Colorado Bar Association

INTELLECTUAL PROPERTY SECTION NEWSLETTER

April 2011

UPCOMING IP SECTION EVENTS May IP Section Event IP Protection in China May 24, 2011, 11:45 a.m. to 1:15 p.m. Location: Denver ChopHouse In conjunction with the International Section of the Colorado Bar, the IP Section will welcome lawyers from JZJ International, which acts as Molson Coors’ counsel in China, to speak about IP protection issues in China. Cost: $35 for IP Section Members, $45 for the general public, and CU/DU Law students are free. Includes a catered lunch. RSVP by calling (303) 860-1115 ext. 727 or by emailing lunches@cobar.org<mailto:lunches@cobar.org> before Noon on Thursday, May 19, 2011. Cancellations after Thursday, May 19, 2011 and no-shows will be billed for the cost of the program. Checks can be sent to the Colorado Bar Association, 1900 Grant St., Suite 900, Denver, CO 80203. Also, please call or e-mail your RSVP when sending a check. Checks should be made payable to the CBA. If leaving a message, please spell your name, specify that you are attending the Intellectual Property Section April Luncheon, leave your phone number, and specify if you would prefer a vegetarian lunch.

Ninth Annual Rocky Mountain IP Institute in Denver June 1-2, 2011 Location: Renaissance Denver Hotel In 2011, the theme is best practices— best practices for patent prosecutors and litigators, trademark and copyright practitioners, and licensing and deal attorneys. Going beyond black letter legal developments, we’ll discuss translating case law and new rules into actionable steps in your practice to create client value. In one place on two days in Denver, join your colleagues from the western United States to learn, renew acquaintances, network and grow your practice in 2011 and beyond.

Some of the other highlights include presentations on:

• Opening statements & closing arguments – what matters, what works with Morgan Chu

• Advanced licensing issues and problems with Jeff Dodd & Ray Nimmer • Attorney ethics in a digital age with Mike Lackey • Joint ventures in China with Nelson Dong • Patent prosecution and accusations of inequitable conduct with Tom Franklin,

Gene Bernard, and Kristopher Reed • The evolving law of damages with Bill Coats • Joint and divided infringement with Scott Alter • Best practices in patent application strategies in light of recent developments with

Tom Wood And much more! Find out more at: http://ip.annualcle.com/

Follow the IP Institute online: Get IP Institute updates:

Connect on Facebook

Connect on Linkedin

Connect on Twitter

Subscribe via RSS

Subscribe via Email

REPORT ON PRIOR IP SECTION EVENTS Presentation by Judge Paul R. Michel, former Chief Judge of the Federal Circuit Court of Appeals: What Patent Reform Legislation Will Mean For Clients and How You Can Protect Them For our April 14th, over 140 IP Section members attended a presentation by the Honorable Judge Paul Michel, former Chief Judge of the Federal Circuit Court of Appeals at lunch at the Ritz Carlton. Since retiring from the Bench on May 31, 2010, Judge Michel has been a leading advocate for reforming the US Patent laws. Judge Michel has closely followed the developments in patent law reform on Capitol Hill, including testifying before the House Subcommittee on Intellectual Property in February 2011. Judge Michel candidly discussed these recent developments from his uniquely qualified perspective. Judge Michel expressed the importance of providing the USPTO with the resources it needs, while not unduly burdening it. For instance, it is very important that the patent reform bill, entitled the America Invents Act, prevent the diversion of USPTO fees. It is critical that the USPTO maintain the financial resources to accomplish its objectives.

Judge Michel also commented on other aspects of the bill, including the first to file system, post-grant review procedures, and the USPTO’s ability to prioritize patents. Judge Michel expressed his concern that Congress was only listening to a few powerful corporate advocates of the bill. The day that Judge Michel spoke, the bill passed the House Judiciary Committee by a 32-3 vote. Judge Paul Michel was appointed as a Circuit Judge to the United States Court of Appeals for the Federal Circuit by President Ronald Reagan in 1988. On December 25, 2004, after 16 years on the court, he assumed the duties of Chief Judge. Chief Judge Michel has written over 300 opinions in patent, trademark, takings, contract, tax, veterans' rights, international trade and government personnel cases. He is the recipient of the Eli Whitney Prize, the Katz-Kiley Prize, and the Jefferson Medal for "outstanding contribution ... to the progress of science and useful arts." In 2003, he was named by Managing Intellectual Property magazine as one of the 50 most influential people in the world in intellectual property. Prior to his appointment to the court, Chief Judge Michel served in the executive and legislative branches of government for 22 years. Following graduation from Williams College in 1963 and the University of Virginia Law School in 1966, he served as Assistant District Attorney and Deputy District Attorney for Investigations in Philadelphia under Arlen Specter; as Assistant Special Watergate Prosecutor under Leon Jaworski responsible for the Howard Hughes-Bebe Rebozo investigation; and under Dick Thornburgh as Deputy Chief of the Justice Department's Public Integrity Section directing the "Koreagate" investigation. In 1978, Judge Michel was appointed by Benjamin Civiletti as Associate Deputy Attorney General, helping to supervise United States Attorneys, the FBI, and the Marshals Service. From April 1981 until his appointment to the court in March of 1988, he served on Senator Arlen Specter's staff, including as Chief of Staff. Since October 2005, he has been a member of the Executive Committee of the Judicial Conference of the United States, the governing body of the Judicial Branch. He has taught at George Washington and other law schools, made many presentations to various city, state, national and international bar associations and participated in the training of judges of other nations. With two co-authors, he helped produce a casebook for law students, entitled, Modern Patent Litigation and Strategy. He has published many articles on appellate advocacy. IP SECTION ’11-’12 OFFICER NOMINATIONS It's time to begin the process of choosing a new officer for the IP Section leadership for the '11 - '12 term. To ensure stability and forward momentum, the IP Section Officers serve three year rotating terms, with each officer beginning his or her term as Secretary/Treasurer, before becoming Vice Chair and then Chair. If you or someone you know would be interested in serving, please send a resume and a statement of interest to the IP Section Vice Chair Nina Wang at nwang@faegre.com. Please make submissions before May 13, 2011. Interviews with the current slate of Officers will be conducted during the second two weeks of May. Please contact any of the Officers if you have any questions or comments (Chair: John Posthumus at

jposthumus@sheridanross.com; Vice Chair: Nina Wang; and Secretary/Treasurer: Michael Dulin at mdulin@hkh-law.com). USPTO TRADEMARK QUALITY ASSURANCE MEASURE The Trademark Office is piloting a new comprehensive excellence measure. As part of this program, the Trademark Office has asked the IP Section for volunteers to review trademark files and provide input on quality control issues. If you would be interested in participating in this program, please contact Michael Dulin at mdulin@hkh-law.com. IP SECTION BLOG The IP Section blog is at http://www.ipsectioncolorado.org/. You can find news from and links to other Colorado and national IP resources, connect with other IP Section members, provide input to Section Officers, and get up-to-date information about IP Section activities. Be sure to register to get the full benefit of the blog.

TAPED IP SECTION LUNCHEON MEETINGS CBA/CLE tapes the IP Section Luncheons for later access and CLE credit. The following IP Section meetings are now available online: Global IP Strategy: Using Data to Secure A First Win Emerging Trends and Strategies in Reexamination IP Due Diligence They can be found at: http://www.cobar.org/cle/onlineprograms.cfm?majorcat=Intellectual%20Prop%2E&id=20023 CALL FOR SUGGESTIONS OR IDEAS The IP Section Officers are also soliciting your suggestions and ideas for topics and speakers for our Luncheon programs for 2011. Please forward any comments you may have to Michael Dulin at mdulin@hkh-law.com. ARTICLES FOR THE COLORADO LAWYER The IP Section is in the process of compiling and evaluating articles to publish in the Colorado Lawyer this coming year. If you have an interest in submitting an IP-related article for the Colorado Lawyer, please contact Michael Dulin at mdulin@hkh-law.com. We encourage individuals who may be on their own but nonetheless would like to team up with a senior or junior practitioner to contact us so we can help facilitate that relationship.

IP SECTION NEWSLETTER Subject to editorial discretion and review, the IP Section Newsletter is open to the submission of short articles and columns on IP topics of interest. If you are interested in contributing, please contact Michael Dulin at mdulin@hkh-law.com. IP SECTION WEBSITE Don’t forget to check out the Colorado Bar Association website. Please refer to it often for updates on news and events. http://www.cobar.org/group/index.cfm?EntityID=PATENT

The Colorado Bar Association has posted member directories for each practice section on-line. See ours at: http://www.cobar.org/directory/sections.cfm?section=PATENT

Our contact at the Colorado Bar is Melissa Nicoletti, the Director of Sections and Committees. She can be reached at (303) 824-5321, or melissan@cobar.org.

RECENTLY FILED U.S.D.C. COLORADO CASES Filed 3/15/10 – 4/13/11

CAPTION TYPE CASE NO. JUDGE FILING ATTORNEY(S) Unique Product Solutions, Limited v. Rainbow Plastic Products, RLLLP

Patent 11cv00617 Marcia S. Krieger David J. Hrina Mark J. Skakun Todd Frank Bovo

SelfLink, LLC v. Textron Systems Corporation, et al.

Patent 11cv00618 Philip A. Brimmer Decker Ardean Cammack Edward E. Casto, Jr. Ronnie Fischer

Righthaven LLC v. Trinity Visions Media, LLC, et al.

Copyright 11cv00670 John L. Kane Steven George Ganim

Hildebrand v. All Tire Supply Company, et al.

Patent 11cv00673 Robert E. Blackburn David Hildebrand

Righthaven LLC v. Breig Copyright 11cv00704 John L. Kane Steven George Ganim Investment Management Consultants Association, Inc. v. The Chartered Institute of Management Accountants

Trademark 11cv00727 Robert E. Blackburn Benjamin Baughman Lieb

Righthaven LLC v. Dogster, Inc., et al.

Copyright 11cv00732 John L. Kane Steven George Ganim

Center Partners, Inc. v. Rustici Inc., et al.

Trademark 11cv00736 William J. Martinez Kimberly A. Bruetsch

Righthaven LLC v. Ran Decisions, Inc., et al.

Copyright 11cv00744 John L. Kane Steven George Ganim

CAPTION TYPE CASE NO. JUDGE FILING ATTORNEY(S) Righthaven LLC v. Mahon, et al.

Copyright 11cv00750 John L. Kane Steven George Ganim

Baskin-Robbins Franchising LLC, et al. v. D&G Enterprises, LLC, et al.

Trademark 11cv00757 Marcis S. Krieger Neal Keith Dunning

Righthaven LLC v. Shining Sea Communications, Inc., et al.

Copyright 11cv00774 John L. Kane Steven George Ganim

Righthaven LLC v. Bjorklund, et al.

Copyright 11cv00775 John L. Kane Steven George Ganim

Righthaven LLC v. Luke Copyright 11cv00776 John L. Kane Steven George Ganim Righthaven LLC v. Gardner Copyright 11cv00777 John L. Kane Steven George Ganim Righthaven LLC v. Rosekrans Copyright 11cv00793 John L. Kane Steven George Ganim Righthaven LLC v. A Small Corner of Sanity, et al.

Copyright 11cv00794 John L. Kane Steven George Ganim

Righthaven LLC v. Uberpix.net, et al.

Copyright 11cv00795 John L. Kane Steven George Ganim

Righthaven LLC v. BuzzFeed, Inc., et al.

Copyright 11cv00811 John L. Kane Steven George Ganim

Righthaven LLC v. Iconix Brand Group, Inc., et al.

Copyright 11cv00820 John L. Kane Steven George Ganim

Righthaven LLC v. Wolf, et al. Copyright 11cv00830 John L. Kane Steven George Ganim Unilever Supply Chain, Inc. v. Dazys LLC, et al.

Trademark 11cv00833 Marcia S. Krieger Michael G. Martin

Alpine Banks of Colorado v. Alpine Dank LLC, et al.

Trademark 11cv00843 Wiley Y. Daniel Todd Blakely

Thule Organization Solutions, Inc. v. Kensington Computer Product Group

Patent 11cv00845 Robert E. Blackburn Ian Richard Walsworth

BluMedia Inc. v. Sordid Ones BV

Trademark 11cv00856 Richard P. Matsch Chad Lorin Belville

Apogee Scientific, Inc. v. Tekran Instruments Corporation, et al.

Patent 11cv00873 William J. Martinez Neal S. Cohen

Worth v. Coors Brewery, et al. Patent 11cv00917 Boyd N. Boland Clay Owen Worth, III World Wide Premium Packers, Inc. v. All American Meats, Inc.

Trademark 11cv00940 Christine M. Arguello Daniel Sean Velarde

Faconnable USA Corporation v. John Does 1-10

Trademark 11cv00941 Christine M. Arguello Peter John Korneffel, Jr.

Please email Michael Dulin at mdulin@hkh-law.com with any interesting Colorado District Court IP decisions or IP news involving Colorado Companies.

IP LAW DEVELOPMENTS FROM BNA Patents/Infringement En Banc Court Overturns Contempt Standard; Gives Dish Network Partial Win Against TiVo • Case Summary: Dish Network and its DVR technology partner, EchoStar, will have another chance to show their redesigned DVRs do not infringe TiVo's patents, but a $90 million sanctions award is upheld, and infringing DVRs already in customers' households cannot simply be upgraded with downloaded, noninfringing software. • Key Takeaway: An accused infringer found liable in court and subject to an injunction order can get a new trial for infringement by a redesigned product by showing “colorable differences”in the redesigned features compared to specific limitations of the patent. The en banc U.S. Court of Appeals for the Federal Circuit rejected as unworkable April 20 its two-step KSM test to determine, in a contempt hearing, whether a redesigned product continues to infringe a patent (TiVo Inc. v. EchoStar Corp., Fed. Cir., No. 2009-1374, 4/20/11). The court vacated a $110 million damages award for continuing infringement against Dish Network Corp. and EchoStar Corp., who now will have another opportunity to convince the lower court that EchoStar's redesigned digital video recorders do not infringe the patent of pioneer DVR maker TiVo Inc. The court was unanimous in describing the contours of the single-step “more than colorable differences” standard going forward. However, the court was split 7-5 on whether remand on infringement was necessary in the instant case, and on an issue related to ambiguity in the original contempt order. The majority upheld sanctions of $90 million against EchoStar for violating the order by not removing infringing DVRs from households, and perhaps more importantly, affirmed contempt of the provision in the order requiring that the company disable all DVR functionality on those devices. Infringement Analysis in Contempt Hearing The issue in the case involves enforcement of a judgment of patent infringement. After an accused infringer is found liable, the infringer may choose to redesign the product to be noninfringing. If it does so, the question remains whether the redesigned product does or does not infringe the patent, and how that decision is to be adjudicated. TiVo owns a patent (6,233,389) that allows television users to “time-shift”television signals—record a television program in digital format and enable the user to replay, pause, fast forward, or reverse while the program is playing on the television set. In

2004, TiVo sued DVR maker and Dish Network technology partner EchoStar, among others, for patent infringement. The U.S. District Court for the Eastern District of Texas entered judgment on the a jury verdict in favor of TiVo and issued a permanent injunction. In January 2008, the Federal Circuit affirmed the lower court's rulings as to two software-related claims. 516 F.3d 1290, 85 USPQ2d 1801 (Fed. Cir. 2008) (75 PTCJ 354, 2/8/08). Chief Judge David Folsom's injunction contained an “infringement provision,” ordering EchoStar to stop making the adjudged infringing products, and a “disablement provision,” requiring the company to disable DVR functionality in those receivers already in households. The trial court subsequently conducted a hearing on whether EchoStar and Dish Network were in contempt for violating the injunction, considering their argument that they had redesigned the infringing software and downloaded the new software to DVRs in subscribers' homes. Finding contempt due to the continuing infringement of the redesigned software, the court awarded an additional $103 million to TiVo in a June 2009 order (78 PTCJ 185, 6/12/09), which with interest totalled $110 million. In September 2009, it further awarded approximately $90 million in sanctions for infringement continuing after the earlier June order. In March 2010, a 2-1 Federal Circuit panel ruled that the lower court did not abuse its discretion by including an infringement analysis in its contempt hearing nor in finding that the defendants were continuing to infringe, despite the redesign (79 PTCJ 544, 3/12/10). The panel had also split 2-1 on the degree to which the lower court's language used in the injunction required EchoStar's disablement of DVR functionality. Questions for En Banc Court However, the en banc court granted EchoStar's petition for rehearing, and vacated the panel opinion (80 PTCJ 82, 5/21/10). The court posed three questions related to the infringement issue, including one attempting to resolve the differences between various phrases used by the court to describe its standard for allowing an infringement analysis in a contempt proceeding: How does “fair ground of doubt as to the wrongfulness of the defendant's conduct” compare with the “more than colorable differences” or “substantial open issues of infringement” tests in evaluating the newly accused device against the adjudged infringing device? The court also posed one question as to the language in the injunction itself: Is it proper for a district court to hold an enjoined party in contempt where there is a substantial question as to whether the injunction is ambiguous in scope?

The nine judges then listed as active judges for the en banc court heard oral arguments Nov. 9 (81 PTCJ 75, 11/19/10). KSM Overruled The governing precedent, accepted by both parties during briefing and oral argument, was KSM Fastening Systems Inc. v. H.A. Jones Co., 776 F.2d 1522, 227 USPQ 676 (Fed. Cir. 1985). KSM provided a two-step inquiry for contempt proceedings, according to Judge Alan D. Lourie, writing for the majority in the instant case, who had also written the opinion for the original panel:In step one, the court determined if there was “more than a colorable difference” between the product adjudged to infringe and the redesigned product, such that “substantial open issues with respect to infringement” exist. If not, step two would require the court to determine if the redesigned product continues to infringe the claims as previously construed. “We conclude that KSM‘s two-step inquiry has been unworkable and now overrule that holding of KSM,” Lourie said. Whether or not contempt proceedings were properly initiated “is left to the broad discretion of the trial court to be answered based on the facts presented,” he said. In situations where contempt proceedings are proper, the court concluded that a single inquiry should follow, based on the “more than colorable differences” standard. But the court made clear that the standard does not begin as part of an analysis of infringement by the new product: The analysis must focus not on differences between randomly chosen features of the product found to infringe in the earlier infringement trial and the newly accused product, but on those aspects of the accused product that were previously alleged to be, and were a basis for, the prior finding of infringement, and the modified features of the newly accused product. Specifically, one should focus on those elements of the adjudged infringing products that the patentee previously contended, and proved, satisfy specific limitations of the asserted claims. Where one or more of those elements previously found to infringe has been modified, or removed, the court must make an inquiry into whether that modification is significant. If those differences between the old and new elements are significant, the newly accused product as a whole shall be deemed more than colorably different from the adjudged infringing one, and the inquiry into whether the newly accused product actually infringes is irrelevant. Court Answers Other Rehearing Questions The court also addressed the contours of the new standard in light of its questions posed for en banc review:

• The “fair ground of doubt as to the wrongfulness of the defendant's conduct”language provides the same basis for inquiry as the colorable differences question, the court explained. • The court concluded that its use of the language “substantial open issues with respect to infringement to be tried” was improper, as it misled lower courts—including the one in the instant case—with its infringement focus. • In adjudging whether colorable differences exist, the judge in contempt proceedings “must also look to the relevant prior art, if any is available, to determine if the modification merely employs or combines elements already known in the prior art in a manner that would have been obvious to a person of ordinary skill in the art at the time the modification was made.” • While design-around efforts are encouraged as a matter of policy, the court said, “an assertion that one has permissibly designed around a patent should not be used to mask continued infringement. ... [T]he requisite level of difference is a question of fact.” • “In making this infringement evaluation, out of fairness, the district court is bound by any prior claim construction that it had performed in the case.” • “The patentee bears the burden of proving violation of the injunction by clear and convincing evidence, a burden that applies to both infringement and colorable differences.” All 11 Federal Circuit judges joined the opinion to this point. The dissenters' concerns began at the point where the majority applied the test to the facts of the instant case. Colorable Differences in Instant Case Details Applying the new colorable-differences standard, the majority held that the lower court erred. At trial, TiVo argued that EchoStar's product's “start code detection feature” mapped to the “parsing” limitation in the ‘389 patent. In the redesigned product, EchoStar replaced start code detection with a “statistical estimation feature.” In the contempt proceedings, the district court did not compare the two. Instead, the lower court held that another feature—known as a “PID filter”—also met the parsing limitation in the patent. Consequently, it saw no need to analyze whether the statistical estimation feature was colorably different from start code detection, or whether statistical estimation also met the limitation. “Our holding today requires that those issues be determined on remand because the statistical estimation feature is the replacement for a feature that had been previously

alleged to be infringing,”Lourie said. Conversely, any question of whether the PID filter is infringing “should not be decided in a contempt proceeding,”he added. Thus, he vacated the district court's contempt finding as to the order's infringement provision. Contempt of Disablement Provision Upheld The majority rejected EchoStar's appeal as to the disablement provision of the injunction order, however. The court found EchoStar's objections to “vagueness” in the provision to be a collateral attack brought too late in the proceedings. “In a case such as this,” Lourie wrote, “where a party has bypassed opportunities to present its asserted vagueness claim on appeal or through a motion to clarify or modify the injunction, the party cannot disregard the injunction and then object to being held in contempt when the courts conclude that the injunction covered the party's conduct.” The majority found that EchoStar's arguments in the instant case were not very different from those addressed by the U.S. Supreme Court in McComb v. Jacksonville Paper Co., 336 U.S. 187 (1949), and it distinguished EchoStar's reliance on a later case, Granny Goose Foods Inc. v. Teamsters, 415 U.S. 423 (1974). The court in Granny Goose did not consider whether any terms in the injunction order were so vague as to make it unenforceable, the majority said. EchoStar further argued that the injunction order was overbroad for prohibiting noninfringing activity—downloading software to the existing DVRs to make them noninfringing. The majority recognized the breadth of the order, interpreting the disablement provision “as a prohibition on employing any type of DVR software, infringing or not,” as to the receiver models the original jury found to infringe. However, the majority concluded that EchoStar had waived the overbreadth arguments for failure to raise them earlier in the case. Nevertheless, the majority addressed the arguments in a footnote. “We note, however, that, although we have strongly discouraged judicial restraint of noninfringing activities,” the footnote said, “we have never barred it outright and instead have repeatedly stated that district courts are in the best position to fashion an injunction tailored to prevent or remedy infringement.” Judges Pauline Newman, William C. Bryson, Kimberly A. Moore, Kathleen M. O'Malley, and Jimmie Reyna, and Senior Judge Haldane Robert Mayer, joined the opinion in full. O'Malley and Reyna were not members of the court when oral arguments were heard Nov. 9. Though Mayer was not present during oral arguments, he was a member of the original 2010 panel.

Five Judges Dissent as to Disablement Provision Judge Timothy B. Dyk wrote the 26-page dissent, joined by Chief Judge Randall R. Rader and Judges Arthur J. Gajarsa, Richard Linn, and Sharon Prost. Rader had dissented in the original panel's decision as well. The dissent began with an objection to the majority's view of the disablement provision. Its argument was based in the language of the order—which it supplied as an appendix to emphasize its concern—as to whether the “Infringing Products” specified for disablement refer to specific DVR model numbers or to the infringing software embedded in those DVRs. Concluding that the order applied only to the software, the dissent said, “it is clear that the injunction does not in fact bar design-arounds and that it permits the substitution of non-infringing software in existing products that are in the hands of customers, just as it permits the use of non-infringing software in identical devices not yet distributed to the customer.” As to the issue of the vagueness of the order, the dissent relied on Granny Goose and discredited the majority's reliance on McComb. After reciting quotes from 22 cases since McComb, the dissent concluded that TiVo, in fact, had the burden to show that the injunction prohibited the software-based solution. “Under such circumstances, contempt is improper because there is at least a fair ground of doubt as to the wrongfulness of EchoStar's conduct,” Dyk said. The majority opinion rebutted that view, restating that “the facts presented here fall squarely within the holding of McComb.” Dissent Criticizes Infringement Remand, Sanctions The dissent also concluded that “remand is wholly unnecessary because it is clear that there are colorable differences between the features relied upon to establish infringement and the modified features of the newly accused products.” Early in the case, TiVo had characterized the start code detection feature as “required for a viable DVR,” the dissent noted, and the patent holder did not argue in the contempt proceeding that the statistical estimation replacement was a solution known in the prior art. Therefore, it concluded, “the two products are necessarily more than colorably different on the basis of the parsing limitation alone.” Finally, turning to the $90 million sanctions affirmance, the dissent disagreed with the majority's decision because, “in large part,”the award was based on products sold after the injunction became effective. Inasmuch as the majority reversed the contempt finding

as to the infringement provision, Dyk argued, it was inappropriate to affirm sanctions for violation of that provision. In rebuttal in the majority opinion, Lourie essentially reiterated the argument that the disablement provision was broader than the dissent contends, and that it encompasses new product placements as well. E. Joshua Rosenkranz of Orrick Herrington & Sutcliffe, New York represented EchoStar. TiVo was represented by Seth P. Waxman of Wilmer Cutler Pickering Hale & Dorr, Washington, D.C.

By Tony Dutra

Supreme Court High Court Hears Arguments on Microsoft's Attack on Patent Validity Evidence Standard The U.S. Supreme Court heard oral arguments April 18 on whether an alleged infringer can challenge a patent's validity under the current clear-and-convincing evidence standard or, as Microsoft Corp. would have it, under the less demanding preponderance of the evidence (Microsoft Corp. v. i4i L.P., U.S., No. 10-290, oral arguments 4/18/11). The court struggled with alternatives to jury instructions that would get across both the presumption of validity of a patent and the impact on that presumption when the alleged infringer challenges the patent with evidence that was never considered by the Patent and Trademark Office. The patent invalidity standard was established by the U.S. Court of Appeals for the Federal Circuit in 1984. Lowering the standard to a preponderance of evidence—as Microsoft requests—could significantly weaken every patent owner's case in litigation. Patent on Manipulation of XML Documents I4i holds a patent (5,787,449) on improved management of a computer document whereby the content of the document and “metacodes” describing its formatting are maintained separately from one another, as is typical in documents in “extended markup language,” or XML format. In 2007, i4i sued Microsoft, alleging that the 2003 and 2007 versions of the word processing software Microsoft Word, which added the ability to edit XML documents, infringed the ‘449 patent. A jury of the U.S. District Court for the Eastern District of Texas found willful direct, contributory, and induced infringement, and the damages award eventually totaled $290 million (158 PTD, 8/19/09). On appeal, Microsoft contested the jury's finding that the patent was not invalid for violating the on-sale bar of 35 U.S.C. § 102(b). The company asserted that i4i sold

markup language code in a system called S4 more than a year before applying for the ‘449 patent. Microsoft argued that S4—which was not before the PTO when it examined the patent application—practiced the invention disclosed in the patent. Microsoft contended that the trial judge should have instructed the jury to apply a preponderance of the evidence standard in its on-sale bar verdict, rather than the clear and convincing standard. However, the Federal Circuit upheld the trial decision, 598 F.3d 831, 93 USPQ2d 1943 (Fed. Cir. 2010) (46 PTD, 3/11/10), and the en banc court denied a rehearing petition (64 PTD, 4/6/10). The high court granted certiorari Nov. 29 (232 PTD, 12/6/10). The question presented is whether, when the defendant in an infringement suit asserts as a defense that the relevant patent is invalid, the defendant must prove invalidity by clear and convincing evidence. Arguments Made to Date Section 282 of the Patent Act, 35 U.S.C. § 282, states, “A patent shall be presumed valid. ...The burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity.” In its briefing (25 PTD, 2/7/11), Microsoft relied on a passage in the Supreme Court's opinion in KSR International Co. v. Teleflex Inc., 550 U.S. 398, 82 USPQ2d 1385 (2007)(86 PTD, 05/4/07): “We ...think it appropriate to note that the rationale underlying the presumption[of validity]—that the PTO, in its expertise, has approved the claim—seems much diminished” when the PTO did not consider the prior art that led to an obviousness finding in the case. In response, i4i argued that Section 282 is not “silent”on the standard, in that the presumption of validity necessarily implies a clear-and-convincing standard (62 PTD, 3/31/11). The brief quoted Justice Benjamin Cardozo's comment in Radio Corporation of America v. Radio Engineering Laboratories Inc., 293 U.S. 1, 2 (1934): “Even for the purpose of a controversy with strangers, there is a presumption of validity, a presumption not to be overthrown except by clear and cogent evidence.” I4i also criticized the alternative two-standard approach—asking a trial court to apply a different standard depending on whether the PTO had seen the evidence—from the standpoint of practicality. “Microsoft's proposed hybrid standard is unprecedented, unworkable, and unnecessary,”the brief argued. An amicus brief on behalf of the United States, was filed by Acting Solicitor General Neal Kumar Katyal, joined by the PTO's General Counsel Bernard J. Knight Jr. and Solicitor Raymond T. Chen. The government was given time to present at oral arguments.

Dual Standard Rejected by Scalia Thomas G. Hungar of Gibson, Dunn & Crutcher, Washington, D.C., argued for Microsoft. Within seconds, Justice Antonin Scalia made clear that he was not going to entertain Microsoft's approach supporting two possible outcomes—one in which the preponderance-of-evidence standard should apply in all cases, and the other in which the clear-and-convincing evidence standard applies only when the PTO considered all the relevant prior art in evidence. “You can't ride both horses,” Scalia said. “They're going in opposite directions.” However, Hungar turned that question around to bring up his defense to i4i's argument based on RCA. That case, and the cases on which it relied, he said, were about the priority of invention, and Cardozo's “clear and cogent evidence”remark might make sense with respect to oral testimony that there was an earlier inventor. But the RCA court by no means meant to apply the standard across-the-board, Hungar argued. The difficult question for Microsoft, posed emphatically by Justice Sonia Sotomayor, was whether the company had preserved any evidence standard-related argument other than the attack on the clear-and-convincing standard. Hungar referred to Microsoft's brief's recitations of multiple cases other than RCA, but Sotomayor claimed that each featured an instruction saying that the jury should, in some fashion, take into account the fact that the PTO did not consider the evidence proffered in court. But you didn't ask for an instruction like that in the district court, she noted. Hungar disagreed, believing it was adequate that the company challenged the clear-and-convincing evidence on the grounds that the PTO did not consider the evidence. Disagreement on the Section 282 Text Microsoft differentiated the first and second sentences of Section 282, essentially arguing that the first sets the burden of production to the challenger—and any purportedly implied standard would apply only to that—and the second defines who bears the burden of persuasion—with no standard identified. The first sentence of Section 282—“A patent shall be presumed valid”—cannot impose the clear-and-convincing standard, according to Hungar, because the subsequent sentence establishing the burden for proving invalidity would then not be necessary. Later during oral arguments, Deputy Solicitor General Malcolm L. Stewart, arguing on behalf of the government, attributed the inclusion of both sentences to a “belt and suspenders” redundancy by Congress to make sure they were clear. He said that Microsoft has the same problem in reverse: “They have constructed a theory under

which the second sentence does something that the first does not, but they haven't constructed any theory as to why the first sentence is not superfluous.” However, in rebuttal, Hungar contended that there were lower court decisions prior to 1952 that found no presumption of validity, so Congress must have felt the need to make that clear independently of the need behind the second sentence. Did 1952 Act Codify RCA? The RCA decision was most often debated during oral arguments, both for the breadth of its holding—i.e., whether it was isolated to invention priority cases—and whether Congress meant to codify the opinion in the 1952 Patent Act. Both Hungar and Seth P. Waxman of Wilmer Cutler Pickering Hale and Dorr, Washington, D.C., arguing for i4i, agreed that RCA‘s treatment of the issue was dicta, but Waxman said that two of the court's subsequent holdings echoed RCA and were on point. Mumm v. Jacob E. Decker & Sons, 301 U.S. 168 (1937), and Smith v. Hall, 301 U.S. 216 (1937). Justice Elena Kagan asserted that the holding was broad, and in agreement, Justice Ruth Bader Ginsburg quoted from the case: “Through all the verbal variances, however, there runs this common core of thought and truth—that one otherwise an infringer who assails the validity of a patent fair upon its face bears a heavy burden of persuasion, and fails unless his evidence has more than a dubious preponderance.” Hungar insisted that the full reading still shows that statement to be in the context of evidence related to the priority of invention only. So, Kagan said, if you are saying that Congress did not codify the RCA holding, but you acknowledge that Section 282 is silent as to the appropriate standard to use, you leave us with a question of what to do. “One answer to that question is we go with our prior precedent,” she said, “which is RCA.” Hungar contended that, when a statute does not explicitly define a standard, the “default” is a preponderance of the evidence, and the court should go with the default. ‘Active Acquiescence' From Congress? Waxman, a former solicitor general, began by citing the broad principles of i4i's argument, but quickly got the court's attention by claiming that Congress had engaged in “active acquiescence” of the Federal Circuit's 1984 establishment of the clear-and-convincing standard in American Hoist & Derrick Co. v. Sowa & Sons Inc., 725 F.2d 1350, 1359, 220 USPQ 763, 770-771 (Fed. Cir. 1984). Scalia and Ginsburg both expressed surprise at the oxymoron, and begged Waxman to continue.

“It's not a statute Congress enacted and then forgot about,”Waxman said. He pointed to Congress's 1980 addition of ex parte reexamination and its 1999 addition of inter partes reexamination. Congress is looking at it again, he noted, in its proposal for a new post-grant review procedure at the PTO in current patent reform bills (69 PTD, 4/11/11). “Congress is well aware of the clear-and-convincing standard,”he contended, “and it has done nothing whatsoever to change it, even make any effort to consider making such a sweeping change in long-standing doctrine.” Reexamination Alternative Considered Throughout Several justices pointed to the different paths—reexamination and litigation—for challenging patents as meaningful, inasmuch as the first gives the challenger a preponderance-of-the-evidence forum. Justice Stephen G. Breyer attempted to frame the question in terms of two types of error. A “type one” error, he said, is when we do not give protection to a patent that deserves it, and a “type two” error is when we give a monopoly on a patent that is invalid. He asked why reexamination is not a cure for type two errors. Hungar argued that reexamination is limited in what the PTO can consider—publications and patents—and what statutory requirements it can assess—not including the on-sale bar, written description, etc. In his argument, Stewart repeated Waxman's reference to the current patent reform bills and the new post-grant review proposal. “It reflects Congress's understanding that there is a problem with patents that should not have been issued, but its desire to create additional mechanisms for the PTO to address that problem, rather than to have it be done through litigation,” Stewart said. Kagan used reexamination as an argument against i4i. When Waxman cited the patent holder's reliance on the patent property right as a key basis for a clear-and-convincing standard, Kagan asked how much reliance any patent holder can have when reexamination can invalidate the right by the preponderance standard. Waxman noted, though, that reexamination is often invoked by the patent owner, to narrow the scope of the claim, and make the property right “good for all time, ... unlike the stark asymmetry in trial court litigation where the patent holder has to win 100 percent of the time.” Alternative Jury Instructions Proposed Waxman asserted several times—obviously attacking Microsoft where its preservation argument might fail—that courts routinely give instructions to a jury to apply the clear-

and-convincing standard but to apply a different weight to evidence that the jury heard in trial but was not considered by the PTO. Scalia did not see much difference between how a jury should react to that instruction and how it should react to the preponderance-of-evidence instruction Microsoft wanted for that type of evidence. But Waxman pointed to a study—by John R. Allison and Mark A. Lemley, Empirical Evidence on the Validity of Litigated Patents, 26 AIPLA Q.J. 185, 231 (1998)—purportedly showing that juries definitely take the “added weight” instruction into account, without requiring reciting different standards for different pieces of evidence. “Juries get it,” he claimed. Breyer seemed unconvinced of the adequacy of that instruction, though. In a colloquy with Hungar, he posed the possibility of a special verdict form that asked for findings on specific fact questions and then let the judge work off those findings to assess obviousness, etc. “I think in many of these cases it would be extremely difficult or impossible for a judge to fashion at that level of specificity the factual issues to be considered by the jury,” Hungar replied. Later, Breyer tried again during Hungar's rebuttal. Why not have the heightened standard apply to cases where the evidence was considered by the PTO “or could have considered it had the infringer asked for reconsideration,” Breyer asked, putting the burden on the alleged infringer to seek reexamination. After repeating his concern that reexamination is limited, Hungar said, “The problem is, reexam takes a long time, [and] plaintiffs generally oppose stays of litigation for reexamination, because they want to get to the jury because they know that juries are much more likely to uphold patents than either judges or the Patent Office on reexam.” Breyer bemoaned Hungar's rejections of these alternatives as a failure to give the court “a better tool, if possible, to separate the sheep from the goats.” Government Focuses on PTO Deference Stewart's arguments were mostly focused on whether or not the clear-and-convincing standard is required to grant proper deference to the PTO. “The defendant is asking the judge or jury to set aside a decision that has been made by ... the PTO, and we would ask what sort of standard of proof ordinarily applies when a litigant asks a court to set aside an administrative decision,” Stewart said. He noted that the court asked the Federal Circuit to apply the “substantial evidence” standard of Section 706(2)(E) of the Administrative Procedure Act in reviewing PTO fact findings in Dickinson v. Zurko, 527 U.S. 150, 50 USPQ2d 1930 (1999). Justice Samuel A. Alito, responded, “But that ground doesn't carry very much weight when the matter was never considered by the PTO.”

Stewart provided three reasons why the heightened standard should apply nonetheless: • Given the quid pro quo nature of the Patent Act, he said, “once the patent applicant has honored his part of the bargain [by his disclosure], a court should be hesitant to essentially deprive him of the benefit for which he contracted unless the evidence is clear.” • Further, he said, “there are enough uncertainties along the way to getting a patent, to having it overturned on various other grounds.”Consequently, he contended, by the time invalidity is argued in litigation, “the patentee should have reasonable confidence that it won't be overturned unless the evidence is clear.” • Finally, Stewart argued that, even when the PTO did not consider the prior art in question, the purportedly new prior art is “substantively equivalent” to what the PTO did consider. ”In substance, what the defendant would be asking the jury to do is conclude that what the PTO thought was a patentable advance really was not so,”he reasoned.

By Tony Dutra Copyrights Use of Competitor's Product Images in Web Ads Constituted Infringement, False Advertising • Case Summary: A district court grants a summary judgment motion on copyright infringement and false advertising claims against a pump manufacturer that used images of the plaintiff's competing pumps in its web-based advertising. • Key Takeaway: A manufacturer's use of its competitor's images in its web advertising after receiving a cease and desist order demonstrated at the very least reckless disregard toward the possibility that the images misrepresented the nature of its products.

There was “no question” that the images a competitor used depicting a company's industrial pump product were copies, as the company held valid copyrights in the images and the similarities were “overwhelming,” the U.S. District Court for the Southern District of Texas ruled April 20 (Flowserve Corp. v. Hallmark Pump Co., S.D. Tex., No. 09-cv-00675, 4/20/11). Granting the copyright holder's summary judgment motion, the court ruled that the competitor infringed copyrights willfully and that when it received a cease-and-desist letter, the competitor, at the very least, acted with reckless disregard toward the possibility that the images it used misrepresented the nature of its products. In addition, the court granted the copyright holder a permanent injunction, statutory damages, and awarded it $75,000 in fees.

Industrial Pump Pictures Used on Website Flowserve designs and sells industrial pumps and valves, including its Durco brand Mark 3 ANSI chemical process pump. Hallmark Pump Company Inc. sells a competing model ANSI-FLO Model DIII pump. Flowserve obtained a registration from the Copyright Office for two images of the Durco product. In 2008, Hallmark entered into an agreement with Network Solutions LLC to create its website. Hallmark included in the materials given to Network Solutions a brochure of it DIII model, which contains three images that Flowserve argued are strikingly similar—if not identical—to Flowserve's copyrighted images. After being approved by the owners, Chad and Jim Hallmark, the website was made available to the public featuring the similar images. Flowserve sued Hallmark for copyright infringement and false advertising, contending that Hallmark's actions were willful in both instances. Flowserve sought statutory damages, a permanent injunction, and costs, attorneys' fees, and expenses. Flowserve moved for summary judgment. Infringement Was Willful A copyright infringement claim requires proof of ownership of a valid copyright and actionable copying, which is the copying of constituent elements of the work that are copyrightable. Bridgmon v. Array Systems Corp., 325 F.3d 572, 66 USPQ2d 1053 (5th Cir. 2003). After determining that Flowserve held a valid copyright for its images, Judge Keith P. Ellison said that the images Hallmark used on its website are identical to Flowserve's copyrighted images. “The similarity of the images is, indeed, so striking that the Court has no doubt that Hallmark copied Flowserve's images,” he said. “Moreover,” the court said, “the evidence in the record supports a finding of factual copying under the primary formulation of the [copying] test, as there is: ‘(1) proof that the defendant had access to the copyrighted work prior to creation of the infringing work and (2) probative similarity' between the copyrighted images and the allegedly infringing images.” Thus, as Hallmark enjoyed “ample access” to the images and the similarity is so striking as to preclude the possibility of independent creation, the court said that Flowserve established factual copying as well. The court also said that it agreed with Flowserve that the two images at issue on Hallmark's website are substantially similar to Flowserve's copyrighted images as a matter of law. “Although summary judgment is generally disfavored on the question of substantial similarity, under the present circumstances, summary judgment in favor of

Flowserve is appropriate with regard to both images,” the court said. “Indeed, a valid copyright exists for both images and the similarities between Flowserve's images and the ones Hallmark displayed on its website are so overwhelming that there is no question Hallmark engaged in actionable copying. Indeed no reasonable jury could believe that the images do not rise to the level of substantial similarity.” Finally, the court found that Hallmark's acts were willful, as it continued to use the contested images on its website even after it received actual notice that its website contained copyrighted advertising materials of its competitor in the form of a cease-and-desist letter. Willful False Advertising Violation as Well Next, Flowserve argued that Hallmark violated the Lanham Act by making a literally false statement or representation about the nature and quality of its product sold in interstate commerce that caused economic and other damage to Flowserve. Specifically, it argued that Hallmark uses its website to advertise, offer for sale, and sell its industrial pumps to various entities located throughout the United States. “The Court agrees with Flowserve that Hallmark's actions constitute false advertising in violation of Section 43(a) of the Lanham Act,”the court said. “Hallmark has submitted no evidence to controvert Flowserve's proof that IMAGES 1 and 3 actually depict Flowserve's products, not its own. By posting these images on its website in connection with the promotion of its competing industrial pumps, Hallmark has made literally false representations about the nature of its products.” The court also said that Hallmark's products were sold in interstate commerce and that Flowserve was likely to be harmed by its competitor's deception. Further, the court said that Hallmark acted with, at a minimum, a reckless disregard with respect to its false advertisement of its DIII pump. The court said: Indeed, Hallmark ignored Flowserve's Cease-and-Desist letter, which put Hallmark on notice that it was advertising using images that did not depict its products. Moreover, both Chad Hallmark and Jim Hallmark independently reviewed and subsequently approved the website containing the Hallmark DIII Brochure before it was made available to the public. ..Certainly, Hallmark's management knew or should have known that the images of Flowserve's pumps were not images of its own pumps, but rather images of its competitors' similar pumps. In sum, when it received Flowserve's Cease-and-Desist Letter, Hallmark most certainly had actual knowledge that the images used in its brochure were literally false. At the very least, Hallmark acted with reckless disregard toward the possibility that the images it used misrepresented the nature of its products. Hallmark's actions, therefore, constitute a willful violation of Section 43(a) of the Lanham Act.

Injunction Necessary to Halt Irreparable Harm Finally, Flowserve sought a permanent injunction to prevent Hallmark from displaying images of Flowserve's products in Hallmark's advertising, including on Hallmark's website. Flowserve argued that Hallmark's actions create a substantial threat to Flowserve's goodwill and brand name that have been established over the course of more than 50 years. In addition, Flowserve said that the false advertisements deceive potential customers regarding the source and quality of the pumps. “The Court agrees that Flowserve has been and will continue to be irreparably harmed by Hallmark's blatant appropriation of its copyrighted images absent an injunction,” the court said. The court said that the remedies available at law were inadequate to compensate Flowserve for its injuries. Further, the court said that the balance of the hardships weighed in Flowserve's favor. An injunction would not disserve the public interest, as the public would not be harmed by Hallmark's inability to copy and display Flowserve's intellectual property in the connection with the sale of its competing product, the court said. Thus, the court said that Hallmark's actions, if not enjoined, would result in irreparable harm to Flowserve and it granted a permanent injunction prohibiting Hallmark from committing any further violations of Flowserve's rights under the Copyright and Lanham Acts. The court also awarded Flowserve statutory damages of $10,000 per work, which it said “reasonably compensates Flowserve and deters Hallmark from engaging in such conduct in the future.” Further, the court found that Flowserve was entitled to $75,000 in attorneys'fees and costs, which it said “represents reasonable compensation for protecting its intellectual property rights and preventing Hallmark from continuing to deceive customers about the nature and origin of its products.” Hallmark was represented by Nicola Thompson Drake of Houston. Flowserve was represented by John A. Fedock of Vinson and Elkins, Austin, Texas.

By Nathan Pollard The Intellectual Property Section has entered a partnership to offer reprints of case law updates from BNA’s Patent, Trademark and Copyright Journal. These summaries are provided under license by the BNA. BNA offers a variety of resources related to intellectual property in addition to its daily Patent, Trademark and Copyright Journal. BNA offers a FREE Temporary Username & Password for 15 days usage. For anyone interested in reviewing BNA products to see if they would be useful in their practice, you may contact, please e-mail gtanguay@bna.com. A special thanks goes to BNA for allowing the IP Section to print its stories. If you are interested in receiving a free 15 day trial from BNA, please contact George Tanguay at 1-800-542-1113 or at gtanguay@bna.com.

CLASSIFIED ADVERTISING There are no classified advertisements this month. Subject to editorial review, classified advertisements are printed by the IP Section free of charge and will run for three months, unless we receive a request to drop or continue running the ad. Submit or resubmit your ad by e-mailing the proposed text to Michael Dulin at mdulin@hkh-law.com.

IP SECTION OFFICER CONTACT INFORMATION Chair: John Posthumus, Esq. Sheridan Ross 1560 Broadway, Suite 1200 Denver, Colorado 80202 303.863.2963 jposthumus@sheridanross.com Vice-Chair: Nina Y. Wang, Esq. Faegre & Benson, LLP 3200 Wells Fargo Center 1700 Lincoln Street Denver, CO 80203 303.607.3500 nwang@faegre.com Secretary/Treasurer: Michael P. Dulin Hensley Kim & Holzer, LLC 1600 Lincoln Street Suite 3000 Denver, CO 80238 720-377-0727 mdulin@hkh-law.com

All correspondence, phone calls, facsimiles and emails concerning this newsletter, as well as advertising submissions should be directed to Michael Dulin at mdulin@hkh-law.com.