When Can a Company Be Liable for Its Vendor’s Copyright or Patent Infringement?: Hollywood Studios’ IP Headache

The case of Rearden LLC et al. v. The Walt Disney Company et al., Nos. 3:17-cv-04006, 04191 & 04192 (N.D. Cal.), has been covered more in the Hollywood Reporter than in legal publications, but it is both a “Hollywood story” and a case with intellectual property issues that cover the spectrum of patent, copyright and (to a lesser extent) trademark law. The case revolves around a technology called MOVA Contour Reality Capture technology (“MOVA Contour”) that is used to create 3D animated characters that appear more human than ever, as used in movies such as Guardians of Galaxy and many others. Some of Hollywood’s biggest studios hired a vendor, DD3, which used this 3D technology as part of the process of creating 3D characters in the movies. Rather than suing DD3 for any IP violations, however, the plaintiff, Rearden, decided to sue those Hollywood Studios for alleged copyright, patent and trademark infringement. The case thus illustrates various issues and considerations as to when a party can be liable for the acts of a vendor it hires, if the vendor is (allegedly) committing copyright and patent infringement.

For example, on the copyright side, because the Studios created CG characters and movies that were allegedly derivative works of the DD3 software’s output files, one question is whether, and under what circumstances, copyright protection of computer software can extend to the output files created using that software. Other copyright issues presented in this case include determining under what circumstances a party can be vicariously liable when it contracts with another company that infringes a copyright, or when this relationship can result in contributory copyright infringement.

With respect to patent infringement, the case raises a question as to whether a system claim can be found to be directly infringed by a party entering into a contract with a vendor, even when the vendor possesses all the elements of the claim since it owns and uses the requisite hardware and software. If only an indirect infringement claim is plausible for this situation, can knowledge of the patents and that the services constituted infringement be sufficiently pled by pointing only to general IP due diligence performed by the defendant?

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Restoring America’s Leadership in Innovation Act of 2018

On June 28, 2018, Representatives Thomas Massie (R-KY-4), Marcy Kaptur (D-OH-9) and Dana Rohrabacher (R-CA-48) introduced H.R. 6264, the “Restoring America’s Leadership in Innovation Act of 2018.” The bill ambitiously seeks to curtail or repeal numerous provisions of the 2011 America Invents Act (“AIA”) as well as certain recent Supreme Court cases.

The bill calls for the explicit repeal of the AIA’s version of 35 U.S.C. § 102 and the AIA’s post-issuance review provisions.  Section 3 specifies that “a person shall be entitled to a patent where the inventor is first to conceive of the invention and diligently reduces the invention to practice” and that “a person shall be entitled to a one-year grace period before filing an application for a patent, as the grace period existed before the date of the enactment of the Leahy-Smith 24 America Invents Act under section 102 of title 35, United 25 States Code, and with the same meaning of the terms ‘in public use’ and ‘on sale in this country’ as interpreted before the enactment of the Leahy-Smith America Invents Act.”

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Motions to Disqualify Counsel in PTAB Proceedings

Practitioners may not realize that the Patent Trial and Appeal Board (“PTAB”) has a rule expressly providing the ability to disqualify counsel. See 37 C.F.R. § 42.10(d) (“A panel of the Board may disqualify counsel for cause after notice and opportunity for hearing. A decision to disqualify is not final for the purposes of judicial review until certified by the Chief Administrative Patent Judge.”).  That lack of knowledge is likely due to the fact that the PTAB has rarely even allowed a party to file such a motion, and has not yet disqualified counsel.  This contrasts sharply with district court litigation since the beginning of AIA Post-grant proceedings in 2012, where a total of seventeen (17) identified decisions have resulted in counsel disqualification.  The reasons for this trend are explained in more detail below, including a brief examination of the limited record of disqualification attempts at the PTAB.

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When the Words of a Claim Don’t Matter - Federal Circuit Extends Printed Matter Doctrine to Information and Mental Steps in Affirming PTAB’s Obviousness Determination

In Praxair Distribution, Inc. v. Mallinckrodt Hospital Products IP Ltd., 890 F.3d 1024 (Fed. Cir. 2018), the Federal Circuit affirmed the PTAB’s application of the rarely relied on “printed matter doctrine” to conclude that claims directed to a method for providing to a medical provider nitric oxide gas (“NO”) along with “information” concerning i) a recommended dose of inhaled NO for treatment of neonates with hypoxic respiratory failure, and ii) that a certain patient class was at risk of pulmonary edema if treated with NO, were unpatentable as obvious.

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New Types of Section 337 Investigations at the International Trade Commission

Most Section 337 investigations allege violations of intellectual property (“IP”) based rights involving patent, registered trademark, or registered copyright infringement (“statutory IP claims”). In such cases, the complainant must establish that a valid and enforceable U.S. patent, trademark, or copyright is being infringed by the importation into the U.S., the sale for importation, or the sale within the U.S. after importation of an accused article, and that a domestic industry exists or is in the process of being established.

In recent years, however, the ITC has seen a sharp increase in the number of Section 337 investigations alleging other types of claims. For example, in 2011, only three investigations alleged non-patent claims, but in 2016 and 2017 the numbers reached twenty and fifteen, respectively.  The statutory language for Section 337 claims is broad and applies to any “unfair methods of competition and unfair acts in the importation of articles.”  19 USC 1337(a)(1)(A).  Based on this language, complainants have asserted claims of trade secret misappropriation, antitrust violations, false advertising, breach of contract, and tortious interference with contractual relations.[1] Indeed, the language is broad enough to support other types claims that are as yet un-tested at the ITC, such as foreign bribery, use of forced labor, and other violations of international or U.S. law by competitors.  For non-statutory IP claims, complainants must establish that the accused unfair methods or acts have the threat or effect of which is “to destroy or substantially injure an industry in the United States,” “to prevent the establishment of such an industry,” or “to restrain or monopolize trade and commerce in the United States.”  19 USC 1337(a)(1)(A).

This article discusses recent investigations with noteworthy non-statutory IP claims.

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