expanding scaffold that is inserted into a blocked artery during balloon angioplasty surgery.  The stent expands with the balloon and then prevents the artery from collapsing after the surgery is complete. However, many question the medical efficacy of stents in relation to their high cost.  The most recent development in the Stent Wars is that J&J’s stent-manufacturing subsidiary, Cordis, announced it will exit the stent market by the end of this year.

Cordis is the latest ruling in a 14 year lawsuit of Cordis Corp. (“Cordis”) against Boston Scientific Corp and Boston Scientific Scimed, Inc (“BSC”).  In Cordis, the CAFC held that, first, the BSC NIR stent did not literally infringe claim 25 of the Cordis ‘370 patent, and, second, that the Cordis U.S. Patent No. 5,879,370 (‘370) was not unenforceable due to inequitable conduct.

BSC did not literally infringe claim 25 of the ‘370 patent

The CAFC upheld the district court’s finding that the NIR stent did not literally infringe claim 25 in the ‘370 patent.  Slip Op. p. 18.  The district court made this finding in a judgment as a matter of law (“JMOL”).  In making its analysis, “the court (1) determine[d] the scope and meaning of the patent claims asserted, and then (2) the properly construed claims [were] compared to the allegedly infringing device.” Cybor; Slip Op. p. 10.

Scope and meaning of “undulating” in claim 25

The term at issue in claim 25 was “undulating,” where each “cell” along the stent must have “one or more undulating sections . . . generally parallel to the stent’s longitudinal axis.”  The CAFC approved the district court’s definition of “undulating,” wherein the district court used the dictionary and then the prosecution history of the patent to determine the scope and meaning of “undulating.”  Slip Op. pp. 10-15.

First, the Court bound “undulating” to “the ordinary meaning of the language of the jury instruction” because the court’s decision was made in a JMOL.  The Court construed the ordinary meaning of “undulating” using the Webster’s Dictionary definitions of “undulating,” “waves,” “crest,” and “trough.”  From this dictionary analysis, the Court found that “undulating” sections require multiple “waves” with “at least a crest and a trough,”  whereby “the terms ‘crest’ and ‘trough’ . . . implicate changes in direction with the curve extending beyond the point of inflection.”  Slip Op. pp. 11-13.  Under this interpretation, a sinusoidal wave has undulating sections, while a series of semi-circular arches would not.

Second, the district court used the prosecution history of the patent to further refine the scope and meaning of “undulating.”  During prosecution of the parent application of the ‘370 patent, the patentee distinguished their “undulating” structure from the merely curved structures in two other U.S. patents.  Slip Op. 13-14.  This estopped the patentee from arguing that an “undulating” series may only contain either a “crest” or a “trough.”

Claim 25 compared to the allegedly infringing NIR stent

After affirming the district court’s definition of “undulating,” the CAFC applied the properly construed claim 25 from the JMOL to the allegedly infringing NIR stent.  A JMOL is appropriate when “a party has been fully heard on an issue during a jury trial and the court finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on the issue. . .” FRCP 50(a)(1).  Furthermore, the court “must presume that the jury resolved all factual disputes in favor of the prevailing party, and[it] must leave those findings undisturbed as long as they are supported by substantial evidence,” where “substantial evidence requires more than a mere scintilla . . .”

The CAFC held that the NIR stent did not infringe claim 25 of the ‘370 patent.  Slip Op. p. 18.  The Court noted that the NIR stent contained longitudinal member U-loops that included “a trough, but no crest as that term is used in the claim construction.”  Slip Op. p. 17.  The NIR U-loops were, therefore, not part of “undulating” sections.  Moreover, Cordis’s evidence consisted of expert testimony on the construction of “undulating” that was rejected by the Court.  Therefore, the CAFC concluded that Cordis presented no more than a mere scintilla of evidence.

Inequitable conduct was not committed during prosecution of the ‘370 patent

The ‘370 patent issued from a continuation off of U.S. Patent Application No. 08/202,128 (“’128 application”).  The Court noted that the behavior of the ‘128 application pro se prosecuting inventor and a consulting patent attorney were suspicious.  Slip Op.  pp. 3-7, 22.  They had notice from a European Search Report that a particular U.S. Patent Reference was “relevant,” but they did not disclose that material reference to the USPTO during the prosecution of the ’128 application.  Ultimately, they did disclose that material reference in an IDS for a continuation patent application, but the reference was “buried” amongst 60 other references.  On the other hand, there were no communications about this reference until after the ’128 application issued as Cordis’ first patent, and the reference was, in fact, ultimately disclosed to the PTO in the continuation application which eventually issued as the ’370 patent.

The CAFC did not find that the patent was unenforceable due to inequitable conduct.  Slip Op. p. 22.  After the most recent remand, the district court found that “the inferences argued by the plaintiff are supported by evidence of record and as reasonable as those inferences by defendants,” and “it would be clear error . . . to imbue [plaintiff’s] conduct with deceptive intent on this record.”  Cordis Corp. v. Boston Scientific Corp., 641 F. Supp. 2d 353, 359 (D. Del. 2009). A finding of inequitable conduct requires specific intent to deceive, and under the new Therasense standard, “to meet the clear and convincing standard, the specific intent must be ‘the single most reasonable inference able to be drawn from the evidence.” The district court ultimately concluded that “the evidence cited in support of inequitable conduct is not clearly more compelling than the evidence cited in support of not finding inequitable conduct.  After reviewing the facts, the CAFC held that there was no inequitable conduct because it did not find clear error in the district court’s conclusion.

Conclusion

After this 14-year episode in the Stent Wars, BSC’s NIR stent was found not to infringe Cordis’s ‘370 patent.  Cordis too can claim a victory as its patents retained a presumption of validity, despite being obtained under arguably suspicious circumstances.   The Stent Wars continue to fuel litigation through a stent market that is approaching $8 billion and complicated disputes featuring intricate stent inventions.  In the end, Cordis provides us with recent examples on how the CAFC reviews a JMOL verdict on literal infringement and how the CAFC is currently analyzing inequitable conduct claims under the framework in Therasense.