The D.C. Circuit held today that the Federal Communications Commission has the power, under the Telecommunications Act of 1996, to require Internet service providers (ISPs) to "adhere to open network management practices." Verizon v. Federal Communications Commission, No. 11-1355 (D.C. Cir. Jan. 14, 2014).

But the panel also ruled that, because the FCC had chosen not to treat ISPs as "common carriers", its "net neutrality" regulations violated statutory mandates against imposing effective common carrier rules on non-common carriers.

Bonus quote:

[W]hen an edge provider such as YouTube transmits some sort of content — say, a video of a cat — to an end user, that content is broken down into packets of information, which are carried by the edge provider’s local access provider to the backbone network, which transmits these packets to the end user’s local access provider, which, in turn, transmits the information to the end user, who then views and hopefully enjoys the cat.

A 9-0 Supreme Court today ordered a federal district court to remand a case seeking restitution for all Missippians who overpaid for liquid crystal displays (LCDs) back to state court.

The lawsuit, by the Attorney General of Mississippi, accused LCD makers of conspiring to fix prices, in violation of Mississippi antitrust and consumer protection statutes.

The manufacturers removed the case under "class action" or "mass action" under the Class Action Fairness Act. The district court ruled that the case didn't qualify as a "class action" but that it did meet the "mass action" test, which requires "monetary relief claims of 100 or more persons". A Fifth Circuit panel reversed under the "general public" exception to CAFA jurisdiction over a "mass action". But it agreed that the the "mass action" moniker applied.

Affirming, the Court (per Justice Sotomayor) held that "unnamed" parties such as the absent citizens of the Magnolia State do not qualify as "persons" for purposes of the "mass action" definition. That they may meet the test for "real parties in interest" didn't matter. The Court accordingly reversed the district court's ruling remanded the case for further proceedings (i.e., remand to state court). Mississippi ex rel. Hood v. AU Optronics Corp., No. 12-1036 (U.S. Jan. 14, 2014).

 

The big three of intellectual property disputes in federal courts – the Copyright Act, the Patent Act, and the Lanham (Trademark) Act – drew the focus of the U.S. Supreme Court today. The justices granted review in three IP cases and one IP-ish one. The cases present these questions:

Whether the Federal Circuit erred in holding that a defendant may be held liable for inducing patent infringement under 35 U.S.C. § 271(b) even though no one has committed direct infringement under Section 271(a). Limelight Networks, Inc. v. Akamai Technologies, Inc., No. 12-786 (U.S.).

(1) Whether the Federal Circuit’s acceptance of ambiguous patent claims with multiple reasonable interpretations – so long as the ambiguity is not “insoluble” by a court – defeats the statutory requirement of particular and distinct patent claiming; and (2) whether the presumption of validity dilutes the requirement of particular and distinct patent claiming. Nautilus, Inc. v. Biosig Instruments, Inc., No. 13-369 (U.S.).

Whether a company “publicly performs” a copyrighted television program when it retransmits a broadcast of that program to thousands of paid subscribers over the Internet. Am. Broadcasting Co., Inc. v. Aereo, Inc., No. 13-461 (U.S.).

Whether the court of appeals erred in holding that a private party cannot bring a Lanham Act claim challenging a product label regulated under the Food, Drug, and Cosmetic Act. POM Wonderful LLC v. The Coca-Cola Co., No. 12-761 (U.S.).

For more info on the cases, see Lyle Denniston's thumbnails at SCOTUSblog.

Inhale, Inc., got a copyright certificate from the U.S. Copyright Office for a hookah that featured a skull-and-crossbones design.

A month later, Inhale sued Starbuzz Tobacco for infringing the copyright.

But Starbuzz's hookah didn't include the osseous symbol that appears often on pirates' Jolly Rogers.

The lack of bony stuff didn't matter, Inhale puffed, due to the distinctive shape of its hookah's water bowl.

The Ninth Circuit said hah! "The shape of a container is not independent of the container’s utilitarian function—to hold the contents within its shape—because the shape accomplishes the function." Inhale, Inc. v. Starbuzz Tobacco, Inc., No. 12-56331 (9th Cir. Jan. 9, 2014).

Bonus:    Inhale calls its four-hose hookah "Octopus".

Swatch makes Swiss watches. It sells them at Swatch stores, many in malls. The chronometers come in many styles. They cost $100 and up. Young people like them. But you can’t take the body of one Swatch watch and pop it on another Swatch wrist band.

You can do that very thing with Swap watches. Beehive makes them. The time-keeper part costs anywhere from $10.95 all the way up to $10.95. The fake gem-bead-chain-clasp combo that attaches to the small clock span a like range, going for between $6.95 and $6.95. Blawgletter thinks they look cute.

(Beehive also produces Rain Bops, a funky type of plastic “rain boot”; they run $16.99 the pair.)

Do you see where all this leads? A trademark fight, you say? A scrappy but low-dollar Swap making a nutty claim against those noble Swiss who use tiny tools to sculpt works of art for your wrist?

We must say nein, non, no, and na (in the four official languages of Switzerland). It went the other way. Swatch sued Swap.

Swatch lost. It did so because (as the Fourth Circuit held) no normal person would confuse a Swap watch with a Swatch one. Its suit failed also because it argued that “SWAP” simply described the product and therefore didn’t deserve a trademark when in fact the “SWAP” mark makes your brain tingle a little as it leaps from the literal meaning of the word to grasp how it relates to the switching between the glitzy wrist bands and metal watch bodies. That brain tingle makes a mark “suggestive” instead of merely “descriptive” and thus worthy of greater trademark law oomph. Swatch AG v. Beehive Wholesale, LLC, No. 12-2126 (4th Cir. Jan. 6, 2014) (http://www.ca4.uscourts.gov/Opinions/Published/122126.P.pdf).

“Arbitrary” or “fanciful” marks like Apple, Exxon, and Kodak win the most trademark protection; suggestive ones such as PetsMart, Blu-ray, or (as we now know) Swap come in second; and descriptive and generic ones bring up the rear. See http://cyber.law.harvard.edu/metaschool/fisher/domain/tm.htm.

MilkIn 2001, the two biggest sources of the milk that you buy at Stop-n-Shop, Whole Foods, Von's, and the like agree to merge.

A sluggish Antitrust Division of the U.S. Department of Justice okays the deal but tacks on a proviso that the dairy dukes — Dean Foods and Suiza — must divest a few of the plants that process the raw milk.

The milk mavens do spin off the plants. Yet they agree to pay the buyer, Dairy Farmers of America, millions and millions of dollars to do a poor job of running the plants and selling the milk. The payola takes the form of contracts giving DFA the right to sell tons of its raw milk to the new combo.

Do you see a per se violation of the Sherman Act?

The Sixth Circuit didn't. It held that the pact between Dean/Suiza and DFA had too much of a "vertical" aspect to fit within one of the per se realms — price-fixing, allocating customers or areas, limiting output. Food Lion, LLC v. Dean Foods Co., No. 12-5457 (6th Cir. Jan. 3, 2014). 

The ruling means that the plaintiffs, Food Lion and Fidel Breto, will have to proceed under the "rule of reason", which (unlike the per se rule) demands proof that the restraint of trade restrained trade to an "unreasonable" extent. But that represents something of a win. The district court had thrown the case out on summary judgment.

Blawgletter agrees with the Sixth Circuit that the district court erred in granting summary judgment against the plaintiffs. The trial court shouldn't have ignored expert evidence that tended to show that the agreement not to compete pushed milk prices up within a discrete area, as the panel rightly ruled. But we disagree that the plaintiffs in the case don't have a proper per se case. We don't see how the fact that the payola went to DFA instead of straight to the DFA affiliate that carried out the agreement not to compete matters.

Nor did the court help clarify a legal area that many, including lots of lawyers, find daunting if not impenetrable. For example:

  • The panel wrote that "[t]he district court's decision to use the rule of reason is a question of law" but didn't explain how a "decision" could constitute a "question". The decision answers a question of law. The question of law consists in the legal rule that informs the decision. The decision and question aren't the same thing.
  • The court said that the per se rule counts as a "less common method" for judging the lawfulness of restraints on trade and "should be [applied] reluctantly and infrequently". Yet the rule applies 100 percent of the time to price-fixing, for instance, and other kinds of patent efforts to conspire against the common good. In what way is it "less common"?
  • The opinion observed that "[v]ertical restraints . . . have more redeeming qualities" than horizontal ones but doesn't say why a supplier's forcing a buyer to, for example, charge higher prices has any "redeeming qualities". Vertical restraints may be more likely to have redeeming qualities than horizontal ones, but they don't always.
  • The panel relied on the Antitrust Division's and Federal Trade Commission's Horizontal Merger Guidelines from 1997 rather than the current ones from 2010. The newer Guidelines downplay the use of the "hypothetical monopolist" and other mechanical tests for judging the likely effects of a merger. The shift matters – and in fact appears to have prompted a less sluggish Antitrust Division to sue Dean Foods in 2009. (The AD and Dean Foods settled that case in 2011.)
  • The court opined that "Plaintiffs should not be able to change their characterization of the conspiracy midstream in order to gain a more favorable outcome" as if courts shouldn't permit a party to adjust its allegations in light of the evidence it discovers and in response to the rulings of the courts. Why not end the case at the pleadings stage if that's the test, eh?
  • The panel sought support for its per se v. rule-of-reason ruling by saying that, "especially at the summary judgment stage, this is not a 'clear cut' case of an obviously anticompetitive restraint", suggesting that the summary judgment rule imposes a standard higher than the test for upholding a jury verdict. If anything, a court must resolve doubts at the summary judgment phase of case in favor of the non-moving party — not against it.
  • The opinion took the fact that the Antitrust Division did not block the deal as proof that it "sanctioned the agreement at issue here, which presumably would not have occurred if the agreement was a per se unreasonable restraint on trade." The AD did no such thing. It's decision not to sue in no way "sanctioned" the deal. And even the low-key Antitrust Division of that era felt enough worry to try to prevent post-merger abuse of market power.

We don't mean to make light of the difficulties of judging antitrust cases. It isn't at all easy. But we do feel strongly that it's really important to get the details right. And, in this case, the panel didn't do that.

Florida CanalThe South Florida Water Management District took funds from the Federal Emergency Management Agency, not to fix hurricane damage to levees and canals but to make "permanent flood control repairs". United States ex rel. Lesinski v. South Florida Water Mgmt. Dist., No. 12-16082 (11th Cir. Jan. 2, 2014).

Or so an ex-employee of the District alleged in a qui tam case under the False Claims Act. The Act allows private citizens to sue on behalf of the federal government for fraud.

But the Act makes only a "person" liable, 31 U.S.C. 3729(a), and "the term 'person' . . . cannot include states or state agencies, at least for qui tam purposes." Id. at 5 (citing Vt. Agency of Nat. Res. v. United States ex rel. Stevens, 529 U.S. 765, 780 (2000)). Nor do "state officers and entities" qualify as a qui tam person "when they act as an 'arm of the state.'" Id. at 4 (quoting Manders v. Lee, 338 F.3d 1304, 1308 (11th Cir. 2003) (en banc).

Does the "arm of the state" test apply to an entity like the District? Yes, the Eleventh Circuit held in Lesinski, joining four other Circuits that had reached the same conclusion. Id. at 6 (citing United States ex rel. Oberg v. Ky. Higher Educ Student Loan Corp., 681 F.3d 575, 579-80 (4th Cir. 2012); Stoner v. Santa Clara Cnty. Office of Educ., 502 F.3d 1116, 1121-22 (9th CIr. 2007); United States ex rel. SIikenga v. Regence Bluecross Blueshield of Utah, 472 F.3d 702, 718 (10th Cir. 2006); United States ex rel. Adrian v. Regents of Univ. of Cal., 363 F.3d 398, 401-02 (5th Cir. 2004)).

That homologous recombination occurs between the targeted DNA and an introduced plasmid that is homologous to a chromosome does not require that the targeted DNA actually be chromosomal DNA. It requires only that the targeted DNA be homologous to chromosomal DNA. Non-chromosomal DNA, such as mitochondrial DNA or DNA in an additional plasmid, can be holmogous to chromosomal DNA.

Institut Pasteur & Universite Pierre et Marie Curie v. Focarino, No. 12-1485 (Fed. Cir. Dec. 30, 2013) (holding that Patent and Trademark Review Board erred in its "obviousness" analysis of patents that relate to putting genes into "eukaryotic chromosomes").

 

TrollPatent law allows a trial court to make the losing party pay the winner's attorneys' fees but only in "exceptional cases". 35 U.S.C. 285. What counts as "exceptional", you say? Good question.

The U.S. Supreme Court plans to answer it in Octane Fitness, LLC v. Icon Health & Fitness, Inc., No. 12-1184 (U.S.), which the Court has set for hearing on February 26, 2014. Octane poses the question of whether the Federal Circuit messed up eight years ago by holding in Brooks Furniture Mfg. v. Dutailier, Inc., 393 F.3d 1378 (Fed. Cir. 2005), that section 285 restricts fee-shifting in favor of a winning defendant to cases in which the plaintiff both made an (objectively) "baseless" claim and did so in (subjective) "bad faith".* 

The "bad faith" bit seems to have come from the Federal Circuit's reading of Professional Real Estate Investors, Inc. v. Columbia Pictures, 508 U.S. 49 (1993). The Court in Professional Real Estate set out a test for judging whether the bringing of a lawsuit runs afoul of antitrust law. Because the first amendment protects the right to sue, the Court held, antitrust liability cannot attach unless the party that defeats a lawsuit proves (1) the claims "objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits" and (2) an "inimical intent" in bringing the baseless claims. Then and only then will the Noerr-Pennington doctrine allow a court to reach the further question of whether an antitrust violation occurred.

Blawgletter gathers that the Federal Circuit now expects the Court in Octane to trash the Brooks Furniture standard. We know that because in Kilopass Technology, Inc. v. Sidense Corp., 13-1193, slip op. at 22 (Fed. Cir. Dec. 26, 2013), a panel went out of its way to cast asparagus on the Brooks Furniture requirement of "subjective bad faith". "While Sidense's arguments may constitute good faith assertions that our law should be something other than it is, as a panel, we are not able to entertain them", the court lamented. Id. But the panel sent the case back to the district court because, it concluded, the court had required proof that Kilopass in fact knew it had baseless claims rather than that it should have known their baselessness.

The panel went further. When Sidense attacked the requirement that it "prove exceptionality by clear and convincing evidence, as our law currently requires", the panel said that "Sidense's argument is not a frivolous one." Id. at 23. But, "while we cannot fault Sidense for making good faith arguments asking that we change our current law, as a penal we may not indulge it." Id.

Supreme Court review in Octane and the Federal Circuit's ruling in Kilopass suggest that the courts pay heed to complaints about possible abuses in patent cases. Which makes you wonder why some in Congress and the White House favor more legislative intervention. Count us skeptical.

 

_______________________

*The Question Presented states the issue thus:

Does the Federal Circuit's promulgation of a rigid and exclusive two-part test for determining whether a case is "exceptional" under 35 U.S.C. 285 improperly appropriate a district court's discretionary authority to award attorney fes to prevailing accused infringers in contravention of statutory intent and this Court's precedent, thereby raising the standard for accused infringers (but not patentees) to recoup fees and encouraging patent plaintiffs to bring spurious patent cases to cause competitive harm or coerce unwarranted settlements from defendants?

The Fourth Circuit reversed a judgment that awarded nothing — zilch — on a winning $50 million False Claims Act claim for civil penalties.

The panel first ruled that FSA relator Kurt Bunk had "standing" to sue under the statute despite his lack of personal injury. The harm to the federal government (from a scheme to fix prices and rig bids on charges for moving goods of U.S. military personnel) satisfied the injury-in-fact requirement for constitutional standing to sue, the panel held. The court thus joined "the two other circuits that have decided the issue." United States ex rel. Bunk v. Gosselin World Wide Moving, N.V., No. 12-1369, slip op. 30 (4th Cir. Dec. 19, 2013) (citing United States ex rel. Stone v. Rockwell Int'l Corp., 282 F.3d 787, 804 (10th Cir. 2002), rev'd on other grounds, 549 U.S. 479 (2007), and Riley v. St. Luke's Episcopal Hosp., 252 F.3d 749, 752 n.3 (5th Cir. 2001) (en banc)).

The court also concluded that the award of zero in civil penalties could not stand. Sure, the panel noted, the statutory requirement of at least a $5,500 penalty for each of 9,136 false invoices — totalling north of $50 million — seemed harsh in light of a paltry $2 million or so in possible losses to the government. But Bunk agreed to take far less — a mere $24 million — as he had a right to do. "Under the circumstances before us, we are satisfied that the entry of judgment on behalf of Bunk for $24 million on the DPM claim would not constitute an excessive fine under the Eighth Amendment. That amount, we think, appropriately reflects the gravity of [price-fixer/bid-rigger] Gosselin's offenses and provides the necessary and appropriate deterrent effect going forward." Id. at 44.