RIIPL is very pleased to present our first student-authored blog post, from Andrew Schwerin. Andrew examines the procedural complexities of bringing declaratory judgment suits against patent holders. The post follows below and will be archived (without this intro) on this page.
Declaratory Judgment Suits Against Patent Trolls: Don’t Try This at Home
by Andrew Schwerin
posted March 19, 2014
Recently, several high-profile settlements between state attorneys general and MPHJ Technologies (known colorfully as “The Scanner Troll”) have put the spotlight on patent trolls, and their effects on business. Minnesota’s agreement, the first of its kind, made MPHJ cease any enforcement without permission of the state attorney general, and prevents MPHJ from assigning its patents to anyone who doesn’t agree to be bound to such terms. More recently, the settlement between New York and MPHJ provides that MPHJ actually investigate before sending any letters, and further provides refunds for businesses who had already taken a license. The news surrounding state-level action, including AG settlements and “anti-trolling” bills has obscured another piece of the puzzle: private suits against patent trolls for declaratory judgment of invalidity, non-infringement, or unenforceability. The question is: when can an alleged infringer sue a troll in their home state?
The short answer is: not often, owing largely to the Court of Appeals for the Federal Circuit’s (CAFC) interpretation of the rules governing subject matter and personal jurisdiction in the federal courts. The lawsuits in which an infringer seeks to go on the offensive and sue a troll first typically come about as actions under state consumer law for damages and actions for declaratory relief. Both actions are determined to “aris[e] under” patent law, though this issue of subject matter is not without controversy, and deserves its own post. Although the Supreme Court ruling in MedImmune v. Genetech reversed the CAFC and relaxed the requirements for a plaintiff-infringer in a declaratory case to show a sufficient Article III case or controversy, the CAFC’s personal jurisdiction rules, which have not come before the Supreme Court, still provide generous shield to out-of-state patentees who assert demand letters.
Declaratory judgment actions come with a special set of concerns: meeting the Article III case or controversy requirement. Prior to the Supreme Court’s decision in MedImmune v. Genetech, a licensee was estopped from suing the patentee for lack of an actual case or controversy. To have a sufficient case or controversy, the licensee was required – in the colorful language of Justice Scalia – to “bet the farm,” or to break their license agreement with the patentee and risk an infringement suit. MedImmune held otherwise: “[T]he requirements of a case or controversy are met. . . where the involuntary or coercive nature of the exaction preserves the right to recover the sums paid or challenge the legality of the claim.” (quoting Altvater v. Freeman) Prior to the MedImmune holding, a license from a patentee served a double purpose: it was a covenant on behalf of the patentee not to sue for infringement, but by implication, the licensee covenanted not to attack the merits of the underlying patent. The MedImmune holding, by allowing a licensee to sue, negated this fringe benefit that the agreement bestowed upon the patentee.
Subsequently, the Federal Circuit, in Prasco v. Medicis, constrained the MedImmune holding and did not find the plaintiff-infringer had a sufficient case or controversy. The infringer cited three things that gave him a reasonable apprehension of an infringement lawsuit: the patentee’s (1) marking of its products with the patents; (2) prior litigious history; and (3) refusal to sign a covenant not to sue. In a totality-of-the-circumstances approach, these three indicia did not amount to a reasonable apprehension of suit. However, in their decision, the CAFC noted that “[T]he defendants have not accused Prasco of infringement or asserted any rights. . .The lack of any evidence that the defendants believe or plan to assert that the plaintiff’s product infringes their patents creates a high barrier to proving that Prasco faces an imminent risk of injury.” While the Prasco court didn’t find a case or controversy in the case before them, they seemed to take heed of the Supreme Court and recognize that a demand letter was sufficient evidence of one. As to the personal jurisdiction implications of a demand letter, this bodes less favorably for infringers.
Similar to the case or controversy doctrine, personal jurisdiction serves to restrain a court’s jurisdiction. It limits the circumstances under which a court may exercise power over an out-of-state defendant. It’s been developed through a long line of cases, from Pennoyer v. Neff through International Shoe Co. v. Washington. With regard to sending cease-and-desist letters, (often coupled with licensing agreements), we need more on-point law. Calder v. Jones provides us with a good test to address these circumstances. When the defendant purposefully directs their conduct into the forum state, the plaintiff can meet a prima facie case for persona jurisdiction over them. The defendant can rebut the case upon showing that jurisdiction is unfair. This final fairness factor is the most flexible, and could hold the key to keeping these cases in court.
Despite the Calder holding that intentional conduct can serve as basis for jurisdiction, the CAFC has consistently held that cease-and-desist letters alone are never a sufficient basis for personal jurisdiction. This rule originated in Red Wing Shoe v. Hockerson-Halberstadt, Inc. In Red Wing Shoe, the defendant, a patentee incorporated in Louisiana, sent cease-and-desist letters to the manufacturer, a Minnesota shoe company. When Red Wing responded to the Hockerson-Halberstadt’s (HHI) demand letters with an infringement analysis showing that their products did not infringe on HHI’s patents, HHI countered with a counter analysis showing that the products did infringe. Red Wing brought suit for declaratory judgment so to “disentangle” their activities from the accusations of infringement.
The Red Wing court found that plaintiff had met his prima facie case: the letters were directed at the forum, and the injury “ar[ose] out of” the contacts, or the letters.” Where the defendant successfully rebutted jurisdiction was on fairness: the court held that patentees’ rights are so broad and durable that it’s only fair that they can inform others of their rights without subjecting themselves to the jurisdiction of the foreign forum. The Red Wing court also noted that policy drove their holding: there is policy of favoring settlements over trials (both in patent law and in litigation generally,) and that demand letters are a resolution by settlement of an infringement dispute, ergo, the policy shouldn’t impede these settlements. The policy driving this decision was even more misguided.
This pro-settlement policy is wrong in several ways. “Resolution” of a dispute through settlement doesn’t necessarily mean payment of a licensing fee on the patentee’s terms. A declaratory lawsuit in the infringer’s home forum could also be settled, though the terms would be more favorable to the alleged infringer. Even more notably, resolution by settlement might be good for the parties, but not the public at large. As Megan La Belle noted in her paper “Patent Law as Public Law,” in a declaratory action, the rewards of victory largely flow to the public, by a finding that the patent’s scope is more constrained than the patentee initially asserted, or that it is even invalid. As a practical matter, because the bulk of discovery materials are the infringer’s, not the patentee’s, an infringer can often – but not always – move to transfer the case to their home forum. However, this is still leaves the infringer-plaintiff a constrained set of options for litigating non-infringement in his home forum: (1) he can wait for the patentee to file suit wherever he might, then move to transfer; (2) he could file for declaratory action in the patentee’s forum, then seek to initiate transfer, which is highly rare. (Discussed below, the AIA has introduced administrative review measures whereby an infringer can challenge the validity of the patent at the USPTO.) The personal jurisdiction rules strongly favor patentees, and, as we’ll see in the next section, absent some extra enforcement measures, the infringer really can’t get personal jurisdiction over the patentee.
From this baseline rule holding cease-and-desist letters alone insufficient, the CAFC has gone to great lengths to deny jurisdiction over patentees sending demand letters from afar. Very few “additional activities” in addition to demand letters can substantiate personal jurisdiction. One predicate for jurisdiction the CAFC has looked for, at least with some consistency, is enforcement through either self-help or through a third party. In Campbell Pet Co. v. Miale, the court found that jurisdiction was appropriate after the patentee attempted to evict the infringer from a trade show. And the CAFC in Radio Systems Corp. v. Accession, Inc. cited with approval the 10th Circuit Case Dudnikov v. Chalk & Vermilion Fine Arts, in which a copyright holder attempted to shut down the alleged infringer’s eBay auction of the infringing works. The Radio Systems court reasoned that although the copyright holder’s extrajudicial takedown of the auction occurred in California, home to eBay, the takedown was directed at the business located in Colorado. However, the Radio Systems court, deciding on the case before them, didn’t even get to the fairness factor because they found that the plaintiff couldn’t even make a prima facie case for personal jurisdiction. When the plaintiff-infringer in Radio Systems had tried to get their own patent, the patentee, upon learning this, made contact with the United States Patent and Trademark Office (USPTO) contest the issuance of the infringer’s patent. The Radio Systems court determined that the patentee’s contact with the USPTO was “directed toward” Virginia (the site of the USPTO) and not toward Tennessee, the site of the alleged infringer’s business.
So what does this personal jurisdiction jurisprudence mean for patent trolls? In effect, it means to keep sending letters – in the absence of other enforcement measures, you won’t be forced to defend a suit in the state where the letters end up. This is particularly vexing for many of the targets of the “Scanner Troll,” who aren’t competing manufacturers, but are end-users of an off-the-shelf technology. It also follows that as long as the CAFC has an exacting standard for personal jurisdiction, we’re not using every tool available to rein in patent trolls.
While “traditional” patent business strategy focused on using patents to block one’s direct marketplace competitor, the Scanner Troll’s model is the exact inverse. There’s no marketplace competitor, since they’re not a manufacturer, and they’re looking to get many small settlements from end-users, not one big one from a manufacturer. The AG settlements have been good, for the most part, since they’ve provided real protection for small businesses who are financially unable to litigate these disputes. There is a cost to them – they might just score quick political points with the public – but this is small in light of the protection they confer. In fact, they might serve as a useful bridge until proposed legislation takes effect at the federal level to serve the same ends of shielding end users from infringement liability.
While these solutions at the state and federal level address this “bottom up” model of trolling, it’s important not to forget that we have litigants who are somewhat willing to litigate these patents, possibly to a final adjudication on the merits. And they might be more willing if the personal jurisdiction rules allowed them to sue in their home forum.
The AIA has made good strides to addressing this problem of bad patents through administrative review proceedings that are cheaper and quicker than litigation. Working in the infringer’s favor, these proceedings do not afford the asserted patent the presumption of validity it has in litigation (thus making it easier to be invalidated.) The flip side for the patentee, per 35 U.S.C. 326(d), is that they can amend (narrow) the scope of the claims in the review process, so they can take fallback positions, rather than lose the claim completely. There are several restrictions to administrative review: (1) post grant review is only available for 9 months immediately following issue; (2) inter partes review is available for the life of the patent, though only on narrower grounds (prior art showing § 102 anticipation or § 103 obviousness); and (3) review is wholly unavailable to a party who has previously sought declaratory judgment of invalidity of the same patent in court.
The review methods radically, but don’t completely, level the playing field once skewed by the CAFC’s personal jurisdiction rules. While the infringer might seek review on grounds of validity, they still can’t seek out review for noninfringement, nor can they seek declaratory judgment of noninfringement in their home state. That is, the claims may be valid, but the infringer may believe the patentee to be exaggerating the scope of its claims. An action to “disentangle” their business interest from the patentee’s rights is still unavailable to them. In light of the three aspects discussed here: (1) the Supreme Court has made it easier for an infringer to find a sufficient case or controversy; (2) personal jurisdiction hinges on something as malleable as “fairness,” and (3 patent troll’s “bottom feeding” business models can rely, to a greater extent, on weaker patents, the CAFC should reconsider this high standard they’ve set and find personal jurisdiction suitable over an out-of-state patentee who sends demand letters.
Why is it a strange case? Well, it is not everyday that a copyright infringement lawsuit is predicated on the putative copyright owner’s fear of death threats due to her fraudulently procured authorial contribution to a work viewed by a religious community as blasphemous. But it is also a strange day when Google, rather than simply taking down a video in response to a DMCA request, decides to take the hard route and challenge the takedown request in federal court. And it is also a strange day when Google “Warns of Harm to Hollywood.” Throw in an absentee essential party (the putative copyright holder in the controversial film) and give all this to an exceptionally creative jurist like Chief Judge Kozinski. It’s no surprise that we get a strange and controversial opinion.
Much of the internet commentary I have seen on the decision has been negative. Eric Goldman had some initial thoughts (“shockwaves through the internet community”) and Rebecca Tushnet has offered a long, sad blow-by-blow account of both the majority opinion and the dissent in the case. There are numerous other accounts offered elsewhere–just Google for them. Notably, though, the majority of the IP experts that I know think the case was decided correctly–on its very strange facts. See, e.g., David Nimmer and Jay Dougherty quoted here.
Before offering my defense of a part of the opinion, I want to state that, as far as the relief granted goes—and especially with respect to the gag order imposed on Google—I am not a fan of this case. I’m also not a fan of the majority’s one-line First Amendment analysis. And there are clearly some very loose procedural and factual things afoot here: there are a multitude of “no evidence” assertions by the majority. However, all that said, there is one part of this opinion that seems more or less okay to me: I think it is plausible for an actor like Garcia to own a copyright interest that is infringed by a film that includes her fixed performance.
Chief Judge Kozinski puts it this way: “[Garcia] claims that her performance within the film is independently copyrightable and that she retained an interest in that copyright.” However, I have now heard various people reject that possibility out of hand, arguing that a film has to be one work, not two. But you can have two works present in one copy. A work can incorporate many other works. Imagine a film about a concert at an art museum. Studios have whole departments that clear the incorporation of prior works into new films. The confusion over Garcia seems to be based on the simultaneous fixation of two works in one copy.
It seems pretty clear that this is possible. I want to illustrate how it is possible with a set of hypotheticals that will culminate with a rather bizarre and unrealistic fact pattern. As a rule of thumb, I do not think bizarre hypotheticals work well as a rhetorical strategy—so kids, please don’t try this at home. But anyway, here goes…
Let’s say a hypothetical actor, we’ll call him Adam, is preparing a performance of Oberon’s soliloquy from A Midsummer Night’s Dream “I know a bank where the wild thyme blows…” He sets up a camcorder, hits the button, and he records his dramatic performance of the (public domain) verses. It’s sort of like what you see here:
Does Adam have a copyright in the resulting audiovisual work? Sure thing. No problem.
So then let’s say Adam sets up the camera and Adam asks Brenda, Adam’s friend, to press the button on the camcorder at the appropriate moment, recording Adam’s performance of the lines. Still no question, I think, that Adam is the sole author of the work. Brenda’s pressing a button at the direction of Adam does not make Brenda the author of the audiovisual work.
Okay, now let’s say Adam is on a stage, Brenda is hitting the button at the back of an auditorium, and—here’s where the hypothetical goes a bit non-linear—1) the stage is divided in two by a large, but thin barrier, 2) Adam is wearing noise-canceling headphones (to enable Adam to concentrate and focus), 3) the camcorder is recording the entire stage, not just Adam’s half, and 4) Adam is reciting a dialogue between Oberon and Titania—but is pausing where Titania speaks and is only reciting Oberon’s lines. These are strange facts, but I think nothing here should change the outcome of the prior hypothetical: Adam has a copyright in the resulting audiovisual work.
So now, one more tweak (you may have seen this coming): Carly, another actor, is, unbeknownst to Adam, doing the same thing as Adam on the other side of the stage divider, except that Carly is reciting and performing Titania’s lines. Carly is also a friend of Brenda and has also requested that Brenda fix the work by pressing the button on the camcorder–so Brenda is fixing two separate works in one copy. To be clear: Adam does not know Carly is performing and Carly does not know Adam is performing (that’s why we have the divider and the headphones).
The resulting work combines both performances and looks like a scene that features Oberon and Titania conversing with each other (though there’s probably not much chemistry!). When Adam and Carly review Brenda’s fixation, it is sort of like the Reese’s Peanut Butter Cup situation, but neither performer is happy with the combination. Neither Adam nor Carly intended to create a joint work, so they did not. Instead, each intended to have a solo performance fixed, which they did. So what looks like one work is actually two works created and captured in one (simultaneous) fixation.
Under the current law, I don’t see why both of these works shouldn’t be protected by copyright. I don’t see why the inclusion of Carly’s work in Adam’s fixation, and vice versa, ought to defeat the copyright interest of the other author. This fact pattern will create many downstream complications, but I don’t see anything in the statute that forecloses it as a possibility.
So, that’s all I wanted to say. And I don’t think it is very controversial! But let me anticipate a few potential objections.
1) Your bizarre hypothetical actually has nothing to do with the facts of Garcia.
Agreed. All I wanted to establish is that it seems possible that two (or more) independent copyrights might be fixed simultaneously in the same copy. Maybe I could have done this much more simply–e.g., by pointing to the case law on interviews.
2) What about the Copyright Office’s refusal to issue a registration to Garcia?
The Copyright Office’s position is understandable. If I worked at the Copyright Office, I’d be rather confused if both Adam and Carly attempted to register separate copyrights and deposited identical copies of Brenda’s recording. That’s basically how I read the Copyright Office refusal of Garcia’s attempted registration: “I’m sorry, but you don’t own the copyright in the film and, to the extent we actually understand what you’re trying to do, we’re not going to do that because we have never done that before.” (I’m paraphrasing.)
3) But this is a joint work!
Well, yes, Garcia did indeed want to merge her authorial contribution into the joint work of Desert Warrior. For that reason, the dissent, and several commentators, have stressed that this is really a case about joint works and the Aalmuhammed opinion should control the outcome.
Garcia’s argument, though, which is accepted by Chief Judge Kozinski, is that she never intended her authorial contribution to be merged into Innocence of the Muslims, a movie which was not Desert Warrior. Hence, since Desert Warrior was not made, she should be able to “de-joint” her contribution to the project, refusing to merge it into the film that she never agreed to make.
This is clearly the bit of the case that has Hollywood worried—doesn’t the Garcia ruling essentially eviscerate the Aalmuhammed ruling and make everyone who contributes to a film (without a work for hire) capable of upsetting the collective apple cart with an infringement claim?
Well… probably not. According to the opinion, the facts supporting this ruling will be “extraordinarily rare.” Here’s how Chief Judge Kozinski limits the case’s reach:
“The film differs so radically from anything Garcia could have imagined when she was cast that it can’t possibly be authorized by any implied license she granted Youssef. A clear sign that Youssef exceeded the bounds of any license is that he lied to Garcia in order to secure her participation, and she agreed to perform in reliance on that lie.”
So Garcia’s claim is a narrow exception to the general rule that an actor has no standing to complain about the edited final version of a film—in fact, Garcia may only apply in situations where an actor is fraudulently induced to contribute to a film. (Pace the facts in Aalmuhammed.)
4) But now every random passerby in a video has a copyright interest!
Again, I don’t think so. Apparently, Garcia spent three and a half days filming. Kozinski thinks Garcia is a very legit actor/author and he cites, in support of her claim, to Stanislavski. So I don’t read the Garcia opinion to say that making breakfast, walking funny, or mugging for a camera is authorship.
That said, I actually like the fact that a minor contribution to a major project is being recognized as authorial and protected. Recall that copyright (under the 1976 Act) subsists upon the fixation of creative expression. There is no requirement of registration and only a minimal requirement of creativity. This means—as David Post put it recently—everything (more or less) is copyrighted! Well, not exactly, but we are certainly surrounded every day by a myriad of unregistered and commercially insignificant copyrights.
When micro-copyrights threaten to interfere with industrial production and distribution, joint work cases like Aalmuhammed v. Lee and Thomson v. Larson brush minor contributors under the rug, centralizing copyright authorship in the hands of the major players. Dominant authors win and non-dominant authors lose. In a broad sense, work-for-hire and joint authorship allow the big money to prevail against the rank-and-file laboring artists. Having spent most of the last year focusing on the myriad contribution of minor amateur-rank authors to online UGC platforms, I find that doctrine rather troubling. I can see, very clearly, why both the content industry and the tech industry would be happy if amateur authors and their micro-copyrights would just go away. Tiny bits of amateur and component authorship, when legally recognized, act like sand in the gears of industrial content production and distribution. Google seems to be worried that more copyrights of a smaller sort will lead to more notice-and-takedown activity on YouTube and elsewhere, cutting into the platform’s bottom line.
But, as the opinion explains, “nothing in the Copyright Act suggests that a copyright interest in a creative contribution to a work simply disappears because the contributor doesn’t qualify as a joint author of the entire work.” And, as David notes, this is the bed that the content industry made for itself. Congress opted in the 1976 Act (and since) for the biggering and biggering of copyright entitlements. If the claim is that the Garcia opinion creates an anti-commons—well, that’s precisely the anti-commons that the maximalist lobbyists have demanded. Sure, it would probably be easier for Google to deal with Hollywood if individual authors had fewer rights. But isn’t copyright supposed to protect authors? And wasn’t granting individual authors (not industries) control over the exploitation of their works the whole point of the Statute of Anne? I often feel like big tech and big content today are joining forces against authors, seeking to have copyright regress to an earlier era. It’s worth noting, I think, that SAG-AFTRA and lawyers representing talent have no problem with this ruling.
Despite the open invitation, I won’t be filing an amicus brief in this case, in part because I think the ruling has other problems. (And I should add that Chief Judge Kozinski’s throwaway lines about amateur “schmucks” who are neither actors nor movie moguls don’t resonate with me.) But on the isolated question of whether Garcia could potentially claim copyright in her authorial contribution, I can’t say I have a problem with this case.