A Smooth Patch in a Rough Road? Governmental Transition and Intellectual Property
By Emily Bullis and Stuart P. Meyer
Whenever a new Congress convenes, some IP issues come to the fore while others take a back seat. Transition to a new administration in the executive branch brings about even more significant IP change, and this effect is compounded when a new political party takes charge. Understandably, IP issues have not been making headlines in this post-election cycle, being overshadowed by issues such as controversial executive orders, cabinet nominees, and judicial nominations. Nonetheless, there has been a great deal of activity on both the outgoing and incoming sides, and looking at it all in one place may give us a sense of what is likely to come in 2017 and beyond. Let’s start with a sampling of the late 2016 developments.
In December, the House Judiciary Committee published a one-page Reform of the Copyright Office document that was as notable for what it did not contain as it was for what it proposed. Back in October, the press was abuzz with reports that the newly appointed Librarian of Congress essentially fired the head of the Copyright Office (the Register of Copyright) for copyright policy reasons. The Librarian, Dr. Carla D. Hayden, had been appointed by President Obama and replaced James Billington, who held the post from 1987 to 2015. The timing of the new appointment coincided with an effort to make the Office more independent from Congress, with some calling for it to move from the legislative branch to the executive branch. The Judiciary Committee started the document by acknowledging that the current statutory framework for the Office is outdated and that the Office should be able to “provide independent and timely advice to Congress” and “have autonomy over its budget and technology needs.” After that, however, the “reform” suggested by the document seems more intended to prevent the exercise of independence by the Office. First, the Committee reasserted that the Office should remain part of the legislative branch. Next, it advocated that not only the Librarian of Congress, but the Register as well, be subject to nomination/consent, essentially stating that Dr. Hayden should not attempt to name a new Register herself. Further, the Committee suggested that various committees be formed to “advise the Register on critical issues.” In still a further effort to consolidate power, the Committee suggested that a “small claims system” be hosted by the Office to manage both low value infringement disputes as well as bad faith takedown notices under 17 U.S.C. § 512.
Also in December, the executive branch’s Intellectual Property Enforcement Coordinator submitted to Congress a New Joint Strategic Plan on Intellectual Property Enforcement. This 163-page document is styled as a forward-looking enforcement outline for 2017–19. The Joint Strategic Plan is broken down into four sections. The first section contains a highly detailed explanation of the economic aspects of IP, as well as examples of business models that rely on IP infringement. The second section deals with online IP issues, including details regarding practices and policies to curb abusive activities. The third section outlines how the government is seeking to stem illicit trade via counterfeit and pirated products. The final section is focused on bigger-picture issues regarding IP enforcement. Those interested in these topics will find the Joint Strategic Plan contains a great deal of information on piracy and counterfeiting methods that may not otherwise be known to anyone but specialists. For instance, it explains and illustrates what a “game copier” is, a device that takes a software protected video game, bypasses security measures, and creates unauthorized copies. A lower-tech example is an illustration of counterfeit Duracell batteries covered with a plastic wrapper that makes them appear (for border-crossing purposes) to be merely off-brand batteries. Once on-shore, the coverings are removed and the batteries are sold as if they were the legitimate name-brand product. The danger of such goods is illustrated vividly, with exploding, counterfeit hoverboards and counterfeit bicycle helmets that dramatically failed safety tests. The Joint Strategic Plan urges what it terms a “Whole of Government” approach to IP enforcement that goes far beyond standard Customs policies. For example, the Joint Strategic Plan urges that the government, in its own procurement/acquisition activities, promote supply-chain accountability. It suggests that the government undertake policies that encourage the innovation that takes place in universities. And it emphasizes the unique resources the government has to help stem trade secret misappropriation (which the Joint Strategic Plan universally styles as trade secret “theft” for emphasis on its economic impact).
The IPEC’s FY16 Annual Report on Intellectual Property Enforcement, transmitted to Congress on January 12, 2017, is a 103-page counterpart to the Joint Strategic Plan but looks back on the past year rather than forward. The emphasis in the Annual Report is that the government needs to lead by example (e.g., carefully look for counterfeit products entering the supply chains of the military and the federal government in general). Lest all of IPEC’s activities be viewed as promoting the interests of IP owners, significant consideration is given to the rights of other stakeholders as well. For example, the Annual Report emphasizes the importance of fair use and the exercise of due care so that government enforcement approaches do “not discourage people from building appropriately on the copyrighted works of others.” The Joint Strategic Plan and the Annual Report thus serve as a highly detailed tutorial to help guide the new administration on some of the more important aspects of IP.
Moving from examples of what was done before Inauguration Day to what is likely to happen in the future, we look first to the patent front. While initial reports strongly suggested that Michelle Lee would be replaced as Director of the U.S. Patent and Trademark Office, it now appears that she might remain at her post under the new administration. There has been no official announcement as of yet, and the Department of Commerce leadership webpage lists the position of USPTO Director as “Vacant.” However, several sources, including Representative Darrell Issa (R-CA), confirm that President Trump has decided to keep Lee on as Director. Issa, who holds 37 patents himself, has been a vocal supporter of Lee, calling her “one of the great things to come out of the Obama era” and telling a crowd at January’s Consumer Electronics Show that “we just have to get Michelle to stay on long enough to finish what she started.”
If Lee does not remain at her post, there may well be a gap between appointed directors that could last through the summer, particularly given the federal hiring freeze that the president ordered soon after taking office. Lee herself was not officially sworn in as Director of the USPTO until March 12, 2015 – two years after the last appointed and confirmed Director, David Kappos, resigned and 18 months after the subsequent Acting Director, Teresa Stanek Rea, resigned. With many cabinet and subcabinet positions to fill, recent first-term presidents have taken several months before appointing new USPTO Directors. And who the new administration might tap to replace Lee is anyone’s guess; little was said about the patent system during the campaign, and the new administration has yet to comment publicly on possible successors. Most experts, however, predict a nominee that supports strong IP rights. Rumored successors include former Federal Circuit Chief Judge Randall Rader, Johnson & Johnson’s vice president of IP policy and strategy, Philip S. Johnson (past president of the Intellectual Property Owners Association), Fish & Richardson principal Michael McKeon, and former USPTO Deputy Director Stephen Pinkos. Both Rader and Johnson have confirmed their interest in the position, with Rader saying that his “top priority is to ‘make patents great again’” and Johnson announcing his intention to “continue serving the IP community” when he retires from Johnson & Johnson in February.
Less uncertain in the IP world is the fate of the Trans-Pacific Partnership, President Obama’s signature trade deal. Both major party presidential candidates were highly critical of the TPP during the 2016 campaign, with President Trump calling it a “death blow for American manufacturing.” In keeping with his promise to abandon the trade deal upon entering office, President Trump signed an executive order during his first week in office withdrawing the United States from the negotiating process, calling the move “a great thing for American workers.”
The new administration’s opposition to the TPP is unsurprising given its strong territorial views and protectionist approach to trade, but abandoning the trade agreement will likely have profound implications for IP. Chapter 18 of the TPP addresses the protection and enforcement of IP and contains numerous substantive provisions addressing all areas of IP. The TPP standardizes the term of copyright protection to the life of the author plus 70 years and adopts a two-part fair use analysis that requires member countries to balance the interests of rights holders and users of copyrighted works. With respect to patents, Chapter 18 adopts a 12-month grace period for the applicant’s own disclosures and makes patent term adjustment available for delays in prosecution or market approval for pharmaceuticals. And on the trademark front, Chapter 18 presents a broadening definition of eligible subject matter by expanding the scope of protection to cover sound marks and requiring member countries to make “best efforts” to register scent marks. Finally, it contemplates strong trade secret protection by criminalizing trade secret theft. Though its proponents argue that the TPP’s IP provisions would strengthen protections available to rights holders and boost economic growth in its member countries, the immediate abandonment of the deal suggests that the new administration could take a drastically different approach to trade than President Obama. All that said, the TPP faced an uphill battle even during the Obama administration, so the actual change in policy from abandonment of the TPP proposal is modest at best.
Shortly after his inauguration, President Trump announced two new measures that could place significant constraints on the federal IP system: a “one in, two out” order curtailing federal regulations and a plan to defund the National Endowment for the Arts. As to the former, it is unclear for example what rationale might exist for forcing the USPTO to find two regulations to remove if it wants to clarify by regulation some procedure to be used in Patent Trial and Appeal Board proceedings. The result may well be that ambiguities in USPTO practice do not get clarification during this period. As to defunding the NEA, that endowment provides the bulk of funding for volunteer lawyers for the arts programs, such as those recently added as a result of the America Invents Act’s mandate that the USPTO “shall work with and support intellectual property law associations across the country in the establishment of pro bono programs designed to assist financially under-resourced independent inventors and small businesses.” Without funding from the NEA, these organizations could cease to operate and render the USPTO, part of the executive branch, unable to comply with the congressional mandate, and therefore vulnerable to possible legal action.
Even with these changes, the developments in IP policy that are occurring as a result of the November election are not likely to be nearly as dramatic as in other policy areas. Thus, IP practitioners and their clients can find some solace that they need merely continue worrying about such “mundane” issues as subject matter eligibility for patents, whether the USPTO should engage in what some call “censorship” in examining marks for registration, the extent to which three-dimensional scans of objects should be subject to copyright protection, and whether an employee’s LinkedIn contact list constitutes a trade secret of the employer.
Supreme Court Decision Hasn’t Helped to Clarify Standing in Privacy Cases
By Hanley Chew and Tyler G. Newby
In May 2016, the U.S. Supreme Court issued its long-awaited opinion in Spokeo v. Robins, addressing the Article III standing requirement. In Spokeo, the Supreme Court found that, in order to have standing, a plaintiff must allege “a concrete injury even in the context of a statutory violation” and not merely a “bare procedural violation, divorced from any concrete harm.” A “concrete injury” must be “real, and not abstract.” Moreover, a “concrete injury” may be intangible where the alleged harm “has a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit.” In the eight months since Spokeo’s issuance, several appellate courts have interpreted and applied the case in the privacy context, arriving at different conclusions.
The U.S. Court of Appeals for the Eleventh Circuit was the first appellate court to apply Spokeo in the privacy context in Church v. Accretive Health, Inc. There, the plaintiff alleged that Accretive Health, Inc., a debt collector for Providence Hospital, had violated the Fair Debt Collection Practices Act when it failed to include certain statutorily required disclosures in a letter that the plaintiff received advising her that she owed a debt to the hospital. The plaintiff did not allege that she suffered actual damages from Accretive’s failure to include the required disclosures. Instead, she alleged that, upon receiving the letter, she was “angry” and “cried a lot.” The district court granted Accretive’s summary judgment motion, which asserted that the FDCPA did not apply to the debt. The Eleventh Circuit affirmed the district court’s decision but first addressed the question of whether the plaintiff had standing under Spokeo. The Eleventh Circuit held that the plaintiff had suffered a concrete injury and had standing because “Congress provided [the plaintiff] with a substantive right to receive certain disclosures and [the plaintiff] has alleged that Accretive Health violated that substantive right.”
The U.S. Court of Appeals for the District of Columbia Circuit, the next appellate court to apply Spokeo in the privacy context, adopted a different approach. In Hancock v. Urban Outfitters, Inc., the plaintiffs alleged that two retail stores had violated the District of Columbia’s Use of Consumer Identification Information Act by requesting that the plaintiffs provide their zip codes before processing the plaintiffs’ credit card purchases. The district court dismissed the complaint with prejudice. The D.C. Circuit vacated the district court’s decision and remanded the case for dismissal based on the plaintiffs’ lack of standing. The D.C. Circuit found that the plaintiffs’ “naked assertion that a zip code was requested and recorded without any concrete consequences” did not constitute a concrete injury sufficient to confer standing.
In contrast, in Braitberg v. Charter Communications, Inc., the Eighth Circuit interpreted Spokeo narrowly to reject standing for a technical violation of the Cable Communications Policy Act. In Braitberg, the plaintiff sued Charter Communications for retaining his personal information (i.e., his address, telephone number and Social Security number) after he had canceled his subscription for cable services. The plaintiff alleged that doing so violated the CCPA, which required cable operators to destroy personally identifiable information if the information was no longer necessary for the purpose for which it was collected. The plaintiff alleged that Charter’s retention of his personal information deprived him of the full value of the services for which he paid and violated his federally protected privacy rights. The district court dismissed the complaint, finding that the plaintiff had not alleged a concrete injury sufficient to confer standing. The Eighth Circuit affirmed the dismissal, finding that the plaintiff had alleged only a “bare procedural violation, divorced from any concrete harm.” In particular, the Eighth Circuit noted that the plaintiff had failed to allege that the personal information that Charter had retained had been disclosed or accessed by a third party or that Charter had even used the information itself during the period in question. The plaintiff had failed to identify a “material risk of harm from the retention,” and the “speculative or hypothetical risk” he identified was insufficient.
Just a few days later, the U.S. Court of Appeals for the Sixth Circuit reached the opposite conclusion in a data breach case. In Galaria v. Nationwide Mutual Insurance Co., the plaintiffs sued Nationwide Mutual Insurance Co. for its alleged failure to adopt adequate procedures and measures to protect the plaintiffs’ personal information. The plaintiffs alleged that the Nationwide data breach had created an “imminent, immediate and continuing increased risk” of identity theft and that the plaintiffs had suffered and would continue to suffer both “financial and temporal” costs, such as having to purchase credit reporting services, credit and/or internet monitoring, and/or instituting credit freezes and closing or modifying financial accounts. The district court dismissed the complaints, finding that the plaintiffs lacked Article III standing. The Sixth Circuit reversed the dismissal and remanded the case, concluding that the plaintiffs’ allegations that the theft of their personal information subjected them to a heightened risk of identity theft and caused them to incur mitigation costs, such as credit monitoring, was sufficient to establish standing at the pleading stage. The Sixth Circuit found that “[w]here a data breach targets personal information ... inference[s] can be drawn that the hacker will use the victims’ data for ... fraudulent purposes,” and “although it might not be ‘literally certain’ that Plaintiffs’ data will be misused ... there is a sufficiently substantial risk of harm that incurring mitigation costs is reasonable.”
Most recently, the U.S. Court of Appeals for the Seventh Circuit applied Spokeo restrictively to limit standing to bring lawsuits under the Fair and Accurate Credit Transactions Act. In Myers v. Nicolet Restaurant of de Pere, LLC, the plaintiff alleged that the defendant had violated FACTA because it failed to truncate the credit card expiration data on its receipts. The district court denied the plaintiff’s motion for class certification, finding that the plaintiff failed to establish that classwide issues would “predominate” over issues affecting individual class members. The Seventh Circuit did not address the class certification question. Instead, it vacated the district court’s order and remanded the case with instructions to dismiss. The Seventh Circuit found that the plaintiff had fallen short of the Spokeo standard and failed to allege any harm, or even any “appreciable risk of harm,” arising from the defendant printing credit card expiration dates on its receipts. The plaintiff had only alleged a statutory violation without any actual injury from that violation. Indeed, the Seventh Circuit observed that it was “hard to imagine” how the expiration date on the receipt could have increased the risk of identity theft.
Spokeo provides only limited guidance concerning the standard for Article III standing in actions in which statutory violations or damages are alleged, which is often the situation with privacy and data breach cases. As illustrated above, this lack of specific direction by the Supreme Court has led to varying applications of Spokeo in different circuits. Definitive guidance on the requirements of standing in the privacy context may not be possible unless and until the Supreme Court provides further guidance on the issue.
Is the Lanham Act About to Face the Music? Justices Skeptical in Lee v. Tam Argument
By Eric Ball and Eric D. Dunn
On January 18, 2017, the U.S. Supreme Court heard argument in Lee v. Tam, a closely watched case that pits the Lanham Act against the First Amendment. Overall, the justices seemed skeptical that the law could withstand scrutiny, but also appeared uncertain about how Tam prevailing would affect trademark law.
In 2011, Simon Tam applied to register THE SLANTS as a trademark for his band to “‘take ownership’ of Asian stereotypes.” The U.S. Patent and Trademark Office denied his application under its authority to refuse registration for trademarks that might disparage people, institutions, beliefs or national symbols. See 15 U.S.C. § 1052(a). Tam appealed that decision to the U.S. Court of Appeals for the Federal Circuit, which held en banc that the denial violated Tam’s First Amendment rights.
In its opinion, the Federal Circuit acknowledged that, even without registration, The Slants would be able to say whatever they want about Asian stereotypes, which makes this case unique. But the court held that denying Tam the benefits of registration because his mark was “disparaging” subjected him to an “unconstitutional condition” that, if imposed directly, would violate the First Amendment. This set up a battle between Tam and the government, against the backdrop of another high-profile trademark dispute involving the REDSKINS trademark, over how the government defines who is eligible for what Justice Ginsburg called the “extra benefits” of trademark registration.
At oral argument, Justice Kennedy and Justice Alito quickly put the government on the defensive by forcing it to concede that copyright registration could not be denied on the same basis that Tam had been denied his trademark registration. But it was Justice Kagan that offered the sharpest skepticism. After asking the government to defend its denial of Tam’s trademark as viewpoint neutral, Justice Kagan finally remarked that the government was simply arguing that “it does so much viewpoint-based discrimination that it becomes alright.”
Justice Sotomayor offered the toughest questions to Tam’s counsel, arguing that he was “asking the government to endorse” offensive messages and questioning whether Tam’s speech had been burdened at all. The remaining justices seemed more concerned, however, with sorting out when and how the government might regulate disparagement in other contexts even if it could not do so here.
At the close of oral argument, Justice Kagan touched on why Lee v. Tam has attracted so much attention—and more than 30 amicus briefs—in suggesting that victory for Tam could call into question other parts of the Lanham Act that allow the USPTO to deny registration for marks that are scandalous, descriptive or confusingly similar to existing marks. These determinations often involve the types of content-based and even viewpoint-based judgments that courts rarely permit in other areas of the law. Even Tam’s counsel admitted that some of these provisions would inevitably be struck down if the Court holds that the government cannot deny registration to “disparaging” marks. The extent to which they survive Lee v. Tam will be closely watched.
What’s in Store for Copyright in 2017?
By Nicholas A. Plassaras and Jennifer Stanley
2017 promises to be an exciting year for copyright law. Here are some of the most cutting-edge cases to keep on your radar.
Oracle America, Inc. v. Google Inc., No. 17-1202 (Fed. Cir.), could have a major impact on the future of software development and interoperability. In 2010, Oracle sued Google for using application programming interfaces from Oracle’s Java code in Google’s Android platform. Google argued that the APIs were not entitled to copyright protection. In 2014, the U.S. Court of Appeals for the Federal Circuit disagreed, holding that Google’s use infringed Oracle’s copyrights in the APIs. But last May, a jury in a trial on remand held that Google’s use of the APIs was protected by fair use—a defense to copyright infringement. The case is now headed back to the Federal Circuit, where the court will decide whether there was sufficient evidence to support the finding of fair use.
Capitol Records, LLC v. Vimeo, LLC, No. 16-771 (U.S.), could change how the Digital Millennium Copyright Act shields technology companies from infringement liability for user-uploaded content. In 2009, several music publishing and record companies sued Vimeo, the online video-sharing platform, for copyright infringement over user-uploaded videos that allegedly contained sound recordings owned by the plaintiffs. Many of those sound recordings were recorded before 1972 and, thus, not entitled to federal copyright protection. Last June, the U.S. Court of Appeals for the Second Circuit held that the DMCA—federal law—shields DMCA-compliant internet service providers from state law copyright claims regarding pre-1972 sound recordings. The U.S. Supreme Court has not yet decided whether it will hear the music companies’ appeal.
Lenz v. Universal Music Corp., No. 16-217 (U.S.) (a.k.a. the “Dancing Baby Case”),could raise the bar for rights holders who send DMCA takedown notices to internet service providers. In 2007, Stephanie Lenz uploaded a 29-second video of her baby dancing to Prince’s “Let’s Go Crazy.” Universal sent a DMCA takedown notice to YouTube, and the video was removed. After sending two counter-notices claiming fair use and getting her video reposted, Lenz sued Universal for misrepresenting to YouTube that her video was infringing. In 2015, the U.S. Court of Appeals for the Ninth Circuit held that copyright owners had to subjectively believe a use was infringing before sending a DMCA takedown notice. Lenz’s pending appeal to the Supreme Court goes one step further, arguing that a copyright holder needs an objectively reasonable belief that a use is infringing before it can send a DMCA takedown notice. The Supreme Court has not yet decided whether it will hear the appeal.
Star Athletica, LLC v. Varsity Brands, Inc., No. 15-866 (U.S.), could alter the copyright protections afforded to fashion designs. Varsity Brands, one of the country’s largest suppliers of cheerleading equipment, sued rival Star Athletica for copying its uniform designs. Courts have long considered apparel a “useful article” too utilitarian in nature to warrant copyright protection. Varsity Brands, however, argues that the decorative elements of its uniforms are conceptually separable from the underlying garments, making those elements eligible for copyright protection. The case is currently pending before the Supreme Court. If the justices agree with Varsity Brands’ interpretation of the conceptual separability doctrine, the decision could have far-reaching implications for the use and display of certain fashion designs in other media, such as movies or video games.
Federal Circuit Denies Appeal of IPR Brought by Non-Practicing Entity for Lack of Standing
By Lauren E. Whittemore
After the Patent Trial and Appeal Board found claims of ImmunoGen Inc.’s U.S. Patent No. 8,337,856 nonobvious, non-practicing entity Phigenix, Inc. appealed to the U.S. Court of Appeals for the Federal Circuit. The Federal Circuit dismissed the appeal, finding that Phigenix lacked standing to appeal because it had not established it had suffered an injury in fact.
Prior to filing its inter partes review petition, Phigenix was engaged in litigation with a third company, Genentech, Inc., over a Phigenix patent, U.S. Patent No. 8,080,534. Phigenix asserted that the ’534 patent covered Genentech’s manufacture and sale of a drug, Kadycla. Genentech produces the drug under a “worldwide exclusive license” from ImmunoGen for the ’856 patent. As part of its efforts to commercialize its own patent portfolio, Phigenix filed the petition for inter partes review of the ’856 patent, alleging claims 1–8 were invalid as obvious over various prior art references.
After the PTAB issued a final written decision finding the claims nonobvious, Phigenix filed a Notice of Appeal to the Federal Circuit. ImmunoGen filed a motion to dismiss the appeal for lack of standing before Phigenix filed its opening brief. After Phigenix filed its opening brief, Judge Wallach denied the motion to dismiss, ordering ImmunoGen to address the standing issue in its response brief.
In its decision, the court noted that the Federal Circuit did not yet have a legal standard for demonstrating standing in an appeal from a final agency action. In order to establish a standard, the court considered (1) the burden of production; (2) the evidence an appellant must produce to meet that burden; and (3) when the appellant must produce that evidence.
Based on the U.S. Court of Appeals for the District of Columbia Circuit’s interpretation of Lujan v. Defenders of Wildlife et al., as well as the Federal Circuit’s interpretation of other U.S. Supreme Court decisions, the court concluded that the summary judgment burden of production applies in cases where an appellant seeks review of a final agency action. Regarding what evidence the appellant must produce, the court noted that the D.C. Circuit has held that in cases where the appellant is the object of the agency action, standing will be self-evident. However, where the appellant’s standing is not self-evident, the appellant must submit “arguments and any affidavits or other evidence” sufficient to show standing. Finally, the court found that the appellant must produce the evidence at the appellate level at the earliest possible opportunity, whether in opposing a motion to dismiss or in its opening brief.
Having established the standard, the court reviewed Phigenix’s evidence and found it lacking. As a non-practicing entity focused on licensing, Phigenix was unable to argue that it could be harmed by a finding of infringement. Instead, Phigenix argued that it had suffered actual economic injury because the ’856 patent increased competition between itself and ImmunoGen for licensees and that at least a portion of the licensing revenue received by ImmunoGen would have flowed to Phigenix instead. Phigenix did not rely on any evidence developed in the inter partes review and instead submitted two declarations.
The court found the declarations insufficient. Despite asserting that Phigenix had suffered economic harm due to ImmunoGen’s licensing of the ’856 patent, neither declaration provided evidence sufficient to show that any company had obtained a license to Phigenix’s ’534 patent or that any company had licensed both Phigenix’s ’534 patent and ImmunoGen’s ’856 patent. Therefore, there was simply no actual evidence of harm.
Phigenix’s argument that it suffered an injury because 35 U.S.C. § 141(c) provides a statutory basis for appeal from a PTAB final written decision was also unavailing. The court noted that Phigenix did successfully file for appeal, but because it could not establish standing, the appeal was properly dismissed.
Beyond affirming that 35 U.S.C. § 141(c) does not by itself establish standing, this case demonstrates the challenge for non-practicing entities in appealing adverse PTAB rulings. A party must be able to show actual or imminent injury, for example, by a “lost sale” of a license to a competitor. While the Federal Circuit has provided some guidance here, it remains unclear how much evidence the non-practicing entity would have to marshal in order to establish standing. Lack of ability to appeal an adverse PTAB ruling will no doubt encourage non-practicing entities to more carefully consider whether an inter partes review is worth the time and expense.
Supreme Court Allows the ITC to Continue Addressing Overseas Trade Secret Misappropriation
By Sapna S. Mehta and Patrick E. Premo
The U.S. Supreme Court denied a petition for writ of certiorari in Sino Legend (Zhangjiagang) Chemical Co. Ltd. v. International Trade Commission & SI Group, Inc., thereby rejecting an attempted challenge to the U.S. International Trade Commission’s authority to adjudicate complaints based on trade secret misappropriation that occurs abroad.
Section 337 of the Tariff Act of 1930 confers authority on the ITC to investigate unfair competition in connection with articles imported into the United States. See 19 U.S.C. § 1337(a)(1)(A). If the ITC determines that such unfair competition occurred, it may, among other remedies, order the infringing articles “excluded from entry into the United States” and impose civil penalties for violations of that order. The U.S. Court of Appeals for the Federal Circuit interprets the statute as permitting the ITC “to investigate and grant relief based in part on extraterritorial conduct insofar as it is necessary to protect domestic industries from injuries arising out of unfair competition in the domestic marketplace.” See TianRui Group Co. v. International Trade Commission.
Sino Legend, a resin manufacturer in China, challenged that interpretation after the ITC entered a 10-year exclusion order against it. A U.S. competitor, SI Group, filed a complaint against Sino Legend alleging that two former employees of SI Group’s Chinese affiliate misappropriated SI Group’s trade secrets after leaving to work for Sino Legend. SI Group had unsuccessfully pursued the matter through proceedings in China before bringing a complaint before the ITC. The ITC determined that misappropriation occurred with respect to some protectable trade secrets and found sufficient injury and threat of injury to the domestic industry for rubber resins. Accordingly, it issued an exclusion order for Sino Legend’s infringing products. See In the Matter of Certain Rubber Resins & Processes for Manufacturing Same. Sino Legend appealed, but the Federal Circuit affirmed the ITC’s determination without a written opinion and subsequently denied en banc review. See Sino Legend (Zhangjiagang) Chemical Co. v. International Trade Commission.
In its petition to the Supreme Court, Sino Legend argued that the Federal Circuit incorrectly interpreted § 337—more specifically, that its interpretation of the statute was inconsistent with Supreme Court jurisprudence regarding extraterritoriality of statutes and that the policy implications of the U.S. adjudicating foreign conduct further counsels against its interpretation. Signaling the importance of the issue, the Chinese government’s trade agency—which had also appeared to urge en banc review by the Federal Circuit—filed an amicus brief stressing the importance of comity and China’s sovereignty. The ITC, in opposition to further review, noted that the statute focuses on importation into the United States and resulting domestic effects, even if the actual trade secret misappropriation occurred abroad.
The Supreme Court’s denial of Sino Legend’s petition for review leaves the Federal Circuit’s TianRui decision, and trade secret owners’ resulting recourse against misappropriation abroad, intact. Moreover, the Defend Trade Secrets Act of 2016 created a private right of action—with the ability to obtain damages—for trade secret misappropriation occurring abroad, in certain circumstances. See 18 U.S.C. §§ 1836, 1837 (conferring jurisdiction over conduct outside the United States if the offender is a person or entity in the U.S., or if an act in furtherance of the offense was committed in the U.S.). Accordingly, trade secret owners maintain the option and forum to determine which enforcement avenue best suits their respective needs.