Loose Lips Sink Ships

March 27, 2020

In Broad Institute, Inc. et al. v. Regents for the University of California et al., 903 F.3d 1286 (Fed. Cir. 2018) [hereinafter ‘Broad’ and ‘UC’] the United States Court of Appeals for the Federal Circuit [hereinafter ‘the Federal Circuit’] concluded that Broad’s bioengineered molecule was not obvious in view of another bioengineered molecule created by UC. Both UC and Broad were aware that this bioengineered molecule possesses a superior ability to rapidly sever genetic molecules. If successful in eukaryotic cells (i.e., plant and animal cells) this molecule also possesses enormous commercial potential for medical applications. Because of this high-stake financial implication, Broad and UC each claimed first inventor status of the bioengineered molecule that functions within animal cells.

If either UC or Broad is the first inventor of a single invention, then that entity is the rightful owner of United States patents and patent applications for this bioengineered severing molecule in animal and plant cells. The Federal Circuit affirmed the United States Patent Trial and Appeal Board’s conclusion [hereinafter ‘the Board’] that Broad’s molecule was not obvious, or unduly similar, to UC’s molecule. More importantly for commercial purposes, the Federal Circuit also concluded that because of this non-obviousness (i) UC’s bioengineered molecule that exclusively operates within a cell-free environment, and (ii) Broad’s bioengineered molecule that operates within plant and animal cells (iii) are separate and distinct inventions which each deserve their own patent(s).

  1. Background

Broad is a research entity formed by Harvard University and the Massachusetts Institute of Technology, while UC comprises the state university system in California. Broad owns patents and patent applications for a method in which the bioengineered molecule [hereinafter ‘CRISPR-Cas9’] successfully and most efficiently severs genetic molecules in animal and plant cells.[1] UC’s patent application also requested protection for a method of severing genetic molecules with CRISPR-Cas9. In so doing UC implicitly represented that its own CRISPR-Case9 functioned within plant and animal cells as well as within cell-free environments. However, UC’s patent application only discloses technical information for CRISPR-Cas9 that is operable in a cell free environment (i.e., in vitro).  Similarly, an earlier publication by one of the UC CRISPR-Cas9 inventors only disclosed CRISPR-Cas9 that (i) solely comprised bacterial components and (ii) demonstrated severing activity exclusively in vitro [hereinafter ‘2012 Jinek’].[2]

This litigation arose at UC’s request for an interference between UC and Broad, and for the purpose of resolving which entity was the first to invent the bioengineered severing molecule [hereinafter ‘CRISPR-Cas9’] that functions within plant and animal cells.  An interference is an administrative adjudication by the U.S. Patent & Trademark Office [hereinafter ‘Patent Office] that determines the first inventor of subject matter

(i)disclosed in a patent or patent application, and

(ii)for which protection is requested, and

(iii) that comprises the same invention as the invention of another party’s patent application(s) or patent(s).

If each inventor claims the same invention as the other inventor, then the interference resolves which person is the first inventor. This first person, or the entity which employees this person, then exclusively owns the disputed invention claimed in the applications and/or patents.[3]

  1. Interference proceedings

On April 13, 2015, UC requested the Board to declare an interference between UC and Broad, because both parties requested protection for a method of using CRISPR-Cas9 that is operable in plant and animal cells. Thereafter Broad moved to terminate the interference.  In so moving, Broad contended that Broad’s method of using CRISPR-Cas9 in plant and animal cells was sufficiently different from UC’s CRISPR-Cas9 in vitro use to merit patent protection for a separate invention.

UC maintained that Broad’s method of CRISPR-Cas9 use in plant and animal cells was too unduly similar to UC’s CRISPR-Cas9 to qualify as a different invention. In this context ‘undue similarity’ is known as obviousness, and wherein obviousness is patent law term of art.  One question in an obviousness analysis is always: Whether one of ordinary skill in the same technology would conclude that there was a reasonable likelihood of success for predictably achieving the disputed invention in view of previously existing technology. The parties agreed that the activity of CRISPR-Cas9 for selectively severing genetic molecules, such as DNA, is a significant improvement over previous biochemical systems for this purpose.

In this case, UC contended that Broad’s claims[4] to operable CRISPER-Cas9 systems in plant and animal cells were obvious in view of UC’s claims, because

(i)  one of average skill in this technology could routinely develop

(ii)  operable plant and animal cell CRISPR-Cas9 systems with a reasonable expectation of success based upon in vitro systems disclosed in (a) UC’s patent application and (b) Jinek 2012.

Broad responded that soon after the 2012 Jinek publication UC’s own scientists stated that achievement of functional CRISPR-Cas9 systems in plant and animal cells was uncertain, because (a) one of ordinary skill in the technology would not have reasonably expected success in plant and animal cells (b) without significant modifications to UC’s CRISPR-Cas9 in vitro assembly.

The Board concluded that UC’s molecular assembly and Broad’s molecular assembly  sufficiently differed from each other (i.e., Broad’s CRISPR-Cas9 was non-obvious in view of UC’s CRISPR-Cas9) to each merit recognition as separate inventions. The Board then terminated the interference because there was now no need to resolve the first (earliest) inventor of a SINGLE invention.  The Board based its decision in large part upon the following:

(i)Neither party disputed that UC’s patent application exclusively disclosed CRISPR-Cas9 comprising bacterial (prokaryotic) components, and not plant or animal cell components.[5]  Furthermore, at the time of UC’s 2012 Jinek  disclosure of in vitro CRISPR-Case9, UC’s own  inventors expressed uncertainty that this in vitro CRISPR-Cas9 could function within plant or animal cells.  Although UC’s scientists testified at the interference hearing that there were no impediments to achieving Broad’s system, their earlier statements made soon after 2012 Jinek expressed doubt for achieving a successful animal cell model. The Board gave these earlier statements more weight than the scientists’ statements prepared for the interference hearing.

(ii) Even if several researchers reported success in plant and animal cells soon after the publication of 2012 Jinek, unpublished experiments do not necessarily indicate whether an ordinary skilled bioengineer would have expected success prior to actual experimental results. Instead, any rush to achieve operability in animal cells evidenced motivation, but motivation did not comprise evidence of a reasonable expectation of success in plant and animal cells.

(iii)Obviousness depends on the specific nature of previously existing subject matter which is closely related to the disputed invention. For unpredictable technologies, specific instructions for achieving similar or identical subject matter may indicate a reasonable expectation of success. However, the availability of only generalized instructions, along with evidence of failures with similar subject matter, generally indicates non-obviousness. In this instance, Broad’s evidence demonstrated that success with selected prokaryotic molecules among thousands of prokaryotic systems would not provide a reasonable expectation of success. Broad also provided evidence of specific failed attempts at transferring other prokaryotic systems into eukaryotic cells.[6] Development of these systems enjoyed limited success and required years of research and specific developed strategies. Furthermore, UC did not offer any commonality or analogy between these previous strategies and development of a CRISPR-Cas9 that functions in plant and animal cells.

(iv) UC’s examples of successful gene editing systems of other scientists were not sufficiently analogous, because they incorporated components which naturally infect eukaryotic cells, while UC’s CRISPR-Cas9 components do not. Furthermore, the Board concluded that these same examples from UC supported Broad’s position, because UC’s examples each required a unique developmental protocol for even limited success.[7] Other prokaryotic systems cited by UC as analogous examples did not provide a reasonable expectation of success, because they were smaller and less complex than UC’s CRISPR-Cas9 system.

UC’s Appeal to Federal Circuit

According to UC, the Board applied an incorrect legal standard that (i) required previous references to comprise specific instructions for achieving an invention (ii) to support a finding of obviousness.  UC maintained that the law of obviousness does not require that specific instructions be present in prior publications for an invention to be obvious.  UC also contended that the Board improperly relied upon statements of UC’s inventors and professional witness made shortly after the 2012 Jinek publication. According to UC, these prior statements actually established that an ordinary scientist in this technology would have reasonably expected UC’s CRISPR-Cas9 to function in plant and animal cells. Consequently, the Board should have credited more weight to actual success of scientists shortly after Jinek 2012 was released, because this success evidenced the routine predictable nature of Broad’s CRISPR-Cas9 in plant and animal cells.

UC further contended that success by other scientists supported a finding of simultaneous invention.   According to UC soon after the publication of 2012 Jinek six independent research groups implemented UC’s operable CRISPR-Cas9 system

(i) within animal cells, and

(ii) within a few months of U.C.’s initial publication about this invention, and

(iii) by implementing conventional biochemical techniques.

According to UC this simultaneous invention evidenced undue similarity of Broad’s invention (i.e., obviousness)to UC’s CRISPR-Cas9.

UC also contended that Broad did not establish that it was entitled to December 12, 2012 as its earliest patent application submission date.  In support of this contention, UC observed that Broad relied upon a provisional United States patent application with a filing date of December 12, 2012.[8] According to UC, Broad had never established that its provisional application was entitled to this early date for the purpose of excluding earlier references from the obviousness analysis.[9]

Broad’s Response

Broad replied that under federal administrative law, the Board’s decision was sufficiently supported by substantial factual evidence that was credible, reliable and relevant.[10] Under this standard the Board found that the statements of UC’s own inventors  in 2012 clearly established that there was no reasonable expectation of success for UC’s CRISPR-Cas9 operation in plant or animal cells. These earlier spontaneous statements were not made in anticipation of litigation, and so the Board properly found them to comprise the more credible and reliable evidence. Also, according to Broad, UC’s own evidence demonstrated that a successful transfer of a bacterial system into an animal cell required extensive development and surmounting numerous technical pitfalls.

As to UC’s simultaneous invention contention, Broad’s position was that UC had forfeited this argument because it was not raised before the Board. In any event, the Board had already addressed the merits of simultaneous invention under its reasonable expectation of success analysis. Under this analysis the Board properly concluded that these unpublished reports resulted from motivation and not from a reasonable expectation of success.  This motivation to further develop was separate and distinct from a reasonable expectation of success that UC’s in vitro prokaryotic CRISPR-Cas9 would operate in plant and animal cells. 

The Federal Circuit Decision

The Federal Circuit affirmed the Board’s decision to terminate the interference, because Broad’s CRISPR-Cas9 which was operable in plant and animal cells was not obvious in view of UC’s prokaryotic CRISPR-Cas9 that operated exclusively in vitro. The court also agreed that there were two patently distinct inventions, and that there was no reasonable expectation of success that one of ordinary skill in this technology could predictably develop Broad’s molecular system from that of UC. In reaching its conclusions the court held that substantial evidence supported the Board’s decision. The court also found that this evidence comprising expert testimony,  statements of the UC inventors themselves, the 2012 Jinek publication and examples of prior art failures was credible, reliable and relevant.

The court observed that Broad’s expert had testified that biological differences between bacteria(prokaryotes) and plant/animal cells (eukaryotes) result in unpredictability as to whether UC’s prokaryotic CRISPR-Cas9 would operate successfully in plant or animal cells. The court also observed that in September 2012, UC’s own expert witness had recognized that these differences could result in difficulties implementing UC’s CRISPR-Cas9 within eukaryotic cells. Furthermore, according to her statements contemporaneously with the 2012 Jinek publication,  one of UC’s inventors had experienced numerous frustrations in adapting UC’s CRISPR-Cas9 to animal cells and expressed her doubts for achieving this adaptation.

The court also looked at UC’s evidence for what UC characterized as analogous examples of predictable development of earlier gene editing systems. As did the Board, the court concluded that at least two gene editing molecular assemblies relied upon by UC were not relevant, because they comprised plant or animal cell components while UC’s CRISPR-Cas9 exclusively comprises bacterial (prokaryotic) components.  The court also confirmed that Broad effectively discounted UC’s examples of successful transfer of bacterial technologies for gene editing because of (i) their limited efficacy and (ii) requirement for specific innovations to successfully operate in animal cells. Based upon this evidence the court then concluded that Broad had credibly established that successful transfer of bacterial systems to plant or animal cells remained extremely limited.

The court then addressed UC’s contention that the Board erred in adopting a ‘specific instruction in the prior art’ test to reach a conclusion of non-obviousness in view of UC’s CRISPR-Cas9. The court found that the Board had acknowledged that certainty in the art is not necessary, and that the Board had applied the correct legal standard.  The court also found that the Board did not find non-obviousness solely on absence of specific instructions in the art for an operable CRISPR-Cas9 in plant or animal cells.  Instead, the Board looked at other factors such as industry failures for transfers of other gene editing systems, as well as other prokaryotic molecular systems, to plant and animal cells.

Next, the court agreed with the Board that the degree of predictability, and therefore a reasonable expectation of success, is determined on a technology by technology basis.  In this instance, the prior technology offered as evidence by both UC and Broad established that gene editing results were highly unpredictable. As a result, more specific instructions, and not merely generalized instructions that might contain prior laboratory techniques, were necessary for a reasonable expectation of success in this particular biotechnology.

Although the court did not consider all of UC’s remaining arguments, it did address UC’s evidence of simultaneous invention.  The court found that the Board had considered this evidence under the reasonable expectation of success approach, and that its relevance was merely one factor in the totality of circumstances. It also found that the Board correctly regarded simultaneous invention as exclusively evidencing motivation to achieve a successful CRISPR-Cas9 in plant or animal cells. Even if it existed this motivation did not establish that scientists experienced a reasonable expectation of success prior to attaining their goals.

Discussion and Conclusions

There is a constant tension in university research communities between scientific collaboration and the proprietary nature of research results. This case is an example of how statements of university inventors seriously damaged UC’s professional and financial interests in an unanticipated manner. These statements, although not the only factor in the court’s decision, nevertheless comprised significant evidence on which both the Board and Federal Circuit relied.

In addition to statements of UC’s inventors prior to the proceedings, even more damaging was the 2012 Jinek publication which supported these statements. According to UC, subsequent success in plant and animal cells, including that of Broad, relied upon the bacterial CRISPR-Cas9 technical information disclosed within this publication. The question then becomes whether this UC article should have even been published prior to UC’s own success in plant and animal cells.  After all, the possibility clearly existed that third parties could use the  publication information to develop another CRISPR-Cas9 system and then submit its own patent applications.[11] It  appears therefore, that without the publicized nature of UC’s work, there may never have been any statements which defeated UC in the Federal Circuit.[12]

However, the reality is that most university faculty and research professionals rely upon traditional research publications and the significance thereof, to augment resumes, employment opportunities, tenure and promotions. As a result, any solution for avoiding UC’s outcome inevitably rests with the university or other institution by which the researchers are employed. The solution for preventing UC’s outcome in entities with substantial commercially oriented research activities is best addressed by a risk/financial resources analysis. For example, how does a university affirmatively yet effectively manage risk of multi-million dollars lost in licensing revenue because of ‘information leaks,’ but in a cost-effective manner?

Some faculty and university sponsored startups already rely upon privately retained outside attorneys for advice on these matters. However, this legal advice is expensive on a long-term basis and becomes problematic depending upon the finances of each research group or individual. If the university assumes the risk mitigation task, then ideally whenever a research article is to be publicly distributed, there would be a (i) a prior review of the article by the legal department and (ii) a memorandum from the university legal department about risks of technical disclosures to outside research entities. However, there may be too many articles and research projects for a truly comprehensive process, and publication of time sensitive articles could be delayed to the detriment of the authors.

Furthermore, even if such a comprehensive approach were possible, a university legal department cannot realistically predict or prevent all possible confidentiality breaches. The university attorneys also most likely do not possess all the technical expertise to recognize potential financial injuries.  A potential solution is that the university retain outside counsel with specific technical expertise sets for all its research facilities, but the cost could be prohibitively high.

Therefore, the author proposes a pro-active approach with an oversight significantly smaller in scale.  For example, the university could identify which of its departments historically has provided the most commercially successful inventions.   In these departments a two-step procedure would then be implemented by the university legal department.  The first step would be a periodic meeting with an intellectual property attorney together with the relevant research staff and/faculty. The researchers would then present the status of their work, as well as the existence of communications about their work with colleagues outside the university.  If there is a potential for commercial success, the researcher should be encouraged to provide reasons that particular product or method would be commercial successful.

The second step of the proposed risk mitigation comprises review of articles or other publications from these selected research departments. If a researcher reports the preparation of a technical article for publication during a meeting, then the researcher should submit the article for legal review prior to its publication. However, this two-step process should be included in employment agreements for new faculty and researchers, as well as an amendment to employee agreements of those previously engaged by the university. The process should also be included in a university’s official employee handbook so everyone is aware and all persons are aware of these requirements.

 

Footnotes

[1]  Humans are within the larger classification of living organisms known as eukaryotes. There are three classifications of living organisms: bacteria, eukaryotes and archaea. Bacteria and archaea are each also referred to as ‘prokaryotes.’ CRISPR systems occur naturally only in prokaryotes such as some bacteria and most archaea. The invention at issue here addresses Type II CRISPR systems, and which are also referenced as CRISPR-Cas9 systems. CRISPR-Cas9 occurs naturally in prokaryotes, but not in eukaryotes (i.e., plant and animal cells)

[2] In vitro data originates from experiments conducted in a cell free environment. The article published in 2012 was written by Dr. Martin Jinek, Ph.D. who is a co-inventor of the UC CRISPR-Case9 molecular assembly. The 2012 Jinek article disclosed the UC’s inventors’ CRISPR-Cas9 in vitro results which were achieved in collaboration with other institutions. Jinek, Martin et al. “A Programmable Dual-RNA-guided DNA Endonuclease in Adaptive Bacterial Immunity” Science Vol. 337:816-821 (August 17, 2012); Public Affairs, “UC now holds largest CRISPR-Cas9 patent portfolio” Berkeley News October 1, 2019 at https://news.berkeley.edu/2019/10/01/uc-now-holds-largest crispr-ca…

[3] The America Invents Act does not authorize interferences, because under the Act the ‘first person to invent’ is not entitled to a patent. Instead, the person entitled to the patent is now presumptively the first person to apply to the United States Patent Office. See University of California et al.  v. Broad Institute, Inc. et. al., supra at 903 F. 3d at 1291 n.2. The case which is the subject of this article proceeded under the earlier U. S. patent statute which awards first to invent, and not first to file.

[4] Claims are sentences at the end of a United States patent application or patent that describe the invention in varying degrees of specificity. These sentences thereby designate the scope of patent protection that the applicant requests with varying degrees of specificity. Generally, if a claim sentence is (i) longer in text and (ii)describes numerous invention features, then the scope of protection accorded to the invention will be smaller.

[5] However, Broad contended that the CRISPR-Cas9 genetic component that UC disclosed in 2012 Jinek was biochemically distinct from the CRISPR-Cas9 genetic component of Broad’s (i) January 2012 National Institutes of Health Proposal, and (ii) disclosure in Cong, L. et al., “Multiplex genome engineering using CRISPR/Cas systems.” Science 2013 Feb. 15:339 (*121): 819-23. Appellees’ Brief filed October 25, 2018 pp. 24-25.

[6] These three prokaryotic systems that contained variants of genetic molecules (RNA) and operated in vitro were ribozymes, riboswitches and Group II introns.

[7]  The molecular systems contain ZFN and TALENS proteins, and these proteins comprise hybrids between prokaryotic and eukaryotic cell components.

[8]  Inventors may submit a U.S. provisional patent application for an initial semblance of an early filing date for a subsequent utility application. Provisional applications are not examined on the merits by the patent office, require fewer non-attorney patent office fees and never become full-fledged patents. For the risks of relying upon the filing date of a provisional application  see New Railhead Mfg. LLC v. Vermeer Mfg. Co., 298 F.3d 1290, 1294 (Fed. Cir. 2002).

[9] Under U.S. patent law, both a full-fledged U.S. utility patent application and a provisional patent application must comply with U.S. patent law and thereby

  • enabled a person of average skill in this technology to replicate the invention without undue experimentation, and
  • provides sufficient technical detail to establish that the Broad inventor(s) possessed all invention’s features and design at the time the provisional application was filed.

 

[10] Substantial evidence is the standard of review for a federal administrative agency’s factual findings. Substantial evidence is evidence that a reasonable mind might accept as adequate to support a conclusion. Substantial evidence has also been defined as that which a reasonable mind would accept as sufficient to support a particular conclusion and consists of more than a mere scintilla, but it may also comprise somewhat less than a preponderance.  Black H.C., Black’s Law Dictionary 1281 [5th Ed. West Publishing Co.: St. Paul Minn. 1979].

[11] Currently, under the AIA the right to a patent presumptively belongs to the first person to file the application for a particular invention.  As a result, a third party could benefit from another’s published work and then submit a patent application for a closely related invention, or even the same invention, prior the original true inventor.

[12] According to UC “all researchers’ experiments— including Broad’s—took UC’s disclosures in 2012 Jinek as their jumping off point.” Brief for Appellants filed July 25, 2018, page 41, first full paragraph.


You’re not a good person: Return Mail, Inc. v. United States Postal Service

July 5, 2019

In Return Mail, Inc. v. United States Postal Service et al., 587 U.S. ___ (2019) [hereinafter ‘Return Mail’ and ‘Postal Service’]    the United States Supreme Court [hereinafter ‘the Court’] held that the statutory term ‘person’  does not include the federal government for any of the three America Invents Act post issuance patent review proceedings [hereinafter ‘post issuance review’]. As a result, the Postal Service never had the ability to petition for post issuance review by the U.S. Patent Trial and Appeal Board [hereinafter ‘the Board’].  Post issuance review comprises three statutory proceedings by which a person who does not own a particular patent may petition the Board to review this patent’s validity. 35 U.S.C. sections 311 and 321.  Grounds for submitting a petition under each of the three post issuance review proceedings, and for which a patent can be challenged depends upon (i) petition filing deadlines or (ii) whether the patented invention qualifies as a ‘covered business method.’ The issue before the Court in was whether a federal agency is a ‘person’ capable of petitioning for post-issuance review.

Return Mail owns a patent for a method of processing undeliverable mail.  Return Mail commenced litigation against the Postal Service for in the Federal Court of Claims for improperly using this patented method. Despite a re-examination by which the patent office confirmed the patent’s validity, the Post Service petitioned for post issuance review.  The Board accepted the petition, and thereafter it concluded Return Mail’s patent was invalid and cancelled it. The Federal Circuit affirmed and held that that the Post Office was a person within the meaning of the post issuance review statutes.  As a result, the Postal Service had originally properly petitioned for post issuance review and the patent remained cancelled.

The Court reversed and remanded the Federal Circuit’s decision. Among its reasons for so doing, the Court first applied the presumption that the word ‘person’ in a statute does not include the sovereign, and so federal agencies are excluded from its scope. On this point the Court noted that the federal Dictionary Act provides the definition of a statutory term unless (i) the context of a statute indicates otherwise, or (ii) absent an affirmative showing to the contrary.  Here, the Dictionary Act does not include the federal government within the scope of the definition of ‘person.’ Furthermore, the Postal Service failed to provide an affirmative showing because, although federal agencies may obtain patents, this statutory right does not address a federal agency’s rights relating to a third party’s patent. Secondly, the rule of consistent usage is not applicable where the same word appears in conflicting statutory contexts as in this case. Thirdly, although the patent office may initiate ex parte patent validity proceedings, there is no statutory basis to conclude that the government may engage with private parties in an adversarial process such as post issuance review.

Finally, because the Federal Court of Claims provides no injunctive relief against federal agencies, government, then it is reasonable to exclude these agencies from an adversarial forum with private claimants. From this equitable perspective, the Court concluded that excluding federal agencies from the term ‘person’ avoids situations by which a private patent owner participates in an adversarial process both (i) initiated by a federal agency, and (ii) overseen by another federal agency.

©2019 Adrienne B. Naumann, Esq. all rights reserved. Ms. Naumann does not endorse or sponsor the advertisements at adriennebnaumann.wordpress.com.


What’s yours is mine: Allen v. Cooper

June 17, 2019

On June 3, 2019 the United States Supreme Court [hereinafter ‘the Court’] granted a writ of certiorari in Frederick L.  Allen et al. v. Roy A. Cooper III as Governor of North Carolina et al., 995 F.3d 337 (4th Cir. 2019) [hereinafter ‘Mr. Allen’ and ‘Mr. Cooper’].  At the center of the controversy is the Copyright Remedy Clarification Act of 1990 [hereinafter ‘CRCA’], because this statute abrogates state sovereign immunity for copyright infringement. The question before the Court is whether the CRCA is invalid because Congress has no constitutional authority to eliminate state sovereign immunity for copyright infringement.

Prior to this litigation and through his company Nautilus Productions, LLC, Mr. Allen created several videos and still photographs [hereinafter ‘the works’] of a famous submerged pirate ship near the North Carolina coast. After approximately ten years of creating these works, Mr. Allen registered them in the United States Copyright Office.  The North Carolina Department of Natural and Cultural Resources [hereinafter ‘the Department’] thereafter publicly displayed these works without Mr. Allen ‘s permission. Although the Department agreed to refrain from displaying the images under a 2003 settlement, it nevertheless recommenced this use. It also officially designated these videos and stills as public records which did not qualify for copyright protection.

The district court concluded that state sovereign immunity did not protect North Carolina from lawsuits by private parties for copyright infringement. However, after an interlocutory appeal the Fourth Circuit reversed and remanded this ruling primarily for two reasons. First, it held that under earlier Supreme Court decisions Congress had no power through the intellectual property clause of Article I of the Constitution [hereinafter Article I] to abolish state sovereign immunity.  The Fourth Circuit also concluded that section 5 of the Fourteenth Amendment [hereinafter ‘section 5’] provided no authority, because elimination of state sovereign immunity under this provision requires a pattern of willful taking of property. However, in this instance Congress had enacted CRCA without sufficient evidence of this pattern. The court also concluded that CRCA was overbroad, in large part because it did not distinguish between willful infringement and merely negligent state acts.

In his certiorari writ and reply brief, Mr. Allen contended that Article I does provide authority for enacting the CRCA. For his position, Mr. Allen relied upon Central Virginia Community College v.  Katz, 546 U.S. 356 (2006) in which the Court held that based upon Article I, states do not possess sovereign immunity in bankruptcy proceedings. According to Mr. Allen, such a holding indicates the Court’s recent willingness to examine Article I authority for elimination of state sovereign immunity on a clause by clause basis.  As a second source of constitutional support for Congressional authority, Mr. Allen contended that the Court has previously held that Congress may enforce section 5 by eliminating state sovereign immunity in Fitzpatrick v. Bitzer, 427 US 445 (1976). Mr. Allen agreed that the CRCA remedy must be congruent and proportional to the constitution violation. However, in this instance Congress had considered sufficient evidence of a pattern of willful copyright infringement by states: In fact, a one hundred- and fifty-page official U.S. copyright office study comprised overwhelming evidence that infringement by state entities is a serious continuing problem. In this respect the Fourth Circuit had diminished the legal significant of this report, and consequently it erroneously concluded that CRCA remedies were overly broad and therefore unconstitutional under section 5.

Mr. Cooper’s legal position is substantially similar to the Fourth Circuit’s conclusions and analysis. This case will be heard in the next term, so please stay tuned.

©2019 Adrienne B. Naumann, all rights reserved. Ms. Naumann does not endorse or sponsor the advertisements at adriennebnaumann.wordpress.com.


Back to the Future: Contracts 101 and Mission Product Holdings v. Tempnology

May 24, 2019

In Mission Product Holding, Inc. v.  Tempnology, LLC, 587 US. ­­­___ (2019) [hereinafter ‘Mission Product’ and ‘Tempnology’] the U.S. Supreme Court held that trademark licenses are governed by the same contract principles within a bankruptcy estate as outside the estate. Bankruptcy debtor Tempnology had earlier asserted that an executory contract,[1]  such as a license, may be rejected by the bankruptcy debtor, and therefore the licensee exclusively possesses a damages remedy. Tempnology conceded that there is a statutory exemption for intellectual property licenses by which the licensee also retains its license rights. 11 U.S.C. 365(n). However, 11 U.S.C. 101(35A) of the Bankruptcy Code designates subject matter which qualifies as intellectual property, but this provision does not include trademarks or a residual clause. According to Tempnology, a licensee of intellectual property exclusively within this designation retains its rights if the debtor rejects the executory license. However, because this list does not include trademarks, a trademark licensee may not continue using a debtor’s trademark under a rejected executory license. Consequently, the question before the Court was whether a debtor/licensor’s rejection of an executory trademark license terminates the licensee’s rights.

The license between the two companies provided that Mission Products use Tempnology’s trademark upon its apparel products. The bankruptcy court selected Tempnology’s analysis and held that Mission products could not use the trademark. The Bankruptcy Appellate Panel reversed and held that Tempnology could use the trademark, because (i) rejection of an executory contract under section 365(g) comprises a breach, and (ii) under basic contract law the non-breaching party retains its contract rights. However, the United States Court of Appeals for the First Circuit (‘First Circuit’] reversed this decision, because (i) 11 U.S.C. 101(35A) exclusively defines intellectual property in bankruptcy proceedings, but (ii) this provision does not designate trademarks. Consequently, Mission Products as a trademark licensee exclusively possessed a breach of contract remedy for damages, but without the right to use Tempnology’s trademark.

The Supreme Court reversed and remanded the First Circuit’s decision. In most relevant part, the Court stated that (i) section 365(g) specifically defines rejection of any executory contract in bankruptcy as a breach, and (ii) breach is defined under the law of contracts because there is no definition for breach which is specific to the Bankruptcy Code. As a result, and absent any state law or contract term to the contrary, a non-breaching possesses both (i) a remedy of damages as well as (ii) retention of its rights under the breached contract. Moreover, according to the Court this is the correct result because the bankruptcy estate cannot possess more property rights than it would possess outside bankruptcy. Furthermore, if Mission Products did not retain its contractual rights upon rejection, then the result under basic contract law would be rescission and not a breach. However, since section 365(g) explicitly states that a rejection comprises a breach, and not a rescission, then retention of the rights to use the mark is the only correct result. The Court concluded by stating that (i) the intellectual property designation of section 101(35A), (ii) the specific performance exceptions for intellectual property contracts under 365(n), and (iii) potential burdens of the debtor for supervising the licensee’s trademark use do not supersede or modify the result under sections 365(a) and 365(g).

©2019 Adrienne B. Naumann, Esq.  Ms. Naumann does not endorse or sponsor the advertisements at adriennebnaumann.wordpress.com.

[1] That is, a contract that neither party has finished performing. See 11 U.S.C. 365(a).


Defend Trade Secrets Act: As time goes by, Part 1

May 8, 2019

As the time interval from the effective date of the federal Defend Trade Secrets Act [hereinafter the Act] increases, more issues inevitably arise, and so we address some of them here. In Next Payment Solutions Inc. v. CLEAResult Consulting, Inc., 2019 WL 3637356 (N. D. Ill. July 31, 2018) the court denied the defendant’s motion to dismiss, and where the motion was based in part upon the defendant’s reliance upon the Act’s reverse engineering provision. Although reverse engineering is lawful under the Act, the plaintiff alleged that the defendants unlawfully distributed its trade secrets outside the scope of a confidentiality agreement between the parties. As a result, there could have been distribution of the plaintiff’s trade secrets to unauthorized persons, and reverse engineering could have occurred in this unlawful manner.

There is at least one sovereign immunity decision under the Act.  In Fast Enterprises LLC v. Pollack, 2018 WL 4539685 (D. Mass. Sept. 2, 2018) the court granted the motion to dismiss where Ms. Pollack, as the Director of the Massachusetts Department of Transportation, authorized distribution of bid information of private entities to the public.  According to the court, the Act does not include otherwise lawful acts of government agencies within its scope, and so there is no liability as a matter of law.

For the Act to apply, there must be subject matter jurisdiction based upon alleged trade secrets being directly related to or part of interstate or international activities of a plaintiff. To date, several decisions have addressed whether this subject matter jurisdiction requirement was sufficiently alleged in a  complaint. For example, in Sun Distribution Company v. Corbet et al., 2018 WL 4951966 (S.D. Calif. Oct. 12, 2018) the court granted a temporary restraining order where the plaintiff alleged distribution of trade secret related publications outside its principle state of business.  In Revolution FMO LLC v. Mitchell, 2018 WL 2163651 (E. D. Missouri May 10, 2018), the court denied the motion to dismiss based upon subject matter jurisdiction because the plaintiff sufficiently alleged that it (i) reviewed its trade secrets for compliance with numerous states’ regulations and (ii) licensed trade secrets outside its state of incorporation.

Similarly, in Video Gaming Technologies Inc. v. Castle Hill Studios LLC et al., 2018 WL 3437083 (N. D. Okla. July 17, 2018) the court granted a motion to amend a complaint where the amended complaint would allege that (i) the plaintiff’s games were used across multiple states and (ii) its proprietary game algorithms were submitted for potential use outside the state of the plaintiff’s principle business. In all of these cases the courts found that the Act’s subject matter jurisdiction was based upon interstate activities which were sufficiently related to alleged trade secrets. However, a different result was reached in DLMC, Inc. v. Flores et al., CV No. 18-00352 DKW-R (D. Hawaii January 23, 2019). In this litigation the elder care company plaintiff alleged that the defendant former employees unlawfully transferred confidential client lists to a business competitor. The plaintiff alleged subject matter jurisdiction based upon (i) federal funding and (ii) federal patient identification numbers. Nevertheless, the court granted a motion to dismiss without prejudice, because these allegations bore no relationship to the client lists and there were no allegations of how either company provided interstate services.

© 2019 Adrienne B. Naumann, Esq., all rights reserved. Ms. Naumann does not sponsor or endorse the advertisements at adriennebnaumann.wordpress.com


DEFEND TRADE SECRETS ACT, Part 4: OK, now you’ve crossed the line

May 3, 2019

Currently there are few decisions for the ‘whistleblower provision’ of the federal Defend Trade Secrets Act ([hereinafter the ‘Act’]. Under this provision an employee is immune from civil and criminal trade secret misappropriation liability under both the Act and state law if

  • an employer’s trade secrets are conveyed to an employee’s attorney or the government;
  • in a lawsuit document or other proceeding under seal, and
  • solely to report or investigate a possible violation of law.

However, the employee must be ‘squeaky clean’ and strictly comply with the conditions of the Act’s whistleblower provision to benefit from the immunity.

In an early decision, the court denied whistleblower immunity because an employee’s reliance upon this immunity was premature. Unum Group v. Loftus, 220 F. Supp3d 143 (D. Mass. 2016). In this case Unum Group requested a preliminary injunction against former employee Loftus to prevent disclosure of  confidential health care information.  Loftus then moved to dismiss the employer’s lawsuit based upon whistleblower immunity. The court concluded that

  • it was not known which documents containing confidential health care information the employee provided to his attorney; or
  • whether the employee planned to use, disclose or transfer the trade secrets for purposes other than investigating an employment related grievance; and
  • the employee had not yet filed a lawsuit that required trade secret disclosure.

Consequently, the court took the employer’s allegations as true, denied the motion to dismiss and granted the preliminary injunction.

Another court granted an employee’s motion to dismiss the employer’s counterclaim for trade secret misappropriation based upon this immunity. Christian v. Lannett Company, Inc., 2018 WL 1532849 (E. D. Pa. March 29, 2018). In this case the disputed information was disclosed under a court order related to the employer’s alleged civil rights violations against the employee. The court also observed that the employer never alleged that

(i)the plaintiffs’ attorney intended to use or disclose the purported trade secrets to other persons, or

(ii) the plaintiff intentionally or accidentally disclosed or intended to disclose these same disputed trade secrets to third persons.

However, in the pending litigation of Spano v. Ohio Hospice & Palliative Care, 2018 U.S. Dist. LEXIS 15516 (W. D.  Pennsylvania, filed January 31, 2018), according to an employer’s counterclaim the former employee had misappropriated and then transferred several hundred pages of confidential records to her attorney purportedly for an age discrimination and wage dispute.  Thereafter, the state government filed a criminal complaint against the employee for affirmatively misappropriating this information.  Although the counterclaim was not originally brought under the Act, the Act provides immunity for state law misappropriation claims. For this reason, employees should understand the scope of the Act’s immunity provision, as well as potential consequences if their actions lie outside this scope. Let’s be careful out there!

©2019 Adrienne B. Naumann, all rights reserved. Ms. Naumann does not sponsor or endorse the advertisements at adriennebnaumann.wordpress.com.


Defend Trade Secrets Act Part 3: Who picks up the check?

May 2, 2019

The Defend Trade Secrets Act [hereinafter ‘the Act’] explicitly allows attorney fee awards to a prevailing party where misappropriation claims were made in bad faith.  However, although the Act is a federal statute numerous federal district courts have relied upon state law when resolving whether to award attorney fees. For example, in Xoran Holdings LLC v. Luick et al., 2017 U.S.  Dist. Lexis 147868 (E. D. Michigan September 13, 2017) the court denied the defendant’s motion to dismiss his former employer’s trade secret misappropriation claim, but it also denied the employer’s request for attorney fees for two reasons. First, the employer had never provided the Act’s notice of whistleblower immunity in the defendant ‘s employment agreement or another appropriate  document. Because the Act explicitly requires this notice before an employer may recover attorney fees, then Xoran could not recover these fees. Secondly, the court observed that both Act and state trade secret law require allegations of willful misappropriation with malice for an award of attorney fees.

In Farmer’s Edge, Inc. et al. v. Farmobile LLC et al., 2019 WL 3747833 (D. Neb. August 7, 2018) hereinafter ‘Farmer’s Edge’ and ‘Farmobile’], Farmer’s Edge alleged that its former employee and a competing business misappropriated its confidential source code, but the defendants prevailed on the merits of the case.  The court denied the defendant’s request for attorney fees, because under both state and federal law the lawsuit was not brought in subjective bad faith and had not been objectively baseless. An appeal of this decision is currently pending in the U. S. Court of Appeals for the Eighth Circuit.

Farmer’s Edge and Xoran are not isolated decisions in which a federal court relied at least in part on state law when awarding attorney fees under the Act. For example, in Swarmify, Inc. v. Cloudflare, Inc., 2018 WL 4680177(N.D. Calif. September 28, 2018) the court awarded attorney fees to a defendant for proceedings occurring when the plaintiff improperly continued the litigation after unequivocal evidence exonerated the defendant. Relying in part on state law, the court held that maintaining the lawsuit after disclosure of this evidence was objectively baseless and for an improper purpose.

For an award of attorney fees under the Act there must also be a prevailing party, and whether a prevailing party exists is an issue raised in other Act decisions. The United State Court of Appeals for the Fifth Circuit has interpreted the Act’s term ‘prevailing party’ exclusively under federal case law. Dunster Live, LLC v.  Lonestar Logos Management Corp. et al., 908 F.3d 948 (5th Cir. 2018). In Dunster, the appellate court affirmed the denial of attorney fees to the defendant for the claim under the Act. In so holding the court explicitly stated that prevailing party status under the Act is exclusively determined by federal law.  More particularly, under federal law a dismissal without prejudice does not result in prevailing part status, and an earlier denial of the plaintiff’s request for an injunction also did not result in this status.

In Southern HVAC Corp. v. Konforte et al., 2019 WL 918072 (M. D. Fla. February 8, 2019), although not bound by Fifth Circuit precedent the magistrate relied upon Dunster to recommend that attorney fees be denied to the defendant.  In this instance the magistrate had originally recommended that the complaint be dismissed without prejudice, and under federal law dismissal without prejudice does not result in a prevailing party. Unfortunately, we do not yet know whether the remaining federal circuits will rely exclusively upon federal law to interpret ‘prevailing party’ as well as other terms of the Act.

© 2019 Adrienne B. Naumann, all rights reserved. Ms. Naumann does not endorse or sponsor the advertisements at adriennebnaumann.wordpress.com.


Keep Your Enemies Closer: Part 2

April 24, 2019

In my last article I addressed representative Defend Trade Secrets Act [hereinafter ‘the Act’] decisions in which the courts evaluated threatened or inevitable misappropriation. In this article we look at the judicial conclusions that justify an ex parte seizure of privately-owned property upon premises outside the courtroom. This seizure is possible because the Act authorizes law enforcement officials to enter a physical premise without notice and seize property which may contain trade secrets. However extraordinary circumstances must exist for which a Federal Rule of Civil Procedure 65 order would be inadequate [hereinafter Rule 65].

According to the case law to date, such a seizure is justified whenever a person or entity has previously destroyed evidence, failed to comply with court orders, or repeatedly shown dishonesty towards the courts or the plaintiff(s). Whether force may be used to access areas of a premise is within the discretion of the court. In an early decision under the Act a court ordered seizure of the defendant’s computer at the defendant’s residence. Mission Capital Advisors LLC v. Romaka, Case No. 16 CIV. 5878 (S.D.N.Y. July 29, 2016). In this instance the court found that the defendant had disregard its initial temporary restraining order. However, this court did not authorize force to access areas within the premises on which property containing trade secrets would be located.

In contrast, the court in AVX Corporation v. Kim, Civil Action No. 6:17-CV – 624-MGL (D.S.C. March 8, 2017), did authorize law enforcement officials to use force to access locked areas if necessary. The court granted the seizure under the Act, in part because the defendant/employee had previously signed a nondisclosure agreement as a condition of employment with the plaintiff. In addition, the defendant had also repeatedly been dishonest, attempted to conceal the misappropriated computer files, and retained physical possession of the confidential files.   The court also granted an ex parte temporary restraining order to prevent actual or threatened misappropriation in the event the defendant intended to transfer the trade secrets to the plaintiff’s business competitor(s). Another court granted a seizure order in Blue Star Land Services, LLC v. Coleman, 2017 WL 621090(W. D. Oklahoma December 8, 2017) based upon the alleged duplicity towards the plaintiff and the significant value of the trade secrets. The court concluded that a Rule 65 order would be ineffective, because

  1. the defendants could easily copy the trade secrets onto other storage media,
  2. their prior behavior demonstrated a pattern of evasion and disregard of law; and
  3. harm to the plaintiff could not be remedied in a less intrusive manner.

Although most courts have relied upon Rule 65 and not an ex parte seizure under the Act, the above decisions provide exceptions of which practitioners should be aware. For this reason, a defendant’s attorney should urge prompt compliance with a Rule 65 order, so a defendant personally delivers property to the court without physical intervention by law enforcement officials. The alternative to this initial compliance could become an unexpected disruption of a home or business, as well as destruction of third persons’ property if they innocently share a targeted premise.

©2019 Adrienne B. Naumann, all rights reserved. Ms. Naumann does not sponsor or endorse the advertisements at adriennebnaumannword.press.com.


Keep Your Enemies Closer Part 1

April 18, 2019

The popular press has successfully raised the profile of trade secret misappropriation during the past several years. However, this high profile was primarily directed to: (i) criminal international espionage and the Waymo v. Uber litigation. The prosecution of international theft is ongoing while the Waymo litigation terminated in a 2018 confidential settlement. Beginning in 2016 the federal Defendant Trade Secrets Act [hereinafter “the Act”] provides original subject matter jurisdiction for civil trade secret misappropriation lawsuits between private parties.  Original subject matter exists if a plaintiff’s products and services in interstate or international commerce are related to the disputed trade secrets. Several hundred such lawsuits have already been filed nationally.

The vast majority of lawsuits under the Act arise when former employees wrongfully take their former employer’s trade secrets to (i) their next employer, or (ii) begin a competing business.  The Act explicitly states that threatened misappropriation is actionable although it does not explicitly address inevitable disclosure. Unfortunately, decisions under the Act to date show inconsistency for evidence or allegations necessary to prevent threatened disclosure or inevitable disclosure.  For example, In Primesource Building Products, Inc. v. Huttig Building Products et al., No. 16CV 11468 (N. D. Ill. December 9, 2017) the magistrate judge denied a preliminary injunction to prevent use and disclosure of business information because (i) there was no evidence of wrongful taking, (ii) the defendant employees could perform in new positions without accessing their former employer’s trade secrets and (iii) alleged trade secrets were already stale in a rapidly changing industry.

In Executive Consulting Group LLC v. Baggot, 2018 WL 1942762(D. Colorado April 25, 2018) the court granted a preliminary injunction for actual and threatened misappropriation, because the defendant forwarded confidential information to her personal e-mail account in violation of her employment agreement. In Industrial Packing Supplies, Inc. v. Channell et al., 2018 WL  2560993 (N.D. Ill. June 4, 2018) the court squarely held that an employee would not inevitably misappropriate trade secrets merely because he or she merely moved to a business competitor for similar employment. Instead this court held that there should be evidence to support the former employer’s suspicions.  Recently a Minnesota district court provided criteria for inevitable disclosure, and based in part upon state law these criteria include a subsequent employer’s failure to prevent improper disclosure and use. PrimeTherapeutics LLC v. Beatty et al., 2018 WL 5669270(D. Minn. November 1, 2018).

However, other courts hold that the mere act of accepting employment with an employer’s business competitor is sufficient to trigger liability under the Act. For example, in TFC Partners, Inc. Stratton Amenities, LLC et al., 2019 WL. 369152 (W.D. Texas January 30, 2019), the court granted a temporary restraining order against several defendants, because under Texas state law an employee’s move to a competitor for similar employment establishes a presumption of threatened misappropriation. Similarly,  in Fres-Co Systems USA, Inc. Hawkins et al., 690 Fed. Appx. 72 (3rd Cir. 2017) the court stated that allegations of threatened misappropriation may justify a preliminary injunction if an employee’s previous employment and subsequent employment substantially overlap (i) geographically and (ii) in job description.  The takeaway for practitioners is to review state law for threatened or inevitable misappropriation outcomes, because federal courts often rely at least in part upon state law to interpret the federal Act.

©2019 Adrienne B. Naumann, Esq., all rights reserved. Ms. Naumann does not sponsor or endorse the advertisements and announcements at adriennebnaumann.wordpress.com.


Push Back the Scrimmage Line: Fourth Estate Public Benefit v. Wall Street.com

March 25, 2019

In Fourth Estate Public Benefit Corporation v. Wall-Street.com, LLC, 586 U.S. __ (2019) [hereinafter ‘Fourth Estate’ and ‘Wall-Street’] the United States Supreme Court [hereinafter ‘the Court’] held that the United States copyright office [hereinafter ‘copyright office’] must affirmatively grant or deny registration to a work prior to a copyright infringement lawsuit by a claimant.  In so holding the Court resolved a split in the appellate circuits over whether the copyright office’s registration decision was a pre-requisite to commencing a lawsuit. The relevant statutory provision reads in part that a civil suit may commence “after registration has been made” and interpretation of this language was the focus of the litigation. See 1 7 U.S.C. 411(a).

In this case, the district court dismissed Fourth Estate’s copyright infringement lawsuit, because the copyright office had not yet acted upon its registration application for the disputed work. The United States Court of Appeals for the Eleventh Circuit affirmed for the same reasons. Before the Court, Fourth Estate contended that the passive voice of the disputed statutory language evidenced that no action by the copyright office was necessary. Fourth Estate further contended that other provisions of the Copyright Act supported its interpretation because some works do not require registration prior to a lawsuit.  Fourth Estate also asserted that section 411(a) explicitly allows a claimant to commence litigation even if the copyright office refuses registration, and therefore a copyright office decision is unnecessary. In response Wall-Street contended that a copyright office decision granting registration is not the condition precedent; rather the issue is whether the copyright office must either affirmatively either allow or deny registration prior to a lawsuit.  Wall-Street also distinguished Fourth Estates’ examples where registration was not necessary prior to commencing a lawsuit (movies and musical works), by characterizing them as statutory exceptions to section 411(a).

The Court agreed with Wall-Street and affirmed the Eleventh Circuit decision. In particular, the Court stated that the first two sentences of section 411(a) focused upon action by the copyright office.  It also concluded that the last sentence of section 411(a), and by which the copyright office may become a party to the lawsuit, would be unnecessary if a copyright office decision was not required. On this point the Court noted that Congress modified section 411(a) to address instances in which the copyright office refuses registration.  The modification provides notice of the lawsuit to the copyright office and allows a claimant to proceed with a lawsuit after this copyright office refusal.

The court further noted that other provisions of the copyright supported its interpretation of section 411(a). For example, the statutory pre-registration option would be unnecessary if a completed application without more comprised registration. 17 U.S.C. section 408(f).  Finally, the Court dismissed Fourth Estate’s contention that because rights automatically vest in copyrightable works, then these works should be protected in court without copyright office participation.  However, the Court concluded that although by statute ownership may spontaneously arise without the copyright office, protection of these rights requires a registration decision of the copyright office.

©2019 Adrienne B.  Naumann, Esq. Ms. Naumann does not sponsor or endorse the advertisements at adriennebnaumann.wordpress.com