Archive for the ‘Cases’ Category

How the SEC Really Feels About High Frequency Trading

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For fans of Michael Lewis’s Flash Boys, the SEC would like you to know that things are going splendidly on the high frequency crackdown front. In January 2015 alone, the agency brought three high frequency trading (HFT) suits against different sharks in the securities market.

One such shark is high frequency trader Aleksandr Milrud. Milrud layered trades for approximately two years starting in January 2013. Around the globe, Milrud’s recruits used HFT to fraudulently inflate and deflate stock prices to profit upon buying and selling at the altered price. To clear up any lingering confusion on the part of the SEC’s confidential broker informant, Milrud actually referred to the artificial price pressure as “the dirty work.” Milrud further explained that he usually wired his illicit profits to an offshore bank account and later met with an individual who would give him a suitcase full of cash.

The SEC’s complaint confirms that the agency believes “Milrud’s layering scheme was very lucrative. In the course of soliciting the [confidential informant’s] participation in his scheme, Milrud stated that one of his trading groups generated profits of approximately one million dollars per month.” Indeed, the complaint later outlines two examples of Milrud’s profiteering activities: Exhibit 1 involved an order that resulted in a $72.28 profit for the trader. Exhibit 2 clocked in a bit more conservatively at $60.74 worth of illegal profits. Milrud even “directed a wire transfer of $5,000 to a bank account located in New Jersey. The purpose of the transfer was to fund a trading account . . . so that Milrud’s traders could use the account to engage in layering.”

SEC v. Milrud is a relatively humorous anecdote which demonstrates the SEC’s larger high frequency trading (HFT) enforcement strategy: speak loudly and carry a small stick. Consider Milrud himself. He did not build an empire out of his indiscretions. He was brazen, oaf-like, and making a mere $60 to $80 off of any single trade. He played out of bank accounts numbering in the four digits, not with millions or billions dollars-worth of capital. Most importantly, his fraudulent activity was illegal whether he committed it through HFT or inflated stock prices one phantom bid at a time. Milrud’s criminal profits amounted to mere particles of a drop in the bucket of securities trading. But the SEC brought charges anyway and released a press release on their big capture to boot.

It seems obvious that the SEC does want to regulate HFT—but no more than it wants to regulate the securities industry overall. Vowing to determine how HFT truly hurts or helps investors, SEC Commissioner Mary Jo White asked her staff to analyze the potential effects of implementing an anti-disruptive trading rule, of increasing usage of algorithmic trading, and of unequal data feed access by market participants—among a list of additional HFT-related rules and activity. But these requests—stripped of their HFT verbiage—simply look like the analytical gaze to be expected of an industry regulator. The SEC wants to stay vigilant of potential problems, but the SEC does not seem to want to regulate HFT through new or improved means. The SEC wants to apply existing regulatory sanctions to market abuse, regardless of the means through which such abuse is effected.

The SEC is decidedly in favor of what HFT brings to the financial markets. Commissioner White said as much during her speech on June 5, 2014:

“Equity markets are, of course, now dominated by computer algorithms, which generate orders at a volume and speed that have transformed the nature of trading. Importantly, these algorithms are used not only by high-frequency traders, but also by or on behalf of investors. . . . [M]arket quality metrics show that the current market structure is not fundamentally broken, let alone rigged. To the contrary, the equity markets are strong and generally continue to serve well the interests of both retail and institutional investors.”

The SEC will undoubtedly continue to bring actions against HFT firms and players. But look carefully at these complaints and settlements. Consider whether the SEC is cracking down on HFT practices, or if the SEC is going after more traditional market abuse and is simply happy enough to let you think that HFT is in its crosshairs. So longs as it keeps Michael Lewis off Commissioner White’s back.

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March 16th, 2015 at 11:25 pm

Obama Administration to Weigh in on Google v. Oracle Java Dispute

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Last month, the Supreme Court invited input from the Department of Justice regarding the ongoing Java dispute between Google and Oracle, asking for advice on whether the Court should hear the case. According to the Court’s memo, U.S. Solicitor General Donald Verrilli, Jr. “is invited to file a brief in this case expressing the views of the United States.” Technology Analyst Al Hilwa calls this a “true 2015 nail-biter for the industry” because “[t]his is a judgment on what might constitute fair use in the context of software.”

The dispute between Google and Oracle began in 2010, when Oracle sued Google seeking $1 billion in damages on the claim that Google had used Oracle Java software to design the operating system for the Android smartphone. Google wrote its own version of Java when it implemented the Android OS, but in order to allow software developers to write their own programs for Android, Google relied on Java Application Programming Interfaces (“APIs”). These APIs are “specifications that allow programs to communicate with each other,” even though they may be written by different people. Oracle alleged that Google copied 37 packages of prewritten Java programs when it should have licensed them or written entirely new code. Google responded with the argument that such code is not copyrightable under §102(b) of the Copyright Act, which withholds copyright protection from “any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in [an original work of authorship].” Google also argued that the copied elements were “a key part of allowing interoperability between Java and Android.”

In May 2012, the Northern District of California ruled that APIs are not subject to copyright laws, finding that where there exists “only one way to declare a given method functionality, [so that] everyone using that function must write that specific line of code in the same way,” such coding language cannot be subject to copyright. The court also held that “whether an element is necessary for interoperability should have no impact on its protectability.” In May 2014, The U.S. Court of Appeals for the Federal Circuit ruled the other way, finding that Java’s API packages were copyrightable, and remanded the matter to the district court to determine whether Google’s copying constitutes a lawful fair use. In response to the Federal Circuit’s ruling, Google filed a petition this past October for a writ of certiorari. Also, numerous large technology companies including HP and Yahoo have filed amicus briefs in support of Google’s position. Google issued the following statement in response to the Supreme Court’s request for input from the Obama Administration: “We appreciate the Supreme Court’s careful review of this issue and look forward to the Solicitor General’s feedback.”

The Supreme Court will take no further action until the Solicitor General files its brief offering the views of the Obama administration on this copyright dispute. According to Peter Toren, an attorney with Weisbrod Matteis & Copley, “the Court may consider this important for definitive clarification as to what extent software is copyrightable.”

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February 19th, 2015 at 11:41 pm

CVSG Filed in Commil: Is This Yet Another “Fundamental Misunderstanding” of Patent Law by the Federal Circuit?

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On June 2nd, the Supreme Court unanimously reversed the Federal Circuit’s decision in Limelight Networks, Inc. v. Akamai Technologies, Inc. The Court found a defendant could not be held liable for induced infringement of a patent under 35 U.S.C. §271(b) where there has been no infringement under §271(a). In the opinion, the Court had some harsh words for the Federal Circuit. The Court was uncertain why, despite the “simple truth” that liability for inducement must be predicated on direct infringement (to which all parties and the Federal Circuit agreed), the Federal Circuit nonetheless continued its analysis. Ultimately, the Court felt that “the Federal Circuit’s analysis fundamentally misunderstands” method patent infringement.  The amicus brief filed by the Government on October 16th in Cisco Systems, Inc. v. Commil USA, LLC suggests that if and when the Court considers the case, it might reject the Federal Circuit’s decision with comparable vigor.

Commil alleged that Cisco both directly infringed and induced infringement of its method patent for hand-offs of mobile devices between base stations in a wireless network system. During the district court trial (the second, the first being reversed after an attempt to unfairly prejudice the jury by counsel for Cisco), the jury found for Commil on both issues and awarded $63.7 million in damages (with an additional $10.3 million awarded by the court for prejudgment interest and costs). On appeal, Cisco argued that the jury instruction on the claim of induced infringement used the language of negligence as opposed to instructing the jury on the higher scienter requirement the Court has adopted for induced infringement cases. Of greater importance, the Federal Circuit held that Cisco should have been able to admit evidence of its good-faith belief that the patent was invalid which bears upon the “willful knowledge” scienter requirement. As it is “axiomatic that one cannot infringe an invalid patent,” the court reasoned that a “good-faith belief of invalidity” could negate the requisite “specific” intent for induced infringement.

The Federal Circuit’s support for this new defense was hardly unanimous. Judge Newman, in dissent, argued that the majority’s holding was “contrary to the principles of tort liability, codified in [§271(b)].” A subsequent petition to grant rehearing en banc was denied by a 6-5 vote in the face of two additional dissents. All five dissenting judges, led by Judge Reyna, argued that the defense is “without foundation in law and precedent.” The Government’s brief in support of granting certiorari on the issue of the good-faith defense asserted a similar position.

As with the dissenting judges, the Government took issue with the good-faith defense as being “inconsistent with the text, structure, and the purposes of the relevant Patent Act provisions.” Firstly, the Government argued that patent invalidity and non-infringement of the patent are separate defenses under the Patent Act. “The validity of the patent is not an element of direct infringement” so they argued that any belief that the patent is invalid is “irrelevant” to direct infringement. Direct infringement is a strict-liability tort, so the only defense is simply that no direct infringement occurred (i.e. non-infringement).

The brief was particularly concerned with the “axiomatic” proposition that one cannot infringe an invalid patent: it noted that one of the authors of the original Patent Act described the very assertion as a “nonsense statement.” An actual finding of invalidity would preclude liability for infringement, direct or induced, and not “negate the fact of infringement.” Furthermore, infringement is understood as practicing the actions which the granted patent allegedly protects, whether or not that grant should have been made by the PTO. Even if the inducer subjectively believes that the patent is invalid, inducing the conduct amounts to inducing infringement.

Finally, the Government affirmed the belief held by the Federal Circuit dissenting judges that this defense would “fundamentally change” inducement suits, and not necessarily in a manner favorable to patent holders attempting to enforce their rights. Recognizing that some amount of direct patent infringement (perhaps 20 or 30 percent) cannot be enforced in a practical manner, Congress made the policy decision to allow for an induced infringement cause of action in order to provide some recourse in these situations. Recognizing that all defendants may now “quickly obtain an ‘opinion of counsel’ to support a claim of good-faith belief in invalidity,” the Government sees the potential that this defense may “substantially undermine” a primary purpose of §271(b).

Amidst a clear opposition by almost half of the Federal Circuit and the US government, on top of the existing and explicit lack of trust the Supreme Court has in the Federal Circuit’s understanding of method patents (the type allegedly infringed in Commil), it would be surprising if the Court denied cert. on this issue. If the misunderstanding here is as fundamental as in Limelight (as those in opposition present it to be), the Court may soon be forcefully overruling another Federal Circuit inducement decision.

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December 3rd, 2014 at 7:01 pm

Posted in Cases,Technology

Appellate Review of Markman Hearings

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In Markman, the Supreme Court declared that determining the meaning of patent claims, i.e. “claim construction,” is a question to be decided by the court; the Seventh Amendment right to a jury trial does not apply. Markman v. Westview Instruments, Inc., 517 U.S. 370, 372 (1996). Shortly thereafter, in Cybor, the Court of Appeals for the Federal Circuit held that de novo review applied when results from these newly-created ‘Markman hearings’ are appealed. Cybor Corp. v. FAS Technologies, Inc., 138 F.3d 1448, 1451 (Fed. Cir. 1998) (en banc).

 

Earlier this year, the Federal Circuit granted a rehearing en banc to determine if Cybor should be overruled, and what, if any, deference should be given to a District Court’s claim construction. Lighting Ballast Control LLC v. Philips Electronics N. Am. Corp., ___F.3d___, WL 667499 (Fed. Cir. Feb. 21, 2014) (en banc). The court considered three options: (1) reaffirm Cybor and maintain de novo review, (2) overrule Cybor and declare claim construction a question of fact, or (3) adopt a “hybrid” standard of review that affords deference to the District Court’s factual determinations but preserves de novo review of the “ultimate” conclusion. Amici from industrial and technological companies advocated reaffirming Cybor. Academics and practitioners generally favored either the hybrid approach or the overruling of Cybor. Relying on stare decisis, a 6-4 majority reaffirmed Cybor.

 

The majority pointed out that since Cybor was decided, Congress has not acted to overturn it while enacting other patent legislation during that time. They further explained that predictability and consistency favor maintaining the status quo. Consistency is a concern particularly relevant in patent law – a concern which led to the creation of the Federal Circuit over thirty years ago. The majority feared a return of “forum shopping” because the same patent could be subject to conflicting interpretations in different District Courts. Parties would be incentivized to choose a forum with judges likely to interpret patent claims in their favor knowing that reversal on appeal is unlikely.

 

The dissent, appearing to favor the hybrid approach, pointed out that the parties in the present case, almost all amici, and the Supreme Court recognize that claim construction involves some questions of fact. Thus, they vehemently argued that under Rule 52(a)(6), courts of appeal can set aside only those findings of fact that are “clearly erroneous.” Rejecting stare decisis, the dissent argued that “informal deference” is already given to District Courts because they spend “hundreds of hours” learning the relevant technology, so overruling Cybor would “not upset settled expectations.” The dissent also stated that de novo review incentivizes the losing party to appeal, decreases the likelihood of settlement, and increases litigation costs.

 

But Lighting Ballast may not stand for long. In April, the Supreme Court granted certiorari in Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc., which presents a nearly identical question as that in Lighting Ballast. In Teva, the District Court held a Markman hearing and construed the claims in Teva’s favor, avoiding invalidity for indefiniteness. The trial judge relied heavily on Teva’s expert witness to determine the level of ordinary skill in the art at the time of invention. Teva Pharm. USA, Inc. v. Sandoz Inc., 810 F. Supp. 2d 578, 596 (S.D.N.Y. 2011). On appeal, the Federal Circuit explicitly applied de novo review, compared the testimony of the competing expert witnesses, reversed the District Court, and held the claims indefinite. Teva Pharm. USA, Inc. v. Sandoz, Inc., 723 F.3d 1363, 1369 (Fed. Cir. 2013), reh’g en banc denied. Similar to the dissent in Lighting Ballast, Teva claims that Rule 52(a)(6) should have governed the Federal Circuit’s standard of review because determining the level of ordinary skill in the art is a question of fact. Unfortunately, Teva will not be heard until the Supreme Court’s October 2014 term. Until then, Lighting Ballast remains good law; de novo review of claim construction still applies.

 

Guest Post Written by Brian Apel

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July 13th, 2014 at 1:05 pm

Akamai and the Question on Joint Infringement on Method Claims in the Supreme Court

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On April 30, 2014, the Supreme Court of the United States will hear opening arguments [1] for a landmark case found in patent law casebooks, Akamai Technologies, Inc. v. Limelight Networks, Inc., whereby the Federal Circuit, sitting en banc, held in a 6-5 ruling that a defendant may be held liable for inducing patent infringement under 35 U.S.C. § 271(b) when no direct infringement occurred under 35 U.S.C. § 271(a). [2] 35 U.S.C. § 271 states:

  • “(a) … whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.
  • (b) Whoever actively induces infringement of a patent shall be liable as an infringer…”

The Federal Circuit overruled its own precedence set in BMC Resources, Inc. v. Paymentech, L.P., which had previously held that induced infringement requires a single party to commit all steps of a method constituting direct infringement under § 271(a).  In Akamai, neither Limelight nor its customers performed all of the steps, but nevertheless Limelight was found liable because Akamai and its customers jointly performed all steps.  The court reasoned that a party who actually participates in performing the infringing method should be “more culpable than another one who does not perform any steps” but instead induces another to do so. [3]

Arguments supporting Judge Newman’s 35-page dissent include imposing an unfair obligation on businesses to speculate on potential future uses by a third-party buyer or user, the increased discovery costs to an already expensive procedure, and the potential for erroneously imposing liability on supplying non-infringing products and services. [4]  This case is of interest for inventions involving multiple steps, in particular the internet software and hardware industry, as demonstrated by the amicus briefs submitted by technological giants, such as Apple, the Google, Oracle, Red Hat, SAP, CISCO, Xilinx, Altera, HTC, SmugMug, weatherford, the CTIA, Facebook, Inc. and LinkedIn Corporation, The Wireless Association, the Consumer Electronics Association, MetroPCS Wireless, and many others.[5]

Many people will be listening next Wednesday on how the Supreme Court will interpret the word “whoever” in the statute and balance these important policy goals.

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May 2nd, 2014 at 3:53 pm

Tribal Lending Poses Online Obstacle to Effective Payday Regulation

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Recent class action lawsuits and state regulators are confronting head-on the tribal payday lending business model. [1] Tribal lenders are companies that originate small dollar (payday) loans online from servers located within Indian Country, permitting them to largely bypass state regulatory scrutiny. The payday lending industry as a whole generates an estimated $40 billion annually. [2] Online lending is estimated to comprise 36% of the payday lending market. [3]

Payday loans are unsecured short-term loans with fixed fees. For example, an average payday loan might involve a $30 fee for a two-week cash advance of $200. This fee “corresponds to an annual interest rate of almost $400%.” [4] Besides the initial fee, payday lenders profit from the penalty fees accrued by payday borrowers who roll over their loans. In fact, payday lenders amass “90% of their profits from borrowers who roll over their loans five or more times during a year.” [5] Roughly half of all payday loans are renewals of existing loans. [6] As a result, payday loans are “arguably designed to take advantage of consumers’ optimism bias and their consistent underestimation of the risk of nonpayment.” [7]

Online payday lending is on a larger scale than other payday lenders, in the sense that they make larger loans. Advertisements tout available lending of up to $10,000 in one day. But “the catch: if you stick to the suggested payment plan, a $5,000 loan will cost a grand total of $40,872, more than eight times the original loan.” [8]

The regulation of payday lending occurs mostly at the state level through consumer protection laws that set loan terms, fees and conditions. Tribal lending companies assert that tribal sovereign immunity applies to state investigatory enforcement actions, including state consumer protection efforts. [9] Tribal lending has escaped scrutiny from state courts by originating loans with arbitration clauses requiring individual arbitration in tribal jurisdiction.

Tribal payday lender immunity is now being challenged by a number of state actors, including New York, Michigan, Georgia, Oregon, Colorado, Minnesota and Maryland. [10] These states have sued prominent payday lender Western Sky Financial for engaging in in predatory lending in violation of state usury laws. The New York State Department of Financial Services blocked online payday lenders from accessing its Automated Clearing House network, which processes the loan transactions. In August, New York called upon the major commercial banks to assist the state’s efforts; these banks have since cutoff online payday lenders from accessing borrower’s bank accounts. Several tribes operating payday loan companies filed an injunction against the state.

Federal regulators are also stepping forward to challenge tribal lending. The Federal Trade Commission has an ongoing action against Western Sky Financial and its affiliates for alleged violations of the Credit Practices Rule, addressing unfair collection practices, and the Electronic Fund Transfer Act, prescribing preauthorized fund transfers as a condition to an extension of credit. [11]

The Dodd Frank Act created a federal agency to promote consumer protection, the Consumer Financial Protection Bureau (CFPB). The CFPB has not yet issued rules that address the payday lending industry specifically. [12] However, on November 6, 2013, CPFB announced it would accept complaints about payday lending problems from the public. [13] Some speculate enforcement actions and regulations are soon to follow. [14]


[4] Oren Bar-Gill & Elizabeth Warren, Making Credit Safer. 157 U. Pa. L. Rev. 1, 45. (2008) citing Ronald J. Mann & Jim Hawkins, Just Until Payday, 54 UCLA L. Rev. 855, 857 (2007).

[5] Id. at 45.

[6] Id. at 55.

[7] Id.

[9] See e.g. Cash Advance & Preferred Cash Loans v. State 242 P.3d 1099 (Colo. 2010).

[11] F.T.C. v. PayDay Financial LLC, CIV-11-3017 RAL. (D. S.D. Sept. 30 2013) (order granting in part and denying in part plaintiff’s motion for summary judgment).

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December 6th, 2013 at 4:53 pm

Judge has ruled in landmark copyright case: Google Books is here to stay

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If you are anything like the average college student, you have probably scrambled for a book desperately needed for a research project in the last few days before said project is due. The most common fix to this problem is a technique perfected over the last decade – just google it. Google Books contains millions of scanned pages of books that are a click away from being your research project savior.

Eight years ago, all that was thrown into jeopardy when an organization called The Authors Guild filed a class action lawsuit against Google’s mass digitization project for copyright infringement. The Authors Guild, along with several authors whose works appear on Google Books without permission, argue that Google benefits financially from their work, thereby violating copyright law.

On November 14, 2013, however, federal district judge Denny Chin granted Google’s motion for summary judgment, dismissing the suit. In his 30-page opinion, Judge Chin declared that Google Books met the requirements for the “fair use” defense to copyright infringement. This defense permits the fair use of copyrighted works “to fulfill copyright’s very purpose, to promote the Progress of Science and useful Arts.” Judge Chin found that Google Books met the four factors of the fair use defense: 1) nonprofit educational purposes, 2) nature of the copyrighted work, 3) sustainability of the portion used in relation to the copyrighted work as a whole, and 4) effect of the use on the potential market for or value of the copyrighted work. Wired provides a great summary of Google’s fulfillment of the four factors.

In his opinion, Judge Chin largely focused on the many benefits of Google Books, such as its efficiency in obtaining books as a reference tool, increasing general access, and allowing scholars to analyze massive amounts of data. Judge Chin acknowledged the legitimacy of plaintiff’s main argument that Google Books is a for-profit commercial enterprise, but emphasized that the scanned pages themselves are not for sale, and no advertisements are present on the pages containing the snippets of the book. Therefore, Google “does not engage in the direct commercialization of copyrighted books.”

Judge Chin further explained that by providing links to where the book may be purchased, Google Books actually enhances the sale of the books to the benefit of copyright holders. In fact, many authors have noticed online databases such as Google allows readers to find their work, thereby increasing their audiences.

The only factor that Judge Chin did mark as weighing slightly in the plaintiff’s favor is the third: sustainability of the portion used in relation to the copyrighted work as a whole. Google scans the full text of these books, and provides certain sections for different searches. Google does, however, limit the amount of text displayed for each search, and therefore Judge Chin found this factor only “slightly against” a finding of fair use.

In response to the dismissal of its suit, the Authors Guild has declared an intention to appeal after expressing their disappointment and disagreement with the decision. This case, however, has lasted almost a decade, and is not likely to be reversed due to the overwhelming public benefits for Google Books. Not only is Google Books “highly transformative” in the way we research, but it also allows authors to get noticed.

The key sticking point is that this service benefits authors far more than it hinders them. Google Books will most likely be here to stay, much to the relief of student procrastinators (and realistically, everyone else who likes books) everywhere.

For another look at this landmark decision, see http://www.mttlrblog.org/2013/11/24/google-one-step-closer-to-world-domination-seriously/.

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November 24th, 2013 at 12:09 pm

Google One Step Closer To World Domination, Seriously

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In yet another unfortunate turn of events in the Authors Guild’s fight to enforce their interpretation of copyright law, the United States District Court in Manhattan ruled in favor of Google in Authors Guild v. Google, Inc. The court held that by digitizing books and provided only snippets, Google’s use of the material was transformative and not harmful to the market for the original work, this making it a fair use under the Copyright Act. Judge Denny Chin’s view is that such a service will draw in new readers who were previously unaware of the books and thereby boost sales. That is certainly a possibility, but it seems equally likely that Google’s rather generous snippets will allow users to immediately find what they are searching for and never bother with procuring the entire work, thus preventing a purchase.

The fair use factors are highly fact specific and predicting the outcome of fair use cases is often difficult. But some say that this is not a problem here because of another recently decided case in the Second Circuit, Authors Guild, Inc v. HathiTrust. In this case the Authors Guild sued a consortium of academic institutions for partnering with Google to make digitized works available to their educational communities. Judge Chin referenced HathiTrust in the Google decision and said that “if there is no liability for copyright infringement on the libraries’ part, there can be no liability on Google’s part.”

While the decision in HathiTrust is certainly persuasive, it is not necessarily controlling. That case held that the HathiTrust’s use of books scanned by Google for educational purposes was a fair use under the Copyright Act, a statute with multiple provisions that allow educational institutions such as libraries and universities to do certain things that would otherwise be infringement. Google, on the other hand, is amassing a gigantic collection of text and making certain portions almost indiscriminately available. It is naïve to think that Google’s motivations are perfectly aligned with the academic institutions that make up the HathiTrust.

Google is emphatically not a library, university, or other institution devoted to education or serving the public—it is a business. And it’s a business that has been aggressively expanding of late. Like libraries, Google is a place to find information. But unlike libraries, Google does not provide information solely as a way to benefit the community or further education. Instead, Google has very successfully monetized information gathering and storage. Not only do searchers on Google.com view advertisements above and alongside their search results, many Gmail users now see advertisements formatted to look like emails when they open their inbox.

Then, perhaps the most persuasive part of the HathiTrust case was the decision not to enjoin the Orphan Works Project, an attempt to make works of unclear authorship available to the public. Judge Baer, in holding that the issue lacked ripeness, said “[w]ere I to enjoin the OWP, I would do so in the absence of crucial information about what that program will look like should it come to pass and whom it will impact.” Judge Chin may not have considered Google’s penchant for monetizing the previously “un-monetizable,” but it certainly could yet happen.

For another look at this landmark decision, see http://www.mttlrblog.org/2013/11/24/judge-has-ruled-in-landmark-copyright-case-google-books-is-here-to-stay/.

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November 24th, 2013 at 12:09 pm

Nortel Patent Failure Returns to Haunt Google

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Last week on October 31st, a nightmare scenario that Google hoped to avoid came to pass. Attorneys for Rockstar Consortium filed suit in the Eastern District of Texas against Google and seven handheld device makers that employ Google’s Android operating system on their devices. The suit alleges infringement of seven patents all titled “Associative Search Engine.” The patents, 6,098,065; 7,236,969; 7,469,245; 7,672,970; 7,895,178; 7,895,183; and 7,933,883, were filed from 1997 to 2007.

Rockstar Consortium was founded in 2011 and is jointly owned by Apple, Microsoft, Blackberry, Sony, and Ericsson. The consortium was founded to bid on the patent portfolio of Canadian telecom company Nortel, which was liquidated at auction in 2011 when the company went bankrupt. At the time, Google attempted to purchase the patents, likely to avoid just such a lawsuit, but their top bid of $4.4 billion was exceeded by Rockstar, which purchased the patents for $4.5 billion.

Google’s failure to land the patents may now be costly for them as well as Android device makers. Rockstar is part of an emerging new trend in the “patent troll” movement where large corporations assign or give their patents to small companies, for the purpose of reverse engineering existing products and for extracting licensing fees and damages from alleged patent infringers.

This model allows a company with few employees–Rockstar has only about two dozen employees, including ten reverse engineering experts–to obtain license fees from potentially hundreds of tech companies. A small consortium like Rockstar has another advantage in a fight against a tech company like Google, they have no products or business of their own. They cannot be counter sued for infringement because they have no business that would infringe. The crux of the situation is that companies like Apple and Microsoft can inject capital into a Rockstar type partnership, which will then purchase patents and use them to attack Apple and Microsoft competitors while leaving Microsoft and Apple above the fray.

The companies backing Rockstar are likely seeking to put a damper on the rabid growth of the Android platform. However, with the talk of legislation to control patent trolls, the Obama administration’s concern over standards essential patents, and the Justice Department’s comments on Rockstar committing to fair terms for standards essential patent licenses, it will be difficult to predict the outcome of this suit. If Rockstar sees success here, this may become the new battlefront between tech companies in the aftermath of the monstrously expensive Apple v. Samsung case.

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November 8th, 2013 at 2:25 pm

Composers of Hit Song File Declaratory Judgment Action

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Faced with the prospect of copyright infringement lawsuits from Bridgeport Music, Inc. (“Bridgeport”) and Marvin Gaye’s heirs (the “Heirs”), the composers of the multinational hit song “Blurred Lines” filed a declaratory judgment action against Bridgeport and the Heirs in the United States District Court for the Central District of California on August 15, 2013.  Through this action, the composers, namely Pharrell Williams, Robin Thicke, and Clifford Harris, Jr., request that the court declare that “Blurred Lines” does not infringe Bridgeport’s composition “Sexy Ways” or Gaye’s composition “Got to Give It Up.”

The lawsuit alleges that Bridgeport and the Heirs have continually insisted that “Blurred Lines” infringes their respective compositions and have stated an intention to file a lawsuit for copyright infringement if not compensated.   The composers, however, claim that “[t]here are no similarities between plaintiffs’ composition and those the claimants allege they own, other than commonplace musical elements.”  Instead, according to the suit, the composers “created a hit and did it without copying anyone else’s composition.”

Generally, to establish a claim for copyright infringement a plaintiff must establish:  (1) copying of a prior copyrighted work; and (2) a substantial similarity to the prior copyrighted work sufficient to constitute unlawful appropriation.  A plaintiff can generally demonstrate the first element based upon evidence of access to the copyrighted work and similarity.  Here, it does not seem to be disputed that the composers had access to “Sexy Ways” or “Got to Give It Up.”  Indeed, according to the suit, the “intent in producing ‘Blurred Lines’ was to evoke an era.”  The question remains, however, whether the similarities between “Blurred Lines” and the prior works are sufficient to demonstrate “copying” and “substantial similarity.”

To date, neither Bridgeport nor the Heirs have filed an answer to the composers’ complaint.

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September 29th, 2013 at 10:47 am

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