Internet Policy: The 110th Congress

2007 brought the Democrats back in to power in the House and Senate and it’s changing the tone of the debate for policy issues in the intellectual property and high tech arena. It’s about ‘who controls the pipes’ and ‘who controls the content.’ Although many policymakers will say that these issues like patent reform or Net Neutrality aren’t issues that cut across clear partisan lines there still appear to be some differences in the tone being set as the 110th Congress gets started. Sometimes it’s indirect. There’s still a feeling among some Democratic leaders that pharma set the agenda for patent reform in the 109th Congress and whatever pharma is for, they’re against. Similarly with the debate about Net Neutrality there appears to be a sense that large telcos drove the agenda last term and now it’s time to move in a different direction. The Net Neutrality debate is thus far being waged along partisan lines in the presidential contest – Democratic challengers, Clinton, Obama and Edwards are supporting it and Republican challengers McCain and Brownback are against it. “Net Neutrality” is a term coined by Professor Tim Wu when he delivered a paper at the 2003 Silicon Flatirons Conference in Boulder Colorado, where Michael Powell (then Chair FCC) listened and returned the following year (2004) with an address outlining the four “Internet freedoms” (PDF). It was a warning to the broadband industry to preserve openness and consumer choice. He also hinted that adopting these policies would be the best way to avoid further government regulation. Fast forward to November 2005 where then SBC CEO (now ATT CEO) Ed Whiteacre responded during an interview by Business Week with words (that perhaps haunt him):

“Now what they [responding to competition from Google, Yahoo, eBay and others] would like us to do is use my pipes free, but I ain’t going to let them do that because we have spent this capital and we have to have a return on it. So there’s going to have to be some mechanism for these people who use these pipes to pay for the portion they’re using.”

The reaction to Whiteacre’s statement was swift and strong. His ‘fighting words’ were fuel to the network neutrality advocates such as the grassroots effort led by SavetheInternet.com, and were piggybacked on by Internet giants Google, Yahoo, Amazon and eBay. Even the ‘father’ of the Internet, Vince Cerf, spoke at House hearings on the need for non-discrimination legislation. Legislation followed in the 109th Congress generally along lines of either an anti-competitive standard where telecom behavior is okay unless demonstrated to be illegal, or ananti-discrimination standard where if certain stated rules of neutrality are broken, the violators have to prove their behavior was on the right side of the line. Similar to the patent reform debate, the 109th Congress seemed weighted down by the powerful telco lobby and nothing was passed. There was a divide with other ‘technology’ companies like Cisco, Qualcomm, Nortel and Motorola who came out publicly against the proposed Net Neutrality legislation with soft statements like, “It is premature to attempt to enact some sort of network neutrality principles into law now.” Even with the momentum and apparent groundswell the Republican-controlled Congress stalled any legislation from being passed. With the 110th Congress the broadband providers are starting to sound like they’re on the defensive. Last month (February 2007) at the Tech Policy Summit in San Jose, broadband access/service and Net Neutrality were hot topics for discussion. TPS brought an impressive line-up of technology companies, media leaders and government policy makers. Congressman Berman was flown in as well as Jon Dudas (head of US Patent Office). All the large broadband providers (ATT, Comcast and Verizon) were represented, as were large technology companies from the Valley (Cisco, Intel, Sun and HP), and companies with large Valley presence (IBM, Microsoft). Of the significant Internet companies, Google was represented but eBay and Yahoo were noticeably absent. The broadband providers were put on the defensive not by the technology companies directly but, by their media interviewer/moderators. Walt Mossberg of the Wall Street Journal put James Cicconi (SVP, External and Legislative Affairs, ATT) constantly on the defensive with questions like:

• Why is broadband value so poor in the US?
• Why can someone in France (and many other European and Asian countries) get better broadband (ie faster service) for less money?

Cicconi tried to talk about population density and regulation but was really stumped when Walt told him he lived in Manhattan and could get better service from a small cable company. They’re also on the defensive for not providing useful information (read: transparency) about what broadband service they’re providing. This was discussed at the State of the Net conference as well. I remember living in Palo Alto in 2003 and still not being able to access broadband (cable or DSL). Friends on the East Coast were stunned. Broadband providers were saying that because some people in my zip code were receiving broadband, they were serving the area. The broadband providers sound like they are on the defensive. They constantly cite statistics about how much money they’ve invested in broadband, how many feet of fiber, they’ve laid across the country, and so on. The crucial question is whether the Internet should be treated like a public utility and if so what is the appropriate regime to serve the public interest. The Big Three (ATT, Verizon and Comcast) have vested interests in ensuring that their billions of dollars invested (some well, some not so well) gets recouped, at least so their management can answer to their boards and shareholders. Cicconi said his company has publicly agreed to not block content or degrade service based on source of content. To those following the debate closely it may or not have appeared disingenuous that he failed to mention that their public position followed their agreement to certain Net Neutrality provisions with the FCC to permit the ATT/BellSouth merger in 2006. Note the partisan divide; one Republican commissioner had excused himself from the vote and the remaining two Democratic commissioners held up the merger until ATT agreed to abide by Net Neutrality provisions. Mossberg’s point (effectively made) was: Why can’t the consumer choose the phone they want and the carrier they want? His reference analogy of the circa 1968 black ATT phone was an unspoken reference to the FCC’s Carterphone ruling, which for the first time made attaching a non ATT phone to the ATT network legal. Cicconi talked about how the phones are subsidized, but he sidestepped the real question about consumer choice. Now Skype has petitioned the FCC, arguing that consumers should be able to attach their chosen device to the Internet via wireless networks. It is trying to take the Net Neutrality debate beyond the terrestrial Internet space and include wireless access as well. Here the large broadband providers believe the investment they made in purchasing spectrum from the government means they need control over those airwaves to ensure a return on their investment. It sounds similar to Whiteacre’s argument for exercising price discrimination on its access to the terrestrial Internet. What’s happening in Congress? In the House, Ed Markey (D MA) has started hearings on Net Neutrality legislation. He hasn’t introduced any bill yet, but when he does it will likely to be similar to his 2006 bill (PDF). It included the principles of probation on blocking, degrading or interfering with user’s accessing content similar to what ATT has agreed to (for limited period) with the FCC. On the issue of prioritization of content, broadband providers have to make all similar content available on the ‘dedicated pipe’ without surcharge. In the Senate, Senators Snowe (R-ME) and Dorgan (D-ND) have re-introduced legislation (from the 109th session) called the Internet Freedom Preservation Act (PDF). It’s similar to the Markey provisions on blocking, degrading, and prioritization of content. It also has a provision about mandating that broadband providers make stand-alone broadband service available to users. Reaction by Presidental contenders to this bill has so far lined up on partisan lines. Notably, Snowe is the only Republican supporting it. Tech LawForum will be following the public policy debate as it unfolds in the 110th Congress. Besides Net Neutrality, Tech LawForum’s Internet law and policy section will be following many other issues and topics including the Google v Perfect 10 case and Congressional efforts to legislate in the areas of music licensing and fair use. Also, articles and blog posts under Net Law will cover updates on cyberspace law topics such as defamation, jurisdiction and privacy.

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Controversial 271 Research Tool Exception Ruling

Classen Immunotherapies v. King Pharmaceuticals 2006 WL 3716920 D. Maryland, decided Aug. 16, 2006 Judge Quarles Thanks to Peter Zura at the Two-Seventy-One Blog for writing a post about this case. Some academics have called for an exception to the safe harbor protection of �§ 271(e)(1) for research tools. One notable criticism came from Donald Chisum who argued the Patent Act of 2005 was incomplete for not including a research tool exception. See 4 J. Marshall Rev. Intell. Prop. L. 336, 342. �§ 271(e)(1) states:

It shall not be an act of infringement to make, use, offer to sell or sell . . . a patented invention . . . solely for uses reasonably related to the development and submission of information under a federal law which regulates the manufacture, use or sale of drugs.

Europe allows research ââ?¬Å?onââ?¬Â? an invention, but research ââ?¬Å?withââ?¬Â? an invention can be patent infringement (thereby excepting research tools from the safe harbor). For example, imagine a patent which covers a laser. The laser can be used for research in a laboratory. Conducting research on the laser would be permissible, but conducting research with the laser (without a license) would be patent infringement. The plaintiff in this case argued:

Elan [the defendant] infringed the 472 and 674 patents when it: 1) studied the effect of food on the bioavailability of Skelaxin; 2) used the study data to identify a new use of the drug; and 3) commercialized the new use.

The Supreme Court has said in Merck KGaA v. Integra Lifesciences I, Ltd., 545 U.S. 193, that the safe harbor ââ?¬Å?extends to all uses of patented inventions that are reasonably related to the development and submission of any information under the FDCA.ââ?¬Â? Judge Quarles concluded in full:

Even assuming that Elan employed Classen’s patented process when it studied Skelaxin’s bioavailability problem and used the results to repatent the drug, the results of the 2001 study were submitted to the FDA in Elan’s Citizen Petition and labeling supplement to its NDA. Therefore, Elan’s use of the patented process was reasonably related to the submission of information under the FDCA and so is protected under Ã?§ 271(e)(1). Accordingly, Elan’s motion for summary judgment will be granted.

Under this reasoning, research tools are not exempted from the safe harbor of �§ 271(e)(1). The policy of patent law is being undermined by not exempting research tools. Although maybe technically correct, letâ��s hope other jurisdictions donâ��t follow this lead. For further analysis see IPBiz.

Another Injunction Denied Don’t Get Lazy with Your Evidence

IMX v. Lending Tree 2007 U.S. Dist. LEXIS 1972 District of Delaware, decided Jan. 10, 2007 Judge Robinson Download pdf here. In a very lengthy decision, the District of Delaware denied a permanent injunction, among other things, citing eBay. A jury found that Lending Tree literally infringed IMXââ?¬â?¢s ââ?¬Ë?947 patent. IMX first filed a motion for entry of a permanent injunction a year ago (Jan. 30, 2006). The ruling on the motion was postponed until after the eBay decision came out (May 15, 2006). The eBay decision may have caught IMX off guard because, as Judge Robinson states:

Plaintiff, however, put forward no evidence of irreparable harm resulting from defendant’s infringement, for example, market or financial data, to support its sweeping statements.

What evidence did IMX present for irreparable harm? This is found in footnote 23 which reads in full:

Plaintiff cites to several recent statements by LendingTree executives in its briefing in support of the proposition that defendant intends to “increase” its infringing activities notwithstanding the jury’s verdict. (D.I. 274 at 4) Plaintiff cites a statement that LendingTree has completed 50% more Qualification Forms for potential borrowers than in the same quarter a year ago. (D.I. 274, ex. A) Further, defendant has publicly stated that: This case will have no meaningful effect on how our lenders and customers interact with LendingTree. LendingTree will continue to provide the same level of quality service to both consumers and lenders. The fundamentals of our consumer protection will remain the same – consumers will continue to use the LendingTree marketplace to find lenders that will compete for their business. (D.I. 261, ex. A) Though these statements appear to support plaintiff’s argument insofar as defendant intends to maintain the status quo, they do not appear to support plaintiff’s argument that defendant plans to “increase” its infringing activity.

Judge Robinson thought the evidence was clearly insufficient so the permanent injunction was denied. The Delaware IP Blog points out ââ?¬Å?Ultimately, the question whether eBay will hamper the frequency in which permanent injunctions have previously been issued must wait for another day: in its Order, the Court granted IMX leave to renew once any appeal on the liability phase is resolved.ââ?¬Â? For more analysis, this case was nicely covered by Peter Zuraââ?¬â?¢s Two-Seventy-One Blog.

Google Wins

Hyperphrase Technologies v. Google 2006 US Dist. LEXIS 92195 Western District of Wisconsin, Decided Dec. 20, 2006 Judge Shabaz Google won this patent infringement suit filed by Hyperphrase Technologies on summary judgment. The four patents allegedly infringed concern the storage and retrieval of medical records. Mark Reichel at The Daily Dose of IP discusses the case and links to related documents. An article in the Chicago Tribune explains:

HyperPhrase targeted the Google toolbar interface used in Internet browsers; its AutoLink feature that allows users to link to information on selected Web sites; and AdSense, Google’s technology for placing ads on its site.

Judge Shabaz used particularly strong language:

There is no basis to argue that the AutoLink process uses the equivalent of data references to locate referenced records. Rather, AutoLink performs a completely different function in a different way to achieve a different result. at 26.

and again:

Considering the AdSense product, there are two records involved in the process: the web page and the advertisement. However, to suggest that either of these records “refers” to the other is nonsense. at 31.

Google wins in a decisive victory.

Mark Up Your Products – 287(a) and Willful Infringement

Inline Connection v. AOL Time Warner D. Delaware, Dec. 5, 2006 Magistrate Judge Thynge WL 3495979 Asyst Techs., Inc. v. Empak, Inc. N.D. California, Nov. 14, 2006 Judge Fogel LEXIS 85681 Section 287(a) states that all patentees must mark their products, or packaging, with the word ââ?¬Å?patentââ?¬Â? or ââ?¬Å?pat.ââ?¬Â? along with the number patent they have obtained. In the event this does not happen:

[N]o damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice.

The Defendant�s motion for summary judgment was granted in Inline Connection v. AOL. Although Inline argued it had no product to mark because it was providing a service (highspeed internet), Magistrate Judge Thynge asserted the Federal Circuit has consistently held:

[W]here there are both product and method claims being claimed infringed, the patentee must mark the product pursuant to �§ 287(a) in order to recover damages.

Judge Thynge determined the wall jack should have been marked and granted AOLââ?¬â?¢s motion for summary judgment on the issue of pre-suit damages. In the Northern District of California, Judge Fogel held against the Defendantââ?¬â?¢s motion on pre-suit damages. The Plaintiff showed substantial evidence for there to be a triable issue of material fact as to constructive notice. However, the Judge did side with the Defendants on the issue of actual notice. Plaintiff sent out a vague letter, Iââ?¬â?¢m sure weââ?¬â?¢re all familiar with, basically stating, as the court put it, ââ?¬Å?we understand that you are entering the SMIF pod field, we have patents in that field, donââ?¬â?¢t infringe our patents.ââ?¬Â?

This kind of generalized warning does not suffice for actual notice under �§ 287(a).

Isnâ��t this interesting? This kind of warning does not cut it for actual notice under �§ 287(a), yet it may open up the defendant to willful infringement charges. Does this result seem correct or am I missing something?

The Effect of eBay in the District Courts

I came across a great article written by Michael Smith, who also runs the Eastern District of Texas Federal Court Practice blog, which summarizes and analyzes District Court decisions that are interpreting eBay. The article also gives interesting background information on some of the Judges of the E.D. of Texas. The article is definitely worth reading and the pdf is available here. I knew the E.D. of Texas was known for returning plaintiffââ?¬â?¢s verdicts, but I was unaware that the $133 Million verdict in z4 Technologies v. Microsoft was almost as much as all the patent jury verdicts handed down in the E.D. of Texas since 1999 combined! Other results were somewhat surprising. Of the nine cases reviewed at the time the article was written, four of them were denied injunctions (z4 Technologies v. Microsoft, Finisar v. DirectTV, Paice v. Toyota, and Voda v. Cordis Corp.). Also surprising was three out of the four cases that were heard by the E.D. of Texas were denied injunctions. What is the reason for this geographic difference? Perhaps more ââ?¬Å?trollsââ?¬Â? are filling suit in the E.D. of Texas than elsewhere, causing the Judges to follow Justice Kennedyââ?¬â?¢s concurrence. All cases in which the permanent injunction issued, the plaintiff was a direct competitor and was manufacturing a product. Michael Smith predicts more defendants will litigate the case on the merits and settlements will occur later rather than sooner. Kudos to him for this well written article.

Local Patent Rules for the N.D. Cal

As noted on Patently-O and on the Northern District of Californiaââ?¬â?¢s homepage, the court is looking to improve its local patent rules. You can read the pdf version of the current rules here. If you have input, you are very much encouraged to send your thoughts to patentlocalrulescommittee@gmail.com. This is a great opportunity to make real meaningful change. As the Northern District of California hears the most patent cases in the country (or close to the most, sorry I donââ?¬â?¢t have the numbers), it can be a model for district courts around the nation to follow. This likely trend is acknowledged by the Chicago IP Litigation Blog, which points out the N.D. Cal. patent rules ââ?¬Å?serve as a pattern for courts across the country.ââ?¬Â? Currently, Judges Armstrong, Hamilton, and White have standing orders listed on the courtââ?¬â?¢s website specifically labeled for patent cases. They are all substantially similar and all deal with Markman hearings. They should be looked at to gather some ideas on how to amend the local rules. The pdf versions are here: Armstrong, Hamilton, and White. Michael F. Kelleher at the IP Law Observer noted a case that was decided on summary judgment as a result of one of the parties not closely following the Local Patent Rules of N.D. Cal. Although I cannot offer any suggestions on how to improve the local rules, I will quickly offer some principles to consider: Simplicity, Predictability, Fairness, and Cost Sensitivity. The legal community would be much better off if we could all find a way to inject these ideals into our current patent law system. I see no reason why local rules arenââ?¬â?¢t a great place to start! Please send your thoughts to the email above and comment on this blog and others to get the conversation started.

Who’s Winning with Willfulness and Waiver

Computer Associates Int. v. Simple.com E.D. New York, decided Oct. 20, 2006 Judge Hurley Computer Associates sought a declaratory judgment that three patents owned by Simple.com are invalid, unenforceable, and ââ?¬Å?not infringedââ?¬Â? by their products. Simple.com counterclaimed for willful infringement. Computer Associates invoked ââ?¬Å?advice of counselââ?¬Â? as a defense to the counterclaim and produced two opinion letters. However, they did not produce any communications with litigation counsel citing attorney-client privilege. On motion the Special Master ordered that Computer Associates were compelled to produce documents concerning advice of counsel on infringement, from both non-litigation counsel and litigation counsel. In the present case the court upheld the order after reviewing the holding in EchoStar. Specifically the court found that although EchoStar had not involved trial counsel, the court had cited favorably to Akeva v. Mizuno, 243 F. Supp. 2d 418 (2003), which stated that ââ?¬Å?all opinions received by the client relating to infringement must be revealed, even if they come from the defendantââ?¬â?¢s trial attorney.ââ?¬Â? Judge Hurley held:

The scope of [Computer Associateââ?¬â?¢s] waiver of the attorney-client privilege and work-product doctrine lies within the sound discretion of the trial court and EchoStar provides ample support for the Special Master’s recommendations.

Thus, because Computer Associates had chosen to raise the advice of counsel defense they had waived the privilege as to all opinions and could not ââ?¬Å?use the privilege as both a sword and a shield by waiving its privilege for favorable advice while asserting it for unfavorable advice.ââ?¬Â? The patent community needs to seriously rethink how willfulness and waiver are working together. The Federal Circuit took a step in the right direction in the Knorr-Bremse opinion, but did not go far enough. Intuitively, there is something wrong with requiring a defendant to reveal all documentation concerning discussions about infringement, when they almost have to in order to properly defend themselves. I would like to see some drastic legislation pass in Congress concerning this issue.

Potential Lost Revenue Alone Does Not Qualify as “Irreparable Harm”

Parker-Hannifin Corp. v. Wix Filtration Corp. 2006 WL 3028706 (E.D. Cal.) Judge Levi In denying a preliminary injunction, Judge Levi stated ââ?¬Å?[p]otential lost revenue alone does not qualify as ââ?¬Ë?irreparable harmââ?¬â?¢ because, otherwise, there would be ââ?¬Ë?irreparable harmââ?¬â?¢ in every patent case.ââ?¬Â? To be awarded a preliminary injunction, a patent owner plaintiff must show:

(1) a reasonable likelihood that it would succeed on the merits; (2) a threat of irreparable harm; (3) the balance of hardships tips in its favor; and (4) the public interest favors granting the injunction.

Parker designs and sells oil filtration systems and replacement filters for the Ford F-150. Wix also sells replacement filter elements, which compete with the products sold by Parker. Parker claims Wix infringes its patent covering the filter design (the ââ?¬Ë?426 patent), and additionally that the Wix products are defective and cause failed fuel injectors in the F-150 which Parker fears Ford may blame on the Parker oil filtration system. There is no actual evidence that any of the Wix products are faulty, and Wix claims that these warranty claims predate the sale of its products by several years. The only physical difference in the filters is that the Wix filter includes an additional plastic tube inside the filter apparatus, so the question is whether this tube acts to distinguish the Wix filter from the Parker filter. After concluding Parker has not proven likelihood of success on the merits, Judge Levi discusses irreparable harm:

Mere loss in revenue from competition is not “irreparable harm” in a patent infringement suit when the plaintiff has failed to demonstrate that it will likely succeed on the merits.

Does this imply if likelihood of success on the merits is shown, loss of revenue would be sufficient? A strong arguement can be made that lost revenue is not irreparable because that is exactly what the award of damages is intended compensate. Preliminary injunctions, especially after eBay, should be much more difficult to obtain. Plaintiff�s loss of revenue, alone, should rarely be sufficient to allow a preliminary injunction.

Sanctions Granted

Eon-Net, L.P. v. Flagstar Bancorp, Inc. W.D. Washington, Decided October 4, 2006 Judge Marsha J. Pechman Plaintiff is a patent assignee of an invention that permits quick and automatic extraction of information from hard copy documents, such as invoices or receipts. Plaintiff retained an attorney to file an infringement lawsuit against Flagstar. The Defendant is a bank that uses an application over the Internet to collect the bank’s customer information and to process the information on the bank’s server. Apparently, Plaintiff Eon-Net and the attorney were also busy filing over a dozen other lawsuits of a similar nature against companies with similar business practices as that of the Flagstar. Eon-Net followed the service of the complaint with cheap offers of settlement ranging from $25,000 and up. The finger prints of a troll are all over this case. What Eon-Net didnââ?¬â?¢t count on is the cost of not doing the preliminary investigation of patent infringement as mandated by Federal Circuit in View Engineering v. Robotic Vision Systems, 208 F.3d 981 (2000). In the context of patent litigation: ââ?¬Å?Rule 11 requires an attorney to (1) apply the claims of each asserted patent to the accused device, and (2) satisfy himself that a proper construction of the claims permits an argument that each element of the claims appears in the accused devices.ââ?¬Â? The court reasons further that “reasonable inquiry” would be sufficient to avoid the sanction against an attorney. Since the attorney for Eon-Net took the words of the assignee and went no further than simply opening up a browser to see the application process implemented by Flagstar, the court held that the attorney failed to fulfill the duty to the court. Although the attorney claims that he has met the “reasonable inquiry” standard by checking the website, the court found it to be even lower than the effort put in by the attorney in View Engineering (where the Federal Circuit upheld the sanction against the attorney for View Engineering). Any Plaintiffââ?¬â?¢s attorney in a patent infringement suit, whether for a troll or not, should be warned to pay particular attention to the preliminary investigation requirements.