By Kevin McGrath

On May 10, 2013, the Federal Circuit issued its en banc decision in CLS Bank International et al. v. Alice Corporation Pty, Ltd., (2011-1301).  At a high level, the issue in CLS Bank was whether software, business method, financial system, and some computer implemented inventions are eligible to even be considered for patent protection (i.e. whether they are patent eligible under 35 U.S.C. § 101).  The Supreme Court long ago ruled that patents are not available for “abstract ideas”—patents that would prevent others from using a fundamental concept in any application (a somewhat abstract idea in and of itself).  But establishing a predictable test for determining when a patent claims nothing more than an abstract idea has proven difficult.  In CLS Bank, the court issued several opinions proposing at least three different approaches, none of which garnering enough support to have precedential effect.  So while this case did not change the law, it has cast a bright light on a deep divide between the Federal Circuit judges on this issue.  The following is a brief discussion of the opinion followed by tips for what patent applicants can do in the interim until the law (hopefully) becomes more clear.

The CLS Bank decision ruled on the patent eligibility of method, computer-readable medium, and system claims for technology related to “the management of risk relating to specified, yet unknown, future events.”  The court summarized the invention as basically a computer-implemented escrow.  If you are feeling a sense of déjà vu, you are not alone.  Judges Rader and Moore noted that the claims were “indistinguishable” from the claims at issue in Bilski (a 2008 Supreme Court decision on this issue).

Judge Lourie’s opinion was joined by Judges Dyk, Prost, Reyna, and Wallach.  He proposed a three step, “integrated approach” for determining if a claim is an ineligible abstract idea.  First, verify the claim falls within one of the four statutory categories and then ask if the claim raises “abstractness concerns.”  Next, identify the “fundamental concept wrapped up in the claims.”  And finally, determine whether the claim adds a “product of human ingenuity” to the “fundamental concept” and not merely some trivial addition.  Judge Lourie assures us that this is not a separate “inventiveness” requirement.  Starting with the method claims, he boiled them down to the idea of using an escrow and found the other claim elements insignificant.  Turning to the device and system claims, he noted that “we must look past drafting formalities and let the true substance of the claim guide our analysis.”  For the system claims, despite reciting several structural components, and in some claims reciting a means plus function format that would be limited to the specific algorithms disclosed, Judge Lourie saw the structure as mere “drafting formalities” and found the recited systems “abstract.”

The remaining judges wrote five separate opinions over 90 pages, dolling out harsh criticism for Judge Lourie’s approach.  Judge Rader wrote an opinion joined by Judges Moore, Linn, and O’Malley.  Judge Rader urged a de-emphasis on the use of § 101, noting the broad and inclusive nature of the statute and that patentability determinations should be left to sections 102, 103, and 112.  He agreed there is an abstract idea exception but would significantly limit it, and noted that calling the system claims at issue in this case an “abstract concept . . . wrenches all meaning from those words.”  Judge Rader also listed several reasons why Judge Lourie’s approach runs afoul of basic tenants of patent law, including giving weight to each claim element, treating each claim separately, and not injecting additional “inventiveness” requirements into the law.

Judge Moore wrote separately to expressly state that “[i]f the reasoning of Judge Lourie’s opinion were adopted, it would decimate the electronics and software industries.”  And that “[t]here has never been a case which could do more damage to the patent system than this one.”  She asked the Supreme Court to grant certiorari, noting that the Federal Circuit “is irreconcilably fractured over these system claims.”  Judge Newman also wrote separately, and as one of the most experienced judges on the court, she reflected on the various failed attempts to develop a predictable test for the abstract idea exception.  She proposed the judges admit failure and return to the statute—if the invention fits within one of the four broad statutory categories, it should pass through the § 101 gate and be evaluated by the other statutory provisions.  Judge Rader also wrote separately to provide “additional reflections,” expressing concern that this uncertainty will damage development in important technology fields.

While CLS Bank provides more questions than answers, it might include some useful clues on what patent practitioners can do in the interim.  Under Judge Lourie’s approach, where he first considered the more conceptual method claims, and then moved on to the system claims, disregarding additional structural limitations.  An applicant trying to avoid this might consider pursuing more structural system claims in a first application, and then pursue method claims in a separate continuing application.  This could help prevent a court applying Judge Lourie’s test from viewing the method claims as merely reciting a “fundamental concept” and then glossing over claim elements in system claims that recite additional structure.  An applicant might also try to anticipate an application of Judge Lourie’s approach, guessing what a judge would consider the “abstract idea,” and then ensuring there is sufficient disclosure in the specification that provides a compelling story for the additional “inventiveness” added to that “abstract idea.”

Given the split in the Federal Circuit on such an important subject, we can most likely anticipate another Supreme Court decision on this issue relatively soon.  Until then, hope for the best (a bright line rule that minimizes the influence of § 101), and plan for the worst (each judge making their own determination of what the “basic idea” behind your invention is and then randomly deciding whether you’ve added enough additional, and sufficiently “inventive,” limitations to it).

By Peter Kunin

The Vermont House and Senate have approved a first-in-the-nation bill that provides a legal tool for Vermont companies who face extortionate claims of patent infringement from “patent trolls.”  In brief, the legislation gives Vermont companies the ability to bring a lawsuit against patent owners who – acting in bad faith — threaten to sue, or who actually sue, a Vermont company.   Gov.  Peter Shumlin signed the bill into law on May 22.  The anti-patent trolling bill, as passed by the Vermont House and Senate, has the designation H.299.

The legislation was spearheaded by Vermont Rep. Paul Ralston, D-Middlebury, and Vermont Chamber of Commerce President Betsy Bishop in response to concerns raised by an informal coalition of Vermont companies.  These companies, many of whom are my firm’s clients,  have been threatened and injured by extortionate claims of patent infringement asserted by patent trolls.  They have experienced anxiety, frustration and a deep sense of powerlessness after receiving a demand letter from a patent troll.  My colleague Eric Poehlmann and I were instrumental in developing the legal approach that is codified in the new legislation, and I testified three times before House and Senate committees that crafted the legislation.  For the first time, Vermont companies now have a tool to help level the playing field against patent trolls.

The new law allows Vermont companies to seek recovery of their legal fees, damages and other remedies if they can show that the patent troll acted in bad faith.  Whether a company asserting a claim of patent infringement is a “patent troll” or is making a legitimate effort to enforce a patent is notoriously difficult to determine.  Only “bad faith” assertions of patent infringement violate the new Vermont legislation.  The legislation requires a court to apply a multi-factor test to decide whether the patent infringement claim was made in “bad faith.”

The factors the court may look at as an indicator of bad faith include the following:

• If the demand letter sent by the alleged patent troll does not include specific allegations of how the Vermont company’s technology infringes particular claims in the patent;
• If the demand letter sent by the alleged patent troll demands that the Vermont company pay a license fee within an unreasonably short period of time;
• If the demand letter sent by the alleged patent troll is deceptive;
• If the alleged patent troll knew or should have known that the claim of patent infringement is meritless.

By contrast, several factors tend to show that the claim of patent infringement is legitimate, and therefore would not constitute a violation of the Vermont legislation:

• If the alleged patent troll has made a good faith effort to establish whether the target of the claim has infringed the patent and has made an effort to negotiate an appropriate remedy;
• If the alleged patent troll is the inventor or a university;
• If the alleged patent troll has successfully enforced the patent against another company.

In addition to the right given to Vermont companies to sue the alleged patent troll, the legislation enables the Vermont Attorney General to bring a suit against an alleged patent troll.

The legislation is highly innovative, but does not undermine the rights of patent holders to threaten and bring legitimate claims of patent infringement.  The new law asks the court to make a determination of “bad faith” based on a range of factors.  The structure of the Vermont bill is similar to federal legislation aimed at cybersquatters, enacted in the federal Anti-Cybersquatting Consumer Protection Act. The Vermont legislation is also derived from a series of federal patent decisions that recognize that a defendant in a patent infringement lawsuit can assert a counterclaim under state law if the plaintiff (the patent owner) asserts a patent infringement claim in bad faith.

Accordingly, while we expect that a patent troll sued under the Vermont law may well try to defend by counter-claiming that the Vermont legislation is pre-empted by federal patent law, we believe that a proper claim of bad faith under this legislation will survive a pre-emption challenge.

The Vermont solution is certainly not the end of the effort to curb extortionate patent claims.  A complete solution can only be achieved through changes in federal patent law. Indeed, several proposals for changing federal patent law are under consideration.  In the meantime, this Vermont law will provide a valuable tool for Vermont companies confronted with an extortionate patent claim.

I look forward to our readers’ comments and questions about this legislation.

By Morgan Heller II

As mentioned in my previous post on the Cooperative Patent Classification system (CPC), the International Patent Classification system (IPC), on which the CPC is based, is used by more than 100 patent offices around the world, so that the choice of starting with an IPC-based classification system, i.e., the European Patent Classification system (ECLA) appears to be a well-calculated step in achieving the long-term goal of harmonizing as many patent offices as are willing to embrace the CPC.

While loss of the visual cues mentioned in the prior post may not be more than a fleeting annoyance to ECLA users as they migrate to the CPC, the learning curve seems a bit more daunting to searchers that primarily search using the USPC.  As noted above, the USPC is not based on the IPC, and its basic structure is much different from the ICP, the ECLA, and the CPC.  Indeed, the differences are so great that it is possible there will never be an automated concordance engine that can map any given USPC symbol to an exact CPC symbol or group of CPC symbols.  However, the USPTO does provide a concordance tool of sorts (http://www.uspto.gov/web/patents/classification/index.htm) for statistically mapping a USPC symbol to one or more CPC symbols based on the most frequently co-occurring CPC classes for the USPC class of interest.  Clearly, this tool is not as reliable as an official concordance, but it may help a searcher identify pertinent CPC symbols.

While goals of having, at least, a bilaterally cooperative patent classification system between the USPTO and the EPO and, at most, a globally accepted patent classification system, are worthwhile and perhaps noble, one can only wonder whether they can be achieved.  Regarding the former, tasks requiring ongoing cooperation between peers can be difficult due to differences in priorities and viewpoints, and this author has not found anything to suggest that bi-lateral maintenance of the CPC would be immune to such difficulties.  Regarding the latter, global buy-in to a universalized patent classification system would seem to be unlikely without letting additional patent offices, such as at least the remaining three of the Five IP Offices (IP5) not involved with the CPC (i.e., the Japan Patent Office, the Korean Intellectual Property Office, and the State Intellectual Property Office of the People’s Republic of China) have a say in the maintenance of such a system.  Having three or more system-maintaining patent offices would surely increase the likelihood of encountering the difficulties in cooperation noted above.  Aside from those human factors, there are technical hurdles to achieving a successful cooperative or universal patent classification system.  Millions of patent documents classified under old classification systems must be reclassified.  If that reclassification is not performed carefully, trust in any new classification system will be diminished and searchers would likely resort to their old systems to at least supplement their new-system searches.

With the official changeovers by the USPTO and the EPO to the CPC not even four months old, it’s far too early to tell whether or not harmonization via the CPC will truly be successful.  Indeed, answers from several U.S. patent examiners posed questions about the CPC seem to suggest that there is currently skepticism among the examining corps about the changeover from the USPC to the CPC.  By all publicly available accounts, the ramping up of the CPC to fulltime usage, at least on the USPTO side, will be a multi-year process that will include patent-examiner training, building out of the CPC with useful granularity, and, if all goes well for the sake of the CPC, moving completely away from the USPC.  As of the writing of this post, the rollout of the CPC at the USPTO appears to be slow, with some patent examiners noting that they have not yet received any training and that virtually the only information they have been provided is the same information that is publicly available on the USPTO’s Office of Patent Classification page.  With the goals of the CPC being worthy ones, let’s hope the harmony doesn’t turn to dissonance.

By Beth Rattigan

Employers in New Hampshire now must comply with further restrictions on their ability to enforce non-compete and anti-piracy agreements.  Venturing further into the already murky area of the enforceability of such agreements, New Hampshire recently enacted  N.H. R.S.A. 275:70, which  requires employers to provide non-compete and non-piracy agreements to applicants and employees experiencing a change in job classification prior to extending the offer of employment or making the classification change.  The legislation, signed into law in July 2012, applies to all New Hampshire employers, regardless of the entity’s state of incorporation or origination.

Background

New Hampshire already places restrictions on employers to limit non-competition agreements with respect to geographic scope, length of time, and customers.  RSA 275:70 expands the restriction in an attempt to allegedly protect employees from entering into such agreements involuntarily or under duress.  The new legislation supposedly aims to prevent situations where employees enter into an employment relationship, only to be surprised on the first day of work by the employer forcing the employee to sign a non-compete or non-piracy agreement.

In its entirety, RSA 275:70 is a full two sentences in length.  Such brevity creates room for confusion and compliance questions among employers.  For example, the terms “non-compete,” “non-piracy,” and “change in job classification” lack definitions in the new legislation.

For many employers, “non-compete” refers to agreements limiting the ability of the employee to pursue similar employment after the employee separates from the company.  Non-compete agreements frequently incorporate non-solicitation clauses, seeking to protect the intellectual property of the employer against competitive actions by employees after the separation of employment.

Employers use “non-piracy” less frequently.  It may be construed to include non-solicitation clauses but could also reference trade and proprietary information of the employer, such as customer lists or vendor agreements.

Vague Definition

What is not clear under RSA 275:70, is what constitutes a “change in job classification.” Promotions, demotions, lateral transfers, and changes in pay scale may all be areas covered by the legislation.  But it is not entirely clear.  Legislative history suggests that the law intends to cover situations where an employee is moving into a position previously not held to a restrictive agreement or where a job applicant may otherwise experience possible duress when entering into the agreement.  This interpretation may, however, be challenged in the courts in the future.

Prior to this new legislation, New Hampshire courts have disfavored non-compete and non-piracy agreements as restrictions on trade and competition.  Agreements found to be non-compliant with RSA 275:70 will be deemed automatically void and unenforceable.

The law does not specify how the New Hampshire courts will address the enforceability of non-compete and non-piracy agreements in place prior to the effective date of the law, though it seems reasonable, given the intent of the legislation, that only agreements entered into after the effective date of the law will be bound by the new requirements.

Take Away

Employers are encouraged to maintain a written and signed acknowledgement of the receipt of any non-compete or non-piracy agreements given to an applicant or employee, so that they can later prove that the agreement was agreed to by the employee before he or she accepted the job.  Employers will not be in compliance if the agreement is just verbal or if the agreement is provided after extending the employment offer.  Startup companies or employers experiencing an expansion in workforce are especially encouraged to seek the assistance of counsel to ensure compliance.

Elizabeth Rattigan is a litigation and employment law partner in the Lebanon, New Hampshire office of Downs Rachlin Martin PLLC

Sure, First-to-File is new here, but the rest of the world has been dealing with it forever and the sky has not fallen on technological innovation elsewhere.  And it won’t fall on it here either under a First-to-File system.

But consider patent enforcement for a moment if you will.  As a patent owner who wants to enforce, you do your diligence, analyze the infringing product, formulate an infringement theory based on a claim construction that supports the infringement while navigating around key prior art.  Perhaps you also do some more searching, just to try to avoid being blindsided by a clear anticipatory reference.  And having done all that, you know that when you file your complaint, you will be in Federal District Court and your patent will be presumed valid; meaning any attempt to prove your patent should not have been granted in the first place will require evidence of invalidity that rises to a level of clear and convincing, not just simply a preponderance (e.g. not just 51 percent against you).  Not only that, but the case will be heard by an Article III judge appointed by the President and vetted by Congress, and that judge will hold a claim construction hearing (Markman hearing) to determine the meaning of the claims based on a long line of well-established, litigation-based claim construction cases.  Then, when the judge decides what the claims mean, he or she will charge the jury to determine validity based on that clear and convincing evidence standard; a jury that often is not entirely sure why they are being asked to second guess the USPTO and the Examiner who granted the patent in the first place.  And maybe you even selected the court you are going to litigate in because it’s in your home town or has a history of favorable rulings for patent owners.

All in all, if you have confidence in your patent and litigation counsel, and some money to back it up, you have a pretty good reason to be confident that you will get a good result – trial, summary judgment or settlement.

But not so fast – things are not what they once were. Serve that complaint for patent infringement today and sometime in the next twelve months an odd looking, sixty page document, perhaps with a two hundred plus page “expert” declaration attached, shows up at your office.  You have been served with a copy of a petition to the USPTO, requesting that it institute a Post-Grant Proceeding against your patent to determine its validity; and what you thought you knew about enforcing your patent just went out the window.

The America Invents Act (“AIA”) brought us three new Post-Grant Proceedings:  Post-Grant Review, Inter Partes Review and the transitional program for Covered Business Method Patents Review.  In spite of only one actually being called “inter partes,” all are a form of inter partes trial in the USPTO in which the party opposing the patent has a full opportunity to participate and present evidence and witnesses.

So what changes?  For starters, assuming your case has not progressed very far, there is a greater possibility it will be stayed.  Then, assuming that petition is granted – (out of about 150 petitions for IPR filed since the law went into effect on September 16, 2012, as of March 1, thirteen had been decided with only one denied) – the validity of your patent is no longer going to be determined by a jury who may respect the Patent office, the claim construction is no longer determined by an Article III judge and… your issued patent no longer enjoys a presumption of validity.

In a Post Grant Proceeding, the validity of the claims will be determined by a panel of three Administrative Patent Judges, many of whom were hired by the USPTO in the last eighteen months.  That panel will both construe the claims and determine the validity – judge and jury all in one – and instead of a presumption of validity, your claims are now treated just like they were in the original prosecution:  Claim terms are given their “broadest reasonable construction” and a mere preponderance of the evidence is enough to invalidate.

Changes don’t stop there – the IPR and PGR proceedings are statutorily required in most cases to be resolved by the USPTO within twelve months of the petition being granted.  The Patent Office rules for these proceedings are extraordinarily complex and generally do not allow for extensions other than by agreement with the opposing party and even then, a number of important deadlines cannot be moved.  Discovery and depositions are extremely limited.  And if past experience with interferences is a guide, sanctions could be freely levied against those who don’t comply.

This can’t be you say!  Perhaps your patent was granted 10 years ago.  Maybe it has even been enforced before and declared valid by a Federal District Court, or even the Federal Circuit.  Sorry – new law, new rules – back to the patent office you go.  And by the way, the fact that the prior art relied on by the petitioner now was considered before by the examiner or a court doesn’t matter either if the petitioner is able to present a reasonable likelihood of being able to invalidate at least one claim of the patent (but as mentioned above, so far only 1 of 13 failed to do that).

So what does this all mean.  First, patent owners who enforce should not panic, the sky still is not falling.  But don’t try to convince yourself that a Post Grant Proceeding can’t happen to you.  Learn what they are, how they work and how you can be best prepared to fight one off when it happens.  Because if you are a patent owner who actively enforces your patents, it is going to happen to you sooner or later.

In a series of following posts, I will discuss various aspects of how you can prepare before and after the petition is served on you; and things you might consider doing a bit differently during the initial prosecution to strengthen your patents to better defend against a Post Grant Proceeding.

By Cathleen Stadecker

3D printing technology is becoming more popular as companies such as MakerBot Industries continue to introduce more affordable desktop 3D printers.  With these machines, which work by printing layers of plastic, metal, ceramics or other materials, more and more people are “printing” real-life objects –toys, jewelry, shoes, replacement parts – in their home workshops.  As reported in a recent article in The Economist, industrial 3D printers that once cost at least $100,000 can now be purchased for around $15,000, while home versions are available for a little over $1,000.  This accessibility is causing some concern relating to intellectual property infringement because owners of 3D printers can print perfect replicas of a product, or other object, after downloading the digital plan for the product, which is in the form of a CAD (computer-aided design) file.  With new 3D scanning technology, creating the printable files for existing physical objects, or customized versions of existing objects, is also becoming increasingly easy.

In his latest State of the Union address, President Obama hailed 3D printing technology as “the next revolution in manufacturing.” Perhaps more than most new technologies, however, 3D printing raises intellectual property questions on many levels.  For example, what protection is available for the CAD file itself, and what are the ideal terms under which these design files should be licensed or otherwise made available for use?  In terms of the printed object, how can users of the technology determine whether printing copies of existing objects, or enabling others to do so, violates another’s copyright or other intellectual property rights?  For one thing, copyright protection does not extend to functional elements of three dimensional works.  While the shape of three-dimensional objects may be protected by design patent, or may constitute protectable trade dress, neither design patent protection nor trade dress protection extends to functional elements of a product’s shape or configuration.  However, access to this technology may put intellectual property rights that do cover functional features, e.g. utility patents, at greater risk of infringement by a wider class of potential infringers than previously possible.

Companies that host user-generated 3D printable CAD files online are some of the first to grapple with the application of existing IP laws and policies related to the new technology.  In December, MakerBot decided to remove all designs for firearm components from its Thingiverse website, which is an online marketplace where people can share digital designs for printable 3D objects.  In doing so, MakerBot stated that the site’s focus is on “creative empowerment for products that have a positive impact,” and cited its Terms of Service, under which users agreed not to use Thingiverse to upload content that “contributes to the creation of weapons.” In response, a new start-up called DEFCAD was launched last month by Defense Distributed, a company that plans to develop fully printable guns.  DEFCAD’s stated aim is to be an online repository for the 3D files that established sites have declined to host.

Thingiverse and DEFCAD will be interesting to follow because they appear to have contrasting policies relating to responding to copyright infringement allegations.  Under the Digital Millennium Copyright Act (DMCA), companies hosting user-generated content online can protect themselves from liability for claims of copyright infringement, or contributory copyright infringement, by implementing certain notice and takedown procedures.  Thingiverse instituted a copyright policy designed to comply with the DMCA after receiving its first takedown notice, which related to a CAD file for printing the Penrose Triangle (an optical illusion likely not protected under copyright law).  In contrast, DEFCAD apparently plans to ignore DMCA take-down notices sent on behalf of copyright owners. Indeed, this video seeking funding for the DEFCAD site suggests that the company intends to spark a “revolution” by refusing to acknowledge the rights of intellectual property owners.  Exactly what this revolution entails, however, remains to be seen.  (But it is probably not the revolution the President had in mind!)

We plan to explore these, and other IP topics relating to 3D printing technology, in an upcoming series of blog posts.

Photo © Makerbot Industries, used with permission.

By Morgan Heller II:

Just this past January, the U.S. Patent and Trademark Office (USPTO) and the European Patent Office (EPO) each announced the launch of the Cooperative Patent Classification system (CPC) as the official system for classifying patent documents at both patent offices.  In this post, I provide a bit of an introduction to the CPC and the classification systems it has replaced, at least officially.  In a follow-up post, I will examine the implementation of the CPC with the following question in mind:  how successful will it be?

Background

You may be asking yourself – why do I care about this bit of patent esoterica? – and that would be a good question.  The classifying, i.e., indexing, of patent applications and issued patents according to the technical features of their inventions is an important tool. Patent classification systems help patent examiners, researchers, legal professionals, professional searchers, etc., in finding patent documents that may be relevant to a task at hand, such as examining patent claims for patentability, conducting a freedom-to-operate analysis, or performing an invalidity study.  Most people who deal with patents or patent applications, whether inventors, IP managers, or attorneys thus interact with the classification system, even if not directly aware of it.  Having a little bit of extra knowledge about how patents are classified can help, for example, when engaging a searcher or when talking to your attorney about the propriety of a restriction requirement.

Many patent offices around the world have devised patent classification systems for use in their own offices.  For example, the USPTO developed the U.S. Patent Classification system (USPC), the EPO developed the European Classification system (ECLA), and the Japan Patent Office developed the Japanese File Index system (FI).  In addition, to promote uniform classification of patent documents around the world, the International Patent Classification system (IPC) was developed under the Strasbourg Agreement, a treaty administered by the World Intellectual Property Organization (WIPO).

CPC to Harmonize Patent Classification

Almost two-and-a-half years ago, the USPTO and EPO jointly announced a collaborative project to harmonize patent classification between the two offices, and the recent announcements, mentioned above, of the official launches of the CPC at both offices is a major milestone of that project.  Some of the stated goals of the CPC were to:

• increase search efficiency by eliminating the need to separately search patent documents classified differently under the USPC and the ECLA;

• leverage strengths of both the USPC and the ECLA;

• create a classification system consistent with the IPC, which is used by more than 100 patent offices around the world;

• provide a highly granular classification scheme (the CPC has over 260,000 symbols, while the USPC has around 150,000 and the ECLA has around 140,000) that other patent offices will want to adopt;

• eliminate the need for the EPO to classify U.S. patent documents under the ECLA;  and

• provide a collaborative classification scheme.

As of this past January, the CPC replaces the USPC as the official patent classification system at the USPTO, and at the EPO it replaces the ECLA as the official system.

Challenges of Adoption

The CPC is based heavily on the ECLA, which itself is essentially a more granular version of the IPC (~140,000 symbols for the ECLA versus ~69,000 for the IPC).  Because the CPC is based on the EPO’s own ECLA, it would seem logical that the changeover to the CPC at the EPO should be relatively easy.  However, as I will cover more in the next post, the CPC is different enough from the ECLA that it may take a bit longer for searchers to get used to it than the proponents of the change would hope.

The situation at the USPTO, however, could be much different.  The USPC, which is the oldest patent classification system, is not based on the IPC and is vastly different from all three of the CPC, the ECLA, and the IPC.  Consequently, the changeover at the USPTO may be much more challenging.  Indeed, as I will discuss in the next post, the changeover from the USPC to the CPC by USPTO examining corps appears to be slow.

So just what are the differences and why might they slow down adoption?   For one thing, while the CPC, the ECLA, and the IPC share similar organizational schemes, there are important  distinctions.  An example listed at a CPC website provides some insight.  The example there highlights two primary distinctions among the three schemes.  First is the disparity in granularity between the IPC on one hand and the CPC and the ECLA on the other hand.  In that example, for a single IPC symbol, each of the CPC and the ECLA contain nine “sub-symbols” representing additional levels of granularity.  Increased granularity makes searching via the CPC and the ECLA more efficient than searching via the IPC.

The second primary distinction is the difference in symbologies used by the CPC and the ECLA.  For categories located increasingly down a hierarchical chain, the ECLA uses increasingly longer symbols.  For example, under symbol H01L21/027, some hierarchical-chain sub-symbols are H01L21/027B, H01L21/027B6, H01L21/027B6B, and H01L21/027B6B2, with each additional identifier in the chain of symbols indicating an additional level down the hierarchy.  However, the CPC uses fixed-length symbols throughout multiple hierarchical sub-levels.  For example, the CPC symbols corresponding to the forgoing chain of ECLA symbols are H01L21/02709, H01L21/02727, H01L21/02736, and H01L21/02745, respectively.  Thus, searchers readily familiar with the ECLA and used to being able to visually identify locations within a hierarchy at a glance based on the length of a symbol no longer have that convenience under the CPC.

With that introduction, I’m sure you cannot wait for the next post when I will try to bring it all together for you.

When your trade secrets are stolen, you might sue the ex-employee who stole them, or the competing business that’s now in possession of them, or both.  What’s an appropriate measure of damages when your trade secrets are stolen?  It can be your lost profits caused by the misappropriation, if you can prove them.  Or, it can be your competitor’s unfair gain caused by his/her/its knowledge of your trade secrets, again, if you can prove them.  What if the misappropriation is clear, but you can’t prove that you suffered any lost profits or that there was any specific unfair gain by a competitor?  What if, for whatever reason, you determine that the only appropriate legal target is the disloyal ex-employee, and you cannot prove any specific market harm caused by the misappropriation?  Just because you cannot prove lost profits or any unfair gain by a competitor doesn’t mean you haven’t suffered damage by the misappropriation.  One federal appeals court has determined that the appropriate measure of damages in such a case is a full refund by the ex-employee of her severance pay:  $735,000.

In Hallmark Cards, Inc. v. Murley (2013), Murley was a top marketing executive at Hallmark with knowledge of and access to its confidential business information.  In 2002 her position was eliminated and she was given a severance package including a $735,000 payment.  As part of her severance agreement, Murley agreed not to use, and not to retain, any information or documents of Hallmark, and not to work for a Hallmark competitor for eighteen (18) months.  In 2006, after her non-competition period was over, she began consulting for Recycled Paper Greetings (RPG).  It was later discovered, and Murley admitted, that she disclosed confidential Hallmark information to RPG, but this was unknown to Hallmark at the time.  In 2009, RPG was bought out by American Greetings.  Before American Greetings closed on its purchase of RPG, it invited Hallmark to have a neutral third-party review RPG’s records to ensure that there was no Hallmark confidential information in them.  (The court opinion does not say why American Greetings made this gesture to Hallmark, but it may have been because American Greetings knew that a former top executive at Hallmark (Murley) had worked for RPG, and it didn’t want any trouble from Hallmark after it purchased RPG.)  The third-party reviewer found Hallmark documents in RPG’s records and alerted Hallmark.  Hallmark filed suit against Murley for misappropriation of trade secrets, etc.  In the course of the lawsuit, Hallmark learned that in 2007, while Murley was consulting for RPG, an RPG executive had arranged to have Murley’s hard drive examined, and that, just before that examination took place, Murley had deleted a number of Hallmark files from the drive.

The Trial

At trial, Hallmark asked the jury to award it $735,000, which represented the severance payment it had made to Murley, plus another $125,000, which represented the consulting fee that Murley had gotten from RPG, for a total of $860,000.  The jury did just that.

On appeal, Murley argued that the jury should not have awarded Hallmark the $125,000 that represented her consulting fee from RPG.  The appeals court agreed, saying that this amount did not reflect any harm caused to Hallmark.  Thus, it reduced the jury award by $125,000.

Reimbursement To Hallmark Of Its Severance Payment To Murley

Murley also argued that the jury should not have awarded Hallmark the full return of its $735,000 severance payment to her, because she had complied with some of her obligations in the severance agreement, such as not working for a Hallmark competitor for 18 months.  Here, the appeals court disagreed.  It said that because Murley had flagrantly violated her confidentiality obligations to Hallmark, the jury’s reimbursement to Hallmark of the full $735,000 severance payment was not excessive, and it affirmed this part of the award.

Penalty For Murley’s Destruction Of Evidence

As an aside, it should be noted that Murley also objected on appeal to the trial court’s “adverse inference” jury instruction against her.  That is, the trial court had instructed the jury that it could “infer” that the files that Murley had deleted from her hard drive in 2007 would have been helpful to Hallmark’s legal case against her.  The appeal court ruled that this was a perfectly proper instruction, given her flagrant conduct in deleting those files just before her drive was about to be inspected – even though the deletion occurred before there was any lawsuit pending against her.

Lesson #1

When an ex-employee misappropriates your trade secrets, and you can’t prove financial harm specifically caused by the misappropriation, consider demanding the return of any severance payments made to the ex-employee.

Lesson #2

American Greetings appears to have done the right thing when purchasing RPG:  checked to make sure it wasn’t inadvertently acquiring any confidential data of its competitor (Hallmark).  Businesses could consider taking this strategy to heart.

Walter Judge is a litigation partner at Downs Rachlin Martin PLLC who blogs on intellectual property litigation topics

3/7/2013 Update Below

An important federal appeals court has determined that a Connecticut court has jurisdiction over a Canadian citizen whose only act in Connecticut was accessing information on a computer server located in Connecticut.  In MacDermid, Inc. v. Deiter, 702 F.3d 72 (Dec. 26. 2012), a Connecticut-based company, MacDermid, Inc., sued its former employee, Deiter, a Canadian citizen who worked from Canada, in federal court in Connecticut for misappropriation of MacDermid’s trade secrets.  MacDermid alleged that Deiter sent confidential company information from her company email account to her personal email account.  The lower court dismissed the case, saying that Connecticut courts did not have jurisdiction over Deiter because she never set foot in Connecticut and only used a computer terminal in Canada.  MacDermid appealed.  The U.S. Court of Appeals for the Second Circuit, in New York, reversed, holding that it was proper for a Connecticut court to exercise personal jurisdiction over a Canadian employee of a Connecticut company because, even though she was located in Canada and physically interacted only with a computer in Canada, she “used” a server in Connecticut.

Background

MacDermid is a chemical company located in Connecticut.  Dieter, a resident of Ontario, Canada, worked for MacDermid’s Canadian subsidiary.  The email system for both MacDermid and its Canadian subsidiary is located on a server in Waterbury, Connecticut.  Just before Dieter was about to be fired, she forwarded what MacDermid claims is confidential information from her MacDermid email account to her personal email account.  In doing so, Dieter accessed MacDermid’s email server in Connecticut, even though she did so while located in Canada and physically interacting only with her computer terminal in Canada (albeit a company computer).  MacDermid sued Dieter in Connecticut for trade secrets misappropriation, and Dieter moved to dismiss, arguing that Connecticut courts did not have jurisdiction over her, as she had never left Canada.  The issue was whether the Connecticut “long arm” statute gave Connecticut courts jurisdiction over someone outside of Connecticut, and whether such jurisdiction would be constitutional.  One section of the “long arm” statute gives Connecticut courts jurisdiction over someone who “uses a computer” or “a computer network” located in Connecticut.  Therefore, the issue became whether accessing email via a server located in Connecticut constituted “using” a Connecticut computer or network.

Analysis

The lower court dismissed the case because it found that Dieter had not “used” a Connecticut computer or Connecticut computer network, but had only sent email from one computer in Canada to another computer in Canada.  The Second Circuit court disagreed.  It concluded that “using” a computer or network may involve more than just the act of physically interacting with a computer.  While Dieter had physically interacted only with her terminal in Canada, she had “used” MacDermid’s network in Connecticut by accessing it electronically when she sent an email from her company account to her personal account.  The Second Circuit pointed out that the “long arm” statute does not require that user be located in Connecticut, but only that the computer or network – i.e., the thing that is “used” – be located there.  In other words, the “long arm” statute extends to people who access Connecticut computers or networks remotely.

But, having determined that Connecticut’s “long arm” statute extended to Dieter, the Second Circuit still had to determine whether exercising jurisdiction over Dieter would be  constitutional.  It found that it was.  The court found that Dieter knew that, in using MacDermid’s email system, she was accessing a server in Connecticut.  Even though Dieter would have to travel from Ontario to Connecticut to defend herself in the lawsuit, that would not be an unreasonable burden on her.  Furthermore, according to the court, Connecticut has a significant interest in interpreting its misappropriation laws.  The Second Circuit concluded that it was proper for Dieter to be sued in Connecticut for the wrong she was alleged to have committed.

Implications

While this decision was based on Connecticut law, the Second Circuit federal appeals court covers New York, Connecticut, and Vermont.  Moreover, it is considered an important authority on commercial law.  So its analysis on personal jurisdiction could be persuasive in other courts.

Lesson

The lesson here is that if you think you are safe from suit in a particular state in the U.S. just because you access a computer from the comfort of a faraway state – or even, as in this case, another country – you might be gravely mistaken.

UPDATE

Since the MacDermid case was decided, at least two courts have weighed in on jurisdiction/forum/venue issues in non-competition or trade secrets cases.  In Emerson Electric Co. v. Yeo (Dec. 28, 2012) a federal court in Missouri held that defendant Yeo, an ex-employee of an Emerson subsidiary, could be sued in Missouri for violating his non-compete agreement, even though he lives in the Philippines.  The basis for the court’s finding of jurisdiction was the “forum selection clause” in the stock option agreement that Yeo had signed.  The “forum selection clause” provided that any litigation concerning the agreement would be conducted in Missouri courts.  Yeo argued that it would be unduly burdensome for him to participate in a court case in Missouri.  But the court found that Yeo was an educated person who had agreed to the forum selection clause knowingly and intelligently.  It should be noted that Yeo appealed the jurisdiction issue to the federal Eighth Circuit court of appeals, but that court denied his appeal.  Thus, the lower court’s decision – that Yeo must defend the case in Missouri – stands.

By contrast, in Innovation First International, Inc. v. Zuru, Inc., (Feb. 19, 2013), the federal Fifth Circuit court of appeals affirmed the lower court’s dismissal of a trade secrets misappropriation case brought in Texas by a Texas-based company (Innovation) against a company based in China (Zuru).  Innovation, which had facilities in both Texas and China, alleged that Zuru obtained Innovation’s technology from a former Innovation employee in China.  The dismissal of Innovation’s suit was based on the “forum non conveniens” doctrine.  That doctrine holds that, although the Texas courts may in fact have jurisdiction over the defendant (Zuru), for policy-based reasons Texas is not the most appropriate forum for litigating the case.  Those policy-based reasons centered on the fact that almost all of the relevant witnesses and documents are in China.  In affirming the dismissal, the appeals court agreed with the lower court that it would be far more burdensome for the defendant and all of the witnesses and documents to come to Texas than it would be for Innovation to litigate its misappropriation case in China.

The difference between the Emerson and Innovation cases is that in Emerson, it was suing its own ex-employee, who had agreed in advance, in writing, to submit to the jurisdiction of Missouri courts.  In the Innovation case, by contrast, Innovation was suing a China-based company that it had no prior relationship with.  These cases point out the principle that, wherever possible, businesses should include a “forum selection clause” in their employment agreements with employees.  However, the fact is that you will not always be able to control where you can sue (or be sued).

Walter Judge is a litigation partner at Downs Rachlin Martin PLLC who blogs on intellectual property litigation topics

An important federal appeals court has determined that a Connecticut court has jurisdiction over a Canadian citizen whose only act in Connecticut was accessing information on a computer server located in Connecticut.  In MacDermid, Inc. v. Deiter, 702 F.3d 72 (Dec. 26. 2012), a Connecticut-based company, MacDermid, Inc., sued its former employee, Deiter, a Canadian citizen who worked from Canada, in federal court in Connecticut for misappropriation of MacDermid’s trade secrets.  MacDermid alleged that Deiter sent confidential company information from her company email account to her personal email account.  The lower court dismissed the case, saying that Connecticut courts did not have jurisdiction over Deiter because she never set foot in Connecticut and only used a computer terminal in Canada.  MacDermid appealed.  The U.S. Court of Appeals for the Second Circuit, in New York, reversed, holding that it was proper for a Connecticut court to exercise personal jurisdiction over a Canadian employee of a Connecticut company because, even though she was located in Canada and physically interacted only with a computer in Canada, she “used” a server in Connecticut.

Background

MacDermid is a chemical company located in Connecticut.  Dieter, a resident of Ontario, Canada, worked for MacDermid’s Canadian subsidiary.  The email system for both MacDermid and its Canadian subsidiary is located on a server in Waterbury, Connecticut.  Just before Dieter was about to be fired, she forwarded what MacDermid claims is confidential information from her MacDermid email account to her personal email account.  In doing so, Dieter accessed MacDermid’s email server in Connecticut, even though she did so while located in Canada and physically interacting only with her computer terminal in Canada (albeit a company computer).  MacDermid sued Dieter in Connecticut for trade secrets misappropriation, and Dieter moved to dismiss, arguing that Connecticut courts did not have jurisdiction over her, as she had never left Canada.  The issue was whether the Connecticut “long arm” statute gave Connecticut courts jurisdiction over someone outside of Connecticut, and whether such jurisdiction would be constitutional.  One section of the “long arm” statute gives Connecticut courts jurisdiction over someone who “uses a computer” or “a computer network” located in Connecticut.  Therefore, the issue became whether accessing email via a server located in Connecticut constituted “using” a Connecticut computer or network.

Analysis

The lower court dismissed the case because it found that Dieter had not “used” a Connecticut computer or Connecticut computer network, but had only sent email from one computer in Canada to another computer in Canada.  The Second Circuit court disagreed.  It concluded that “using” a computer or network may involve more than just the act of physically interacting with a computer.  While Dieter had physically interacted only with her terminal in Canada, she had “used” MacDermid’s network in Connecticut by accessing it electronically when she sent an email from her company account to her personal account.  The Second Circuit pointed out that the “long arm” statute does not require that user be located in Connecticut, but only that the computer or network – i.e., the thing that is “used” – be located there.  In other words, the “long arm” statute extends to people who access Connecticut computers or networks remotely.

But, having determined that Connecticut’s “long arm” statute extended to Dieter, the Second Circuit still had to determine whether exercising jurisdiction over Dieter would be  constitutional.  It found that it was.  The court found that Dieter knew that, in using MacDermid’s email system, she was accessing a server in Connecticut.  Even though Dieter would have to travel from Ontario to Connecticut to defend herself in the lawsuit, that would not be an unreasonable burden on her.  Furthermore, according to the court, Connecticut has a significant interest in interpreting its misappropriation laws.  The Second Circuit concluded that it was proper for Dieter to be sued in Connecticut for the wrong she was alleged to have committed.

Implications

While this decision was based on Connecticut law, the Second Circuit federal appeals court covers New York, Connecticut, and Vermont.  Moreover, it is considered an important authority on commercial law.  So its analysis on personal jurisdiction could be persuasive in other courts.

Lesson

The lesson here is that if you think you are safe from suit in a particular state in the U.S. just because you access a computer from the comfort of a faraway state – or even, as in this case, another country – you might be gravely mistaken.

Walter Judge is a litigation partner at Downs Rachlin Martin PLLC who blogs on intellectual property litigation topics