By Jason C. Schwartz, Alexander H. Southwell, and Molly T. Senger
Gibson, Dunn & Crutcher, Washington, D.C. and New York

INTRODUCTION

Information security has become one of the top priorities for corporate executives and board members in 2012, according to a November 2011 survey from the Corporate Executive Board Co. See Emily Chasen, Information Security Jumps to Top Priority for Audit Committees (Nov. 28, 2011), available at blogs.wsj.com.

And with good reason.

A recent report by the U.S. Office of the National Counterintelligence Executive found that “FIS [Foreign Intelligence Services], corporations, and private individuals increased their efforts in 2009-2011 to steal proprietary technologies, which cost millions of dollars to develop and represented tens or hundreds of millions in potential profits.” See U.S. Office of the National Counterintelligence Executive, Foreign Spies Stealing U.S. Economic Secrets in Cyberspace: Report to Congress on Foreign Economic Collection and Industrial Espionage, 2009–2011 (Oct. 2011), available at dni.gov.

Indeed, a survey published in USA Today in November found that as many as 17 percent of persons polled admitted that they would disclose their company’s secrets for money, while another 8 percent confessed that they had already done so. See USA TODAY Snapshots® (Nov. 20, 2011) (citing Monster.com survey), available at scoop.it.

The growing need for U.S. companies to protect their trade secrets and other confidential, proprietary information is illustrated by the increasing number and significance of trade secret and related litigation over the past year. 2011 saw several high-stakes jury trials resulting in substantial damages awards to victims of trade secret misappropriation, such as the $920 million award to DuPont in its suit against Kolon Industries over Kevlar-related technologies, and the $310 million award to MGA Entertainment in its long-standing dispute with Mattel over the successful line of Bratz dolls.

The Department of Justice also brought a number of significant criminal prosecutions for trade secret theft and economic espionage in 2011, many involving defendants allegedly acting on behalf of foreign state-owned entities. In addition, 2011 bore witness to several significant judicial decisions impacting trade secret law, including a noteworthy ruling from the U.S. Court of Appeals for the Ninth Circuit regarding the scope of the Computer Fraud and Abuse Act— which is currently being reconsidered by the Ninth Circuit en banc—and a December 2011 decision from the Eighth Circuit, which may serve to expand what constitutes a protectable trade secret under the Uniform Trade Secrets Act.

We highlight these and other significant 2011 developments below, first addressing civil developments and then criminal developments…

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By Perry J. Saidman, SAIDMAN DesignLaw Group, Silver Spring, Md

It is no longer possible to remain silent while design patents are drowning in the wake of the Federal Circuit’s opinion in International Seaway Trading Corp. v. Walgreens Corp.

The court made the following statements in Seaway regarding anticipation and obviousness in the design patent context:

1. “[T]he ordinary observer test must logically be the sole test for anticipation.”

2. “For design patents, the role of one skilled in the art in the obviousness context lies only in determining whether to combine earlier references to arrive at a single piece of art for comparison with the potential design or to modify a single prior art reference. Once that piece of prior art has been constructed, obviousness, like anticipation, requires application of the ordinary observer test, not the view of one skilled in the art.”

Following is a discussion of the maelstrom created by these two issues…

By Tony Dutra

The International Trade Commission issued an order Dec. 19 banning imports by HTC Corp. of Android smartphones as infringing a valid patent held by Apple Inc. (In the Matter of Certain Personal Data and Mobile Communications Devices and Related Software, Int’l Trade Comm’n, No. 337-TA-710, 12/19/11).

The commission gave HTC until April 19 to comply with the order, “to provide a transition period for U.S. carriers.”

The ITC upheld a portion of Administrative Law Judge Carl C. Charneski’s Aug. 24 initial determination, concluding that two apparatus claims of a patent (5,946,647) asserted by Apple were infringed by HTC’s phones.

The ITC’s opinion is not yet published, and the order did not list the infringing HTC models. However, Charneski had ruled that HTC’s Evo 4G, Aria, Incredible, and other devices running the Android operating system developed by Google Inc. infringed, and the commissioners’ order gave no indication that it had eliminated any of the HTC phones from the ban.

The decision comes only three weeks after Apple’s failed attempt to take other iPhone and iPad competitors off the market. The U.S. District Court for the Northern District of California denied a preliminary injunction Dec. 2 after finding that Apple failed to show that monetary damages would not be sufficient to compensate the company for Samsung Electronics Co.’s infringement. Apple Inc. v. Samsung Electronics Co., No. 5:11-cv-01846-LHK (N.D. Cal. Dec. 2, 2011).

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By Tony Dutra

The U.S. Supreme Court heard oral arguments Dec. 7 on the patent eligibility of methods of medical diagnosis and treatment under 35 U.S.C. §101, but the debate turned early and often to the relative roles of Section 101 versus patentability issues of anticipation and obviousness under Sections 102 and 103 (Mayo Collaborative Services v. Prometheus Laboratories Inc., U.S., No. 10-1150, oral arguments 12/7/11).

The case involves a challenge by Mayo Collaborative Services, a subsidiary of the Mayo Clinic, to patents asserted by Prometheus Laboratories Inc. on methods of use in the field of personalized medicine—adjusting a drug dosage after observing a patient’s reaction to a drug administration.

The parties have contested whether the patents claim a treatment regimen or merely the observation of the body’s natural response. Indeed, the justices did not have a uniform view of what Prometheus’s claims covered.

More prominent, though, was the high court’s focus on whether tighter standards for patent eligibility are needed as a gatekeeper to stop undeserving inventions at the summary judgment stage, even if Sections 102 and 103 could serve as a fact-specific backstop.

The court in part reprised the LabCorp controversy of six years ago when similar claims were at issue. However, Justice Stephen G. Breyer acknowledged that his dissent to the dismissal of that case did not provide an adequate standard for “how much must be added” to steps already known in the prior art to make a claim patent eligible under Section 101.

Patent for Measurement of Metabolite Levels

Prometheus is the exclusive licensee of two patents (6,355,623 and 6,680,302) which involve measuring the level of certain metabolites in the blood of patients taking thiopurine drugs, including the anti-Crohn’s disease drug azathioprine, for treatment of autoimmune diseases.

The patented test is claimed as methods providing a means to administer a drug to a subject and then determine the metabolite levels, whereby metabolite levels outside certain threshold levels of either one provide a “warning” of toxicity or inefficacy and indicate to the treating physician that an adjustment in drug dosage may be required. The claims at issue do not include a step for further action by the physician…

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By Tony Dutra

Congress approved Nov. 17 “minibus” appropriations legislation that includes funding for the Patent and Trademark Office matching its projected fee collections. President Obama signed the bill, H.R. 2112, into law Nov. 18.

The PTO’s funding level had been set at its FY 2011 annual rate of about $2.1 billion by the earlier continuing resolution authorizing government spending through Nov. 18. H.R. 2112 raises funding for the agency to its FY 2012 level of about $2.7 billion, almost a 30 percent increase.

However, the legislation changed the mechanism for PTO access to fees related to the 15 percent surcharge and Track I expedited patent examination. According to the America Invents Act, those fees were supposed to be available to the agency without fiscal year limitation, outside the appropriations process. The revised legislation puts the fees under the same restrictions as all other collections.

Still to come is the impact of the congressional super committee’s failure to agree on deficit reduction, a development that could trigger cuts in 2013 that would likely include the PTO. Agency Director David J. Kappos has previously described spending in 2013 as “critical” to the PTO’s backlog and pendency reduction goals…

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By David Maiorana, and John Evans, Jones Day, Cleveland
Patrick Michael, Jones Day, San Francisco and Silicon Valley offices

On Oct. 11, the U.S. Court of Appeals for the Federal Circuit affirmed the International Trade Commission’s finding of a violation of Section 337 of the Tariff Act of 1930, 19 U.S.C. § 1337, in relation to the importation of certain railway wheels, predicated on misappropriation that occurred in China. In TianRui Group Co. v. International Trade Commission, 100 USPQ2d 1401 (Fed. Cir. 2011) (82 PTCJ 810, 10/14/11), the court confirmed that Section 337 permits exclusion of articles made by processes protected under domestic trade secret law where the underlying act of misappropriation occurs outside the United States.

The court also articulated, for the first time, important choice of law principles for Section 337 investigations involving trade secrets, i.e., that such investigations are governed by federal common law and not state law. Finally, the court clarified that a domestic industry in Section 337 investigations involving non-statutory intellectual property rights does not require proof that the domestic industry practices the rights at issue.

This decision provides a powerful remedy for any company challenging imports into the United States that are derived from the misappropriation of their trade secrets—or potentially other unfair conduct—overseas.

Background

Amsted Industries Inc. is a U.S.-based manufacturer of cast steel railway wheels. Amsted owns several trade secrets relating to wheel production processes, including the “ABC process,” which it had licensed to several foundries in China. The ITC instituted Investigation No. 337-TA-655, Certain Cast Steel Railway Wheels, Certain Processes for Manufacturing or Relating to Same and Certain Products Containing Same, based on Amsted’s complaint that respondents TianRui Group Co. and TianRui Group Foundry Co. imported wheels into the United States that were made in China using the ABC process, allegedly misappropriated from Amsted…

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By Richard P. Gilly and Vamsi K. Kakarla, Seyfarth Shaw, Washington, D.C.

Introduction.

In today’s economic environment, businesses are looking away from making long-term and expensive investments in computer infrastructure, software, and hardware solutions, and are instead seeking to meet their technology needs through more cost-effective measures. One such measure getting significant attention in recent years is cloud computing.

Cloud computing services may provide savings and alternatives for companies by expanding technological resources on an on-demand basis rather than through long-term investments based on estimated future needs. As the use of cloud computing services becomes more widespread, patent practitioners, as well as cloud service users and providers, should be aware of how recent case law may affect acquisition or enforcement of patent rights in such cloud-based environments.

In particular, the U.S. Court of Appeals for the Federal Circuit on Nov. 18 will rehear two cases with potentially significant implications for cloud-based services: McKesson Technologies Inc. v. Epic Systems Corp., 98 USPQ2d 1281 (Fed. Cir. 2011), en banc rehearing, No. 2010-1291 (Fed. Cir. briefing completed Sept. 6, 2011), and Akamai Technologies Inc. v. Limelight Networks Inc., 629 F.3d 1311, 97 USPQ 2d 1321 (Fed. Cir. 2010), en banc rehearing, No. 2009-1372 (Fed. Cir. briefing completed Sept. 6, 2011) (82 PTCJ 764, 10/7/11).

The National Institute of Standards and Technology defines cloud computing as a “model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction.” NIST, U.S. Department of Commerce, Special Publication 800-145. NIST recognizes that cloud computing is an “evolving paradigm” and that bright-line definitions of today may not adequately reflect the scope of cloud computing in the foreseeable future. Id.

The advantages of cloud computing include comparatively inexpensive access to technological resources without investing in expensive solutions, such as databases or servers. Further, cloud computing end users may eliminate or significantly reduce the maintenance costs involved in such solutions. Cloud computing has been compared to the model of buying electricity via an on-demand basis with limited exposure to the underlying maintenance.

Three service models are typically associated with cloud computing: (1) cloud software as a service (SaaS); (2) cloud platform as a service; and (3) cloud infrastructure as a service. In each of these models, users of the cloud do not manage the underlying cloud infrastructure but may have variable control over certain features of each of these service models. See NIST Draft, p. 2.

Because cloud computing services are scalable, they may present an attractive option for businesses of all sizes…

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By Anandashankar Mazumdar and Amy Bivins

Within minutes of the announcement of the introduction on Oct. 26 of the Stop Online Piracy Act, there was a flurry of statements from supporters and, particularly, from detractors denouncing the legislation.

H.R. 3261, introduced by Rep. Lamar S. Smith (R-Texas), chairman of the House Judiciary Committee, is a counterpart to the Senate’s Protect IP Act, S. 968. Both bills seek to give the government tools to combat websites that give access to infringing material and counterfeit goods and to act against unauthorized streaming of content.

The House Judiciary Committee has already scheduled a hearing on the bill for Nov. 16.

New Enforcement Tools

The bill would expand law enforcement’s existing authority to tackle infringement of intellectual property online and provide a mechanism for rights holders to protect their rights, as well. It includes a four-track process to be used against websites trafficking in counterfeit goods and services.

First, the bill would maintain the attorney general’s authority to seek injunctive relief against and block domestic websites engaged in online piracy and counterfeiting. Second, it would give the attorney general the authority to seek injunctive relief against websites hosted on foreign top-level domains and an ability to seek a court order to block infringing websites from accessing the U.S. market.

Under this proposal, rights holders would have a two-step process for addressing infringement on websites hosted on both domestic and foreign top-level domains.

Before seeking injunctive relief, a rights holder would be required to contact financial intermediaries and online advertising providers and request that they sever ties with a rogue website. The rights owner could only seek an injunction from a court against the rogue site if the intermediaries and advertisers do not sever ties with the site.

The Senate version would permit rights owners to seek injunctive relief without exhausting these private avenues. That bill, the Protect IP Act, was approved by the Judiciary Committee on May 26 (82 PTCJ 146, 6/3/11).

Title I: Foreign Websites Targeted

The text of H.R. 3261 captions the bill as a bill “to promote prosperity, creativity, entrepreneurship, and innovation by combating the theft of U.S. property, and for other purposes.”…

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By Patrick J. Coyne, Finnegan, Henderson, Farabow, Garrett & Dunner, Washington, D.C.

On Sept. 16, President Obama signed into law the most sweeping revision of the patent law in the past 60 years (82 PTCJ 681, 9/23/11).

The America Invents Act changes the patent system in several important ways. Overall, it is intended to strengthen the patent system by ensuring that patents that are issued are strong and to simplify enforcement proceedings. It does this through five basic types of changes.

AIA Overview

First, it changes the present “first-to-invent” system into a “first-inventor-to-file” system. The United States is the last country in the world to move away from a “first-to-invent” system.

This change brings our system into better alignment with international patent systems and adds greater predictability to determining who has priority to an invention. The AIA accomplishes this change by modifying the definition of what prior work can be used to deny a patent.

Second, the legislation adds four new types of Patent and Trademark Office procedures that can be used to challenge, or strengthen, a patent. Although two of these procedures offer new alternatives to challenge a patent, it will be harder to institute these new challenge proceedings than it is to institute existing reissue and reexamination procedures under current law. In addition, the AIA provides a unique form of “supplemental examination” to enable the Patent Office to consider information it did not consider when it initially granted the patent.

Third, the new law expands certain defenses, and eliminates or weakens several other defenses to a patent infringement claim, to simplify and streamline the enforcement of a patent.

Fourth, the legislation includes a number of miscellaneous provisions that specify that patents are no longer available for certain types of controversial subject matter. Fifth, the AIA gives the PTO greater control to set its own fees and to locate satellite offices.

A. The AIA Establishes a First-Inventor-to-File System.

For more than a century, the United States was the most striking holdout on the world stage in retaining its “first-to-invent” system.

Under the first-to-invent system, the first inventor is entitled to a patent, even if he or she is not the first to file. U.S. patents have been granted, only to have someone else who filed later establish that he or she was the first to invent and take away the patent. As there is often no public record of the prior invention, these situations cause a great deal of concern and wasted effort and investment.

The AIA provided for the adoption of a first-inventor-to-file system by rewriting the definition of “prior art” under Section 102 of the Patent Act, 35 U.S.C. §102. The current patent law contains separate seven separate conditions for patentability in Section 102.

These have been eliminated under the AIA in favor of a greatly simplified structure defining two types of information that can be used as prior art to defeat patentability, along with exceptions to each.

Under the prior first–to–invent system, the patent applicant would not be entitled to a patent if:

a. the invention was known by others (102(a));

b. the invention was patented or described in a printed publication (102(b));

c. the inventor abandoned his invention (102(c));

d. an application for patent was filed anywhere more than a year before the US application is filed (102(d));

e. the invention was described in part prior patents or published applications of others (102 (e));

f. the inventor derived the invention from someone else (102 (f)); or

g. the inventor was not the first to invent (102 (g)),

This bewildering array of defenses makes it extremely difficult to determine who was entitled to a patent. In many instances, the information is not publicly available and might be discovered only years later, after the parties were involved in expensive and protracted legal proceedings and had invested millions of dollars in commercializing the patented technology…

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By Tamlin H. Bason and Toshio Aritake

While representatives from eight governments, including the United States, signed the Anti-Counterfeiting Trade Agreement in Japan Oct. 1, other parties, namely the European Union, expressed their support for the agreement but declined to sign at this time.

The Office of the U.S. Trade Representative—the agency that negotiated and ultimately signed the agreement on behalf of the United States—posted a joint statement on its website on behalf of the negotiating parties, claiming, “The ACTA represents a significant achievement in the fight against the infringement of intellectual property rights.”

The agreement will take effect after six signatories—either from among the eight initial signatories, or from parties that later sign the ACTA—ratify the agreement.

Supporters of the agreement were quick to applaud the signing. “This accord raises the bar on enforcement by improving cooperation among partners, harmonizing how we confront IP theft, addressing IP theft online, and setting a positive example for nations that aspire to have strong IP enforcement regimes,” Mark Elliot, executive vice president of the U.S. Chamber of Commerce’s Global Intellectual Property Center, said in a statement.

Critics, however, remain skeptical of the agreement, and questioned the constitutionality of the United States signing the agreement without congressional authorization or consent.

ACTA Designed to Halt Counterfeiting

Formal discussions on ACTA began in 2008 under the Bush administration, with the goal of establishing a comprehensive international framework for combatting IP rights infringement (78 PTCJ 217, 6/19/09). The agreement among the 11 participants was finalized in November and includes provisions on civil, criminal, border, and digital environment enforcement (81 PTCJ 72, 11/19/10).

ACTA comprises three primary components: (1) a strong and modern legal framework, (2) establishment of enforcement practices that promote strong intellectual property protection, and (3) cooperation among our trading partners, the Japanese Ministry of Economy, Trade, and Industry explained…

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