Archive for the ‘Technology’ Category

Big Data and the Fall of Personally Identifiable Information

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There has been no shortage of “Big Data” based start-ups in the last decade, and that trend shows no sign of slowing down. As computing power and sophistication continues to increase, the ability to process large sets of information has led to increasingly pointed insights about the sources of this data.

Take Target for example. When you pay for something at Target using a credit card, not only do you exchange your credit for physical goods, you also open a file. Target records your credit card number, sticks it to a virtual file and begins to fill that file with all sorts of information. Your purchase history is recorded: what you buy, when you bought it, how much you bought. Every time you respond to a survey, or call the customer help line or send them an email, Target is aware. Anytime you interact with Target, the data and meta-data that characterize that interaction are parsed carefully and stored as Target’s institutional knowledge. But it doesn’t end there. As diligent as Target may be in monitoring your interactions, there will inevitably be holes. But fear not! Instead of settling for an inadequate picture of who you are, Target can just buy the rest of it from the other people you do business with. “Target can buy data about your ethnicity, job history, the magazines you read, if you’ve ever declared bankruptcy or got divorced, the year you bought (or lost) your house, where you went to college, what kinds of topics you talk about online, whether you prefer certain brands of coffee, paper towels, cereal or applesauce, your political leanings, reading habits, charitable giving and the number of cars you own.”

And the results speak for themselves. By scrutinizing the mountains of data that it collects from countless individuals, patterns emerge. One particular creepy example involved Target finding out a teenage girl was pregnant before her father did.

But taking a step back, the increase in the specificity and pervasiveness of the insights that can be drawn from data analytics in the age of Big Brother Data poses, besides the issue of immediate discomfort at the individual level (the creepy factor), a broader legal problem.

Much of US data privacy law centers around the idea of Personally Identifiable Information (PII) and restricting its uses in certain contexts. However, the functionality of such a definition, one that places added weight on information that may distinguish an individual identity, relies on the existence of a practical distinction between data that is labeled PII and data that is not.

As Big Data continues to grow in both reach and sophistication, our information economy will start to approach a state in which no information falls outside of the definition of PII. The Target example makes clear that even seemingly benign information, when processed in conjunction with other “harmless” data, can reveal deeply personal facts about an individual. In a world where correlative findings have valid predictive value, the definition of PII is no longer effective in pursuing its goal of protecting individual rights to privacy.

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March 24th, 2015 at 4:59 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

FCC Aims to Flex Muscle to Remove State Barriers to Municipal Internet

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On June 10, 2014, FCC Chairman Tom Wheeler published an op-ed championing municipality-funded broadband. Noting Chattanooga, Tennessee’s past as a 19th century railroad boom town, he juxtaposed the city’s history with its recent decision to fund its own gigabit-per-second infrastructure: “Chattanooga’s investment has not only helped ensure that all its citizens have Internet access, it’s made this mid-size city in the Tennessee Valley a hub for the high-tech jobs people usually associate with Silicon Valley. Amazon has cited Chattanooga’s world-leading networks as a reason for locating a distribution center in the area, as has Volkswagen when it chose Chattanooga as its headquarters for North American manufacturing. Chattanooga is also emerging as an incubator for tech start-ups. Mayor Berke told me people have begun calling Chattanooga “Gig City” – a big change for a city famous for its choo-choos.”

Mr. Wheeler then delivered his punchline: “I believe it is in the best interests of consumers and competition that the FCC exercises its power to preempt state laws that ban or restrict competition from community broadband. Given the opportunity, we will do so.” Fast-forwarding to the present, Chairman Wheeler just announced on Monday that he is circulating a proposed Order to his fellow FCC commissioners encouraging FCC preemption of state laws that stymie municipality-sponsored broadband projects via its granted authority under Section 706 of the Communications Act. The announcement comes a few weeks after President Obama himself pushed for increased support of community internet, with the White House publishing a detailed policy report extolling its virtues.

Proponents applaud the move as facilitating the growth of high-speed internet in communities where major telecoms have spurned them, instead backing legislation in some twenty states that limit the practice. Many argue that these efforts come principally from telecom companies’ self-interest to bolster their monopolistic or duopolistic positions in the ISP market. However, opponents such as the conservative think-tank American Legislative Exchange Council, paint the laws as helpful in safeguarding free markets and limited government while stopping municipal projects from “making markets less attractive to competition because of the government’s expanded role as a service provider.”

What’s clear is that the FCC is poised to take a much more assertive role in Internet regulation, as this is not the only big move the commission has in store this week. The FCC has also recently announced a plan to reclassify high-speed internet as a telecommunications service under Title II of the Communications Act (see MTTLR’s Feb. 4 blog post for more), giving the commission strong authority to champion net-neutrality across ISPs. The move has already prompted a legislative response from Congressional Republicans that would curtail the FCC’s powers. With the U.S. having already fallen behind many other Western countries on both speed and price for its broadband internet, 2015 is shaping up to be a watershed year for the future of the country’s internet.

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February 18th, 2015 at 1:41 pm

The Right to be Forgotten

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This past May, the Court of Justice of the European Union approved “the right to be forgotten” in a case brought by Mario Costeja against a newspaper and Google, a move which fundamentally changed our notions of Internet privacy. More than a decade earlier, Costeja had posted two notices about an auction of his property to pay off debt, and the links to the notices were still appearing in the search results when Googling his name. Costeja brought suit in an effort to remove the links from the search results. The court said the links could be removed if they were found to be “inadequate, irrelevant or no longer relevant.” Under the right to be forgotten, only searches that include a person’s name will provoke the search result removal, which means that the articles or website can still show up in the results if the search is under a different keyword.

The European Union’s right to be forgotten has spurred much concern for free speech campaigners, who claim the ruling unjustly limits what can be published online. Privacy advocates, however, are praising the ruling for allowing people some exercise of power over what content appears about them online. This new right creates a process for people to remove links to embarrassing, outdated, and otherwise unwanted content from Google and other search engines’ results. Courts are directed to balance the public’s interest in access to the information in question and the privacy interests of the person affected by the content.

As of now, the ruling applies only to Google’s local European sites, such as Google.de in Germany, Google.fr in France, and other search engines. This leaves an easy loophole because the content is still available by searching from Google.com. European data protection representatives are, of course, eager to apply the right to be forgotten worldwide in order to make the ruling more effective. Europe’s Article 29 cross-European panel of data protection watchdogs recently announced: “de-listing decisions must be implemented in such a way that they guarantee the effective and complete protection of data subjects’ rights and that EU law cannot be circumvented.” The Article 29 Working Party is comprised of data protection representatives from across Europe and it has very recently published guidelines on the implementation of the right to be forgotten ruling.

The guidelines note, “a balance of the relevant rights and interests has to be made and the outcome may depend on the nature and sensitivity of the processed data and on the interest of the public in having access to that particular information. The interest of the public will be significantly greater if the data subject plays a role in public life.” They also address concerns of how this will impact free speech: “in practice, the impact of the de-listing on individuals’ rights to freedom of expression and access to information will prove to be very limited. When assessing the relevant circumstances, [Data Protection Authorities] will systematically take into account the interest of the public in having access to the information. If the interest of the public overrides the right of the data subject, de-listing will not be appropriate.”

The representatives ask search engines to apply this new right to be forgotten to all of their websites, including Google.com, for enforcement worldwide. Privacy advocates allege Google has been undermining the new right by limiting its application to local European sites, while free-speech advocates say the rule is “a gateway to Internet censorship that would whitewash the Web.” It is up to the data regulators in individual countries to decide whether to enforce the panel’s guidelines, and it remains unclear whether Google will move to implement the rule.

Will federal legislation make consumers’ private information safer?

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After JP Morgan’s computers were penetrated in the early summer of 2014 by hackers, exposing the personal information of the firm’s customers, the firm did not disclose the breach until late in the summer.[1] Over 76 million customers’ contact information—phone numbers and email addresses—were stolen.[2] The Connecticut and Illinois Attorney Generals started scrutinizing JP Morgan’s delayed notification to their customers that their contact information was obtained by hackers, taking issue with the fact that JP Morgan “only revealed…limited details” about the extent of the breach.[3] Both attorneys general are assessing whether JP Morgan complied with their state privacy laws—mainly their state’s data breach notification laws. With the size of JP Morgan and with 76 million customer information breached, it is safe to assume that residents of Connecticut and Illinois were not the only ones whose personal information was compromised.

Data breach has become a big issue not only for JP Morgan, but for many other companies. The same hackers who breached JP Morgan’s security wall attempted to get customer data from Deutsche Bank, Bank of America, Fidelity and other financial institutions.[4] Hackers breached Target and Home Depot’s customer credit information, taking 40 million of Targets’ customer credit card information and 56 million of Home Depot’s customer credit card information.[5] Data breach and data lost seem to be inevitable, whether it is through someone working internally for an organization—à la Edward Snowden—or through hackers— like in the case of JP Morgan, Home Depot and Target. Regardless of how data is lost, there is a need to evaluate the best approach in notify a consumer when someone else obtain a consumer’s personal information.[6]

The matter is made worse since states have varying definitions of what personal information is, and vary in their definitions of the circumstance that might trigger notification and the method in which a breach must be notified.[7] Some states don’t have a timeline in which a company must notify its customers.[8] And when they do have a timeline, it tends to be vague.[9] It took Target three weeks to notify its customers that their customer’s personal data was breached.[10] The matter is made worse since there is no commonplace federal data breach notification law.[11] Big companies like JP Morgan, who are more likely to be targets of hackers, operate in almost all 50 state, and when their customer’s personal data is breached, they have to deal with each state’s data breach laws state-by-state.[12]

As a result, some advocate for the need of a federal data breach law.[13] There’s an assumption that a federal response to data notification would be better than a state by state response. California’s attorney general is currently suing the Kaiser Foundation Health Plan because it took the health plan 5 months to notify its customers about a breach.[14] It may not take long until other attorneys general start scrutinizing Kaiser. Some of Target’s customers in various states are suing Target for its data breach notification as well.[15]

However, a federal response to data breach notification may not be panacea that some advocate. Legislating is a murky process—even murkier when there’s not much precedent to work with. Data breach, at least the digital kind, is relatively new phenomenon. While various states have their own laws on data breach notification, it is not clear which state(s) have the best process. If a federal notification law is enacted, the standards may be less than what some states currently have. A federal response may serve as a way for companies to absolve themselves from data breach notification. Though the state-by-state approach may be cumbersome, a state-by-state approach in the end will provide a better result as issues are litigated out in public and judges learn about best practices in each state. As cases are litigated in court, states will naturally learn from each other. This organic process is may be more likely to produce a better result than a top-down federal process. [16]

[1] Michael Corkery, Jessica Silver-Greenberg and David E. Sanger, Obama Had Security Fears on JPMorgan Data Breach, N.Y. Times (Oct. 8, 2014), http://dealbook.nytimes.com/2014/10/08/cyberattack-on-jpmorgan-raises-alarms-at-white-house-and-on-wall-street/.

[2] Id.

[3] Emily Glazer and AnnaMaria Andriotis, J.P. Morgan Data Breach Draws Scrutiny From State Attorneys General, Wall St. J. (Oct. 4, 2014), http://online.wsj.com/articles/j-p-morgan-data-breach-draws-scrutiny-from-state-attorneys-general-1412376500.

[4] See Corkery, supra note 1.

[5] Robin Sidel, Home Depot’s 56 Million Card Breach Bigger Than Target’s, Wall St. J. (Sept. 18, 2014), http://online.wsj.com/articles/home-depot-breach-bigger-than-targets-1411073571.

[6]Delays revealing data breaches costly: Like JPMorgan, industry practice is hide evidence, JOURNALGAZETTE.COM (Sept. 1, 2014), http://www.journalgazette.net/article/20140901/BIZ/309019956

[7] Reid J. Schar & Kathleen W. Gibbons, Complicated Compliance: State Data Breach Notification Laws, Privacy & Security Law Report, BLOOMBERG (Aug. 9, 2013), http://www.bna.com/complicated-compliance-state-data-breach-notification-laws/.

[8] Kelli B. Grant, Why did Target take so long to report the breach?, CNBC (Dec. 20, 2013), http://www.cnbc.com/id/101287567#

[9] See Luis J. Diaz and Caroline E. Oks, When Fast Is Too Slow: Notification Compliance Following Target’s Data Breach, The Metropolitan Corp. Couns. (Jan. 16, 2014), http://www.metrocorpcounsel.com/articles/27002/when-fast-too-slow-notification-compliance-following-target%E2%80%99s-data-breach#_ftn2

[10] Grant, supra note 8; See Gregg Steinhafel, a message from CEO Gregg Steinhafel about Target’s payment card issues, Target.com, (Dec. 20, 2013), available at https://corporate.target.com/discover/article/Important-Notice-Unauthorized-access-to-payment-ca.

[11] See Judy Greenwald, Federal data breach notification law could simplify process, BUSINESS INSURANCE (Oct 24, 2014), http://www.businessinsurance.com/article/99999999/NEWS070101/399999850

[12] With the exception of Alabama, Kentucky, New Mexico and South Dakota, every state as well as the District of Columbia, Puerto Rico and the U.S. Virgin Islands has enacted legislation requiring notification of security breaches involving personal information. See Schar, supra note 7.

[13] See Jill Joerling, Data Breach Notification Laws: An Argument for A Comprehensive Federal Law to Protect Consumer Data, 32 Wash. U. J.L. & Pol’y 467, 468 (2010); see also Jacqueline May Tom, A Simple Compromise: The Need for A Federal Data Breach Notification Law, 84 St. John’s L. Rev. 1569 (2010).

[14] David Navetta, California Attorney General Files Lawsuit Based on Late Breach Notification, INFORMATION LAWGROUP (Jan. 30, 2014), http://www.infolawgroup.com/2014/01/articles/breach-notice/california-attorney-general-files-lawsuit-based-on-late-breach-notification/.

[15] See Diaz, supra note 9.

[16] See Flora J. Garcia, Data Protection, Breach Notification, and the Interplay Between State and Federal Law: The Experiments Need More Time, 17 Fordham Intell. Prop. Media & Ent. L.J. 693, 697 (2007); see also Brandon Faulkner, Hacking into Data Breach Notification Laws, 59 Fla. L. Rev. 1097 (2007).

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

“We Don’t Care”? Maybe Kanye should…

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140 characters may not seem like enough room to really say something of value. But if Kanye West is saying something, it can be worth a lot more than one may expect. Etsy seller “supervelma” has hand-stitched popular tweets from the rapper Kanye West onto fabric, framed them, and is currently selling them for $45 each on the online craft retailer Etsy. Understandably, West may be upset that someone else is profiting off of his hard-earned Twitter notoriety, but does he have a remedy?

Copyright is the traditional form of protection for works of art. Having a registered copyright can prevent others from reproducing the work, making a derivative piece of art based on your original work, or further diluting the value of your work by displaying it. West could argue a claim of copyright infringement, however he may encounter difficulty proving that a tweet can actually receive copyright protection. Many tweets simply state facts—which cannot be protected by copyrights—or link to news articles, whose headlines are generally found to be insufficiently creative to warrant copyright protection.

It is also debatable whether a tweet like, “Fur pillows are hard to actually sleep on” meets the de minimis requirement of creativity that a copyrighted work must have. Most copyright experts agree that there is not a bright line rule about whether tweets can gain copyright protection; a copyrightable tweet would certainly be the exception rather than the norm because of the observational nature of Twitter.

West—a professional wordsmith—might be able to make a stronger argument than most that his tweets go beyond mere observations, and are artistic expressions that might even make it into future albums. Viewing his tweets as strings of song lyrics may convince a judge that his entire Twitter history, or at least some of his more introspective and personal tweets, would warrant the protective shield of a copyright.

Even without a copyright, West would likely prevail because of the use of his name and “likeness”—in the form of a hand-stitched avatar on the cloth. Most states have held that people are entitled to a “right of publicity,” which recognizes a property right in the commercial value of a person’s identity. The commercial value of the name Kanye West, and the public image he has developed, is clearly what is driving the market for these embroideries. While “supervelma” does offer customers the chance to custom order whatever tweets they would like, West’s tweets are what gained the recognition of popular website Buzzfeed and undoubtedly drove up business.

West certainly has grounds to seek an injunction to stop “supervelma” from continuing to produce these items, and depending on the state statute regarding remedies he could also sue to recover for any damages and may even be able to get exemplary damages if a jury felt they were appropriate. Public figures should be aware that the same media making them more available to fans can also provide more material for appropriation, and it may be worthwhile to increase their monitoring of retail websites like Etsy, Amazon, and eBay for unauthorized products.

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December 1st, 2014 at 1:44 pm

Posted in Commentary,Technology

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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

IRS Ruling Declares Bitcoin Will Be Taxed As Property

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On March 25, 2014, the Internal Revenue Service issued a ruling declaring that it will tax virtual currencies, such as Bitcoin, as property. This ruling could have significant effects on the way that consumers use Bitcoin. The implication of the ruling is that Bitcoin can no longer operate as an alternative form of currency because any transaction using Bitcoin as consideration will lead to a capital gain or loss for the person paying with Bitcoin. Bitcoin fluctuates drastically in value, which means that almost every transaction using Bitcoin will result in some sort of gain or loss which will now be taxable at capital gains rates. So, for example, if a person buys a Bitcoin for $10 and uses it to purchase an item for $15, he or she will be required to pay capital gains tax on the $5 increase in value.

The extreme value fluctuation, however, also explains why the IRS’s ruling may not be as extreme as some commentators suggest. It is, in fact, this value fluctuation which has led consumers to use Bitcoin primarily as an investment medium, like gold, silver, and other commodities, rather than as actual currency. The rapidly changing value of Bitcoin provides plenty of room for investors to try to maximize value by betting on the increase or decrease of the technological commodity.

There are also significant administrative restrictions which will make the IRS’s ruling difficult, if not impossible, to enforce, at least with respect to the average individual. In order to determine the amount of capital gains tax an individual owes to the U.S. government, he or she will have to carefully track all of the purchases made with Bitcoin over the course of the year. If individuals are making multiple purchases with Bitcoin, this will prove to be a very tedious and complicated requirement and is likely to discourage individuals from using Bitcoin as currency in the first place.

In addition to being difficult for individuals to monitor their capital gains, it will be just as complicated for the IRS to figure out how much it should be receiving in taxes from these individuals. Bitcoin’s original purpose was to provide a type of currency that was completely anonymous, which is why it has often been used in funding illegal transactions. The virtual wallets which house Bitcoins are not tied to individuals; this will make it very difficult for the IRS to monitor how much capital gains tax individuals owe on their Bitcoin transactions.

This administrative monitoring gap may provide a new venue for entrepreneurs to develop a platform which provides tracking of an individual’s basis in and purchases using Bitcoin in order to properly determine how much capital gains tax they owe in connection with Bitcoin transactions. But without this type of platform, it is unclear how the IRS will effectively enforce its new ruling.

Sources:

  • http://money.cnn.com/2014/03/31/technology/irs-bitcoin/
  • http://techcitynews.com/2014/03/28/bitcoin-is-property-not-currency-rules-irs/
  • http://techcrunch.com/2014/03/30/bitcoin-slips-in-the-wake-of-the-irss-tax-decision/
  • http://www.coindesk.com/irs-bitcoin-ruling-may-bright-side/
  • http://www.inman.com/2014/03/31/irss-bitcoin-guidance-turns-every-transaction-into-a-reportable-capital-gain-or-loss-at-tax-time/
  • http://www.irs.gov/uac/Newsroom/IRS-Virtual-Currency-Guidance
  • http://www.theatlantic.com/technology/archive/2014/03/why-bitcoin-can-no-longer-work-as-a-virtual-currency-in-1-paragraph/359648/
  • http://www.theguardian.com/technology/2014/mar/31/bitcoin-legally-property-irs-currency

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April 8th, 2014 at 10:27 am

Keurig Walls Off the Garden by Shutting Out Third Party K-cups

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Keurig, the single serve coffee machine produced by Green Mountain, is nearly ubiquitous in offices, homes, and schools around the country. The device rose to popularity on the back of the K-cup, the single serve pods produced by Green Mountain that allowed a single cup of hundreds of different coffee, tea, and chocolate drinks to be brewed in a matter of seconds.

Green Mountain made $3.9 billion in sales in 2012, with 2.7 billion coming from K-cup sales. Keurig was able to maintain strong sales of its K-cups because of several patents on the design and features of the K-cup. However, in September 2012, U.S. Patent Nos. 5,353,765 and 5,840,189 expired. These two patents covered the original K-cup design. Their expiry has opened the door for generic knockoff K-cups to flood the market.

Green Mountain claims that the design covered by these patents is outdated and has been superseded by new and improved designs covered under patents that are still in force, including, U.S. Patent Nos. 6,645,537 and the still pending Application No. 20050051478. However, many generic K-cups are already on the market and work in Keurig’s brewing machines. While Keurig claims that generic K-cups will continue to make up less than 15% of the total K-cup market and stress that their current design is superior to any competing product, Green Mountain is clearly worried about the generic threat.

In early March of this year Green Mountain announced “Keurig 2.0,” an improved brewing device that would be launching as early as the fall of 2014. Among other changes over previous models, the new Keurig brewer will contain technology that prevents generic K-cups from being used. Green Mountain is the latest to introduce protections for their propriety technology, following in the footsteps of Hewlett-Packard and other printer manufacturers who have added technology to their printers preventing generic printer cartridges from being used, or software companies that have added Digital Rights Management (DRM) to their software to prevent piracy.

It is unclear exactly what sort of form this proprietary protection will take, but past forms used in printers include RFID tags. In any case, Green Mountain has made clear that they will still allow third parties to produce K-cups so long as they obtain a license from Green Mountain.

Already, a legal fight is brewing over Green Mountain’s proposed move. TreeHouse Foods and Rogers Family are already suing Green Mountain on antitrust grounds. Besides the antitrust concerns, Green Mountain may have difficulty stopping third parties that circumvent their protections. In 2012, Lexmark installed technology to prohibit generic printer ink refills in their printers and lost an appeal in the 6th Circuit for a copyright and DMCA claim against a company that developed a work around for the protection technology for their generic ink refills. In the near future, the legal precedents set by these cases could have far-reaching effects on DRM and physical proprietary protections across the market.

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April 2nd, 2014 at 4:22 pm

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