Kirtsaeng v. John Wiley & Sons

By Kristin Bergman.

For the second time in the last decade, the Supreme Court was presented with the challenge of ruling on a question of gray market goods in intellectual property law. The case, Kirtsaeng v. John Wiley & Sons, Inc. (No. 11-697), decided March 19, 2013, highlights the tension between Section 602(a)(1) and Section 109(a) of the Copyright Act.

Under Section 602(a)(1), “Importation into the United States, without the authority of the owner of copyright under this title, of copies . . . of a work that have been acquired outside the United States is an infringement.” However, Section 109(a), known as the first sale doctrine, asserts that the “the owner of a particular copy . . . lawfully made under this title . . . is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy.” In other words, once a copy has been legally sold, the owner can use and sell the copy without seeking the copyright owner’s permission. The issue presented to the Supreme Court, then, was in resolving these two sections, whether a foreign-made product may be resold within the United States, and if so, under what conditions.

Originally from Thailand, Supap Kirtsaeng came to the United States in 1997 to study. Recognizing the different pricing scheme for textbooks, Kirtsaeng had family and friends in Thailand purchase textbooks at a lower price and ship them to him. Kirtsaeng sold these textbooks on commercial websites such as eBay, eventually accumulating a profit of $900,000 dollars.

In 2008, John Wiley & Sons filed a lawsuit against Kirtsaeng for copyright infringement under the Copyright Act Section 602(a)(1) in the United States District Court for the Southern District of New York, as its subsidiary published eight of these textbooks in Asia. In response, Kirtsaeng invoked the first sale doctrine, from Section 109(a), as a defense. Both the District Court and the United States Court of Appeals for the Second Circuit found for John Wiley & Sons, holding that the first sale doctrine does not extend to goods manufactured abroad and imported into the United States. Kirtsaeng was required to pay $75,000 per infringement, for a total of $600,000 in damages. On April 16, 2012, the Supreme Court granted Kirtsaeng’s petition for a writ of certiorari, and the Court heard oral arguments for the case in late October.

The Supreme Court first considered this topic in Costco Wholesale Corporation v. Omega, S.A., 131 S. Ct. 565 (2010), where an equally divided court (due to Justice Kagan’s recusal) affirmed the Ninth Circuit’s holding. The Ninth Circuit interpreted the first sale doctrine to provide no defense to actions brought under Section 602(a) in cases where the copies at issue are legally-made, foreign copies. As Costco v. Omega provides no binding precedential value, the full Supreme Court had the opportunity to revisit this statutory interpretation of the first sale doctrine in Kirtsaeng. The Court was presented with two options for interpreting Section 109(a)’s “lawfully made under this title” with respect to the first sale doctrine. John Wiley & Sons argued for a plain-language interpretation, wherein “this title” refers to title 17 of the United States Code and only products made in the United States would qualify. The other standard, as Kirtsaeng argued, would interpret this phrase to mean “made wherever, in a way that satisfies U.S. copyright standards” such that it would be “lawful under this title” or, in other words, “in accordance with what this title would require if it applied.”

In a 6-3 decision from March 19, 2013, the Supreme Court of the United States adopted Kirtsaeng’s proposed interpretation, reversing the decision of the Court of Appeals and extending the first sale doctrine to copyrighted products manufactured abroad. Writing for the majority, Justice Breyer characterized these interpretations as “geographical” (John Wiley & Sons) and “non-geographical” (Kirstaeng). In examining the statute’s language, Justice Breyer noted the clarity of the statute, as “neither ‘under’ nor any other word in the phrase means ‘where.’” Considering this language and the prior version of the statute, which extended the first sale doctrine to copies “lawfully obtained,” Justice Breyer found no support for a geographically restricted interpretation of the first sale doctrine.

With $2.3 trillion worth of foreign goods imported to the United States in 2011, the majority opinion takes a rather pragmatic or “common sense” approach, heavily emphasizing the “parade of horribles” discussion that dominated oral argument. Justice Breyer recognized that if the Supreme Court were to adopt John Wiley’s geographic interpretation, there would be significant ramifications beyond the textbook market, reaching used car sales, libraries, museums, and more. As so many products made abroad contain copyrighted elements, to forbid importation and resale unless the copyright owner gave his permission would be absurd. Justice Breyer noted that these practical problems “are too serious, too extensive, and too likely to come about for us to dismiss them as insignificant—particularly in light of the ever¬growing importance of foreign trade to America.” With a concern about selective enforcement to avoid these problems, the Court projected a legislative intent, writing, “We also doubt that Congress would have intended to create the practical copyright-related harms with which a geographical interpretation would threaten ordinary scholarly, artistic, commercial, and consumer activities.” Therefore, the Court held that the first sale doctrine applies without reference to geography, such that once a good is sold lawfully, it may be resold in the United States without the copyright holder’s permission.

Justice Ginsburg wrote the opinion for the dissent, joined by Justices Kennedy and Scalia. Justice Ginsburg wrote that the majority overstated the “parade of horribles” and overlooked the problem of market exploitation. In addition, the dissent argued that the majority opinion represents a “bold departure from Congress’s design.”
The full opinion for Kirtsaeng v. John Wiley & Sons, Inc. is available here.

Apple v. Samsung, Damages Update

By Jason C. Williams

On Friday March 1, 2013 Judge Lucy Koh handed down her decision regarding various motions that were filed on behalf of Apple Inc. (“Apple”) and Samsung Electronics Co. (“Samsung”) over the past few months post-trial. Specifically, Apple requested additur, supplemental damages, and prejudgment interest, while Samsung moved for a new trial on damages or remittitur. Judge Koh held that the “Court has identified an impermissible legal theory on which the jury based its award, and cannot reasonably calculate the amount of excess while effectuating the intent of the jury.” The total amount stricken from the jury’s award was $450,514,650 –pending a new trial on damages. The jury awards stands for the remaining 14 products for a total of $598,908,892 in favor of Apple.

I. Additur

Post-trial, Apple requested the Court to increase its damages award for five products because the jury gave an award less than what was calculated by Samsung’s damages expert. However, the Court pointed out that “Apple provide[d] no authority for the argument that the Court should not consider the jury’s specific findings.” Moreover, the Court stated that by doing so would be to violate the longstanding rule that the Seventh Amendment prohibits a judicial increase in a damages award made by a jury. See Dimick v. Scheidt, 293 U.S. 474, 486-87 (1935). Although Apple contends that this rule does not apply in this current case because there is no dispute about the proper amount of damages, the Court quickly and swiftly disagreed. In fact, the Court points out that “[t]he amount of damages is heavily disputed here, as evidenced by extensive testimony provided by both parties concerning the proper amount of compensation.” Additionally, the jury was not bound by either side’s damages testimony and therefore free to evaluate the testimony of both sides’ experts in arriving at its award. The Court denied Apple’s motion for an increase in the jury’s damages.

II. Supplemental Damages

Subsequent to the additur, Apple requested supplemental damages for the sales not considered by the jury. The Court agreed that supplemental damages were in order because both parties do not dispute “there are sales for which the jury did not make an award, because they occurred after the trial had concluded.” The Court pointed to Section 284, which requires that the Court award compensation for every infringing sale.

The Court went on to layout the three (3) primary issues it must address in resolving Apple’s request for supplemental damages: (1) the date from which the award should begin; (2) whether the law permits supplemental damages for post-verdict sales where an award of infringer’s profits is made pursuant to 35 U.S.C. §289 and (3) the proper method for calculating post-verdict damages in a case where the jury made no determination as to royalty rate.

While weighing all the evidence at its disposal the Court decided that the date from which the supplemental damages should begin is August 25, 2012, the day after the verdict. In reaching this decision the Court stated that “nothing precluded Apple from arguing that the jury should consider sales from June 30 through August 24, or from presenting evidence on how to estimate such sales. [The evidence presented to the jury ran only through June 30, 2012.]” With respect to whether the law permits supplemental damages for post-verdict sales where an award of infringer’s profits is made pursuant to 35 U.S.C. §289 –the Court seems to indicate that the law does permit such activity. Furthermore, the Court decided that both parties can present evidence of the actual number of sales for the purposes of calculating a royalty. However, “courts have found it appropriate to delay orders for the submission of such evidence and hearings thereon pending the resolution of appeals, to ‘avoid potentially unnecessary expenditures of time and money in preparing such account.’”(internal citations omitted). As a result, the Court delayed the consideration of evidence of actual post verdict sales until after the completion of the appeals of the case.

III. Prejudgment Interest

The Court was then faced with the decision of whether Apple was permitted prejudgment interest in light of “several of the products for which the jury made a damages award involved not just patent infringement, but also Lanham Act claims and thus resulted in damages awards that…compensate Apple for both trade dress dilution and patent infringement.” The Court saw no reason to resolve the apparent conflict, instead deciding that “[b]ecause prejudgment interest is clearly appropriate for this award based on patent infringement, the Court finds that there would be no reason to forbid prejudgment interest simply because the award also compensates for a Lanham Act violation, even if the Lanham Act did not separately authorize prejudgment interest.”

Both parties proposed a different rate for calculating interest. Apple wanted the prime rate, while Samsung pushed for the 52-week Treasury bill rate. While trying to determine the appropriate rate the court looked toward precedent that determined if the plaintiff “borrowed money at a higher rate, what that rate was, or that there was a causal connection between any borrowing and the loss of the use of the money awarded as a result of [the defendants] infringement.” Laitram Corp. v. NEC Corp., 115 F.3d 947, 955 (Fed. Cir. 1997). The Court sided with Samsung in using the 52-week Treasury Bill rate, in part because Apple maintained substantial cash reserve and it does not appear that Apple borrowed any money due to deprivation of a damages award.

IV. Jury’s Damages Award

The heart the Court’s opinion dealt primarily with the jury damages award –specifically how the award was calculated and what information was used to calculate the award. Typically, if a Court finds an error in the jury’s damages verdict, the court basically has two options: to order a new trial on damages, or reduce the award to a supportable amount. The Court generally cannot award an amount less than maximum amount that is supportable by evidence presented. See D & S Redi-Mix v. Sierra Redi-Mix & Contracting Co., 692 F.2d 1245, 1249 (9th Cir. 1982).

In determining whether the jury damages award was acceptable, the Court examined the notice date –as this was of great debate in both motions. Apple contented that the date of notice of possible patent infringement was August 4, 2010 in a meeting between both parties, while Samsung argued the date was April 15, 2011, which was the date the complaint was filed. The point of contention was whether Samsung was put on notice of all possibly infringing patents or just specific patents mentioned during the meeting. The Court found that “Apple cite[d] no evidence whatsoever that any patent-in-suit other than the ‘381 Patent was specifically identified during the meeting. Instead Apple points to general comparisons drawn at the meeting between the industrial design and user interface of the iPhone 3GS and the Galaxy S.” While one perhaps can imply that the Galaxy S infringes the iPhone 3GS patent, this does not provide notice of the specific patents alleged to be infringed. “This kind of non-specific notice is insufficient because a patent may have a broad or narrow scope, and a product may be covered by a multitude of patents, and also include many unpatented features.” Therefore, the Court found that the August 4, 2010 date is not supported by the evidence in the record for any patent other than the ‘381 patent. “Thus, the jury’s awards for patent infringement, which are based on …the early notice date [August 4, 2010], may have contained some amount of excess compensation covering the period before Samsung had notice of the relevant IP.”

Apple’s damages expert, Mr. Musika went through an elaborate process for calculating Apple’s damages for the period for which they were asking for. However, Mr. Musika did not testify “as to how the jury (or the Court) could calculate Apple’s lost profits for a shorter period of time.” This left the Court with little option to calculate Apple’s lost profits or a reasonable royalty for the relevant time period before notice of the other patents.

“As the Court can neither calculate an appropriate remittitur nor leave the award intact, the only remaining possibility is to conduct a new trial on damages…[f]urthermore, it was Apple’s strategic decision to submit an expert report using an aggressive notice date for all of the patents. The need for a new trial could have been avoided had Apple chosen a more circumspect strategy or provided more evidence to allow the jury or the Court to determine the appropriate award for a shorter notice period. Accordingly, the Court…strikes $383,467,143 from the jury’s award [pending a new trial on damages.]”

Similar exercises were conducted by the Court on the remaining patents to amount to a grand total of $450,514,650 being stricken from the jury’s award. The parties are encouraged to seek appellate review of this Order before any new trial. The jury award ($598,908,892) stands for the remaining 14 Apple products. So while Samsung currently received what some may consider a break, its liability is likely to increase after the new trial on damages in complete. Ultimately, however, the CAFC will decide the fate of both companies as it relates to infringement and damages should both parties decide not to settle.

Gunn et al. v. Minton

By Jason C. Williams.

On February 20, 2013, the Supreme Court of the United States ruled on the question of whether a state law claim alleging legal malpractice in the handling of a patent case must be brought in federal court.

The respondent Vernon Minton (“Minton”) developed a computer program and subsequent telecommunications network aimed towards facilitating securities trading. A few years later in 1995, Minton leased the very same technology to R. M. Stark & Co. (“Stark”). In January of 2000, the U.S. Patent and Trademark Office granted Minton a patent on his securities trading technology.

Mr. Minton proceeded to file a lawsuit against the National Association of Securities Dealers, Inc. (NASD) and the NASDAQ Stock Market alleging patent infringement. Mr. Minton was represented by Jerry Gunn (“Gunn”). Almost immediately after the lawsuit was filed, NASD and NASDAQ filed a motion for summary judgment on the basis that the Minton patent was invalid pursuant to the “on sale” bar -35 U.S.C. §102(b). NASD and NASDAQ alleged that since Minton leased the product to Stark at least a year prior to the patent being issued, that Minton therefore should be barred from being issued a patent, as a matter of law. The District Court did not find Minton’s argument persuasive and granted the motion for summary judgment in favor of NASD and NASDAQ.

Minton proceeded to file a motion for reconsideration raising for the first time the argument that the lease agreement he had in place with Stark was for ongoing testing of the securities product, and as a result should fall within the “experimental use” exception. The District Court denied the motion and the case was then appealed to the U.S. Court of Appeals for the Federal Circuit (CAFC), who affirmed the decision of the lower court in finding that Minton had waived the experimental-use argument.

While the merits of the patent infringement case are settled, Minton was convinced that but for his lawyers bringing the experimental use defense later in the appeals process, his patent infringement suit would have turned out differently. Therefore, Minton brought a lawsuit for malpractice action in Texas state court against his former legal representation. The former lawyer contended that the lease Minton made to Stark was not for experimental use, and thus the patent claims had a very good chance of being invalidated. “Ultimately the trial court agreed stating that Minton had put forth ‘less than a scintilla of proof’ that the lease had been for an experimental purpose.”

However, on appeal, Minton raised yet again a new legal argument. That is, because Minton’s malpractice claims arose out of a patent case that it “aris[es] under” federal patent law for the purposes of 28 U.S.C. §1338(a). Therefore Minton argued that even though he brought the malpractice suit in state court, the Texas state court lacked subject matter jurisdiction to adjudicate his case. Minton was looking for the state decision to be vacated and that he be allowed to start over in Federal Court.

While the Court of Appeals for Texas was divided, it ultimately rejected Minton’s claims. “Applying the test [they] articulated in Grable & Sons Metal Products v. Darue Engineering & Mfg, it held that the federal interests implicated by Minton’s state law claim were not sufficiently substantial to trigger 1338 ‘arising under’ jurisdiction. [The Court of Appeals for Texas] also held that finding exclusive federal jurisdiction over state legal malpractice actions would, contrary to Grable’s commands, disturb the balance of federal and state judicial responsibilities.” The Supreme Court of Texas reversed the Court of Appeals decision in part because they found that Minton’s claims had a “substantial federal issue” specifically “within the meaning of Grable ‘because the success of Minton’s malpractice claim is reliant upon the viability of the experimental use exception as a defense to the on-sale bar.”

The Supreme Court of the United States granted the Supreme Court of Texas Certiorari. The Supreme Court tried to simplify the issue by concentrating on whether the state-law claim raised a substantial and disputed federal issue, which a federal forum would be able to entertain without disturbing the approved balance between federal and state jurisdictional responsibilities. The Supreme Court went on to note that “federal jurisdiction over a state law claim will lie if a federal issue is: (1) necessarily raised, (2) actually disputed, (3) substantial and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress. Where all four of these requirement are met, we held, jurisdiction is proper because there is a ‘serious federal interest in claiming the advantages thought to be inherent in a federal forum.”

The Supreme Court unequivocally found that Minton’s legal malpractice claim does not arise under federal patent law. In fact, the Court goes as far as saying that state malpractice claims will rarely, if ever, arise under federal patent law for the purpose of §1338(a). The Court found that the merits of Minton’s case foundered on the Grable substantiality requirement. This requirement examines the importance of the issue to the federal system as a whole. “[As applied], the federal issue does not carry the necessary significance. No matter how the state courts resolve the hypothetical ‘case within a case,’ the real-world result of the prior federal patent litigation will not change. Nor will allowing state courts to resolve these cases undermine “the development of a uniform body of [patent] law.” Lastly, although Minton suggested that the state court answers to hypothetical patent questions could have an impact on future patents via issue preclusion, the Supreme Court refuted this notion stating: “but even assuming that [this] is true, such ‘face-bound and situation specific’ effects are not sufficient to establish arising under jurisdiction.”

The case was reversed and remanded. Chief Justice Roberts delivered the opinion for a unanimous Court.

More IP-related Stories

  • Gunn v. Minton came down last week, holding that the issue of patent law involved in the malpractice claim of that case did not constitute a federal question and thus did not strip the state of jurisdiction.There’s a fair bit of analysis already.
  • Dan Burk has an article up on Stanford Law Review Online exploring patentable subject matter. The discussion is focused around the Myriad Genetics case, which astute readers will recall was previously discussed here. On a related note, Jeffrey Leftsin discusses Myriad’s “pre-history” in a guest post at Patently-O. H/T Concurring Opinions.
  • We previously reported that oral arguments in Bowman v. Monsanto were available. There’s some commentary now at Patently-O and Groklaw. The consensus seems to be that the Court will side with Monsanto – bearing in mind it is hard to predict anything from oral arguments. That said, the questions are interesting and dive into the heart of the case. Good reading for anyone interested.
  • Julie Hopkins writes at IPWatchDog about emerging patent law policy issues for 2013. This would be a good place to look for SIPS members interested in patent law topics. She discusses the patentability of a human gene (see the Myriad discussions referenced above), potential new legislation regarding NPEs and patent pools, the implementation of the AIA first-to-file system, and implementation of the Patent Law Treaties Implementation Act of 2012.
  • In trademark news, Ilya Somin over at the Volokh Conspiracy is amused that the Yankees claim ownership of the phrase Baseballs Evil Empire. “In short, the record shows that there is only one Evil Empire in baseball and it is the New York Yankees. Accordingly, we find that [the Yankees] have a protectable trademark right in the term . . . as used in connection with baseball.”

More IP-related Stories

  • An interesting discussion of jurisdictional issues with respect to assignor estoppel by Jason Williams – a 3L at W&M and Events Chair for SIPS. I’ll let the article speak for itself, but briefly it concerns whether a patentee can assert a claim of assignor estoppel in an independent action against a party who was not himself a party to previous litigation. The conclusion is that it is only an affirmative defense.
  • Pro-piracy (anti-copyright) group The Pirate Bay is suing an anti-piracy (pro-copyright) group for copyright violations. The alleged copyright violations refer to a parody website; no word on whether the lawsuit is itself parody.
  • Oral arguments in Bowman v. Monsanto are now available. H/T Josh Blackman, who notes a reference to Buck v. Bell.
  • Another (much narrower) constitutional objection to the AIA, courtesy the Federalist Society’s IP Working Group. The essay discusses the bar against patenting after secret commercial use – which may not apply after changes to section 102 made by the AIA.
  • A President’s Day reminder about how Presidents have supported IP law. (Notably absent is any discussion of Thomas Jefferson, although his birthday isn’t for another month.)
  • For those wanting a global perspective about the law – and having worked in-house last summer for a large corporation, I can tell you that global IP issues are very much relevant to practice – here’s a look at the global spread of IP law, noting that with only very few exceptions every country recognizes some sort of intellectual property regime. H/T The Legal Theory Blog.

More IP-related Stories

  • Chubby Checker (real name Ernest Evans), a musician, is bringing a half-billion dollar suit against HP, alleging among other charges trademark infringement and dilution. The reason? A $0.99 novelty app by the same name used to estimate penis size. Discovery will be interesting.
  • In other trademark infringement news, Tiffany sues Costco over alleged counterfeit diamond rings.
  • Patently-O reports on a constitutional challenge to the AIA, based on the switch to a first-to-file system. The complaint argues a “second inventor” is an oxymoron.

More IP-related Stories

  • A judge rules that because a Batmobile is itself a fictional character, selling custom Batmobiles can violate copyright protections. H/T Prof. Heymann, who adds that this would make a good case to blog about in depth for anyone interested in a topic.
  • James Alexander has posted at SSRN a new look at the Statute of Anne, in the context of a particular novel, examining how early copyright doctrine evolved in mid-18th century England. H/T The Legal History Blog.
  • Oracle has filed its appeal in Oracle v. Google. Longtime readers will recall that case was previously discussed here. Oracle lost rather spectacularly, and in its desperation has produced a spectacularly amusing brief. Amusing in that it is an example of how to mislead and obfuscate. (Full disclosure: I had no involvement in the case, but was at Google last summer and participated heartily in the celebration after the case was decided.)
  • IPWatchDog has a discussion about Bowman v. Monsanto, the case pending before the Supreme Court about patent exhaustion and genetically modified seeds.

Upcoming Oral Argument in Myriad

  • Oral arguments have been set in Myriad for April 15, 2013. You may recall from an earlier post here that the Supreme Court recently remanded Myriad back to the Federal Circuit to reconsider in light of its holding in Prometheus. The Federal Circuit issued basically the same opinion, with little weight given to Prometheus (as the dissent noted in rather critical terms). Should be interesting to see what the Court does with it. Make sure to keep an eye on the SCOTUSBlog page.
  • In other oral argument news, the Federal Circuit recently heard CLS Bank v. Alice sitting en banc. This is another big Section 101 case to pay attention to, here relating to software patents. Rumors are that the Federal Circuit will split – with Senior Judge Richard Linn making for 10 sitting judges on the panel. See also Patently-O’s coverage.

More IP-related stories

  • Shining some sunlight on patent trolls: Company claims patent on podcasting, “[a]pparatus for disseminating a series of episodes represented by media files via the Internet as said episodes become available.” TechDirt has more.
  • David Post explores copyright nonsense that made its way into a 9th Circuit case.
  • In other news, Justice Scalia doesn’t much care for the Federal Circuit’s specialized patent docket. H/T Josh Blackman.

    What cases should the Court hear more of? “Easy cases,” said Justice Scalia, half-joking. “I am not one for prowling around for cases I want to take.” His current colleagues don’t seem to do that either, he says. They take them as they come. If there is no circuit conflict, the court almost certainly will not take the case. That is why he thinks the Federal Circuit is a problem. Justice Scalia does not like specialized courts. In every other jurisdiction, he sees the significant issues that need attention; good judges disagree. But the Federal Circuit has exclusive jurisdiction over patents, “and I don’t know squat about patents.” How is he to know which patent cases to take? “Lawyers always say ‘this is a significant departure.’ You can’t believe the lawyers.”

Interesting IP-related Links

We’re instituting a new policy at the SIPS blog, designed to highlight interesting IP-related news or other material that may be of interest to members, and to keep the blog contents from getting too stale. Members are encouraged to either submit their own posts, or to e-mail the blog editors links that may be of general interest. Here’s a quick round-up of goings-on around the web:

  • Over at Prawfs Blawg, there is a “book club” discussion going on about Robert P. Merges new book, Justifying Intellectual Property.
  • Patently-O links to a Georgia State University College of Law IP writing competition – prizes of $3,000, $2,000, and $1,000 available.
  • Patently-O also has a post about an intersting slide-to-unlock patent – interesting, at least, in that it has priority over Apple’s slide-to-unlock patent, which readers may recall was asserted against Samsung recently.
  • The USPTO is requesting comments on how to improve software patent quality, with particular reference to functional language. Groklaw has posted a response.
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