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January 11, 2019 |
The Impact of the New USPTO Eligibility Guidelines on Artificial Intelligence-related Inventions

Click for PDF On January 4, 2019, the USPTO announced updated guidance to help clarify the process that examiners should undertake when evaluating whether a pending claim is directed to an abstract idea under the Supreme Court’s two-step Alice test and thus not eligible for patent protection under 35 U.S.C. § 101.  Specifically, for determining whether a claim recites an abstract idea, the USPTO defined three categories by extracting and synthesizing concepts identified by the courts:  (1) mathematical concepts, (2) certain methods of organizing human activity, and (3) mental processes.  If the examiner determines that the claim falls into one of these three categories, the examiner will continue to step two.  If not, the  claim should typically not be treated by the examiner as reciting an abstract idea, who should skip step two and instead deem the claim eligible under Section 101 for patenting.[1] As to step two, the USPTO split the inquiry into two separate inquiries for the examiner to undertake if the claim is found to recite an abstract idea.  First, the examiner should determine whether the abstract idea embodied in the claim is integrated into a practical application?  For this inquiry, the examiner looks to whether the claim, as a whole, integrates the abstract idea into a practical application that imposes “meaningful limits,” such that the claim is more than trying to monopolize the abstract idea.  For example, a claim may be a practical application if an additional element reflects an improvement in the functioning of a computer, or an improvement to other technology. Second, if the abstract idea underlying the claim is not integrated into a practical application, does the claim provide an inventive concept?  The USPTO explained that the Federal Circuit has held claims eligible when the additional elements recited in the claims provide “significantly more” than the abstract idea itself.  For example, a claim may be patent eligible if a specific limitation (or combination of limitations) is not well-understood, routine, conventional activity in the field. In essence, the USPTO’s guidance turns the Alice test into a three part test: 1.       Does the claim recite one of the categories the USPTO considers an abstract idea? 2.       If so: a.       is the abstract idea integrated into a practical application, or b.       does the claim provide an inventive concept? What is the Impact of the Guidance on AI-related Inventions? While it obviously remains to be seen what, if any, impact these new guidelines will have on the issuance of software patents generally, and artificial intelligence patents more specifically,  the key question going forward is whether the three categorical exceptions identified by the USPTO will be the exceptions that swallow the rule.  On one hand, by stating that rejections of artificial intelligence claims as abstract ideas should typically only arise if the claim falls into one of three enumerated categories, the USPTO does seem to be providing a more defined path for drafting claims that will avoid issues of patent eligibility.  If nothing else, at least the new guidelines add clarity into how examiners will apply Section 101 rejections and may give applicants a roadmap to overcoming any such rejection.  However, on the other hand, if the categorical exceptions such as the “mathematical concept” or “mental processes” categories are broadly construed by examiners in their application of the guidelines, many AI-related inventions may still be subject to eligibility rejections under Alice. As a result, at least until further experience with the manner in which examiners implement this guidance going forward, the eligibility of a software/AI-related claims likely still will come down to artful claim drafting.  However, there are a few additional takeaways from the guidelines that may be helpful to keep in mind specific to AI patents. Categories of Abstract Ideas Out of the USPTO’s three categories of abstract ideas, the one that, on its face, is most applicable to artificial intelligence is the mathematical concepts grouping.  After all, on some level, all software and AI are made up of a series of mathematical equations.  The USPTO guidance defines mathematical concepts as “mathematical relationships, mathematical formulas or equations, [and] mathematical calculations.”  This definition of mathematical concept is actually fairly narrow.  It does not seem to encompass algorithms more generally, and focuses instead on the actual formulas and calculations.  As a result, while caution is still warranted, by drafting a claim without including formulas and calculations, but instead focusing more on the structure of the algorithm, a patentee may be able to circumvent rejections due to falling into the mathematical concepts category. Drafting AI claims at too high a level can also cause the claims to implicate the USPTO’s other two categories.  The USPTO’s mental processes category—”concepts performed in the mind (including an observation, evaluation, judgment, opinion)”—may be implicated if AI claims are drafted too broadly.  Many of the applications for which we use AI are for concepts that would normally be performed in the human mind, that require observation, evaluation, judgment and opinion.  For example, an autonomous vehicle requires AI that observes obstacles, evaluates risks, and judges what to do next.  Automating human thought and judgment, such as in a car, may fall into this category if the claims are drafted by focusing too much on the function or result, and not enough on the structure or specifics of operation of the claimed invention. The third category, methods of organizing human activity, is defined by the guidance as “fundamental economic principles or practices (including hedging, insurance, mitigating risk); commercial or legal interactions(including agreements in the form of contract; legal obligations, advertising, marketing or sales activities or behaviors; business relations); managing personal behavior or relationships or interactions between people (including social activities, teaching, and following rules or instructions).”  Certain applications of AI may also implicate this category.  For example,  in-home assistants with voice recognition software may follow certain rules or instructions depending on the commands they are given.  As such, a broadly drafted claim covering a response to a verbal command may implicate this category. Step 2A:  Practical Application Even if a claim falls into one of the categories of abstract ideas identified in the guidance, the USPTO explains that practical applications of the abstract idea may still be patentable.  For the purposes of AI-related inventions, two examples in the USPTO’s guidelines are particularly important. First, the USPTO discloses that a claim may be eligible if “an additional element reflects an improvement in the functioning of a computer, or an improvement to other technology.”  The USPTO gives the example of modifying a hyperlink to dynamically produce a dual-source hybrid webpage.  Although it is unclear how this consideration will be applied in practice, this seems like an important consideration for AI-related claims.  AI-related software that improves the functioning of a computer, such as by optimizing multicore processors or voice recognition, may have a better chance of being eligible, if the claims are drafted in such a way as to highlight the specific steps or structure that provide this benefit and the specification clearly delineates those benefits.  It therefore behooves the applicant to specifically claim improvements to technology for certain inventions backed up with specification descriptions.  In addition, patent applicants should be very careful in describing any feature as conventional, even if that means providing a more robust and detailed description in the application.  Often, patent applicants describe components as conventional as a short-cut to avoid longer specifications.  The differences between what the AI is doing in the invention as compared to past uses should be described in detail and its impact on how that difference changes computer performance should be clear. Second, the USPTO explains that a claim may be eligible if “an additional element implements a judicial exception with, or uses a judicial exception in conjunction with, a particular machine or manufacture that is integral to the claim.”  The USPTO uses the example of a machine that uses gravity to improve speed.  This consideration seems to imply that software interacting with, or utilizing, hardware as a key element of the claimed invention will have an easier time being found eligible.  As such, applicants may choose to draft claims that tie their AI-related invention to specifically-required hardware to help show eligibility and include robust descriptions of that tie in the patent specification. Step 2B: Inventive Concept Finally, the “third” prong of the USPTO’s guidelines focuses on the “inventive concept” of the alleged invention.  The USPTO explains that the examiner should consider whether the claim “adds a specific limitation or combination of limitations that are not well-understood, routine, conventional activity in the field, which is indicative that  an inventive concept may be present.”  The impact of this inventive concept inquiry on AI-related claims is somewhat less clear because it is highly dependent on what the examiner considers conventional in the field of AI, or perhaps within specific types of AI-related inventions—e.g., there may well be differences based on application, such as facial recognition versus voice recognition versus autonomous vehicles.  In some cases, it may be possible to argue that particular limitations of the claim are not conventional steps or structures, and claim drafters should keep an eye out for ways to include non-conventional steps and structures in AI-related claims.  However, an applicant faced with a rejection based on this third prong may simply want to consider amending the claim to specifically recite an improvement to a technology or use of a machine to show there is a practical application, as many such inventions are often constructed based on otherwise conventional techniques. In sum, the clarity and specific examples provided in the USPTO’s guidelines may arm applicants for AI-related inventions with a roadmap of how to avoid or overcome Section 101 rejections, such as by avoiding mathematical formulas or tying the claim to a specific improvement or hardware.  Until we have experience with how examiners interpret the guidelines, however, applicants should continue to exercise caution and thoughtful claim drafting. [1] The guidance does note that, in rare cases, an examiner may determine that claims that fall outside of the three identified categories nevertheless recite an abstract idea.  In such cases, the examiner must further justify and explain the reasons for finding the claim to recite an abstract idea, and such determinations will require approval by the Technology Center Director. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work, or the authors: Artificial Intelligence and Automated Systems Group: H. Mark Lyon – Chair, Palo Alto (+1 650-849-5307, mlyon@gibsondunn.com) Brian M. Buroker– Washington, D.C. (+1 202-955-8541, bburoker@gibsondunn.com) Ryan K. Iwahashi – Palo Alto (+1 650-849-5367, riwahashi@gibsondunn.com) Please also feel free to contact any of the following practice group leaders: Intellectual Property Group: Wayne Barsky – Los Angeles (+1 310-552-8500, wbarsky@gibsondunn.com) Josh Krevitt – New York (+1 212-351-4000, jkrevitt@gibsondunn.com) Mark Reiter – Dallas (+1 214-698-3100, mreiter@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 11, 2019 |
2018 Year-End German Law Update

Click for PDF Looking back at the past year’s cacophony of voices in a world trying to negotiate a new balance of powers, it appeared that Germany was disturbingly silent, on both the global and European stage. Instead of helping shape the new global agenda that is in the making, German politics focused on sorting out the vacuum created by a Federal election result which left no clear winner other than a newly formed right wing nationalist populist party mostly comprised of so called Wutbürger (the new prong for “citizens in anger”) that managed to attract 12.6 % of the vote to become the third strongest party in the German Federal Parliament. The relaunching of the Grand-Coalition in March after months of agonizing coalition talks was followed by a bumpy start leading into another session of federal state elections in Bavaria and Hesse that created more distraction. When normal business was finally resumed in November, a year had passed by with few meaningful initiatives formed or significant business accomplished. In short, while the world was spinning, Germany allowed itself a year’s time-out from international affairs. The result is reflected in this year’s update, where the most meaningful legal developments were either triggered by European initiatives, such as the General Data Protection Regulation (“GDPR”) (see below section 4.1) or the New Transparency Rules for Listed German Companies (see below section 1.2), or as a result of landmark rulings of German or international higher and supreme courts (see below Corporate M&A sections 1.1 and 1.4; Tax – sections 2.1 and 2.2 and Labor and Employment – section 4.2). In fairness, shortly before the winter break at least a few other legal statutes have been rushed through parliament that are also covered by this update. Of the changes that are likely to have the most profound impact on the corporate world, as well as on the individual lives of the currently more than 500 million inhabitants of the EU-28, the GDPR, in our view, walks away with the first prize. The GDPR has created a unified legal system with bold concepts and strong mechanisms to protect individual rights to one’s personal data, combined with hefty fines in case of the violation of its rules. As such, the GDPR stands out as a glowing example for the EU’s aspiration to protect the civic rights of its citizens, but also has the potential to create a major exposure for EU-based companies processing and handling data globally, as well as for non EU-based companies doing business in Europe. On a more strategic scale, the GDPR also creates a challenge for Europe in the global race for supremacy in a AI-driven world fueled by unrestricted access to data – the gold of the digital age. The German government could not resist infection with the virus called protectionism, this time around coming in the form of greater scrutiny imposed on foreign direct investments into German companies being considered as “strategic” or “sensitive” (see below section 1.3 – Germany Tightens Rules on Foreign Takeovers Even Further). Protecting sensitive industries from “unwanted” foreign investors, at first glance, sounds like a laudable cause. However, for a country like Germany that derives most of its wealth and success from exporting its ideas, products and services, a more liberal approach to foreign investments would seem to be more appropriate, and it remains to be seen how the new rules will be enforced in practice going forward. The remarkable success of the German economy over the last twenty five years had its foundation in the abandoning of protectionism, the creation of an almost global market place for German products, and an increasing global adoption of the rule of law. All these building blocks of the recent German economic success have been under severe attack in the last year. This is definitely not the time for Germany to let another year go by idly. We use this opportunity to thank you for your trust and confidence in our ability to support you in your most complicated and important business decisions and to help you form your views and strategies to deal with sophisticated German legal issues. Without our daily interaction with your real-world questions and tasks, our expertise would be missing the focus and color to draw an accurate picture of the multifaceted world we are living in. In this respect, we thank you for making us better lawyers – every day. ________________________ TABLE OF CONTENTS 1.      Corporate, M&A 2.      Tax 3.      Financing and Restructuring 4.      Labor and Employment 5.      Real Estate 6.      Compliance 7.      Antitrust and Merger Control 8.      Litigation 9.      IP & Technology 10.    International Trade, Sanctions and Export Controls ________________________ 1.       Corporate, M&A 1.1       Further Development regarding D&O Liability of the Supervisory Board in a German Stock Corporation In its famous “ARAG/Garmenbeck”-decision in 1997, the German Federal Supreme Court (Bundesgerichtshof – BGH) first established the obligation of the supervisory board of a German Stock Corporation (Aktiengesellschaft) to pursue the company’s D&O liability claims in the name of the company against its own management board after having examined the existence and enforceability of such claims. Given the very limited discretion the court has granted to the supervisory board not to bring such a claim and the supervisory board’s own liability arising from inactivity, the number of claims brought by companies against their (former) management board members has risen significantly since this decision. In its recent decision dated September 18, 2018, the BGH ruled on the related follow-up question about when the statute of limitations should start to run with respect to compensation claims brought by the company against a supervisory board member who has failed to pursue the company’s D&O liability claims against the board of management within the statutory limitation period. The BGH clarified that the statute of limitation applicable to the company’s compensation claims against the inactive supervisory board member (namely ten years in case of a publicly listed company, otherwise five years) should not begin to run until the company’s compensation claims against the management board member have become time-barred themselves. With that decision, the court adopts the view that in cases of inactivity, the period of limitations should not start to run until the last chance for the filing of an underlying claim has passed. In addition, the BGH in its decision confirmed the supervisory board’s obligation to also pursue the company’s claims against the board of management in cases where the management board member’s misconduct is linked to the supervisory board’s own misconduct (e.g. through a violation of supervisory duties). Even in cases where the pursuit of claims against the board of management would force the supervisory board to disclose its own misconduct, such “self-incrimination” does not release the supervisory board from its duty to pursue the claims given the preponderance of the company’s interests in an effective supervisory board, the court reasoned. In practice, the recent decision will result in a significant extension of the D&O liability of supervisory board members. Against that backdrop, supervisory board members are well advised to examine the existence of the company’s compensation claims against the board of management in a timely fashion and to pursue the filing of such claims, if any, as soon as possible. If the board of management’s misconduct is linked to parallel misconduct of the supervisory board itself, the relevant supervisory board member – if not exceptionally released from pursuing such claim and depending on the relevant facts and circumstances – often finds her- or himself in a conflict of interest arising from such self-incrimination in connection with the pursuit of the claims. In such a situation, the supervisory board member might consider resigning from office in order to avoid a conflict of interest arising from such self-incrimination in connection with the pursuit of the claims. Back to Top 1.2       Upcoming New Transparency Rules for Listed German Companies as well as Institutional Investors, Asset Managers and Proxy Advisors In mid-October 2018, the German Federal Ministry of Justice finally presented the long-awaited draft for an act implementing the revised European Shareholders’ Rights Directive (Directive (EU) 2017/828). The Directive aims to encourage long-term shareholder engagement by facilitating the communication between shareholders and companies, in particular across borders, and will need to be implemented into German law by June 10, 2019 at the latest. The new rules primarily target listed German companies and provide some major changes with respect to the “say on pay” provisions, as well as additional approval and disclosure requirements for related party transactions, the transmission of information between a stock corporation and its shareholders and additional transparency and reporting requirements for institutional investors, asset managers and proxy advisors. “Say on pay” on directors’ remuneration: remuneration policy and remuneration report Under the current law, the shareholders determine the remuneration of the supervisory board members at a shareholder meeting, whereas the remuneration of the management board members is decided by the supervisory board. The law only provides for the possibility of an additional shareholder vote on the management board members’ remuneration if such vote is put on the agenda by the management and supervisory boards in their sole discretion. Even then, such vote has no legal effects whatsoever (“voluntary say on pay”). In the future, shareholders of German listed companies will have two options. First, the supervisory board will have to prepare a detailed remuneration policy for the management board, which must be submitted to the shareholders if there are major changes to the remuneration, and in any event at least once every four years (“mandatory say on pay”). That said, the result of the vote on the policy will continue to remain only advisory. However, if the supervisory board adopts a remuneration policy that has been rejected by the shareholders, it will then be required to submit a reviewed (not necessarily revised) remuneration policy to the shareholders at the next shareholders’ meeting. With respect to the remuneration of supervisory board members, the new rules require a shareholders vote at least once every four years. Second, at the annual shareholders’ meeting the shareholders will vote ex post on the remuneration report (which is also reviewed by the statutory auditor) which contains the remuneration granted to the present and former members of the management board and the supervisory board in the past financial year. Again, the shareholders’ vote, however, will only be advisory. Both the remuneration report including the audit report, as well as the remuneration policy will have to be made public on the company’s website for at least ten years. Related party transactions German stock corporation law already provides for various safeguard mechanisms to protect minority shareholders in cases of transactions with major shareholders or other related parties (e.g. the capital maintenance rules and the laws relating to groups of companies). In the future, in the case of listed companies, these mechanisms will be supplemented by a detailed set of approval and transparency requirements for transactions between the company and related parties. Material transactions exceeding certain thresholds will require prior supervisory board approval. A rejection by the supervisory board can be overcome by shareholder vote. Furthermore, a listed company must publicly disclose any such material related party transaction, without undue delay over media providing for a Europe-wide distribution. Identification of shareholders and facilitation of the exercise of shareholders’ rights Listed companies will have the right to request information on the identity of their shareholders, including the name and both a postal and electronic address, from depositary banks, thus allowing for a direct communication line, also with respect to bearer shares (“know-your-shareholder”). Furthermore, depositary banks and other intermediaries will be required to pass on important information from the company to the shareholders and vice versa, e.g. with respect to voting in shareholders’ meetings and the exercise of subscription rights. Where there is more than one intermediary in a chain, the intermediaries are required to pass on the respective information within the chain. In addition, companies will be required to confirm the votes cast at the request of the shareholders thus enabling them to be certain that their votes have been effectively cast, including in particular across borders. Transparency requirements for institutional investors, asset managers and proxy advisors German domestic institutional investors and asset managers with Germany as their home member state (as defined in the applicable sector-specific EU law) will be required (i) to disclose their engagement policy, including how they monitor, influence and communicate with the investee companies, exercise shareholders’ rights and manage actual and potential conflicts of interests, and (ii) to report annually on the implementation of their engagement policy and disclose how they have cast their votes in the general meetings of material investee companies. Institutional investors will further have to disclose (iii) consistency between the key elements of their investment strategy with the profile and duration of their liabilities and how they contribute to the medium to long-term performance of their assets, and, (iv) if asset managers are involved, to disclose the main aspects of their arrangement with the asset manager. The new disclosure and reporting requirements, however, only apply on a “comply or explain” basis. Thus, investors and asset managers may choose not to make the above disclosures, provided they give an explanation as to why this is the case. Proxy advisors will have to publicly disclose on an annual basis (i) whether and how they have applied their code of conduct based again on the “comply or explain” principle, and (ii) information on the essential features, methodologies and models they apply, their main information sources, the qualification of their staff, their voting policies for the different markets they operate in, their interaction with the companies and the stakeholders as well as how they manage conflicts of interests. These rules, however, do not apply to proxy advisors operating from a non-EEA state with no establishment in Germany. The present legislative draft is still under discussion and it is to be expected that there will still be some changes with respect to details before the act becomes effective in mid-2019. Due to transitional provisions, the new rules on “say on pay” will have no effect for the majority of listed companies in this year’s meeting season. Whether the new rules will actually promote a long-term engagement of shareholders and have the desired effect on the directors’ remuneration of listed companies will have to be seen. In any event, both listed companies as well as the other addressees of the new transparency rules should make sure that they are prepared for the new reporting and disclosure requirements. Back to Top 1.3       Germany Tightens Rules on Foreign Takeovers Even Further After the German government had imposed stricter rules on foreign direct investment in 2017 (see 2017 Year-End German Law Update under 1.5), it has now even further tightened its rules with respect to takeovers of German companies by foreign investors. The latest amendment of the rules under the German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung, “AWV“) enacted in 2018 was triggered, among other things, by the German government’s first-ever veto in August 2018 regarding the proposed acquisition of Leifeld Metal Spinning, a German manufacturer of metal forming machines used in the automotive, aerospace and nuclear industries, by Yantai Taihai Corporation, a privately-owned industry group from China, on the grounds of national security. Ultimately, Yantai withdrew its bid shortly after the German government had signaled that it would block the takeover. On December 29, 2018, the latest amendment of the Foreign Trade and Payments Ordinance came into force. The new rules provide for greater scrutiny of foreign direct investments by lowering the threshold for review of takeovers of German companies by foreign investors from the acquisition of 25% of the voting rights down to 10% in circumstances where the target operates a critical infrastructure or in sensitive security areas (defense and IT security industry). In addition, the amendment also expands the scope of the Foreign Trade and Payments Ordinance to also apply to certain media companies that contribute to shaping the public opinion by way of broadcasting, teleservices or printed materials and stand out due to their special relevance and broad impact. While the lowering of the review threshold as such will lead to an expansion of the existing reporting requirements, the broader scope is also aimed at preventing German mass media from being manipulated with disinformation by foreign investors or governments. There are no specific guidelines published by the German government as it wants the relevant parties to contact, and enter into a dialog with, the authorities about these matters. While the German government used to be rather liberal when it came to foreign investments in the past, the recent veto in the case of Leifeld as well as the new rules show that in certain circumstances, it will become more cumbersome for dealmakers to get a deal done. Finally, it is likely that the rules on foreign investment control will be tightened even further going forward in light of the contemplated EU legislative framework for screening foreign direct investment on a pan-European level. Back to Top 1.4       US Landmark Decision on MAE Clauses – Consequences for German M&A Deals Fresenius wrote legal history in the US with potential consequences also for German M&A deals in which “material adverse effect” (MAE) clauses are used. In December 2018, for the first time ever, the Supreme Court of Delaware allowed a purchaser to invoke the occurrence of an MAE and to terminate the affected merger agreement. The agreement included an MAE clause, which allocated certain business risks concerning the target (Akorn) for the time period between signing and closing to Akorn. Against the resistance of Akorn, Fresenius terminated the merger agreement based on the alleged MAE, arguing that the target’s EBITDA declined by 86%. The decision includes a very detailed analysis of an MAE clause by the Delaware courts and reaffirms that under Delaware law there is a very high bar to establishing an MAE. Such bar is based both on quantitative and qualitative parameters. The effects of any material adverse event need to be substantial as well as lasting. In most German deals, the parties agree to arbitrate. For this reason, there have been no German court rulings published on MAE clauses so far. Hence, all parties to an M&A deal face uncertainty about how German courts or arbitration tribunals would define “materiality” in the context of an MAE clause. In potential M&A litigation, sellers may use this ruling to support the argument that the bar for the exercise of the MAE right is in fact very high in line with the Delaware standard. It remains to be seen whether German judges will adopt the Delaware decision to interpret MAE clauses in German deals. Purchasers, who seek more certainty, may consider defining materiality in the MAE clause more concretely (e.g., by reference to the estimated impact of the event on the EBITDA of the company or any other financial parameter). Back to Top 1.5       Equivalence of Swiss Notarizations? The question whether the notarization of various German corporate matters may only be validly performed by German notaries or whether some or all of these measures may also be notarized validly by Swiss notaries has long since been the topic of legal debate. Since the last major reform of the German Limited Liability Companies Act (Gesetz betreffend Gesellschaften mit beschränkter Haftung – GmbHG) in 2008 the number of Swiss notarizations of German corporate measures has significantly decreased. A number of the newly introduced changes and provisions seemed to cast doubt on the equivalence and capacity of Swiss notaries to validly perform the duties of a German notary public who are not legally bound by the mandatory, non-negotiable German fee regime on notarial fees. As a consequence and a matter of prudence, German companies mostly stopped using Swiss notaries despite the potential for freely negotiated fee arrangements and the resulting significant costs savings in particular in high value matters. However, since 2008 there has been an increasing number of test cases that reach the higher German courts in which the permissibility of a Swiss notarization is the decisive issue. While the German Federal Supreme Court (Bundesgerichtshof – BGH) still has not had the opportunity to decide this question, in 2018 two such cases were decided by the Kammergericht (Higher District Court) in Berlin. In those cases, the court held that both the incorporation of a German limited liability company in the Swiss Canton of Berne (KG Berlin, 22 W 25/16 – January 24, 2018 = ZIP 2018, 323) and the notarization of a merger between two German GmbHs before a notary in the Swiss Canton of Basle (KG Berlin, 22 W 2/18 – July 26, 2018 = ZIP 2018, 1878) were valid notarizations under German law, because Swiss notaries were deemed to be generally equivalent to the qualifications and professional standards of German-based notaries. The reasons given in these decisions are reminiscent of the case law that existed prior to the 2008 corporate law reform and can be interpreted as indicative of a certain tendency by the courts to look favorably on Swiss notarizations as an alternative to German-based notarizations. Having said that and absent a determinative decision by the BGH, using German-based notaries remains the cautious default approach for German companies to take. This is definitely the case in any context where financing banks are involved (e.g. either where share pledges as loan security are concerned or in an acquisition financing context of GmbH share sales and transfers). On the other hand, in regions where such court precedents exist, the use of Swiss notaries for straightforward intercompany share transfers, mergers or conversions might be considered as an alternative on a case by case basis. Back to Top 1.6       Re-Enactment of the DCGK: Focus on Relevance, Function, Management Board’s Remuneration and Independence of Supervisory Board Members Sixteen years after it has first been enacted, the German Corporate Governance Code (Deutscher Corporate Governance Kodex, DCGK), which contains standards for good and responsible governance for German listed companies, is facing a major makeover. In November 2018, the competent German government commission published a first draft for a radically revised DCGK. While vast parts of the proposed changes are merely editorial and technical in nature, the draft contains a number of new recommendations, in particular with respect to the topics of management remuneration and independence of supervisory board members. With respect to the latter, the draft now provides a catalogue of criteria that shall act as guidance for the supervisory board as to when a shareholder representative shall no longer be regarded as independent. Furthermore, the draft also provides for more detailed specifications aiming for an increased transparency of the supervisory board’s work, including the recommendation to individually disclose the members’ attendance of meetings, and further tightens the recommendations regarding the maximum number of simultaneous mandates for supervisory board members. Moreover, in addition to the previous concept of “comply or explain”, the draft DCGK introduces a new “apply and explain” concept, recommending that listed companies also explain how they apply certain fundamental principles set forth in the DCGK as a new third category in addition to the previous two categories of recommendations and suggestions. The draft DCGK is currently under consultation and the interested public is invited to comment upon the proposed amendments until the end of January 2019. Since some of the proposed amendments provide for a rather fundamentally new approach to the current regime and would introduce additional administrative burdens, it remains to be seen whether all of the proposed amendments will actually come into force. According to the current plan, following a final consultancy of the Government Commission, the revised version of the DCGK shall be submitted for publication in April 2019 and would take effect shortly thereafter. Back to Top 2.         Tax On November 23, 2018, the German Federal Council (Bundesrat) approved the German Tax Reform Act 2018 (Jahressteuergesetz 2018, the “Act”), which had passed the German Federal Parliament (Bundestag) on November 8, 2018. Highlights of the Act are (i) the exemption of restructuring gains from German income tax, (ii) the partial abolition of and a restructuring exemption from the loss forfeiture rules in share transactions and (iii) the extension of the scope of taxation for non-German real estate investors investing in Germany. 2.1       Exemption of Restructuring Gains The Act puts an end to a long period of uncertainty – which has significantly impaired restructuring efforts – with respect to the tax implications resulting from debt waivers in restructuring scenarios (please see in this regard our 2017 Year-End German Law Update under 3.2). Under German tax law, the waiver of worthless creditor claims creates a balance sheet profit for the debtor in the amount of the nominal value of the payable. Such balance sheet profit is taxable and would – without any tax privileges for such profit – often outweigh the restructuring effect of the waiver. The Act now reinstates the tax exemption of debt waivers with retroactive effect for debt waivers after February 8, 2017; upon application debt waivers prior to February 8, 2017 can also be covered. Prior to this legislative change, a tax exemption of restructuring gains was based on a restructuring decree of the Federal Ministry of Finance, which has been applied by the tax authorities since 2003. In 2016, the German Federal Fiscal Court (Bundesfinanzgerichtshof) held that the restructuring decree by the Federal Ministry of Finance violates constitutional law since a tax exemption must be legislated by statute and cannot be based on an administrative decree. Legislation was then on hold pending confirmation from the EU Commission that a legislative tax exemption does not constitute illegal state aid under EU law. The EU Commission finally gave such confirmation by way of a comfort letter in August 2018. The Act is largely based on the conditions imposed by a restructuring decree issued by the Federal Ministry of Finance on the tax exemption of a restructuring gain. Under the Act, gains at the level of the debtor resulting from a full or partial debt relief are exempt from German income tax if the relief is granted to recapitalize and restructure an ailing business. The tax exemption only applies if at the time of the debt waiver (i) the business is in need of restructuring and (ii) capable of being restructured, (iii) the waiver results in a going-concern of the restructured business and (iv) the creditor waives the debt with the intention to restructure the business. The rules apply to German corporate income and trade tax and benefit individuals, partnerships and corporations alike. Any gains from the relief must first be reduced by all existing loss-offsetting potentials before the taxpayer can benefit from tax exemptions on restructuring measures. Back to Top 2.2       Partial Abolition of Loss Forfeiture Rules/Restructuring Exception Under the current Loss Forfeiture Rules, losses of a German corporation will be forfeited on a pro rata basis if within a period of five years more than 25% but not more than 50% of the shares in the German loss-making corporation are transferred (directly or indirectly) to a new shareholder or group of shareholders with aligned interests. If more than 50% are transferred, losses will be forfeited in total. There are exceptions to this rule for certain intragroup restructurings, built-in gains and business continuations, especially in the venture capital industry. On March 29, 2017, the German Federal Constitutional Court (Bundesverfassungsgericht – BVerfG) ruled that the pro rata forfeiture of losses (a share transfer of more than 25% but not more than 50%) is incompatible with the constitution. The court has asked the German legislator to amend the Loss Forfeiture Rules retroactively for the period from January 1, 2008 until December 31, 2015 to bring them in line with the constitution. Somewhat surprisingly, the legislator has now decided to fully cancel the pro rata forfeiture of losses with retroactive effect and with no reference to a specific tax period. Currently pending before the German Federal Constitutional Court is the question whether the full forfeiture of losses is constitutional. A decision by the Federal Constitutional Court is expected for early 2019, which may then result in another legislative amendment of the Loss Forfeiture Rules. The Act has also reinstated a restructuring exception from the forfeiture rules – if the share transfer occurs in order to restructure the business of an ailing corporation. Similar to the exemption of restructuring gains, this legislation was on hold until the ECJ’s decision (European Court of Justice) on June 28, 2018 that the restructuring exception does not violate EU law. Existing losses will not cease to exist following a share transfer if the restructuring measures are appropriate to avoid or eliminate the illiquidity or the over-indebtedness of the corporation and to maintain its basic operational structure. The restructuring exception applies to share transfers after December 31, 2007. Back to Top 2.3       Investments in German Real Estate by Non-German Investors So far, capital gains from the disposal of shares in a non-German corporation holding German real estate were not subject to German tax. In a typical structure, in which German real estate is held via a Luxembourg or Dutch entity, a value appreciation in the asset could be realized by a share deal of the holding company without triggering German income taxes. Under the Act, the sale of shares in a non-German corporation is now taxable if, at some point within a period of one year prior to the sale of shares, 50 percent of the book value of the assets of the company consisted of German real estate and the seller held at least 1 percent of the shares within the last five years prior to the sale. The Act is now in line with many double tax treaties concluded by Germany, which allow Germany to tax capital gains in these cases. The new law applies for share transfers after December 31, 2018. Capital gains are only subject to German tax to the extent the value has been increased after December 31, 2018. Until 2018, a change in the value of assets and liabilities, which are economically connected to German real estate, was not subject to German tax. Therefore, for example, profits from a waiver of debt that was used to finance German real estate was not taxable in Germany whereas the interest paid on the debt was deductible for German tax purposes. That law has now changed and allows Germany to tax such profit from a debt waiver if the loan was used to finance German real estate. However, only the change in value that occurred after December 31, 2018 is taxable. Back to Top 3.         Financing and Restructuring – Test for Liquidity Status Tightened On December 19, 2017, the German Federal Supreme Court (Bundesgerichtshof – BGH) handed down an important ruling which clarifies the debt and payable items that should be taken into account when determining the “liquidity” status of companies. According to the Court, the liquidity test now requires managing directors and (executive) board members to determine whether a liquidity gap exceeding 10% can be overcome by incoming liquidity within a period of three weeks taking into account all payables which will become due in those three weeks. Prior to the ruling, managing directors had often argued successfully that only those payables that were due at the time when the test is applied needed be taken into account while expected incoming payments within a three week term could be considered. This mismatch in favor of the managing directors has now been rectified by the Court to the disadvantage of the managing directors. If, for example, on June 1 the company liquidity status shows due payables amounting to EUR 100 and plausible incoming receivables in the three weeks thereafter amounting to EUR 101, no illiquidity existed under the old test. Under the new test confirmed by the Court, payables of EUR 50 becoming due in the three week period now also have to be taken into account and the company would be considered illiquid. For companies and their managing directors following a cautious approach, the implications of this ruling are minor. Going forward, however, even those willing to take higher risks will need to follow the court determined principles. Otherwise, delayed insolvency filings could ensue. This not only involves a managing directors and executive board members’ personal liability for payments made on behalf of the company while illiquid but also potential criminal liability for a delayed insolvency filing. Managing directors are thus well advised to properly undertake and also document the required test in order to avoid liability issues. Back to Top 4.         Labor and Employment 4.1       GDPR Has Tightened Workplace Privacy Rules The EU General Data Protection Regulation (“GDPR”) started to apply on May 25, 2018. It has introduced a number of stricter rules for EU countries with regard to data protection which also apply to employee personal data and employment relationships. In addition to higher sanctions, the regulation provides for extensive information, notification, deletion, and documentation obligations. While many of these data privacy rules had already been part of the previous German workplace privacy regime under the German Federal Data Protection Act (Bundesdatenschutzgesetz – BDSG), the latter has also been amended and provides for specific rules applicable to employee data protection in Germany (e.g. in the context of internal investigations or with respect to employee co-determination). However, the most salient novelty is the enormous increase in potential sanctions under the GDPR. Fines for GDPR violations can reach up to the higher of EUR 20 million or 4% of the group’s worldwide turnover. Against this backdrop, employers are well-advised to handle employee personnel data particularly careful. This is also particularly noteworthy as the employer is under an obligation to prove compliance with the GDPR – which may result in a reversal of the burden of proof e.g. in employment-related litigation matters involving alleged GDPR violations. Back to Top 4.2       Job Adverts with Third Gender Following a landmark decision by the German Federal Constitutional Court in 2017, employers are gradually inserting a third gender into their job advertisements. The Federal Constitutional Court (Bundesverfassungsgericht – BVerfG) decided on October 10, 2017 that citizens who do not identify as either male or female were to be registered as “diverse” in the birth register (1 BvR 2019/16). As a consequence of this court decision, many employers in Germany have broadened gender notations in job advertisements from previously “m/f” to “m/f/d”. While there is no compelling legal obligation to do so, employers tend to signal their open-mindedness by this step, but also mitigate the potential risk of liability for a discrimination claim. Currently, such liability risk does not appear alarming due to the relative rarity of persons identifying as neither male nor female and the lack of a statutory stipulation for such adverts. However, employers might be well-advised to follow this trend, particularly after Parliament confirmed the existence of a third gender option in birth registers in mid-December. Back to Top 4.3       Can Disclosure Obligation Reduce Gender Pay-Gap? In an attempt to weed out gender pay gaps, the German lawmaker has introduced the so-called Compensation Transparency Act in 2017. It obliges employers, inter alia, to disclose the median compensation of comparable colleagues of the opposite gender with comparable jobs within the company. The purpose is to give a potential claimant (usually a female employee) an impression of how much her comparable male colleagues earn in order for her to consider further steps, e.g. a claim for more money. However, the new law is widely perceived as pointless. First, the law itself and its processes are unduly complex. Second, even after making use of the law, the respective employee would still have to sue the company separately in order to achieve an increase in her compensation, bearing the burden of proof that the opposite-gender employee with higher compensation is comparable to her. Against this background, the law has hardly been used in practice and will likely have only minimal impact. Back to Top 4.4       Employers to Contribute 15% to Deferred Compensation Schemes In order to promote company pension schemes, employers are now obliged to financially support deferred compensation arrangements. So far, employer contributions to any company pension scheme had been voluntary. In the case of deferred compensation schemes, companies save money as a result of less social security charges. The flipside of this saving was a financial detriment to the employee’s statutory pension, as the latter depends on the salary actually paid to the employee (which is reduced as a result of the deferred compensation). To compensate the employee for this gap, the employer is now obliged to contribute up to 15% of the respective deferred compensation. The actual impact of this new rule should be limited, as many employers already actively support deferred compensation schemes. As such, the new obligatory contribution can be set off against existing employer contributions to the same pension scheme. Back to Top 5.         Real Estate – Notarization Requirement for Amendments to Real Estate Purchase Agreements Purchase agreements concerning German real estate require notarization in order to be effective. This notarization requirement relates not only to the purchase agreement as such but to all closely related (side) agreements. The transfer of title to the purchaser additionally requires an agreement in rem between the seller and the purchaser on the transfer (conveyance) and the subsequent registration of the transfer in the land register. To avoid additional notarial fees, parties usually include the conveyance in the notarial real estate purchase agreement. Amendment agreements to real estate purchase agreements are quite common (e.g., the parties subsequently agree on a purchase price adjustment or the purchaser has special requests in a real estate development scenario). Various Higher District Courts (Oberlandesgerichte), together with the prevailing opinion in literature, have held in the past that any amendments to real estate purchase agreements also require notarization unless such an amendment is designed to remove unforeseeable difficulties with the implementation of the agreement without significantly changing the parties’ mutual obligations. Any amendment agreement that does not meet the notarization requirement may render the entire purchase agreement (and not only the amendment agreement) null and void. With its decision on September 14, 2018, the German Federal Supreme Court (Bundesgerichtshof – BGH) added another exception to the notarization requirement and ruled that notarization of an amendment agreement is not required once the conveyance has become binding and the amendment does not change the existing real estate transfer obligations or create new ones. A conveyance becomes binding once it has been validly notarized. Before this new decision of the BGH, amendments to real estate purchase agreements were often notarized for the sake of precaution because it was difficult to determine whether the conditions for an exemption from the notarization requirement had been met. This new decision of the BGH gives the parties clear guidance as to when amendments to real estate purchase agreements require notarization. It should, however, be borne in mind that notarization is still required if the amendment provides for new transfer obligations concerning the real property or the conveyance has not become effective yet (e.g., because third party approval is still outstanding). Back to Top 6.         Compliance 6.1       Government Plans to Introduce Corporate Criminal Liability and Internal Investigations Act Plans of the Federal Government to introduce a new statute concerning corporate criminal liability and internal investigations are taking shape. Although a draft bill had already been announced for the end of 2018, pressure to respond to recent corporate scandals seems to be rising. With regard to the role and protection of work product generated during internal investigations, the highly disputed decisions of the Federal Constitutional Court (Bundesverfassungsgericht – BVerfG) in June 2018 (BVerfG, 2 BvR 1405/17, 2 BvR 1780/17 – June 27, 2018) (see 2017 Year-End German Law Update under 7.3) call for clearer statutory rules concerning the search of law firm premises and the seizure of documents collected in the course of an internal investigation. In its dismissal of complaints brought by Volkswagen and its lawyers from Jones Day, the Federal Constitutional Court made remarkable obiter dicta statements in which it emphasized the following: (1) the legal privilege enjoyed for the communication between the individual defendant (Beschuldigter) and its criminal defense counsel is limited to their communication only; (2) being considered a foreign corporate body, the court denied Jones Day standing in the proceedings, because the German constitution only grants rights to corporate bodies domiciled in Germany; and (3) a search of the offices of a law firm does not affect individual constitutional rights of the lawyers practicing in that office, because the office does not belong to the lawyers’ personal sphere, but only to their law firm. The decision and the additional exposure caused by it by making attorney work product created in the course of an internal investigation accessible was a major blow to German corporations’ efforts to foster internal investigations as a means to efficiently and effectively investigate serious compliance concerns. Because it does not appear likely that an entirely new statute concerning corporate criminal liability will materialize in the near future, the legal press expects the Federal Ministry of Justice to consider an approach in which the statutes dealing with questions around internal investigations and the protection of work product created in the course thereof will be clarified separately. In the meantime, the following measures are recommended to maximize the legal privilege for defense counsel (Verteidigerprivileg): (1) Establish clear instructions to an individual criminal defense lawyer setting forth the scope and purpose of the defense; (2) mark work product and communications that have been created in the course of the defense clearly as confidential correspondence with defense counsel (“Vertrauliche Verteidigerkorrespondenz”); and (3) clearly separate such correspondence from other correspondence with the same client in matters that are not clearly attributable to the criminal defense mandate. While none of these measures will guarantee that state prosecutors and courts will abstain from a search and seizure of such material, at least there are good and valid arguments to defend the legal privilege in any appeals process. However, with the guidance provided to courts by the recent constitutional decision, until new statutory provisions provide for clearer guidance, companies can expect this to become an up-hill battle. Back to Top 6.2       Update on the European Public Prosecutor’s Office and Proposed Cross-Border Electronic Evidence Rules Recently the European Union has started tightening its cooperation in the field of criminal procedure, which was previously viewed as a matter of national law under the sovereignty of the 28 EU member states. Two recent developments stand out that illustrate that remarkable new trend: (1) The introduction of the European Public Prosecutor’s Office (“EPPO”) that was given jurisdiction to conduct EU-wide investigations for certain matters independent of the prosecution of these matters under the national laws of the member states, and (2) the proposed EU-wide framework for cross-border access to electronically stored data (“e-evidence”) which has recently been introduced to the European Parliament. As reported previously (see 2017 Year-End German Law Update under 7.4), the European Prosecutor’s Office’s task is to independently investigate and prosecute severe crimes against the EU’s financial interests such as fraud against the EU budget or crimes related to EU subsidies. Corporations receiving funds from the EU may therefore be the first to be scrutinized by this new EU body. In 2018 two additional EU member states, the Netherlands and Malta, decided to join this initiative, extending the number of participating member states to 22. The EPPO will presumably begin its work by the end of 2020, because the start date may not be earlier than three years after the regulation’s entry into force. As a further measure to leverage multi-jurisdictional enforcement activities, in April 2018 the European Commission proposed a directive and a regulation that will significantly facilitate expedited cross-border access to e-evidence such as texts, emails or messaging apps by enforcement agencies and judicial authorities. The proposed framework would allow national enforcement authorities in accordance with their domestic procedure to request e-evidence directly from a service provider located in the jurisdiction of another EU member state. That other state’s authorities would not have the right to object to or to review the decision to search and seize the e-evidence sought by the national enforcement authority of the requesting EU member state. Companies refusing delivery risk a fine of up to 2% of their worldwide annual turnover. In addition, providers from a third country which operate in the EU are obliged to appoint a legal representative in the EU. The proposal has reached a majority vote in the Council of the EU and will now be negotiated in the European Parliament. Further controversial discussions between the European Parliament and the Commission took place on December 10, 2018. The Council of the EU aims at reaching an agreement between the three institutions by the end of term of the European Parliament in May 2019. Back to Top 7.         Antitrust and Merger Control 7.1       Antitrust and Merger Control Overview 2018 In 2018, Germany celebrated the 60th anniversary of both the German Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen -GWB) as well as the German federal cartel office (Bundeskartellamt) which were both established in 1958 and have since played a leading role in competition enforcement worldwide. The celebrations notwithstanding, the German antitrust watchdog has had a very active year in substantially all of its areas of competence. On the enforcement side, the Bundeskartellamt concluded a number of important cartel investigations. According to its annual review, the Bundeskartellamt carried out dawn raids at 51 companies and imposed fines totaling EUR 376 million against 22 companies or associations and 20 individuals from various industries including the steel, potato manufacturing, newspapers and rolled asphalt industries. Leniency applications remained an important source for the Bundeskartellamt‘s antitrust enforcement activities with a total of 21 leniency applications received in 2018 filling the pipeline for the next few months and years. On the merger control side, the Bundeskartellamt reviewed approximately 1,300 merger cases in 2018 – only 1% of which (i.e. 13 merger filings) required an in-depth phase 2 review. No mergers were prohibited but in one case only conditional clearance was granted and three filings were withdrawn in phase 2. In addition, the Bundeskartellamt had its first full year of additional responsibilities in the area of consumer protection, concluded a sector inquiry into internet comparison portals, and started a sector inquiry into the online marketing business as well as a joint project with the French competition authority CNIL regarding algorithms in the digital economy and their competitive effects. Back to Top 7.2       Cartel Damages Over the past few years, antitrust damages law has advanced in Germany and the European Union. One major legislative development was the EU Directive on actions for damages for infringements of competition law, which was implemented in Germany as part of the 9th amendment to the German Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen -GWB). In addition, there has also been some noteworthy case law concerning antitrust damages. To begin with, the German Federal Supreme Court (Bundesgerichtshof, BGH) strengthened the position of plaintiffs suing for antitrust damages in its decision Grauzementkartell II in 2018. The decision brought to an end an ongoing dispute between several Higher District Courts and District Courts, which had disagreed over whether a recently added provision of the GWB that suspends the statute of limitations in cases where antitrust authorities initiate investigations would also apply to claims that arose before the amendment entered into force (July 1, 2015). The Federal Supreme Court affirmed the suspension of the statute of limitations, basing its ruling on a well-established principle of German law regarding the intertemporal application of statutes of limitation. The decision concerns numerous antitrust damage suits, including several pending cases concerning trucks, rails tracks, and sugar cartels. Furthermore, recent case law shows that European domestic courts interpret arbitration agreements very broadly and also enforce them in cases involving antitrust damages. In 2017, the England and Wales High Court and the District Court Dortmund (Landgericht Dortmund) were presented with two antitrust disputes where the parties had agreed on an arbitration clause. Both courts denied jurisdiction because the antitrust damage claims were also covered by the arbitration agreements. They argued that the parties could have asserted claims for contractual damages instead, which would have been covered by the arbitration agreement. In the courts’ view, it would be unreasonable, however, if the choice between asserting a contractual or an antitrust claim would give the parties the opportunity to influence the jurisdiction of a court. As a consequence, the use of arbitration clauses (in particular if inconsistently used by suppliers or purchasers) may add significant complexity to antitrust damages litigation going forward. Thus, companies are well advised to examine their international supply agreements to determine whether included arbitration agreements will also apply to disputes about antitrust damages. Back to Top 7.3       Appeals against Fines Risky? In German antitrust proceedings, there is increasing pressure for enterprises to settle. Earlier this year, Radeberger, a producer of lager beer, withdrew its appeal against a significant fine of EUR 338 million, which the Bundeskartellamt had imposed on the company for its alleged participation in the so-called “beer cartel”. With this dramatic step, Radeberger paid heed to a worrisome development in German competition law. Repeatedly, enterprises have seen their cartel fines increased by staggering amounts on appeal (despite such appeals sometimes succeeding on some substantive legal issues). The reason for these “appeals for the worse” – as seen in the liquefied gas cartel (increase of fine from EUR 180 million to EUR 244 million), the sweets cartel (average increase of approx. 50%) and the wallpaper cartel (average increase of approx. 35%) – is the different approach taken by the Bundeskartellamt and the courts to calculating fines. As courts are not bound by the administrative practice of the Bundeskartellamt, many practitioners are calling for the legislator to step in and address the issue. Back to Top 7.4       Luxury Products on Amazon – The Coty Case In July 2018, the Frankfurt Higher District Court (Oberlandesgericht Frankfurt) delivered its judgement in the case Coty / Parfümerie Akzente, ruling that Coty, a luxury perfume producer, did not violate competition rules by imposing an obligation on its selected distributors to not sell on third-party platforms such as Amazon. The judgment followed an earlier decision of the Court of Justice of the European Union (ECJ) of December 2017, by which the ECJ had replied to the Frankfurt court’s referral. The ECJ had held that a vertical distribution agreement (such as the one in place between Coty and its distributor Parfümerie Akzente) did not as such violate Art. 101 of the Treaty on the Functioning of the European Union (TFEU) as long as the so-called Metro criteria were fulfilled. These criteria stipulate that distributors must be chosen on the basis of objective and qualitative criteria that are applied in a non-discriminatory fashion; that the characteristics of the product necessitate the use of a selective distribution network in order to preserve their quality; and, finally, that the criteria laid down do not go beyond what is necessary. Regarding the platform ban in question, the ECJ held that it was not disproportionate. Based on the ECJ’s interpretation of the law, the Frankfurt Higher District Court confirmed that the character of certain products may indeed necessitate a selective distribution system in order to preserve their prestigious reputation, which allowed consumers to distinguish them from similar goods, and that gaps in a selective distribution system (e.g. when products are sold by non-selected distributors) did not per se make the distribution system discriminatory. The Higher District Court also concluded that the platform ban in question was proportional. However, interestingly, it did not do so based on its own reasoning but based on the fact that the ECJ’s detailed analysis did not leave any scope for its own interpretation and, hence, precluded the Higher District Court from applying its own reasoning. Pointing to the European Commission’s E-Commerce Sector Inquiry, according to which sales platforms play a more important role in Germany than in other EU Member States, the Higher District Court, in fact, voiced doubts whether Coty’s sales ban could not have been imposed in a less interfering manner. Back to Top 8.         Litigation 8.1       The New German “Class Action” On November 1, 2018, a long anticipated amendment to the German Code of Civil Procedure (Zivilprozessordnung, ZPO) entered into force, introducing a new procedural remedy for consumers to enforce their rights in German courts: a collective action for declaratory relief. Although sometimes referred to as the new German “class action,” this new German action reveals distinct differences to the U.S.-American remedy. Foremost, the right to bring the collective action is limited to consumer protection organizations or other “qualified institutions” (qualifizierte Einrichtung) who can only represent “consumers” within the meaning of the German Code of Civil Procedure. In addition, affected consumers are not automatically included in the action as part of a class but must actively opt-in by registering their claims in a “claim index” (Klageregister). Furthermore, the collective action for declaratory relief does not grant any monetary relief to the plaintiffs which means that each consumer still has to enforce its claim in an individual suit to receive compensation from the defendant. Despite these differences, the essential and comparable element of the new legal remedy is its binding effect. Any other court which has to decide an individual dispute between the defendant and a registered consumer that is based on the same facts as the collective action is bound by the declaratory decision of the initial court. At the same time, any settlement reached by the parties has a binding effect on all registered consumers who did not decide to specifically opt-out. As a result, companies must be aware of the increased litigation risks arising from the introduction of the new collective action for declaratory relief. Even though its reach is not as extensive as the American class action, consumer protection organizations have already filed two proceedings against companies from the automotive and financial industry since the amendment has entered into force in November 2018, and will most likely continue to make comprehensive use of the new remedy in the future. Back to Top 8.2       The New 2018 DIS Arbitration Rules On March 1, 2018, the new 2018 DIS Arbitration Rules of the German Arbitration Institute (DIS) entered into force. The update aims to make Germany more attractive as a place for arbitration by adjusting the rules to international standards, promoting efficiency and thereby ensuring higher quality for arbitration proceedings. The majority of the updated provisions and rules are designed to accelerate the proceedings and thereby make arbitration more attractive and cost-effective for the parties. There are several new rules on time limitations and measures to enhance procedural efficiency, i.e. the possibility of expedited proceedings or the introduction of case management conferences. Furthermore, the rules now also allow for consolidation of several arbitrations and cover multi-party and multi-contract arbitration. Another major change is the introduction of the DIS Arbitration Council which, similar to the Arbitration Council of the ICC (International Chamber of Commerce), may decide upon challenges of an arbitrator and review arbitral awards for formal defects. This amendment shows that the influence of DIS on their arbitration proceedings has grown significantly. All in all, the modernized 2018 DIS Arbitration Rules resolve the deficiencies of their predecessor and strengthen the position of the German Institution of Arbitration among competing arbitration institutions. Back to Top 9.         IP & Technology – Draft Bill of German Trade Secret Act The EU Trade Secrets Directive (2016/943/EU) on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure has already been in effect since July 5, 2016. Even though it was supposed to be implemented into national law by June 9, 2018 to harmonize the protection of trade secrets in the EU, the German legislator has so far only prepared and published a draft of the proposed German Trade Secret Act. Arguably, the most important change in the draft bill to the existing rules on trade secrets in Germany will be a new and EU-wide definition of trade secrets. This proposed definition requires the holder of a trade secret to take reasonable measures to keep a trade secret confidential in order to benefit from its protection – e.g. by implementing technical, contractual and organizational measures that ensure secrecy. This requirement goes beyond the current standard pursuant to which a manifest interest in keeping an information secret may be sufficient. Furthermore, the draft bill provides for additional protection of trade secrets in litigation matters. Last but not least, the draft bill also provides for increased protection of whistleblowers by reducing the barriers for the disclosure of trade secrets in the public interest and to the media. As a consequence, companies would be advised to review their internal procedures and policies regarding the protection of trade secrets at this stage, and may want to adapt their existing whistleblowing and compliance-management-systems as appropriate. Back to Top 10.       International Trade, Sanctions and Export Controls – The Conflict between Complying with the Re-Imposed U.S. Iran Sanctions and the EU Blocking Statute On May 8, 2018, President Donald Trump announced his decision to withdraw from the Joint Comprehensive Plan of Action (JCPOA) and re-impose U.S. nuclear-related sanctions. Under the JCPOA, General License H had permitted U.S.-owned or -controlled non-U.S. entities to engage in business with Iran. But with the end of the wind-down periods provided for in President Trump’s decision on November 5, 2018, such non-U.S. entities are now no longer broadly permitted to provide goods, services, or financing to Iranian counterparties, not even under agreements executed before the U.S. withdrawal from the JCPOA. In response to the May 8, 2018 decision, the EU amended the EU Blocking Statute on August 6, 2018. The effect of the amended EU Blocking Statute is to prohibit compliance by so-called EU operators with the re-imposed U.S. sanctions on Iran. Comparable and more generally drafted anti-blocking statutes had already existed in the EU and several of its member states which prohibited EU domiciled companies to commit to compliance with foreign boycott regulations. These competing obligations under EU and U.S. laws are a concern for U.S. companies that own or seek to acquire German companies that have a history of engagement with Iran – as well as for the German company itself and its management and the employees. But what does the EU prohibition against compliance with the re-imposed U.S. sanctions on Iran mean in practice? Most importantly, it must be noted that the EU Blocking Statute does not oblige EU operators to start or continue Iran related business. If, for example, an EU operator voluntarily decides, e.g. due to lack of profitability, to cease business operations in Iran and not to demonstrate compliance with the U.S. sanctions, the EU Blocking Statute does not apply. Obviously, such voluntary decision must be properly documented. Procedural aspects also remain challenging for companies: In the event a Germany subsidiary of a U.S. company were to decide to start or continue business with Iran, it would usually be required to reach out to the U.S. authorities to request a specific license for a particular transaction with Iran. Before doing so, however, EU operators must first contact the EU Commission directly (not the EU member state authorities) to request authorization to apply for such a U.S. special license. Likewise, if a Germany subsidiary were to decide not to start or to cease business with Iran for the sole reason of being compliant with the re-imposed U.S. Iran sanctions, it would have to apply for an exception from the EU Blocking Statute and would have to provide sufficient evidence that non-compliance would cause serious damage to at least one protected interest. The hurdles for an exception are high and difficult to predict. The EU Commission will e.g. consider, “(…) whether the applicant would face significant economic losses, which could for example threaten its viability or pose a serious risk of bankruptcy, or the security of supply of strategic goods or services within or to the Union or a Member State and the impact of any shortage or disruption therein.” As such, any company caught up in this conflict of interests between the re-imposed U.S. sanctions and the EU Blocking Statute should be aware of a heightened risk of litigation. Third parties, such as Iranian counterparties, might successfully sue for breach of contract with the support of the EU Blocking Regulation in cases of non-performance of contracts as a result of the re-imposed U.S. nuclear sanctions. Finally, EU operators are required to inform the EU Commission within 30 days from the date on which information is obtained that the economic and/or financial interests of the EU operator are affected, directly or indirectly, by the re-imposed U.S. Iran sanctions. If the EU operator is a legal person, this obligation is incumbent on its directors, managers and other persons with management responsibilities of such legal person. Back to Top The following Gibson Dunn lawyers assisted in preparing this client update:  Birgit Friedl, Marcus Geiss, Silke Beiter, Lutz Englisch, Daniel Gebauer, Kai Gesing, Maximilian Hoffmann, Philipp Mangini-Guidano, Jens-Olrik Murach, Markus Nauheim, Dirk Oberbracht, Richard Roeder, Martin Schmid, Annekatrin Schmoll, Jan Schubert, Benno Schwarz, Balthasar Strunz, Michael Walther, Finn Zeidler, Mark Zimmer, Stefanie Zirkel and Caroline Ziser Smith. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. The two German offices of Gibson Dunn in Munich and Frankfurt bring together lawyers with extensive knowledge of corporate, tax, labor, real estate, antitrust, intellectual property law and extensive compliance / white collar crime experience. The German offices are comprised of seasoned lawyers with a breadth of experience who have assisted clients in various industries and in jurisdictions around the world. Our German lawyers work closely with the firm’s practice groups in other jurisdictions to provide cutting-edge legal advice and guidance in the most complex transactions and legal matters. For further information, please contact the Gibson Dunn lawyer with whom you work or any of the following members of the German offices: General Corporate, Corporate Transactions and Capital Markets Lutz Englisch (+49 89 189 33 150), lenglisch@gibsondunn.com) Markus Nauheim (+49 89 189 33 122, mnauheim@gibsondunn.com) Ferdinand Fromholzer (+49 89 189 33 121, ffromholzer@gibsondunn.com) Dirk Oberbracht (+49 69 247 411 510, doberbracht@gibsondunn.com) Wilhelm Reinhardt (+49 69 247 411 520, wreinhardt@gibsondunn.com) Birgit Friedl (+49 89 189 33 180, bfriedl@gibsondunn.com) Silke Beiter (+49 89 189 33 121, sbeiter@gibsondunn.com) Marcus Geiss (+49 89 189 33 122, mgeiss@gibsondunn.com) Annekatrin Pelster (+49 69 247 411 521, apelster@gibsondunn.com Finance, Restructuring and Insolvency Sebastian Schoon (+49 89 189 33 160, sschoon@gibsondunn.com) Birgit Friedl (+49 89 189 33 180, bfriedl@gibsondunn.com) Alexander Klein (+49 69 247 411 518, aklein@gibsondunn.com) Marcus Geiss (+49 89 189 33 122, mgeiss@gibsondunn.com) Tax Hans Martin Schmid (+49 89 189 33 110, mschmid@gibsondunn.com) Labor Law Mark Zimmer (+49 89 189 33 130, mzimmer@gibsondunn.com) Real Estate Peter Decker (+49 89 189 33 115, pdecker@gibsondunn.com) Daniel Gebauer (+49 89 189 33 115, dgebauer@gibsondunn.com) Technology Transactions / Intellectual Property / Data Privacy Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) Corporate Compliance / White Collar Matters Benno Schwarz (+49 89 189 33 110, bschwarz@gibsondunn.com) Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Mark Zimmer (+49 89 189 33 130, mzimmer@gibsondunn.com) Finn Zeidler (+49 69 247 411 530, fzeidler@gibsondunn.com) Antitrust Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Jens-Olrik Murach (+32 2 554 7240, jmurach@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) Litigation Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Mark Zimmer (+49 89 189 33 130, mzimmer@gibsondunn.com) Finn Zeidler (+49 69 247 411 530, fzeidler@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) International Trade, Sanctions and Export Control Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Richard Roeder (+49 89 189 33 218, rroeder@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles, CA 90071 Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

December 3, 2018 |
Federal Circuit Update (December 2018)

Click for PDF This edition of Gibson Dunn’s Federal Circuit Update notes the cases at the Supreme Court on certiorari from the Federal Circuit and summarizes new revisions to the Federal Circuit Rules of Practice.  The Update also summarizes recent Federal Circuit decisions ending assignor estoppel in IPRs, clarifying the role of preamble transitions in claim construction, explaining requirements for claiming priority through a chain of applications, and detailing how inventions can be shown to be non-abstract and patent eligible. Federal Circuit News On October 20, 2018, the American Inns of Court hosted its annual Celebration of Excellence dinner at the Supreme Court of the United States.  Judge Pauline Newman received the prestigious Lewis F. Powell, Jr. Award for Professionalism and Ethics.  This award is presented annually to a lawyer or judge who has rendered exemplary service in the areas of legal excellence, professionalism, and ethics.  It was presented by Chief Judge Barbara M. Lynn of the United States District Court for the Northern District of Texas. Among other things, Judge Newman spoke about the future of the law vis-à-vis artificial intelligence. Supreme Court:  Thus far, there are two patent cases from the Federal Circuit scheduled to be heard in the OT2018 Term. Case Status Issue Amicus Briefs Filed Helsinn Healthcare S.A. v. Teva Pharm. USA Inc., No. 17-1229 Argument on December 4, 2018 Whether, under the Leahy-Smith America Invents Act (“AIA”), the sale of an invention by the inventor to a third party qualifies as prior art if the sale was subject to confidentiality. 23 Return Mail Inc. v. United States Postal Service, No. 17-1594 Petition for certiorari granted on October 26, 2018 Whether the government is a “person” who may petition to institute review proceedings under the Leahy-Smith America Invents Act. 2 Of these, Helsinn has drawn substantial interest from multiple industries, with many pro-patentee groups arguing to overturn the Federal Circuit’s decision that a secret sale qualifies as prior art. For example, the Biotechnology Innovation Organization and Pharmaceutical Research and Manufacturers of America argue that Federal Circuit’s Helsinn decision calls into question large numbers of issued or pending patents.  U.S. Inventor (which represents 13,000 inventor and business members) argues that the Federal Circuit’s decision construing Section 102(a)(1) to include non-public prior art sales undermines Congress’ goal that the AIA harmonize U.S. Patent law with law from other countries.  Congressman Lamar Smith, a lead sponsor of the AIA, also argued that the Federal Circuit did not properly construe the statue in Helsinn.  On the other side of the argument, The Association for Accessible Medicines, as well as SPCM S.A. and the High Tech Inventors Alliance, argue that the Federal Circuit’s decision is correct. Federal Circuit Practice Update This month, we highlight new amendments to the Federal Circuit Rules of Practice (“FCRP”), which are effective as of December 1, 2018.  The revisions primarily relate to filing procedures and include a number of substantive and clerical edits.  Notable amendments include: FCRP 25:  Rule 25 is amended to require that most paper briefs be provided within five business days of the notice requesting paper copies.  Copies may not be submitted before the notice.  Previously, parties were required to submit paper copies within five business days of acceptance of electronic filing of the document.  A new Practice Note explains that in typical, non-expedited cases, the Clerk of Court will issue the notice “shortly after briefing concludes.”  But paper copies for petitions and briefs related to panel rehearing and en banc proceedings remain due as before.  Rule 25 now also enables the Clerk of the Court to require “the filing of a corrected copy of any submission that fails to comply with the court’s rules” or ECF procedure, and to strike a filing if the party does not take the requested corrective action. FCRP 31:  In cross-appeals, the cross appellant now has 21 days to file its reply after the appellant’s reply is served.  This increases the time allowed from 14 days under the prior rule. FCRP 32:  Rule 32 is also amended to no longer allow the Clerk of Court to refuse to file briefs that do not comply with Federal Rule of Appellate Procedure 32.  Instead, the Clerk of Court can require corrections and only thereafter strike a brief if the correction is not made. FRCP 44:  A new Practice Note is added to Rule 44. “Raising a constitutional question in a brief or motion. Inclusion of a constitutional challenge in a brief or motion is insufficient to satisfy the written notice requirements of Federal Rule of Appellate Procedure 44.  Parties must file a separate notice before the clerk of court will certify a matter to the Attorney General of the United States or the attorney general of a State.” The full rule amendments can be found here.  The Clerk of Court has also published a summary of the revisions and their impact on procedural changes in the filing process.  Of note: Immediate Docketing:  Non-confidential documents will be available on the docket immediately upon filing, versus being treated as tendered. Clerk’s Office Compliance Review:  After a brief or appendix is filed, the Clerk’s Office will review the filing to confirm compliance with FRAP and FCRP requirements. The Clerk of Court’s full summary is available here. Key Case Summaries (October – September 2018) Arista Networks, Inc. v. Cisco Sys., Inc., No. 17-1525, 17-1577 (Fed. Cir. Nov 9, 2018):   Assignor estoppel does not apply to petitions for Inter Partes Review. Arista filed an IPR petition challenging a patent owned by Cisco.  The named inventor was employed by Cisco when the purported inventive work was done and assigned his interests to Cisco.  Afterwards, the inventor left Cisco to found Arista.  Arista then sought to invalidate the patent.  Cisco argued that the doctrine of assignor estoppel should bar Arista from challenging the patent’s validity.  The Board, however, declined to apply the doctrine and instituted review. The Federal Circuit (Prost, C.J., joined by Schall, J., and Chen, J.) affirmed the decision to limit assignor estoppel.  As a predicate, the panel held that it had jurisdiction to review the Board’s refusal to apply estoppel despite the Supreme Court’s decision in Cuozzo Speed Technologies v. Lee, which held that the decision to institute an IPR is not subject to appeal.  As the panel reasoned, whether estoppel applies in IPRs stands in contrast to the statutory provision at issue in Cuozzo.  The panel concluded that the issue of estoppel is not “closely related to the preliminary patentability determination or the exercise of discretion not to institute,” and is thus reviewable. For the merits, the court looked to Section 311(a), which provides that “a person who is not the owner of a patent may file with the Office a petition to institute an inter partes review of the patent.”  According to the panel, this language left no room for assignor estoppel.  The court reasoned that this was consistent with Congress’s express incorporation of equitable doctrines in other contexts, such as before the ITC.  The court noted that allowing assignor estoppel in other forums while not allowing it in IPRs may invite forum shopping.  But the court dismissed this as an “intentional congressional choice.”  Thus, while assignor estoppel remains a viable defense in ITC and district court actions, it is not available before the Board to prevent institution of an IPR. Acceleration Bay, LLC v. Activision Blizzard, Inc., Nos. 17-2084, 17-2085, 17-2095 to -99, -17-2017, 17-2018 (Fed. Cir. Nov. 6, 2018):  Lack of transition language in claim preamble does not transform preamble into limitations. Acceleration appealed multiple Board decisions from various IPRs invalidating claims of its patents.  The Federal Circuit (Moore, J., joined by Prost, C.J., and Reyna, J.) affirmed.  Central to the dispute was an unusual issue of claim construction, as certain challenged claims lacked the traditional and nearly ubiquitous “transition” words that separate a claim’s preamble from its limitations.  In one patent, the claim began by reciting: “A computer network for providing an information delivery service.”  In another, the claim began: “A computer network for providing a game environment.”  Both claims, however, lacked transition phrases (e.g., “comprising” or “consisting of”).  Activision argued that, given the lack of transition phrasing, these terms are part of the body of the claims, and thus limiting, despite their location at the lead of the claim. The Federal Circuit panel, however, held that the phrases were preambles notwithstanding the lack of transition language.  As the court noted: “We see no beneficial purpose to be served by failing to include a transition word in a claim to clearly delineate the claim’s preamble from the body, and we caution patentees against doing so.”  But, the court also warned that “poor claim drafting will not be an excuse … to infuse confusion into its claim scope.”  The court held that, regardless of the lack of a transition, “game environment” and “information delivery service” are not claim limitations, because they do “not impart any structure into” and instead “merely describe intended uses for what is otherwise a structurally complete invention.” Natural Alternatives Int’l, Inc. v. Iancu, No. 17-1962 (Fed. Cir. Oct. 1, 2018):  Requirements to claim priority to earlier applications must be met on the face of each application in a chain. Natural Alternatives’ patent challenged in inter partes reexamination issued from the eighth application in a chain, and claimed priority back through that chain to the first application of 1997.  During prosecution, the fifth application in the chain, originally a continuation-in-part claiming priority back to the 1997 application, was amended to delete the claim of priority to the earlier four applications.  The petitioner argued that this “broke the chain of priority” for later applications asserting priority through that fifth application, such that patents issued from those later applications were only entitled to that fifth application’s priority (i.e., 2003 versus 1997). The examiner accepted this argument and rejected the claims over the prior art, including over the original 1997 parent application.  The Board affirmed, and the patentee appealed, arguing priority “vested” when the sixth application in the chain—filed days before amendment to the fifth application’s priority—met Section 120 criteria (namely, it was: (a) disclosed per Section 112(a); (b) filed by an inventor named in the previous application; (c) filed before the conclusion of the first application; and (d) it contained a specific reference to the earlier application). The Federal Circuit (Prost, C.J., joined by Moore, J., and Reyna, J.) rejected the “vesting” argument, holding that it “conflates properly claiming priority and demonstrating entitlement to priority.”  The panel reasoned that “examiners and adjudicators cannot be expected to scrutinize the prosecution history of an application and each parent application to determine whether the application would have met Section 120’s requirements at any point during its pendency.”  The court affirmed that, because the fifth application lacked priority to the first, the later application’s priority claim did not satisfy Section 120 and thus was “defective from the start.” Ancora Technologies, Inc. v. HTC America, Inc., No. 18-1404 (Fed. Cir. Nov. 16, 2018):  Claims that recite how an improvement is effectuated can pass muster under step one of Alice. Ancora sued HTC, alleging infringement of a patent for a purported method of restricting the operation of unauthorized software.  Although the patent acknowledged there were “numerous” prior art methods to limit unauthorized software, the patent stored the relevant key in read-only memory so it could not be removed or modified via attack.  HTC moved to dismiss arguing the patent is ineligible under Section 101.  The district court agreed and granted HTC’s motion. The Federal Circuit (Taranto, J., joined by Dyk, J., and Wallach, J.) reversed.  According to the panel, claims can constitute non-abstract improvements if they recite a specific technique that departs from earlier approaches.  In the court’s view, in such cases the determination of patent eligibility can be decided at step one of the Alice inquiry, without resorting to the second step.  Here, the court held that the claims for improving computer security passed muster at step one because the method specifically recites how the improvement is effectuated, including a structure for the key and a specific location in memory for storing that is less vulnerable to hacking. Upcoming Oral Argument Calendar For a list of upcoming arguments at the Federal Circuit, please click here. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Federal Circuit.  Please contact the Gibson Dunn lawyer with whom you usually work or the authors of this alert: Blaine H. Evanson – Orange County (+1 949-451-3805, bevanson@gibsondunn.com) Raymond A. LaMagna – Los Angeles (+1 213-229-7101, rlamagna@gibsondunn.com) Please also feel free to contact any of the following practice group co-chairs or any member of the firm’s Appellate and Constitutional Law or Intellectual Property practice groups: Appellate and Constitutional Law Group: Caitlin J. Halligan – New York (+1 212-351-4000, challigan@gibsondunn.com) Mark A. Perry – Washington, D.C. (+1 202-887-3667, mperry@gibsondunn.com) Intellectual Property Group: Wayne Barsky – Los Angeles (+1 310-552-8500, wbarsky@gibsondunn.com) Josh Krevitt – New York (+1 212-351-4000, jkrevitt@gibsondunn.com) Mark Reiter – Dallas (+1 214-698-3100, mreiter@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

November 26, 2018 |
2017/2018 Federal Circuit Year in Review

We are pleased to present Gibson Dunn’s sixth “Federal Circuit Year In Review,” providing a statistical overview and substantive summaries of the 140 precedential patent opinions issued by the Federal Circuit over the 2017-2018 year.  This term was marked by four en banc decisions, as well as significant panel decisions in patent law jurisprudence with regard to subject matter eligibility (e.g., Berkheimer v. HP Inc., 881 F.3d 1360 (Fed. Cir. 2018), and Aatrix Software, Inc. v. Green Shades Software, Inc., 882 F.3d 1121 (Fed. Cir. 2018)); venue for patent cases (In re Cray Inc., 871 F.3d 1355 (Fed. Cir. 2017)); and indefiniteness (MasterMine Software, Inc. v. Microsoft Corp., 874 F.3d 1307 (Fed. Cir. 2017)).  The issues most frequently addressed in precedential decisions by the Court over the last year were: obviousness (50 opinions); anticipation (27 opinions); claim construction (24 opinions); jurisdiction, venue, and standing (22 opinions); and infringement (20 opinions). Use the Federal Circuit Year In Review to find out: The easy-to-use Table of Contents is organized by substantive issue, so that the reader can easily identify all of the relevant cases bearing on the issue of choice. Which issues may have a better chance (or risk) on appeal based on the Federal Circuit’s history of affirming or reversing that issue in the past, including the real rate of affirmance on claim construction. The average length of time from issuance of a final decision in the district court and docketing at the Federal Circuit to issuance of a Federal Circuit opinion on appeal. What the success rate has been at the Federal Circuit if you are a patentee or the opponent based on the issue being appealed. The Federal Circuit’s history of affirming or reversing cases from a specific district court. How likely a particular panel may be to render a unanimous opinion or a fractured decision with a majority, concurrence, or dissent. The Federal Circuit’s affirmance/reversal rate in cases from the district court, ITC, and the PTO. The Year In Review provides statistical analyses of how the Federal Circuit has been deciding precedential patent cases, such as affirmance and reversal rates (overall, by issue, and by District Court), average time from lower tribunal decision to key milestones (oral argument, decision), win rate for patentee versus opponent (overall, by issue, and by District Court), decision rate by Judge (number of unanimous, majority, plurality, concurring, or dissenting opinions), and other helpful metrics. The Year In Review is an ideal resource for participants in intellectual property litigation seeking an objective report on the Court’s decisions. Gibson Dunn is nationally recognized for its premier practices in both Intellectual Property and Appellate litigation.  Our lawyers work seamlessly together on all aspects of patent litigation, including appeals to the Federal Circuit from both district courts and the agencies. Please click here to view the FEDERAL CIRCUIT YEAR IN REVIEW Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Federal Circuit.  Please contact the Gibson Dunn lawyer with whom you usually work or the authors of this alert: Mark A. Perry – Washington, D.C. (+1 202-887-3667, mperry@gibsondunn.com) Michael Sitzman – San Francisco (+1 415-393-8200, msitzman@gibsondunn.com) Nathan R. Curtis – Dallas (+1 214-698-3423, ncurtis@gibsondunn.com) Please also feel free to contact any of the following practice group co-chairs or any member of the firm’s Appellate and Constitutional Law or Intellectual Property practice groups: Appellate and Constitutional Law Group: Caitlin J. Halligan – New York (+1 212-351-4000, challigan@gibsondunn.com) Mark A. Perry – Washington, D.C. (+1 202-887-3667, mperry@gibsondunn.com) Intellectual Property Group: Wayne Barsky – Los Angeles (+1 310-552-8500, wbarsky@gibsondunn.com) Josh Krevitt – New York (+1 212-351-4000, jkrevitt@gibsondunn.com) Mark Reiter – Dallas (+1 214-698-3100, mreiter@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

November 1, 2018 |
U.S. News – Best Lawyers® Awards Gibson Dunn 132 Top-Tier Rankings

U.S. News – Best Lawyers® awarded Gibson Dunn Tier 1 rankings in 132 practice area categories in its 2019 “Best Law Firms” [PDF] survey. Overall, the firm earned 169 rankings in nine metropolitan areas and nationally. Additionally, Gibson Dunn was recognized as “Law Firm of the Year” for Litigation – Antitrust and Litigation – Securities. Firms are recognized for “professional excellence with persistently impressive ratings from clients and peers.” The recognition was announced on November 1, 2018.

October 17, 2018 |
SEC Warns Public Companies on Cyber-Fraud Controls

Click for PDF On October 16, 2018, the Securities and Exchange Commission issued a report warning public companies about the importance of internal controls to prevent cyber fraud.  The report described the SEC Division of Enforcement’s investigation of multiple public companies which had collectively lost nearly $100 million in a range of cyber-scams typically involving phony emails requesting payments to vendors or corporate executives.[1] Although these types of cyber-crimes are common, the Enforcement Division notably investigated whether the failure of the companies’ internal accounting controls to prevent unauthorized payments violated the federal securities laws.  The SEC ultimately declined to pursue enforcement actions, but nonetheless issued a report cautioning public companies about the importance of devising and maintaining a system of internal accounting controls sufficient to protect company assets. While the SEC has previously addressed the need for public companies to promptly disclose cybersecurity incidents, the new report sees the agency wading into corporate controls designed to mitigate such risks.  The report encourages companies to calibrate existing internal controls, and related personnel training, to ensure they are responsive to emerging cyber threats.  The report (issued to coincide with National Cybersecurity Awareness Month) clearly intends to warn public companies that future investigations may result in enforcement action. The Report of Investigation Section 21(a) of the Securities Exchange Act of 1934 empowers the SEC to issue a public Report of Investigation where deemed appropriate.  While SEC investigations are confidential unless and until the SEC files an enforcement action alleging that an individual or entity has violated the federal securities laws, Section 21(a) reports provide a vehicle to publicize investigative findings even where no enforcement action is pursued.  Such reports are used sparingly, perhaps every few years, typically to address emerging issues where the interpretation of the federal securities laws may be uncertain.  (For instance, recent Section 21(a) reports have addressed the treatment of digital tokens as securities and the use of social media to disseminate material corporate information.) The October 16 report details the Enforcement Division’s investigations into the internal accounting controls of nine issuers, across multiple industries, that were victims of cyber-scams. The Division identified two specific types of cyber-fraud – typically referred to as business email compromises or “BECs” – that had been perpetrated.  The first involved emails from persons claiming to be unaffiliated corporate executives, typically sent to finance personnel directing them to wire large sums of money to a foreign bank account for time-sensitive deals. These were often unsophisticated operations, textbook fakes that included urgent, secret requests, unusual foreign transactions, and spelling and grammatical errors. The second type of business email compromises were harder to detect. Perpetrators hacked real vendors’ accounts and sent invoices and requests for payments that appeared to be for otherwise legitimate transactions. As a result, issuers made payments on outstanding invoices to foreign accounts controlled by impersonators rather than their real vendors, often learning of the scam only when the legitimate vendor inquired into delinquent bills. According to the SEC, both types of frauds often succeeded, at least in part, because responsible personnel failed to understand their company’s existing cybersecurity controls or to appropriately question the veracity of the emails.  The SEC explained that the frauds themselves were not sophisticated in design or in their use of technology; rather, they relied on “weaknesses in policies and procedures and human vulnerabilities that rendered the control environment ineffective.” SEC Cyber-Fraud Guidance Cybersecurity has been a high priority for the SEC dating back several years. The SEC has pursued a number of enforcement actions against registered securities firms arising out of data breaches or deficient controls.  For example, just last month the SEC brought a settled action against a broker-dealer/investment-adviser which suffered a cyber-intrusion that had allegedly compromised the personal information of thousands of customers.  The SEC alleged that the firm had failed to comply with securities regulations governing the safeguarding of customer information, including the Identity Theft Red Flags Rule.[2] The SEC has been less aggressive in pursuing cybersecurity-related actions against public companies.  However, earlier this year, the SEC brought its first enforcement action against a public company for alleged delays in its disclosure of a large-scale data breach.[3] But such enforcement actions put the SEC in the difficult position of weighing charges against companies which are themselves victims of a crime.  The SEC has thus tried to be measured in its approach to such actions, turning to speeches and public guidance rather than a large number of enforcement actions.  (Indeed, the SEC has had to make the embarrassing disclosure that its own EDGAR online filing system had been hacked and sensitive information compromised.[4]) Hence, in February 2018, the SEC issued interpretive guidance for public companies regarding the disclosure of cybersecurity risks and incidents.[5]  Among other things, the guidance counseled the timely public disclosure of material data breaches, recognizing that such disclosures need not compromise the company’s cybersecurity efforts.  The guidance further discussed the need to maintain effective disclosure controls and procedures.  However, the February guidance did not address specific controls to prevent cyber incidents in the first place. The new Report of Investigation takes the additional step of addressing not just corporate disclosures of cyber incidents, but the procedures companies are expected to maintain in order to prevent these breaches from occurring.  The SEC noted that the internal controls provisions of the federal securities laws are not new, and based its report largely on the controls set forth in Section 13(b)(2)(B) of the Exchange Act.  But the SEC emphasized that such controls must be “attuned to this kind of cyber-related fraud, as well as the critical role training plays in implementing controls that serve their purpose and protect assets in compliance with the federal securities laws.”  The report noted that the issuers under investigation had procedures in place to authorize and process payment requests, yet were still victimized, at least in part “because the responsible personnel did not sufficiently understand the company’s existing controls or did not recognize indications in the emailed instructions that those communications lacked reliability.” The SEC concluded that public companies’ “internal accounting controls may need to be reassessed in light of emerging risks, including risks arising from cyber-related frauds” and “must calibrate their internal accounting controls to the current risk environment.” Unfortunately, the vagueness of such guidance leaves the burden on companies to determine how best to address emerging risks.  Whether a company’s controls are adequate may be judged in hindsight by the Enforcement Division; not surprisingly, companies and individuals under investigation often find the staff asserting that, if the controls did not prevent the misconduct, they were by definition inadequate.  Here, the SEC took a cautious approach in issuing a Section 21(a) report highlighting the risk rather than publicly identifying and penalizing the companies which had already been victimized by these scams. However, companies and their advisors should assume that, with this warning shot across the bow, the next investigation of a similar incident may result in more serious action.  Persons responsible for designing and maintaining the company’s internal controls should consider whether improvements (such as enhanced trainings) are warranted; having now spoken on the issue, the Enforcement Division is likely to view corporate inaction as a factor in how it assesses the company’s liability for future data breaches and cyber-frauds.    [1]   SEC Press Release (Oct. 16, 2018), available at www.sec.gov/news/press-release/2018-236; the underlying report may be found at www.sec.gov/litigation/investreport/34-84429.pdf.    [2]   SEC Press Release (Sept. 16, 2018), available at www.sec.gov/news/press-release/2018-213.  This enforcement action was particularly notable as the first occasion the SEC relied upon the rules requiring financial advisory firms to maintain a robust program for preventing identify theft, thus emphasizing the significance of those rules.    [3]   SEC Press Release (Apr. 24, 2018), available at www.sec.gov/news/press-release/2018-71.    [4]   SEC Press Release (Oct. 2, 2017), available at www.sec.gov/news/press-release/2017-186.    [5]   SEC Press Release (Feb. 21, 2018), available at www.sec.gov/news/press-release/2018-22; the guidance itself can be found at www.sec.gov/rules/interp/2018/33-10459.pdf.  The SEC provided in-depth guidance in this release on disclosure processes and considerations related to cybersecurity risks and incidents, and complements some of the points highlighted in the Section 21A report. Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues.  For further information, please contact the Gibson Dunn lawyer with whom you usually work in the firm’s Securities Enforcement or Privacy, Cybersecurity and Consumer Protection practice groups, or the following authors: Marc J. Fagel – San Francisco (+1 415-393-8332, mfagel@gibsondunn.com) Alexander H. Southwell – New York (+1 212-351-3981, asouthwell@gibsondunn.com) Please also feel free to contact the following practice leaders and members: Securities Enforcement Group: New York Barry R. Goldsmith – Co-Chair (+1 212-351-2440, bgoldsmith@gibsondunn.com) Mark K. Schonfeld – Co-Chair (+1 212-351-2433, mschonfeld@gibsondunn.com) Reed Brodsky (+1 212-351-5334, rbrodsky@gibsondunn.com) Joel M. Cohen (+1 212-351-2664, jcohen@gibsondunn.com) Lee G. Dunst (+1 212-351-3824, ldunst@gibsondunn.com) Laura Kathryn O’Boyle (+1 212-351-2304, loboyle@gibsondunn.com) Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Avi Weitzman (+1 212-351-2465, aweitzman@gibsondunn.com) Lawrence J. Zweifach (+1 212-351-2625, lzweifach@gibsondunn.com) Washington, D.C. Richard W. Grime – Co-Chair (+1 202-955-8219, rgrime@gibsondunn.com) Stephanie L. Brooker  (+1 202-887-3502, sbrooker@gibsondunn.com) Daniel P. Chung (+1 202-887-3729, dchung@gibsondunn.com) Stuart F. Delery (+1 202-887-3650, sdelery@gibsondunn.com) Patrick F. Stokes (+1 202-955-8504, pstokes@gibsondunn.com) F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) San Francisco Marc J. Fagel – Co-Chair (+1 415-393-8332, mfagel@gibsondunn.com) Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com) Thad A. Davis (+1 415-393-8251, tdavis@gibsondunn.com) Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com) Michael Li-Ming Wong (+1 415-393-8234, mwong@gibsondunn.com) Palo Alto Paul J. Collins (+1 650-849-5309, pcollins@gibsondunn.com) Benjamin B. 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October 10, 2018 |
Artificial Intelligence and Autonomous Systems Legal Update (3Q18)

Click for PDF We are pleased to provide the following update on recent legal developments in the areas of artificial intelligence, machine learning, and autonomous systems (or “AI” for short), and their implications for companies developing or using products based on these technologies.  As the spread of AI rapidly increases, legal scrutiny in the U.S. of the potential uses and effects of these technologies (both beneficial and harmful) has also been increasing.  While we have chosen to highlight below several governmental and legislative actions from the past quarter, the area is rapidly evolving and we will continue to monitor further actions in these and related areas to provide future updates of potential interest on a regular basis. I.       Increasing Federal Government Interest in AI Technologies The Trump Administration and Congress have recently taken a number of steps aimed at pushing AI forward on the U.S. agenda, while also treating with caution foreign involvement in U.S.-based AI technologies.  Some of these actions may mean additional hurdles for cross-border transactions involving AI technology.  On the other hand, there may also be opportunities for companies engaged in the pursuit of AI technologies to influence the direction of future legislation at an early stage. A.       White House Studies AI In May, the Trump Administration kicked off what is becoming an active year in AI for the federal government by hosting an “Artificial Intelligence for American Industry” summit as part of its designation of AI as an “Administration R&D priority.”[1] During the summit, the White House also announced the establishment of a “Select Committee on Artificial Intelligence” to advise the President on research and development priorities and explore partnerships within the government and with industry.[2]  This Select Committee is housed within the National Science and Technology Council, and is chaired by Office of Science and Technology Policy leadership. Administration officials have said that a focus of the Select Committee will be to look at opportunities for increasing federal funds into AI research in the private sector, to ensure that the U.S. has (or maintains) a technological advantage in AI over other countries.  In addition, the Committee is to look at possible uses of the government’s vast store of taxpayer-funded data to promote the development of advanced AI technologies, without compromising security or individual privacy.  While it is believed that there will be opportunities for private stakeholders to have input into the Select Committee’s deliberations, the inaugural meeting of the Committee, which occurred in late June, was not open to the public for input. B.       AI in the NDAA for 2019 More recently, on August 13th, President Trump signed into law the John S. McCain National Defense Authorization Act (NDAA) for 2019,[3] which specifically authorizes the Department of Defense to appoint a senior official to coordinate activities relating to the development of AI technologies for the military, as well as to create a strategic plan for incorporating a number of AI technologies into its defense arsenal.  In addition, the NDAA includes the Foreign Investment Risk Review Modernization Act (FIRRMA)[4] and the Export Control Reform Act (ECRA),[5] both of which require the government to scrutinize cross-border transactions involving certain new technologies, likely including AI-related technologies. FIRRMA modifies the review process currently used by the Committee on Foreign Investment in the United States (CFIUS), an interagency committee that reviews the national security implications of investments by foreign entities in the United States.  With FIRRMA’s enactment, the scope of the transactions that CFIUS can review is expanded to include those involving “emerging and foundational technologies,” defined as those that are critical for maintaining the national security technological advantage of the United States.  While the changes to the CFIUS process are still fresh and untested, increased scrutiny under FIRRMA will likely have an impact on available foreign investment in the development and use of AI, at least where the AI technology involved is deemed such a critical technology and is sought to be purchased or licensed by foreign investors. Similarly, ECRA requires the President to establish an interagency review process with various agencies including the Departments of Defense, Energy, State and the head of other agencies “as appropriate,” to identify emerging and foundational technologies essential to national security in order to impose appropriate export controls.  Export licenses are to be denied if the proposed export would have a “significant negative impact” on the U.S. defense industrial base.  The terms “emerging and foundational technologies” are not expressly defined, but it is likely that AI technologies, which are of course “emerging,” would receive a close look under ECRA and that ECRA might also curtail whether certain AI technologies can be sold or licensed to foreign entities. The NDAA also established a National Security Commission on Artificial Intelligence “to review advances in artificial intelligence, related machine learning developments, and associated technologies.”  The Commission, made up of certain senior members of Congress as well as the Secretaries of Defense and Commerce, will function independently from other such panels established by the Trump Administration and will review developments in AI along with assessing risks related to AI and related technologies to consider how those methods relate to the national security and defense needs of the United States.  The Commission will focus on technologies that provide the U.S. with a competitive AI advantage, and will look at the need for AI research and investment as well as consider the legal and ethical risks associated with the use of AI.  Members are to be appointed within 90 days of the Commission being established and an initial report to the President and Congress is to be submitted by early February 2019. C.       Additional Congressional Interest in AI/Automation While a number of existing bills with potential impacts on the development of AI technologies remain stalled in Congress,[6] two more recently-introduced pieces of legislation are also worth monitoring as they progress through the legislative process. In late June, Senator Feinstein (D-CA) sponsored the “Bot Disclosure and Accountability Act of 2018,” which is intended to address  some of the concerns over the use of automated systems for distributing content through social media.[7] As introduced, the bill seeks to prohibit certain types of bot or other automated activity directed to political advertising, at least where such automated activity appears to impersonate human activity.  The bill would also require the Federal Trade Commission to establish and enforce regulations to require public disclosure of the use of bots, defined as any “automated software program or process intended to impersonate or replicate human activity online.”  The bill provides that any such regulations are to be aimed at the “social media provider,” and would place the burden of compliance on such providers of social media websites and other outlets.  Specifically, the FTC is to promulgate regulations requiring the provider to take steps to ensure that any users of a social media website owned or operated by the provider would receive “clear and conspicuous notice” of the use of bots and similar automated systems.  FTC regulations would also require social media providers to police their systems, removing non-compliant postings and/or taking other actions (including suspension or removal) against users that violate such regulations.  While there are significant differences, the Feinstein bill is nevertheless similar in many ways to California’s recently-enacted Bot disclosure law (S.B. 1001), discussed more fully in our previous client alert located here.[8] Also of note, on September 26th, a bipartisan group of Senators introduced the “Artificial Intelligence in Government Act,” which seeks to provide the federal government with additional resources to incorporate AI technologies in the government’s operations.[9] As written, this new bill would require the General Services Administration to bring on technical experts to advise other government agencies, conduct research into future federal AI policy, and promote inter-agency cooperation with regard to AI technologies.  The bill would also create yet another federal advisory board to advise government agencies on AI policy opportunities and concerns.  In addition, the newly-introduced legislation seeks to require the Office of Management and Budget to identify ways for the federal government to invest in and utilize AI technologies and tasks the Office of Personal Management with anticipating and providing training for the skills and competencies the government requires going-forward for incorporating AI into its overall data strategy. II.       Potential Impact on AI Technology of Recent California Privacy Legislation Interestingly, in the related area of data privacy regulation, the federal government has been slower to respond, and it is the state legislatures that are leading the charge.[10] Most machine learning algorithms depend on the availability of large data sets for purpose of training, testing, and refinement.  Typically, the larger and more complete the datasets available, the better.  However, these datasets often include highly personal information about consumers, patients, or others of interest—data that can sometimes be used to predict information specific to a particular person even if attempts are made to keep the source of such data anonymous. The European Union’s General Data Protection Regulation, or GDPR, which went into force on May 25, 2018, has deservedly garnered a great deal of press as one of the first, most comprehensive collections of data privacy protections. While we’re only months into its effective period, the full impact and enforcement of the GDPR’s provisions have yet to be felt.  Still, many U.S. companies, forced to take steps to comply with the provisions of GDPR at least with regard to EU citizens, have opted to take many of those same steps here in the U.S., despite the fact that no direct U.S. federal analogue to the GDPR yet exists.[11] Rather than wait for the federal government to act, several states have opted to follow the lead of the GDPR and enact their own versions of comprehensive data privacy laws.  Perhaps the most significant of these state-legislated omnibus privacy laws is the California Consumer Privacy Act (“CCPA”), signed into law on June 28, 2108, and slated to take effect on January 1, 2020.[12]  The CCPA is not identical to the GDPR, differing in a number of key respects.  However there are many similarities, in that the CCPA also has broadly defined definitions of personal information/data, and seeks to provide a right to notice of data collection, a right of access to and correction of collected data, a right to be forgotten, and a right to data portability.  But how do the CCPA’s requirements differ from the GDPR for companies engaged in the development and use of AI technologies?  While there are many issues to consider, below we examine several of the key differences of the CCPA and their impact on machine learning and other AI-based processing of collected data. A.       Inferences Drawn from Personal Information The GDPR defines personal data as “any information relating to an identified or identifiable natural person,” such as “a name, an identification number, location data, an online identifier or to one or more factors specific to the physical, physiological, genetic, mental, economic, cultural or social identify of that nature person.”[13]  Under the GDPR, personal data has implications in the AI space beyond just the data that is actually collected from an individual.  AI technology can be and often is used to generate additional information about a person from collected data, e.g., spending habits, facial features, risk of disease, or other inferences that can be made from the collected data.  Such inferences, or derivative data, may well constitute “personal data” under a broad view of the GDPR, although there is no specific mention of derivative data in the definition. By contrast, the CCPA goes farther and specifically includes “inferences drawn from any of the information identified in this subdivision to create a profile about a consumer reflecting the consumer’s preferences, characteristics, psychological trends, preferences, predispositions, behavior, attitudes, intelligence, abilities and aptitudes.”[14]  An “inference” is defined as “the derivation of information, data, assumptions, or conclusions from evidence, or another source of information or data.”[15] Arguably the primary purpose of many AI systems is to draw inferences from a user’s information, by mining data, looking for patterns, and generating analysis.  Although the CCPA does limit inferences to those drawn “to create a profile about a consumer,” the term “profile” is not defined in the CCPA.  However, the use of consumer information that is “deidentified” or “aggregated” is permitted by the CCPA.  Thus, one possible solution may be to take steps to “anonymize” any personal data used to derive any inferences.  As a result, when looking to CCPA compliance, companies may want to carefully consider the derivative/processed data that they are storing about a user, and consider additional steps that may be required for CCPA compliance. B.       Identifying Categories of Personal Information The CCPA also requires disclosures of the categories of personal information being collected, the categories of sources from which personal information is collected, the purpose for collecting and selling personal information, and the categories of third parties with whom the business shares personal information. [16]  Although these categories are likely known and definable for static data collection, it may be more difficult to specifically disclose the purpose and categories for certain information when dynamic machine learning algorithms are used.  This is particularly true when, as discussed above, inferences about a user are included as personal information.  In order to meet these disclosure requirements, companies may need to carefully consider how they will define all of the categories of personal information collected or the purposes of use of that information, particularly when machine learning algorithms are used to generate additional inferences from, or derivatives of, personal data. C.       Personal Data Includes Households The CCPA’s definition of “personal data” also includes information pertaining to non-individuals, such as “households” – a term that the CCPA does not further define.[17]  In the absence of an explicit definition, the term “household” would seem to target information collected about a home and its inhabits through smart home devices, such as thermostats, cameras, lights, TVs, and so on.  When looking to the types of personal data being collected, the CCPA may also encompass information about each of these smart home devices, such as name, location, usage, and special instructions (e.g., temperature controls, light timers, and motion sensing).  Furthermore, any inferences or derivative information generated by AI algorithms from the information collected from these smart home devices may also be covered as personal information.  Arguably, this could include information such as conversations with voice assistants or even information about when people are likely to be home determined via cameras or motion sensors.  Companies developing smart home, or other Internet of Things, devices thus should carefully consider whether the scope and use they make of any information collected from “households” falls under the CCPA requirements for disclosure or other restrictions. III.       Continuing Efforts to Regulate Autonomous Vehicles Much like the potential for a comprehensive U.S. data privacy law, and despite a flurry of legislative activity in Congress in 2017 and early 2018 towards such a national regulatory framework, autonomous vehicles continue to operate under a complex patchwork of state and local rules with limited federal oversight.  We previously provided an update (located here)[18] discussing the Safely Ensuring Lives Future Deployment and Research In Vehicle Evolution (SELF DRIVE) Act[19], which passed the U.S. House of Representatives by voice vote in September 2017 and its companion bill (the American Vision for Safer Transportation through Advancement of Revolutionary Technologies (AV START) Act).[20]  Both bills have since stalled in the Senate, and with them the anticipated implementation of a uniform regulatory framework for the development, testing and deployment of autonomous vehicles. As the two bills languish in Congress, ‘chaperoned’ autonomous vehicles have already begun coexisting on roads alongside human drivers.  The accelerating pace of policy proposals—and debate surrounding them—looks set to continue in late 2018 as virtually every major automaker is placing more autonomous vehicles on the road for testing and some manufacturers prepare to launch commercial services such as self-driving taxi ride-shares[21] into a national regulatory vacuum. A.       “Light-touch” Regulation The delineation of federal and state regulatory authority has emerged as a key issue because autonomous vehicles do not fit neatly into the existing regulatory structure.  One of the key aspects of the proposed federal legislation is that it empowers the National Highway Traffic Safety Administration (NHTSA) with the oversight of manufacturers of self-driving cars through enactment of future rules and regulations that will set the standards for safety and govern areas of privacy and cybersecurity relating to such vehicles.  The intention is to have a single body (the NHTSA) develop a consistent set of rules and regulations for manufacturers, rather than continuing to allow the states to adopt a web of potentially widely differing rules and regulations that may ultimately inhibit development and deployment of autonomous vehicles.  This approach was echoed by safety guidelines released by the Department of Transportation (DoT) for autonomous vehicles.  Through the guidelines (“a nonregulatory approach to automated vehicle technology safety”),[22] the DoT avoids any compliance requirement or enforcement mechanism, at least for the time being, as the scope of the guidance is expressly to support the industry as it develops best practices in the design, development, testing, and deployment of automated vehicle technologies. Under the proposed federal legislation, the states can still regulate autonomous vehicles, but the guidance encourages states not to pass laws that would “place unnecessary burdens on competition and innovation by limiting [autonomous vehicle] testing or deployment to motor vehicle manufacturers only.”[23]  The third iteration of the DoT’s federal guidance, published on October 4, 2018, builds upon—but does not replace—the existing guidance, and reiterates that the federal government is placing the onus for safety on companies developing the technologies rather than on government regulation. [24]  The guidelines, which now include buses, transit and trucks in addition to cars, remain voluntary. B.       Safety Much of the delay in enacting a regulatory framework is a result of policymakers’ struggle to balance the industry’s desire to speed both the development and deployment of autonomous vehicle technologies with the safety and security concerns of consumer advocates. The AV START bill requires that NHTSA must construct comprehensive safety regulations for AVs with a mandated, accelerated timeline for rulemaking, and the bill puts in place an interim regulatory framework that requires manufacturers to submit a Safety Evaluation Report addressing a range of key areas at least 90 days before testing, selling, or commercialization of an driverless cars.  But some lawmakers and consumer advocates remain skeptical in the wake of highly publicized setbacks in autonomous vehicle testing.[25]  Although the National Safety Transportation Board (NSTB) has authority to investigate auto accidents, there is still no federal regulatory framework governing liability for individuals and states.[26]  There are also ongoing concerns over cybersecurity risks[27], the use of forced arbitration clauses by autonomous vehicle manufacturers,[28] and miscellaneous engineering problems that revolve around the way in which autonomous vehicles interact with obstacles commonly faced by human drivers, such as emergency vehicles,[29] graffiti on road signs or even raindrops and tree shadows.[30] In August 2018, the Governors Highway Safety Association (GHSA) published a report outlining the key questions that manufacturers should urgently address.[31]  The report suggested that states seek to encourage “responsible” autonomous car testing and deployment while protecting public safety and that lawmakers “review all traffic laws.”  The report also notes that public debate often blurs the boundaries between the different levels of automation the NHTSA has defined (ranging from level 0 (no automation) to level 5 (fully self-driving without the need for human occupants)), remarking that “most AVs for the foreseeable future will be Levels 2 through 4.  Perhaps they should be called ‘occasionally self-driving.'”[32] C.       State Laws Currently, 21 states and the District of Columbia have passed laws regulating the deployment and testing of self-driving cars, and governors in 10 states have issued executive orders related to them.[33]  For example, California expanded its testing rules in April 2018 to allow for remote monitoring instead of a safety driver inside the vehicle.[34]  However, state laws differ on basic terminology, such as the definition of “vehicle operator.” Tennessee SB 151[35] points to the autonomous driving system (ADS) while Texas SB 2205[36] designates a “natural person” riding in the vehicle.  Meanwhile, Georgia SB 219[37] identifies the operator as the person who causes the ADS to engage, which might happen remotely in a vehicle fleet. These distinctions will affect how states license both human drivers and autonomous vehicles going forward.  Companies operating in this space accordingly need to stay abreast of legal developments in states in which they are developing or testing autonomous vehicles, while understanding that any new federal regulations may ultimately preempt those states’ authorities to determine, for example, crash protocols or how they handle their passengers’ data. D.       ‘Rest of the World’ While the U.S. was the first country to legislate for the testing of automated vehicles on public roads, the absence of a national regulatory framework risks impeding innovation and development.  In the meantime, other countries are vying for pole position among manufacturers looking to test vehicles on roads.[38]  KPMG’s 2018 Autonomous Vehicles Readiness Index ranks 20 countries’ preparedness for an autonomous vehicle future. The Netherlands took the top spot, outperforming the U.S. (3rd) and China (16th).[39]  Japan and Australia plan to have self-driving cars on public roads by 2020.[40]  The U.K. government has announced that it expects to see fully autonomous vehicles on U.K. roads by 2021, and is introducing legislation—the Automated and Electric Vehicles Act 2018—which installs an insurance framework addressing product liability issues arising out of accidents involving autonomous cars, including those wholly caused by an autonomous vehicle “when driving itself.”[41] E.       Looking Ahead While autonomous vehicles operating on public roads are likely to remain subject to both federal and state regulation, the federal government is facing increasing pressure to adopt a federal regulatory scheme for autonomous vehicles in 2018.[42]  Almost exactly one year after the House passed the SELF DRIVE Act, House Energy and Commerce Committee leaders called on the Senate to advance automated vehicle legislation, stating that “[a]fter a year of delays, forcing automakers and innovators to develop in a state-by-state patchwork of rules, the Senate must act to support this critical safety innovation and secure America’s place as a global leader in technology.”[43]  The continued absence of federal regulation renders the DoT’s informal guidance increasingly important.  The DoT has indicated that it will enact “flexible and technology-neutral” policies—rather than prescriptive performance-based standards—to encourage regulatory harmony and consistency as well as competition and innovation.[44]  Companies searching for more tangible guidance on safety standards at federal level may find it useful to review the recent guidance issued alongside the DoT’s announcement that it is developing (and seeking public input into) a pilot program for ‘highly or fully’ autonomous vehicles on U.S. roads.[45]  The safety standards being considered include technology disabling the vehicle if a sensor fails or barring vehicles from traveling above safe speeds, as well as a requirement that NHTSA be notified of any accident within 24 hours. [1] See https://www.whitehouse.gov/wp-content/uploads/2018/05/Summary-Report-of-White-House-AI-Summit.pdf; note also that the Trump Administration’s efforts in studying AI technologies follow, but appear largely separate from, several workshops on AI held by the Obama Administration in 2016, which resulted in two reports issued in late 2016 (see Preparing for the Future of Artificial Intelligence, and Artificial Intelligence, Automation, and the Economy). [2] Id. at Appendix A. [3] See https://www.mccain.senate.gov/public/index.cfm/2018/8/senate-passes-the-john-s-mccain-national-defense-authorization-act-for-fiscal-year-2019.  The full text of the NDAA is available at https://www.congress.gov/bill/115th-congress/house-bill/5515/text.  For additional information on CFIUS reform implemented by the NDAA, please see Gibson Dunn’s previous client update at https://www.gibsondunn.com/cfius-reform-our-analysis/. [4] See id.; see also https://www.treasury.gov/resource-center/international/Documents/FIRRMA-FAQs.pdf. [5] See https://foreignaffairs.house.gov/wp-content/uploads/2018/02/HR-5040-Section-by-Section.pdf.   [6] See, e.g. infra., Section III discussion of SELF DRIVE and AV START Acts, among others. [7] S.3127, 115th Congress (2018). [8] https://www.gibsondunn.com/new-california-security-of-connected-devices-law-and-ccpa-amendments/. [9] S.3502, 115th Congress (2018). [10] See also, infra., Section III for more discussion of specific regulatory efforts for autonomous vehicles. [11] However, as 2018 has already seen a fair number of hearings before Congress relating to digital data privacy issues, including appearances by key executives from many major tech companies, it seems likely that it may not be long before we see the introduction of a “GDPR-like” comprehensive data privacy bill.  Whether any resulting federal legislation would actually pre-empt state-enacted privacy laws to establish a unified federal framework is itself a hotly-contested issue, and remains to be seen. [12] AB 375 (2018); Cal. Civ. Code §1798.100, et seq. [13] Regulation (EU) 2016/679 (General Data Protection Regulation), Article 4 (1). [14] Cal. Civ. Code §1798.140(o)(1)(K). [15] Id.. at §1798.140(m). [16] Id. at §1798.110(c). [17] Id. at §1798.140(o)(1). [18] https://www.gibsondunn.com/accelerating-progress-toward-a-long-awaited-federal-regulatory-framework-for-autonomous-vehicles-in-the-united-states/. [19]   H.R. 3388, 115th Cong. (2017). [20]   U.S. Senate Committee on Commerce, Science and Transportation, Press Release, Oct. 24, 2017, available at https://www.commerce.senate.gov/public/index.cfm/pressreleases?ID=BA5E2D29-2BF3-4FC7-A79D-58B9E186412C. [21]   Sean O’Kane, Mercedes-Benz Self-Driving Taxi Pilot Coming to Silicon Valley in 2019, The Verge, Jul. 11, 2018, available at https://www.theverge.com/2018/7/11/17555274/mercedes-benz-self-driving-taxi-pilot-silicon-valley-2019. [22]   U.S. Dept. of Transp., Automated Driving Systems 2.0: A Vision for Safety 2.0, Sept. 2017, https://www.nhtsa.gov/sites/nhtsa.dot.gov/files/documents/13069a-ads2.0_090617_v9a_tag.pdf. [23]   Id., at para 2. [24]   U.S. DEPT. OF TRANSP., Preparing for the Future of Transportation: Automated Vehicles 3.0, Oct. 4, 2018, https://www.transportation.gov/sites/dot.gov/files/docs/policy-initiatives/automated-vehicles/320711/preparing-future-transportation-automated-vehicle-30.pdf. [25]   Sasha Lekach, Waymo’s Self-Driving Taxi Service Could Have Some Major Issues, Mashable, Aug. 28, 2018, available at https://mashable.com/2018/08/28/waymo-self-driving-taxi-problems/#dWzwp.UAEsqM. [26]   Robert L. Rabin, Uber Self-Driving Cars, Liability, and Regulation, Stanford Law School Blog, Mar. 20, 2018, available at https://law.stanford.edu/2018/03/20/uber-self-driving-cars-liability-regulation/. [27]   David Shephardson, U.S. Regulators Grappling with Self-Driving Vehicle Security, Reuters. Jul. 10, 2018, available at https://www.reuters.com/article/us-autos-selfdriving/us-regulators-grappling-with-self-driving-vehicle-security-idUSKBN1K02OD. [28]   Richard Blumenthal, Press Release, Ten Senators Seek Information from Autonomous Vehicle Manufacturers on Their Use of Forced Arbitration Clauses, Mar. 23, 2018, available at https://www.blumenthal.senate.gov/newsroom/press/release/ten-senators-seek-information-from-autonomous-vehicle-manufacturers-on-their-use-of-forced-arbitration-clauses. [29]   Kevin Krewell, How Will Autonomous Cars Respond to Emergency Vehicles, Forbes, Jul. 31, 2018, available at https://www.forbes.com/sites/tiriasresearch/2018/07/31/how-will-autonomous-cars-respond-to-emergency-vehicles/#3eed571627ef. [30]   Michael J. Coren, All The Things That Still Baffle Self-Driving Cars, Starting With Seagulls, Quartz, Sept. 23, 2018, available at https://qz.com/1397504/all-the-things-that-still-baffle-self-driving-cars-starting-with-seagulls/. [31]   ghsa, Preparing For Automated Vehicles: Traffic Safety Issues For States, Aug. 2018, available at https://www.ghsa.org/sites/default/files/2018-08/Final_AVs2018.pdf. [32]   Id., at 7. [33]   Brookings, The State of Self-Driving Car Laws Across the U.S., May 1, 2018, available at https://www.brookings.edu/blog/techtank/2018/05/01/the-state-of-self-driving-car-laws-across-the-u-s/. [34]   Aarian Marshall, Fully Self-Driving Cars Are Really Truly Coming to California, Wired, Feb. 26, 2018, available at, https://www.wired.com/story/california-self-driving-car-laws/; State of California, Department of Motor Vehicles, Autonomous Vehicles in California, available at https://www.dmv.ca.gov/portal/dmv/detail/vr/autonomous/bkgd. [35]   SB 151, available at http://www.capitol.tn.gov/Bills/110/Bill/SB0151.pdf. [36]   SB 2205, available at https://legiscan.com/TX/text/SB2205/2017. [37]   SB 219, available at http://www.legis.ga.gov/Legislation/en-US/display/20172018/SB/219. [38]   Tony Peng & Michael Sarazen, Global Survey of Autonomous Vehicle Regulations, Medium, Mar. 15, 2018, available at https://medium.com/syncedreview/global-survey-of-autonomous-vehicle-regulations-6b8608f205f9. [39]   KPMG, Autonomous Vehicles Readiness Index: Assessing Countries’ Openness and Preparedness for Autonomous Vehicles, 2018, (“The US has a highly innovative but largely disparate environment with little predictability regarding the uniform adoption of national standards for AVs. Therefore the prospect of  widespread driverless vehicles is unlikely in the near future. However, federal policy and regulatory guidance could certainly accelerate early adoption . . .”), p. 17, available at https://assets.kpmg.com/content/dam/kpmg/nl/pdf/2018/sector/automotive/autonomous-vehicles-readiness-index.pdf. [40]   Stanley White, Japan Looks to Launch Autonomous Car System in Tokyo by 2020, Automotive News, Jun. 4, 2018, available at http://www.autonews.com/article/20180604/MOBILITY/180609906/japan-self-driving-car; National Transport Commission Australia, Automated vehicles in Australia, available at https://www.ntc.gov.au/roads/technology/automated-vehicles-in-australia/. [41]   The Automated and Electric Vehicles Act 2018, available at http://www.legislation.gov.uk/ukpga/2018/18/contents/enacted; Lexology, Muddy Road Ahead Part II: Liability Legislation for Autonomous Vehicles in the United Kingdom, Sept. 21, 2018,  https://www.lexology.com/library/detail.aspx?g=89029292-ad7b-4c89-8ac9-eedec3d9113a; see further Anne Perkins, Government to Review Law Before Self-Driving Cars Arrive on UK Roads, The Guardian, Mar. 6, 2018, available at https://www.theguardian.com/technology/2018/mar/06/self-driving-cars-in-uk-riding-on-legal-review. [42]   Michaela Ross, Code & Conduit Podcast: Rep. Bob Latta Eyes Self-Driving Car Compromise This Year, Bloomberg Law, Jul. 26, 2018, available at https://www.bna.com/code-conduit-podcast-b73014481132/. [43]   Freight Waves, House Committee Urges Senate to Advance Self-Driving Vehicle Legislation, Sept. 10, 2018, available at https://www.freightwaves.com/news/house-committee-urges-senate-to-advance-self-driving-vehicle-legislation; House Energy and Commerce Committee, Press Release, Sept. 5, 2018, available at https://energycommerce.house.gov/news/press-release/media-advisory-walden-ec-leaders-to-call-on-senate-to-pass-self-driving-car-legislation/. [44]   See supra n. 24, U.S. DEPT. OF TRANSP., Preparing for the Future of Transportation: Automated Vehicles 3.0, Oct. 4, 2018, iv. [45]   David Shephardson, Self-driving cars may hit U.S. roads in pilot program, NHTSA says, Automotive News, Oct. 9, 2018, available at http://www.autonews.com/article/20181009/MOBILITY/181009630/self-driving-cars-may-hit-u.s.-roads-in-pilot-program-nhtsa-says. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work, or the authors: H. Mark Lyon – Palo Alto (+1 650-849-5307, mlyon@gibsondunn.com) Claudia M. Barrett – Washington, D.C. (+1 202-887-3642, cbarrett@gibsondunn.com) Frances Annika Smithson – Los Angeles (+1 213-229-7914, fsmithson@gibsondunn.com) Ryan K. Iwahashi – Palo Alto (+1 650-849-5367, riwahashi@gibsondunn.com) Please also feel free to contact any of the following: Automotive/Transportation: Theodore J. Boutrous, Jr. – Los Angeles (+1 213-229-7000, tboutrous@gibsondunn.com) Christopher Chorba – Los Angeles (+1 213-229-7396, cchorba@gibsondunn.com) Theane Evangelis – Los Angeles (+1 213-229-7726, tevangelis@gibsondunn.com) Privacy, Cybersecurity and Consumer Protection: Alexander H. Southwell – New York (+1 212-351-3981, asouthwell@gibsondunn.com) Public Policy: Michael D. Bopp – Washington, D.C. (+1 202-955-8256, mbopp@gibsondunn.com) Mylan L. Denerstein – New York (+1 212-351-3850, mdenerstein@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

October 1, 2018 |
Federal Circuit Update (October 2018)

Click for PDF This edition of Gibson Dunn’s Federal Circuit Update offers a reminder of the upcoming American Intellectual Property Law Association (AIPLA) Annual Meeting and of Supreme Court’s upcoming review of decisions coming up from the Federal Circuit.  We also briefly recap the rules for obtaining a stay of an order pending Federal Circuit appeal.  The Update also summarizes recent Federal Circuit decisions limiting the scope of fee awards, narrowing the window for IPR petitions, clarifying standing requirements for IPR appeals, and providing for the separate patentability for engineering mammalian versus bacterial genomes. Federal Circuit News The AIPLA’s Annual Meeting will take place at the Marriott Wardman Park Hotel in Washington, D.C. from October 25–27, 2018.  Keynote speakers at this meeting will include the Honorable Raymond T. Chen and the Honorable Kara F. Stoll of the Federal Circuit, as well as Andrei Iancu of the U.S. Patent and Trademark Office. Supreme Court:  Thus far, the only case from the Federal Circuit scheduled to be heard in the OT2018 Term is Helsinn Healthcare S.A. v. Teva Phar. USA Inc.  Twenty-three amicus briefs have been filed in that case, reflecting the high interest in the case: Case Status Issue Helsinn Healthcare S.A. v. Teva Pharm. USA Inc., No. 17-1229 Petition for writ of certiorari granted on June 25, 2018 Whether the sale of a patented invention by the inventor to a third party that is obligated to keep the invention confidential constitutes prior art for determining patentability Federal Circuit Practice Update This month, we highlight the Federal Rules of Appellate Procedure and the Federal Circuit Rules of Practice governing requests to stay lower court or agency orders pending appeal.  Stay requests in appeals from a district court are governed by Federal Rule of Appellate Procedure 8 and Federal Circuit Rule 8, with stays from PTAB proceedings governed by parallel Rules 18. Proceed Below First:  FRAP 8(a)(1) and 18(a)(1) provide that “ordinarily” a party must first move in the district court or PTAB for the stay pending appeal. Stay from Federal Circuit:  Under FRAP 8(a)(2) and 18(a)(2), if the party did not move for relief below, the party must include in its motion a showing that it would have been impractical to do so.  Alternatively, if the party did make a request below, the party must explain why the district court or PTAB denied the motion or otherwise failed to provide the requested relief.  Given these requirements, a stay from the Federal Circuit should not be viewed as an alternative to moving below but rather as a second chance if prior efforts failed. Evidentiary Support Required:  FRAP 8(a)(2)(B) and 18(a)(2)(b) also require that “affidavits or other sworn statements” accompany a motion for a stay to support the need for the relief sought.  Lawyer’s argument is generally deemed insufficient. Bond May be Required:  The Federal Circuit “may condition relief on the filing of a bond or other appropriate security.”  FRAP 8(a)(2)(E) and 18(b). Formal Requirements:  Federal Circuit Rules 8 and 18 provide further procedural guidelines.  The motion and opposition to stay may not exceed 5,200 words, and the reply may not exceed 2,600 words.  A list of exhibits required for stay motions is also provided.  The Federal Circuit also mandates that, if a motion to stay remains pending below, the moving party must include an explanation as to when it filed the motion and why it is not practical to await a ruling below. Key Case Summaries (August – September 2018) In Re: Rembrandt Techs. LP Patent Litigation, No. 17-1784 (Fed. Cir. Aug. 15, 2018 (Public Opinion)):  Attorneys’ fees awarded under § 285 must have a “causal connection” to the misconduct that rendered the case exceptional. Section 285 provides that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.”  The statute, however, does not expressly state whether, in exceptional cases, the award must be apportioned between the exceptional and nonexceptional aspects of the case.  In Rembrandt the Federal Circuit suggests that only fees related to the exceptional aspects of the case should be shifted, which may portend a trend to narrower fee awards in the future. In a multidistrict litigation, Rembrandt asserted nine patents against dozens of parties.  After the Markman hearing, the court issued claim construction, which was adverse to Rembrandt for all patents.  The parties then agreed to covenants not to sue on eight of the patents and stipulated to non-infringement for the ninth.  After the Federal Circuit affirmed the claim construction for the ninth patent, the district court considered the defendants’ motion for fees.  The court found that Rembrandt had improperly revived two of the patents, allowed spoliation of evidence, and had improperly given fact witnesses interests contingent on the case’s outcome.  The court found these facts supported that the case was exceptional and awarded $51 million in fees. The Federal Circuit (O’Malley, J.) affirmed the court’s determination that the case is exceptional based on the above findings, but vacated the award of attorneys’ fees.  The panel held that, although the amount of a fee award is a matter of the district court’s discretion, the amount must bear a “causal connection” to the misconduct that makes the case exceptional.  The panel noted that, in less complicated or sprawling litigation, a “finding of pervasive misbehavior or inequitable conduct that affects all of the patents in suit may justify an award of all of the fees incurred.”  But here the district court awarded the entirety of the fees without making findings that, for example, spoliation affected every issue in the suit.  Likewise, the court did not explain why there was misconduct with respect to patents that were not improperly revived.  The panel thus remanded for a fee determination causally linked to the misconduct. Click-to-Call Techs., LP v. Ingenio, Inc., No. 15-1242 (Fed. Cir. Aug. 16, 2018) (key holding en banc): IPR one-year time bar under § 315(b) runs from when a complaint is served even if that complaint is then voluntarily dismissed without prejudice. In 2001, Inforocket sued Ingenio (then operating under a different name) for patent infringement.  After the complaint was served, the case was dismissed.  Click-to-Call (“CTC”) later acquired the patent and sued Ingenio a second time.  Ingenio filed an IPR petition, which CTC argued was time barred because the earlier complaint had been served well more than one year prior to the petition.  The PTAB rejected CTC’s § 315(b) argument and found the claims unpatentable. The Federal Circuit (O’Malley, J.) disagreed and vacated the ruling.  In a rare procedural move, a majority of the en banc court joined the panel’s holding that § 315(b)’s time bar runs from when a petitioner is served with an infringement complaint even if the complaint is dismissed.  The court explained that § 315(b) focuses on whether a petitioner “is served with a complaint alleging infringement.”  While the court recognized precedent stating that dismissals without prejudice leave the parties “as though the action had never been brought,” the panel also noted that the language of § 315(b) offers no exceptions.  The panel and en banc majority thus held that dismissal of a complaint does not negate the time bar triggered by service of that complaint. Regents of the Univ. of Calif. v. Broad Institute, Inc., No. 17-1907 (Fed Cir. Sept. 10, 2018):  Genetic engineering methods in mammalian cells are patentably distinct from those applied to bacterial cells. The University of California (UC) and the Broad Institute (along with their respective research partners) both claimed inventorship over CRISPR (Clustered Regularly Interspaced Short Palindromic Repeats) genomic editing using the Cas9 nuclease enzyme.  CRISPR-Cas9, which enables fast and precise genomic editing, is recognized as a potentially revolutionary next-generation tool in biomedical research and therapy development. The UC researchers reduced to practice (and published) using CRISPR-Cas9 in vitro in a non-cellular environment, and their patent application did not limit claims to any particular cell type.  The Broad team later reduced to practice in eukaryotic cells (specifically, human and mouse cells), filing claims covering CRISPR-Cas9 in eukaryotic cells.  The Patent Trial and Appeal Board issued an interference.  The Broad asserted that its later application was non-obvious and patentably distinct because a person of ordinary skill in the art would not have had a reasonable expectation of success in eukaryotic cells based on the UC’s research.  The PTAB agreed, citing differences between eukaryotic (e.g., plant or animal) and prokaryotic (e.g., bacterial) systems. The Federal Circuit affirmed.  The panel (Moore, J., joined by Schall, J. and Prost, C.J.) considered evidence of the unpredictability, more complicated protein folding, and greater genomic length and complexity of eukaryotic cells, as well as other prior art prokaryotic research that did not work fully in eukaryotic systems.  Although a motivation to combine was evidenced by multiple research groups succeeding in applying the CRISPR-Cas9 in eukaryotic cells shortly after the UC published its initial research, this did not necessarily indicate an expectation of success.  The panel thus found “substantial evidence” that “applying similar prokaryotic systems in eukaryotes was unpredictable” and that methods in eukaryotic cells were patentably distinct. While the panel cautioned that it was not “ruling on the validity of either set of claims,” its decision provides precedent that foundational research in bacterial systems and the same method applied to eukaryotic cells may be patentably distinct.  CRISPR-Cas9 and other biotechnologies stemming from prokaryotic research may now be subject to multiple patent estates, potentially subjecting industry participants to overlapping licensing obligations for the same technology.  From the perspective of foundational noneukaryotic-based research, such the UC’s work here, this decision may suggest future § 112 challenges for claims extending to eukaryotic systems or lead to narrower claiming to exclude such scope. JTEKT Corp. v. GKN Automotive, Ltd., No. 17-1828 (Fed. Cir. Aug. 3, 2018): Status as a competitor with potentially infringing product in development is insufficient to confer standing to appeal an adverse IPR decision Under § 311(a), any person or entity may petition to institute an IPR—there is no requirement of Article III standing.  But to appeal to the Federal Circuit, the petitioner must satisfy Article III, establishing an injury that is both concrete and particularized and not conjectural or hypothetical. GKN’s patent recites claims to vehicle drivetrains.  JTEKT was developing a competing drivetrain and initiated an IPR against GKN’s patent.  JTEKT sought to appeal the Board’s adverse decisions on several claims, but the Federal Circuit (Dyk, J., joined by O’Malley, J., and Prost, C.J.) held that the appellant lacked standing.  As the panel noted that, “[t]he fact that JTEKT has no product on the market at the present time does not preclude Article III standing.”  But, as the party seeking review, JTEKT had the burden to show the requisite injury.  The Federal Circuit noted that JTEKT was “currently validating its design” which could “continue to evolve and may change” before being finalized.  As such, the panel held that JTEKT failed to “establish that its planned product would create a substantial risk of infringing claims.” E.I. DuPont de Nemours & Co. v. Synvina C.V., No. 17-1977 (Fed. Cir. Sept. 17, 2018): Operating a factory capable of infringing a method of manufacturing is sufficient to confer standing to appeal an adverse IPR decision. DuPont petitioned for IPR of its competitor’s (Synvina’s) patent to methods of manufacturing FDCA.  On appeal, Synvina challenged DuPont’s standing to maintain the appeal, arguing that DuPont had not suffered an actual or imminent injury in fact.  The Federal Circuit (Lourie, J., joined by O’Malley, J. and Chen, J.) rejected the challenge.  The court held that, on appeal from an adverse IPR decision, “the petitioner must generally show a controversy of sufficient immediacy and reality to warrant the requested judicial relief.”  The court found this standard met because DuPont—a competitor of the patent owner—operates a plant capable of infringing the challenged patent, with the claimed reaction conditions.  Thus, “DuPont is engaged or will likely engage in an activity that would give rise to a possible infringement suit.”  Taken with JTEKT above, this illustrates the fact dependent and uncertain nature of the standing inquiry. Upcoming Oral Argument Calendar For a list of upcoming arguments at the Federal Circuit, please click here. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Federal Circuit.  Please contact the Gibson Dunn lawyer with whom you usually work or the authors of this alert: Blaine H. Evanson – Orange County (+1 949-451-3805, bevanson@gibsondunn.com) Raymond A. LaMagna – Los Angeles (+1 213-229-7101, rlamagna@gibsondunn.com) Please also feel free to contact any of the following practice group co-chairs or any member of the firm’s Appellate and Constitutional Law or Intellectual Property practice groups: Appellate and Constitutional Law Group: Mark A. Perry – Washington, D.C. (+1 202-887-3667, mperry@gibsondunn.com) Caitlin J. Halligan – New York (+1 212-351-4000, challigan@gibsondunn.com) Nicole A. Saharsky – Washington, D.C. (+1 202-887-3669, nsaharsky@gibsondunn.com) Intellectual Property Group: Josh Krevitt – New York (+1 212-351-4000, jkrevitt@gibsondunn.com) Wayne Barsky – Los Angeles (+1 310-552-8500, wbarsky@gibsondunn.com) Mark Reiter – Dallas (+1 214-698-3100, mreiter@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

September 12, 2018 |
Gibson Dunn Win Recognized at LMG Life Sciences Awards

Gibson Dunn was recognized at the annual LMG Life Sciences Awards, where the firm’s win in Biogen IDEC MA v. EMD Serono et al. was named a Patent Impact Case of the Year.  The awards were presented on September 12, 2018.  

August 8, 2018 |
Media, Entertainment and Technology Group – 2018 Mid-Year Update

Click for PDF For our latest semi-annual update, Gibson Dunn’s Media, Entertainment and Technology practice group is taking stock of another active period of deals, regulatory developments, and litigation. The first half of 2018 has been marked by landmark M&A, esports growth, precedent-setting copyright cases, an end to the “Blurred Lines” saga, and some clarity from California and New York courts in anticipated right of publicity cases. And we have seen courts wrestling with twenty-first century legal issues raised by terms like geoblocking, top-level domains, Simpsonizing, and embedded Tweets. Here, then, is our latest round-up to bring you current on the deals and decisions that will hold lessons for the months and years to come. I.    Transaction Overview A.    M&A 1.    AT&T and Time Warner Prevail in Antitrust Suit and Complete Merger On June 12, 2018, in a 172-page decision following a six-week trial, U.S. District Judge Richard J. Leon denied the government’s request to enjoin the proposed merger between AT&T and Time Warner, and the companies completed the merger two days later, bringing together the content produced by Warner Bros., HBO and Turner with AT&T’s mobile, broadband, video and other communications services.[1] “Our merger brings together the elements to fulfill our vision for the future of media and entertainment,” AT&T said in a press release.[2] On July 12, the government filed a notice of appeal.[3] (Disclosure: Gibson Dunn represents AT&T and DirecTV in the case.) 2.    Comcast Ends Pursuit of 21st Century Fox, Clearing Path for Disney The back-and-forth bidding between The Walt Disney Company and Comcast for Twenty-First Century Fox, Inc. appears to have ended, as on July 19, 2018, Comcast announced it would not pursue the acquisition any further, paving the way for Disney to close the deal.[4] Previously, on June 20, 2018, Disney and Fox announced that they had entered into an amended and restated merger agreement, providing for Disney’s acquisition of Fox’s film and television businesses for more than $71.3 billion in cash and stock, surpassing Disney’s original offer of $52.4 billion in Disney stock and made one week after Comcast’s unsolicited offer of approximately $65 billion in cash.[5] Under the amended and restated agreement, Fox’s shareholders can elect to receive their consideration in the form of cash or Disney stock, subject to 50/50 proration.[6] On June 27, 2018, Disney announced that the Antitrust Division of the Department of Justice had entered into a consent decree with Disney and Fox, clearing the way for the pending acquisition to close.[7] The consent decree requires the sale of the Fox Sports Regional Networks within 90 days of closing the Fox acquisition, subject to possible extension by the DOJ, and is subject to court approval.[8] On July 27, 2018, Disney’s and Fox’s shareholders voted to approve the acquisition.[9] 3.    Suitors Continue to Vie for Sky In abandoning its bid for Disney, Comcast turned its focus to acquiring Sky PLC, but Disney has its sights set on the European broadcaster as well.[10] At the moment, Comcast has the higher offer, currently valued at $34 billion, 5% higher than the latest bid from Fox, which owns 39% of Sky (a stake that will be sold to Disney as part of the Fox acquisition). Disney may then decide to pursue the remainder of Sky by topping Comcast’s bid or may look to sell Fox’s stake.[11] These latest developments follow Fox’s year-long battle with U.K. regulators regarding its proposed acquisition of Sky. The U.K. culture secretary, Matt Hancock, announced that the most recent terms offered by Fox are likely sufficient to allay concerns over media plurality.[12] Fox’s proposed acquisition, which we previously reported has been the subject of British antitrust regulatory scrutiny, caused the U.K.’s Office of Communications to raise red flags, which led to the U.K.’s Competition and Markets Authority to oppose the transaction, noting the proposal would give Rupert Murdoch’s family too much control over U.K. media.[13] Mr. Hancock noted that a sale of Sky News, the news outlet controlled by Sky PLC, to a suitable third party such as Disney (in connection with Disney’s proposal to acquire Twenty-First Century Fox) could alleviate regulatory concerns associated with the deal. Comcast’s bid for Sky was also given the green light by U.K. regulators.[14] 4.    CBS Fights for Control in Midst of Viacom Merger Negotiations Following months during which Shari Redstone, the controlling shareholder of both CBS and Viacom, actively participated in discussions between the companies regarding a potential merger,[15] tension regarding control came to a head on May 14, 2018 when CBS’s board of directors, led by CBS Chairman-CEO Leslie Moonves, sued to dilute Redstone’s preferred shares and those of her holding company National Amusements to prevent her from replacing board members to complete the deal.[16] Redstone and National Amusements returned suit on May 29, 2018, alleging that CBS’s board was overstepping its authority by attempting to dilute her preferred shares.[17] Two days later, a group of CBS’s non-voting Class B shareholders also filed suit against Redstone and National Amusements, claiming Redstone had improperly amended the bylaws to require a 90% board approval for special dividends that would give Class B stockholders the right to vote on the potential merger.[18] 5.    The Weinstein Company’s Bankruptcy Sale In the wake of the sexual assault accusations against Harvey Weinstein, his eponymous production company, The Weinstein Company, filed for bankruptcy in March 2018, listing between $500 million and $1 billion in assets and the same amount in total liabilities. Lantern Capital purchased the production company in the bankruptcy sale for $289 million.[19] On July 16, 2018, The Yucaipa Companies brought suit against Lantern Capital (its former partner in a bid to buy The Weinstein Company), alleging that Lantern failed to reimburse Yucaipa for costs related to the sale and a related purchase fee.[20] B.    SVOD Update 1.    Netflix, Hulu, and Amazon Each Ink High-Profile Creative Deals Netflix has continued to balance both its retention of creative talent and attraction of new talent. The company closed out December 2017 by entering into a four-year, seven-figure overall deal with Stranger Things producer Shawn Levy and his production company 21 Lapps Entertainment.[21] And on February 13, 2018, Netflix announced a five-year overall deal with Ryan Murphy, moving the showrunner and producer from his longtime home of Twentieth Century Fox TV.[22] Under the deal, valued between $250 million and $300 million, Murphy will produce new series and films exclusively for Netflix.[23] Less than a week after releasing the second season of its critically acclaimed original series The Handmaid’s Tale, Hulu announced an overall deal with its showrunner Bruce Miller, on April 30, 2018.[24] Under the deal, made in conjunction with The Handmaid’s Tale producer MGM Television, Miller will create and develop new projects for both Hulu and MGM Television.[25] Amazon has also continued to pursue lucrative creative deals, and on June 5, 2018, it announced that it signed a first-look deal with Jordan Peele, writer and director of the film Get Out, and his production company Monkeypaw Productions.[26] 2.    WndrCo Raises $1 Billion for NewTV WndrCo announced on August 7, 2018, that it had closed a $1 billion funding round for a project with the working title “NewTV”, a mobile-first media platform, led by Meg Whitman and Jeffrey Katzenberg.[27] The initial raise included investments by all of the major Hollywood studios, a number of independent television studios, and major technology companies. The round was led by Madrone Capital. Incubated at WndrCo, NewTV aims to build a user-friendly mobile platform to deliver short-form premium content, allowing users to make the most of every moment of their day. (Disclosure: Gibson Dunn represents WndrCo and NewTV.) 3.    Streaming Industry Expands Through Strategic Partnerships Through the first half of 2018, Netflix has continued to push for partnerships with U.S. cable companies, entering into a partnership with Altice USA, on January 31, 2018, under which Netflix is made available to Altice customers directly through Altice One,[28] and expanding its existing partnership with Comcast to provide Comcast the ability to include a Netflix subscription in new and existing Xfinity packages.[29] In early 2018, YouTube TV entered into strategic partnerships with several sports leagues in an effort to expand its reach, including with MLB and the NBA to become the presenting sponsor of the 2018 World Series and the 2018 NBA Finals, respectively.[30] Despite experiencing a service outage during a World Cup semifinal match,[31] YouTube TV stands to see further expansion in the sports league space throughout the remainder of 2018. On January 5, 2018, CBS became the first Amazon partner to offer a live stream of local broadcast TV by entering into a partnership that allows Amazon Prime U.S. members to access CBS All-Access as an add-on channel.[32] Amazon has increasingly stepped into the role of distributor and portal for companies with over-the-top streaming channels such as CBS, and Amazon’s Prime Video Channels program also has add-ons for programmers such as HBO, Showtime, and Starz.[33] 4.    Chinese Streaming Companies Go Public Often called the “Netflix of China,” iQiyi Inc. in mid-March 2018 launched an estimated $2.3 billion initial public offering.[34] iQiyi intends to use the IPO proceeds to extend its reach into China’s online entertainment industry and continue to provide “blockbuster original content” through its collaborations with Hollywood and Netflix.[35] Not long after, Bilibili Inc., a Chinese online platform used to primarily stream Japanese animation, launched its own IPO, priced at $438 million.[36] In its registration statement, Bilibili noted that it “believe[s] China will become the world’s largest online entertainment market in the future and [its] brand recognition and market leadership among the young generations in China position[s it] well to capture the significant opportunities.”[37] C.    China Partnerships 1.    Blumhouse and Tang Media Partners Partner to Bring Horror Films to China In June 2018, it was announced that Blumhouse Productions, known for its horror movies, partnered with Tang Media Partners, the Shanghai and Los Angeles-based entertainment company, to co-develop and co-finance a slate of Chinese language horror and thriller films.[38] Blumhouse Productions only recently had released its first movie in China in February with Happy Death Day.[39] One possible motivation for this partnership is the booming box office in China, which surpassed the U.S. in the first three months of this year.[40] In the first quarter of 2018, China’s box office took in $3.17 billion in revenues, compared to $2.85 billion in the United States.[41] As the Chinese box office continues to grow, it remains an attractive and unique opportunity for Hollywood and the U.S. entertainment industry. 2.    The Wanda Group Sees New Investments and Consolidation On January 29, 2018, Wanda revealed that Tencent Holdings entered into an agreement to purchase $5.4 billion worth of shares in Dalian Wanda Commercial Management, equaling a 14% interest in the company.[42] Days later on February 5, 2018, it was announced that Alibaba Group Holding Ltd. and Beijing Cultural Investment Holdings, a Chinese government-backed company, agreed to purchase a $1.2 billion stake in Wanda Film Holding Co., The Wanda Group’s domestic film and movie division, which includes the group’s Chinese movie theater.[43] As of the transaction, Alibaba became the second biggest shareholder in Wanda Film Holding Co., with a 7.66% holding.[44] These investments by China’s largest and well-known tech companies came at a time when The Wanda Group was under scrutiny by the Chinese government for its overseas investments and was in the process of selling off its overseas real estate assets to reduce its debt.[45] Then, on June 25, 2018, Wanda Film Holding Co. unveiled plans to acquire a 96.8% stake in Wanda Media (the group’s content-production business), in order to strengthen and consolidate the business’s film and entertainment divisions beyond its cinema division (Wanda Film), with a price tag of $1.78 billion to be paid via cash and equity.[46] The proposed deal would increase content production and afford The Wanda Group the opportunity to produce, distribute and exhibit its content under one roof.[47] AMC Entertainment and Legendary Entertainment—U.S. companies acquired by Wanda in 2016—are not included in the proposed restructuring.[48] The deal is pending authorization by the Shenzhen Stock Exchange.[49] D.    Esports 1.    Fortnite Brings Esports to Center Stage Fortnite, developed and published by Epic Games, has quickly become a phenomenon, and in doing so has helped propel domestic esports—the fast-growing industry of competitive spectator video-gaming—into the mainstream quicker than any game in recent memory. A testament to the game’s widespread adoption, a Fortnite Celebrity Pro-Am charity tournament was recently held at the Banc of California Stadium in Los Angeles during the annual E3 Expo. The tournament played host to 50 celebrities and 50 professional gamers competing for a $3 million cash prize pool.[50] Aside from the Pro-Am tournament, celebrities such as Drake and Travis Scott have taken part in livestreamed gameplay with professional gamers, including the famous Tyler “Ninja” Blevins, with some streams attracting more than 500,000 simultaneous live viewers.[51] Like other game developers, including League of Legends developer Riot Games and Overwatch developer Activision Blizzard, Epic Games has announced its first venture into organized esports via the Fortnite World Cup, which will take place in 2019 with a $100 million total cash purse for winners.[52] However, unlike Riot’s and Activision Blizzard’s esports leagues, which require that teams buy into the league (which generally restricts admission to franchises), Epic has opted for strictly merit-based qualifiers with no spots reserved for organized teams or franchises.[53] Fortnite’s success and the potential for its esports league have also garnered the interest of investors. Tencent, which currently owns 40% of Epic Games, has doubled down on its investment by contributing an additional ¥100 million, half of which will be used to support game development and video content creators, and the other half being used to bring Fortnite to China and develop it as a Chinese esport.[54] 2.    ICM Inks Joint Venture with Esports Agency Evolved ICM Partners and esports talent agency Evolved have announced a joint venture that will give Evolved’s roster of professional gamers, live streamers and internet personalities access to ICM’s full-service offerings.[55] The joint venture will be supervised by ICM’s Bennett Sherman and Peter Trinh, reporting directly to Managing Director Chris Silbermann, who sees esports as a growth opportunity for ICM Partners.[56] 3.    High School Esports Is on Its Way Los Angeles-based startup PlayVS recently closed a $15 million Series A funding round led by New Enterprise Associates with participation from the San Francisco 49ers, Science, CrossCut Ventures, Coatue Management, Cross Culture Ventures, rapper Nas, Dollar Shave Club founder Michael Dubin, and Twitch Cofounder Kevin Lin, among others.[57] PlayVS has worked closely with the NFHS, the high school equivalent of the NCAA, to develop an infrastructure for esports competition at the high school level.[58] PlayVS will be launching its first season in October 2018, bringing esports play to 5,000 high schools.[59]   II.    Regulatory Updates A.    FCC Repeals “Net Neutrality” Rules, Congressional Efforts Stall, and Attention Turns to Litigation and Statehouses In June 2018, the Federal Communications Commission (“FCC”) formally repealed rules concerning the regulation of internet service providers (“ISPs”) (popularly known as “net neutrality”) and no longer considers broadband service a “utility” under Title II of the Communications Act.[60] The FCC erased rules mandating that ISPs treat all web traffic equally and overturned prohibitions on blocking, throttling, and paid prioritization. The agency also included language meant to prevent states from enacting their own consumer protection laws concerning ISPs. Weeks prior to this repeal, the Senate approved a resolution with a 52-47 vote to nullify the FCC’s rollback, but the effort stalled in the House of Representatives.[61] Months before the repeal was enacted, 21 states and the District of Columbia filed suit against the FCC, alleging violation of the Administrative Procedure Act in repealing the “net neutrality” rules.[62] These cases were assigned to the Ninth Circuit via a judicial lottery. In March 2018, the Ninth Circuit granted petitioners’ unopposed request to move the suits to the D.C. Circuit given the court’s experience in presiding over net neutrality cases.[63] The first briefs are due on August 20, 2018, and we anticipate that this litigation will be closely watched over the next year. In addition, a number of states have seen bills introduced (California) or enacted (Washington) to provide net neutrality-type protections.[64] Such bills are sure to be the subject of upcoming challenges and litigation. B.    The European Union’s General Data Protection Regulation Goes into Effect The European Union (“EU”) enacted the General Data Protection Regulation (“GDPR”) in 2016 to unify the patchwork of data privacy laws across all EU member countries into one regulation.[65] The GDPR strengthens the protection of personal data by making clear that location data and online identifiers, such as IP addresses, are considered personal data. European authorities already had taken a more stringent view than U.S. regulators as to what constitutes personally identifiable information subject to protection, including emails and contact information. The GDPR also prohibits the use of lengthy terms and conditions seeking consent; instead, any request for consent must be presented clearly and concisely, and without ambiguity of meaning. The GDPR further provides individuals with the right to, in certain circumstances, require that a business erase personal data about them, obtain a restriction on the processing of personal data, and receive a copy of the personal data provided to the business. It permits individuals to file a class-action style complaint for any breach of personal data. The regulation went into effect on May 25, 2018, and will be applicable to every citizen of the EU and any business entity that transacts with them, regardless of the location of business. Penalties for violating the GDPR are severe. Liable parties could be fined up to four percent of annual global turnover or 20 million Euros, whichever is greater. While many businesses who transact in the EU have updated their privacy policies in light of the GDPR, we strongly urge those who have not done so to review their policies and update them to reflect the new regulation. One immediate consequence of the GDPR has been that ICANN, the not-for-profit company that manages domain names, has already begun removing from its public “WhoIs” database the contact information for domain name registrants in the EU.[66] We are also watching to see whether privacy groups file lawsuits on behalf of groups of individuals seeking to enforce provisions of the GDPR. C.    Hollywood Dealmakers Can No Longer Inquire About Salary History Effective January 1, 2018, California joined a growing number of states, including New York, that restrict an employer’s inquiries into an applicant’s salary history. Under California Labor Code Section 432.3, employers in the state will be prohibited from asking about an applicant’s prior compensation and benefits. The law was enacted to help remedy the gender pay gap. The new law is likely to have a significant impact on how deals are made in the entertainment industry. Going forward, when studios negotiate salaries for talent with agents, they will not be allowed to ask agents for recent quotes unless the talent provides written consent.[67] If consent is provided, agents can volunteer salary history, but studio executives are prohibited from asking for it or using other methods, like calling business affairs executives at previous places of employment to verify it. Should an employer violate this statute, the penalties could be more severe than the $250,000 fine under comparable New York law. In California, applicants will be able to file a lawsuit alleging damages, and remedies may include California’s Private Attorney General Act.[68] III.    Recent Litigation Highlights A.    Antitrust Litigation 1.    Ozzy Osbourne Challenging AEG over Tying Arrangement Regarding Los Angeles and London Venues On March 21, 2018, entertainer Ozzy Osbourne filed a federal antitrust suit in Los Angeles against live entertainment promoter AEG and its subsidiaries and affiliates.[69] The putative class action alleges that AEG is violating the Sherman Act by enforcing an anticompetitive tying arrangement purportedly barring musicians from playing the O2 Arena—”London’s most essential large concert venue”—unless they agree to play Staples Center on the Los Angeles leg of their tour.[70] According to the complaint, AEG—which owns the O2 Arena and Staples Center—effectively forces artists playing the O2 to forego playing certain venues in Los Angeles, like the Forum.[71] Osbourne claims this “Staples Center Commitment” deprives artists like Osbourne from “enjoy[ing] the benefits of competition between Staples and the Forum,” which recently underwent a $100 million renovation.[72] Osbourne seeks an injunction to prohibit AEG from imposing the alleged “illegal tying practice” on him and other musicians.[73] In a recently filed motion to dismiss, AEG argues the lawsuit “is a poorly-disguised attempt by Ozzy’s promoter, Live Nation (represented by the same lawyers), to pressure Defendants to abandon their lawful efforts to compete for bookings in Los Angeles and counteract Live Nation’s tactics to steer business away from venues that AEG owns.”[74] According to AEG, the lawsuit is flawed because the agreement Osbourne seeks to strike down is between AEG and Live Nation, and does not prevent Osbourne from playing at the Forum.[75] Rather, it merely prevents Live Nation from promoting Osbourne’s Los Angeles shows.[76] On August 1, 2018, Judge Dale S. Fischer denied AEG’s motion to dismiss. 2.    Coachella Owner AEG Faces Antitrust Suit over Restrictions on Musicians’ Ability to Play Competing Events On April 9, 2018, Portland music festival promoter Soul’d Out Productions filed suit in federal court in U.S. District Court for the District of Oregon against AEG, owner of the Coachella Valley Music and Arts Festival, accusing it of anticompetitive behavior by barring Coachella musicians from playing other events within 1,300 miles in the months surrounding the festival.[77] According to the complaint, AEG’s invocation of a “radius clause” in its contracts blocks competition in ways that violate federal antitrust laws as well as Oregon and California state laws.[78] Specifically, the suit alleges that AEG and its co-defendants use their “substantial market power” to “coerce artists into agreeing to these unlawful restrictions on trade.”[79] The plaintiff asserts that AEG’s purported “strong-arming and leveraging tactics” have had “an anticompetitive effect on the consumer, music venues and festivals on the West Coast, and promoters of such events.”[80] The suit accordingly seeks treble damages, a declaration that the “radius clause” is unenforceable, and injunctive relief.[81] AEG’s motion to dismiss the suit is currently pending. B.    Profit Participation Suits 1.    Disney to Face Trial in Turner & Hooch Royalty Fraud Claim Disney has been unable to chase off a lawsuit contending it concealed profits from the 1989 Tom Hanks comedy Turner & Hooch.[82] The suit, filed by Christine Wagner, whose late husband, Raymond Wagner, produced the film, alleges that Turner & Hooch, which grossed $71 million at the box office and more than $167 million in worldwide gross receipts, was profitable as early as 1991, but that “Disney reported that the film is not in profits” and sent no statement of accounting in the years since the film was made.[83] Wagner asserts she should be seeing more royalties.[84] In a decision in early May that sets the stage for a trial, a Los Angeles state court judge ruled that Wagner’s fraud claim can move forward.[85] The court found that Disney had presented no evidence on summary adjudication to counter Wagner’s assertion that it was Disney’s misrepresentations—in royalty statements indicating there were no profits to share—that kept the producer or his wife from discovering they had a claim.[86] Therefore, the court found that as it relates to the statute of limitations, Disney may not limit the royalties at issue to only the four years prior to the filing of the 2015 suit.[87] 2.    No, CBS Isn’t Paying Judge Judy Too Much In April 2018, a Los Angeles judge dismissed a claim that Judy Sheindlin’s (pka Judge Judy) compensation was purposely structured to wipe out profits on the hit television show.[88] Talent agency Rebel Entertainment Partners had filed a lawsuit in March 2016 against CBS and Big Ticket Television, alleging that it was entitled to a five percent share of net profits, but that the show had been running a deficit since February 2010 because Sheindlin’s massive salary was deducted as an expense.[89] CBS argued in response that the salary was a necessary expense to keep Judge Judy on the air.[90] In its ruling, the court accepted CBS’s determination that it was doing what it considered to be best for the show, and, moreover, that plaintiffs had not presented sufficient evidence that Sheindlin’s salary ran counter to industry custom.[91] Rather, the court found that “[h]er present salary was the result of arms-length negotiation and Sheindlin’s final ‘take-it-or-leave-it offer.'”[92] 3.    Columbo Producers File Claim Against TV Studio, 45 Years After Show Airs In February 2018, a Los Angeles Superior Court judge held that the creators of the 1970s show Columbo can proceed with their contract and fraud claims against Universal City Studios.[93] Producers William Link and the heirs of Richard Levinson claim that Universal never issued a profit participation statement to them.[94] They alleged that shortly after filing their complaint in November 2017, an accounting statement arrived with a check for $2.3 million.[95] Universal City Studios moved to dismiss the claim, arguing that plaintiffs “lacked specificity” on how they were allegedly underpaid, but the judge has allowed the case to proceed past demurrer.[96] C.    Copyright Litigation 1.    Embedding Tweets Violates the Exclusive Display Right In February 2018, U.S. District Judge Katherine B. Forrest determined on summary judgment that embedding a photo on a social media platform constitutes a “display” of work under Section 106(5) of the Copyright Act of 1976.[97] The plaintiff snapped a candid photo of Tom Brady, the Patriots’ quarterback, and Danny Ainge, the Boston Celtics’ general manager, walking in the Hamptons that quickly went viral, “rapidly moving from Snapchat to Reddit to Twitter—and finally . . . onto the websites of the defendants, who embedded the Tweet alongside articles they wrote about Tom Brady actively helping the Boston Celtics recruit basketball player Kevin Durant.”[98] The court noted that copyright law has “developed in response to significant changes in technology,”[99] and that Congress “cast a very wide net” in considering the display right.[100] Congress did “not intend to freeze the scope of copyrightable subject matter at the present stage of communications technology” when it passed the Copyright Act, and that its drafters intended it to broadly encompass new, not yet developed, technologies.[101] After framing the case as requiring the “the Court [to] construe how images shown on one website but stored on another website’s server implicate an owner’s exclusive display right,”[102] the court rejected application of and criticized the “Server Test,” a test deployed by the Ninth Circuit in Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146 (2007), noting that it has not been widely used outside of the Ninth Circuit.[103] The Court noted that under the Server Test, direct liability for infringement turns “entirely on whether the image is hosted on the publisher’s own server, or is embedded or linked from a third-party server.”[104] Here, however, the court focused on the fact that the defendants “actively took steps to ‘display’ the image.”[105] The court found support in the Supreme Court’s decision in American Broadcasting Cos., Inc. v. Aereo Inc. for the proposition that “liability should not hinge on invisible, technical processes imperceptible to the viewer.”[106] But, the case isn’t over yet. The court explained: In this case, there are genuine questions about whether plaintiff effectively released his image into the public domain when he posted it to his Snapchat account. Indeed, in many cases there are likely to be factual questions as to licensing and authorization. There is also a very serious and strong fair use defense, a defense under the Digital Millennium and Copyright Act, and limitations on damages from innocent infringement.[107] Following its ruling, and recognizing that this is a “high-profile, high-impact copyright case” with possible precedential effects, Judge Forrest certified the ruling for interlocutory appeal to the Second Circuit.[108] However, on July 17, 2018, the Second Circuit denied defendants’ request to take up the ruling.[109] 2.    TVEyes Video Clip Search Engine Is Not Fair Use In February 2018, the Second Circuit held that TVEyes’s service could not be justified as fair use, reversing a summary judgment ruling.[110] As we wrote in our 2016 Mid-Year Update reporting on the summary judgment rulings, TVEyes provides a service that continuously records television programming and indexes it into a text-searchable database, “allowing its clients to search for and watch (up to) ten-minute video clips that mention terms of interest to the clients.”[111] The district court had issued two summary judgment rulings, deeming a fair use TVEyes’s “functions enabling clients of TVEyes to search for videos by term, to watch the resulting videos, and to archive the videos on the TVEyes servers” a fair use, but holding that functions “enabling TVEyes’s clients to download videos to their computers, to freely e-mail videos to others, or to watch videos after searching for them by date, time, and channel (rather than by keyword)” were not fair use.[112] While the Second Circuit found that TVEyes’s service served a modest transformative purpose, isolating relevant television programming and allowing it to be accessed in a convenient manner, it further found that the fact that the service makes available, in its original form, almost all of Fox’s content undermines its transformative value.[113] The court also found that TVEyes’s service deprives Fox of licensing revenues and/or an ability to exploit the market itself.[114] On balance, therefore, the court concluded that “TVEyes’s service is not justifiable as a fair use” because “[a]t bottom, TVEyes is unlawfully profiting off the work of others by commercially re-distributing all of that work that a viewer wishes to use, without payment of license.”[115] On May 14, 2018, the Second Circuit denied TVEyes’s petition for rehearing en banc.[116] 3.    In Suit for Infringement Based on Foreign Broadcast, Geoblocking Thwarts Personal Jurisdiction In November, The Carsey-Werner Company filed a lawsuit in a California federal court against the British Broadcasting Company (“BBC”) and Sugar Films, alleging copyright infringement for the use and airing on the BBC of The Cosby Show clips in a documentary entitled Bill Cosby: Fall of an American Icon.[117] BBC moved for dismissal, arguing that no actionable infringement took place within a California federal court’s jurisdiction, as the documentary was only broadcast in the United Kingdom.[118] Afterward, it was available for 30 days on BBC’s iPlayer website, which, because of geoblocking, meant that the program was only available to those located in the United Kingdom.[119] However, unauthorized viewers could access the content by using virtual private networks (“VPNs”) and proxy servers.[120] Judge Percy Anderson held that “[u]nauthorized viewers outside of the United Kingdom do not provide a basis for personal jurisdiction; rather, Defendant’s relationship with California must arise out of contacts that they themselves created with the state.”[121] The court therefore held it lacked specific jurisdiction over BBC and Sugar Films.[122] 4.    Who Owns VFX Software Output? As we first wrote in our 2017 Year-End Update, in July 2017, Rearden LLC, a computer-generated imagery (CGI) software company, accused The Walt Disney Co., Marvel Studios, Paramount, and Fox of using without a license its intellectual property to animate characters in some of its highest-grossing productions of the last few years, as well as to advertise and promote the films.[123] Rearden alleged trademark, copyright, and patent infringement claims relating to Oscar-winning visual effects technology called MOVA Contour Reality Capture (“MOVA”). Rearden claims that Disney knowingly contracted with parties who stole and falsely claimed ownership of the MOVA system and related IP assets to create film productions such as Beauty and the Beast and Guardians of the Galaxy. Rearden separately pursued relief against the company providing these services, a Chinese company called Shenzhenshi Haitiecheng Science and Technology. In the lawsuits against Disney and the other studios, Rearden claims the studios knowingly used an unauthorized version of the MOVA software. With respect to the copyright claims, Rearden initially asserted a novel theory of copyright infringement, arguing that because its software program performs the “lion’s share” of the creativity involved in the computer art program, the end user fails to meet the minimum threshold for originality, and therefore Rearden, not the end user, should be deemed the legal author of the final product of the program.[124] The defendants moved to dismiss, pointing to film directors and other artists as indispensable creative elements to the artistic expression embodied in the files output by the program.[125] In February, the court sided with the defendants and rejected Rearden’s copyright claims, explaining that “[t]he Court does not find it plausible that the MOVA Contour output is created by the program without any substantial contribution by the actors or directors.”[126] The court thus dismissed the copyright claims without prejudice, and Rearden subsequently amended its complaint to allege copyright claims under a new contributory theory of infringement.[127] This time, Rearden argues that MOVA is an original literary work of authorship fixed in a tangible medium of expression when stored on computer hard drives. When the program is run, Rearden claims that the temporary copies that are made in the random access memory of the end user’s computer violate its copyright. The defendants again moved to dismiss Rearden’s copyright claims.[128] On June 19, 2018, the court denied defendants’ motion to dismiss, holding that Rearden plausibly alleged the defendants either induced or materially contributed to infringing conduct.[129] In light of this ruling, Rearden’s copyright claims will proceed against the studios. 5.    Disney and Redbox Tussle over Resale Rights On November 30, 2017, Disney, Lucasfilm, and Marvel filed suit in the District Court for the Central District of California, arguing that Redbox’s practice of reselling the digital download codes packaged with plaintiffs’ movie “Combo Packs” violates the user license terms and constitutes copyright infringement.[130] Disney moved for a preliminary injunction, which the court denied, finding that the license restriction constituted copyright misuse.[131] Specifically, licensing language on the website where Disney’s digital movie downloads are redeemed states that the downloader must be the owner of “the physical product that accompanied the digital code at the time of purchase.”[132] According to Judge Pregerson, this constitutes an “improper leveraging of Disney’s copyright” and “conflicts with public policy enshrined in the Copyright Act” because it forces users to “forego their statutorily-guaranteed right to distribute their physical copies of that same movie as they see fit.”[133] Disney subsequently updated the license terms, amended its complaint, and renewed its motion for a preliminary injunction.[134] Disney asserts that the new language, which instead requires the digital downloader to have received the code as part of the Combo Pack, rather than to be the current owner of the physical copies, satisfies the court’s concerns regarding copyright misuse.[135] Redbox counters that this change does not cure the misuse because it forces the preceding owner of the Combo pack to “forgo[] the first sale rights associated with the DVD and Blu-ray discs” or otherwise render the digital code “worthless.”[136] A hearing for the preliminary injunction motion was held on June 27, 2018, and Redbox filed a supplemental opposition brief on July 11, 2018, addressing additional changes to Disney’s licensing language.[137] 6.    Playboy’s Centerfold Copyright Suit Folds In February 2018, a District Judge in Los Angeles dismissed with leave to amend Playboy’s copyright infringement suit against the owner of the website BoingBoing.[138] Back in November 2017, Playboy had accused Happy Mutants, LLC—the owner of BoingBoing—of using the magazine’s centerfold photos without permission. The lawsuit pointed to a February 2016 post by BoingBoing that contained a link that directed viewers to a slideshow on a photo website that, at the time, contained the centerfold photos (it has since been taken down). BoingBoing responded that it did not create the offending content, and did not control the images or contribute to the infringement, and that if anything, its link constituted non-infringing fair use. Playboy responded that BoingBoing should not be permitted to knowingly link to copyright-infringing materials.[139] In his decision, the Judge Olguin stated that he was “skeptical” that Playboy had alleged facts to support its inducement or material contribution theories of copyright infringement, and cited the Ninth Circuit’s inducement theory as set forth in Perfect 10, Inc. v. Giganews, Inc.[140] The judge noted that BoingBoing’s fair use argument was premature at this early stage.[141] Rather than amend their complaint, in early March 2018, Playboy voluntarily dismissed its claim without prejudice.[142] D.    DMCA Developments 1.    Safe Harbor from Unfair Competition Claims In March 2018, the District Court for the Southern District of New York dismissed most of Capital Records’ state-law unfair competition claims against video-hosting website Vimeo, claims based on users’ posts to Vimeo’s site that are alleged to infringe pre-1972 copyrighted works. Previously, in June 2016, on an interlocutory appeal from a summary judgment order in the Southern District of New York, the Second Circuit held that the safe harbor provisions of the DMCA protect internet service providers from claims of infringement when users post works protected by state copyright law.[143] After the Supreme Court denied plaintiffs’ petition for a writ of certiorari in March 2017,[144] the district court considered Vimeo’s motion to dismiss and found that Capital Records’ unfair competition claims, which are based on Vimeo’s alleged infringement, were also foreclosed by the safe harbor of the DMCA.[145] The court reasoned that “[a]pplying the DMCA safe harbor to unfair-competition claims founded on copyright infringement ensures that service providers are aware of the infringing activity that forms the basis for the claims brought against them.”[146] The court denied the motion to dismiss as to the instances in which Capital Records alleges that Vimeo had “red-flag knowledge” of the underlying infringement that would negate the protections of the DMCA safe harbor.[147] Motions for summary judgement are still pending. 2.    DMCA May Protect ISPs Without a Written Takedown Policy In March 2018, a Ninth Circuit panel ruled that a website hosting user-uploaded pornography was protected by the Digital Millennium Copyright Act’s safe harbor provisions, even though it lacked a written policy to terminate users who repeatedly infringed copyrights.[148] Back in 2011, pornography producer Ventura Content sued Motherless, alleging claims of direct, vicarious and contributory copyright infringement and of unlawful, unfair and fraudulent business practices in violation of California Business and Professions Code for allowing its users to upload clips of movies that Ventura Content had created and had not licensed to Motherless.[149] In response, Motherless claimed that it qualified for protection under the DMCA’s § 512 safe harbor provision, even though it did not have a written policy to terminate users who repeatedly infringed copyrights.[150] Motherless is owned and operated by a single person who reviewed videos individually for infringement, and described his policy as a “gut decision.”[151] The divided panel found that Motherless did adhere to a policy, even if it was unwritten, to get rid of users who repeatedly uploaded infringing copyright of porn producers, and therefore qualified for the safe harbor provision of the DMCA.[152] Ventura has sought rehearing en banc.[153] E.    First Amendment 1.    Right of Publicity a.    Court of Appeals Resolves Legal Feud in FX’s Favor On March 26, 2018, a California appeals court ruled that Olivia de Havilland’s suit against FX Network and co-defendants is barred by the First Amendment.[154] In March 2017, FX aired a docudrama, Feud: Bette and Joan, in which Catherine Zeta-Jones portrays de Havilland.[155] De Havilland sued FX in June 2017, alleging misappropriation, violation of her right of publicity, false light invasion of privacy, and “unjust enrichment.”[156] In September 2017, the trial court denied FX’s anti-SLAPP motion, and FX (supported by a number of media organizations) appealed. Now, the appeal court has reversed the lower court’s order on the motion to strike.[157] Applying the anti-SLAPP law’s two-step test, the Court of Appeal reversed, finding that the now-102-year-old de Havilland failed to present evidence to establish that she is likely to prevail on her claims at trial.[158] The court explained that the First Amendment protects expressive works, regardless of whether they are fact, fiction, or a combination thereof.[159] The court concluded that Feud‘s portrayal of de Havilland was transformative because its “‘marketability and economic value’ does not ‘derive primarily from [de Havilland’s] fame’ but rather ‘comes principally from . . . the creativity, skill, and reputation’ of Feud‘s creators and actors.”[160] The court also rejected de Havilland’s false light and unjust enrichment claims.[161] On July 11, 2018, the California Supreme Court denied de Havilland’s petition for review; the docket entry noted that Justice Cuéllar would have granted the petition. b.    Lohan v. Take-Two Interactive Software In March 2018, the Court of Appeals of New York affirmed the dismissal of a lawsuit filed by Lindsay Lohan, claiming that Take-Two violated her right of privacy by featuring a “look-a-like” character in Grand Theft Auto without her permission.[162] The court concluded that while an avatar may be a “portrait” for purposes of New York’s right of publicity statute, the avatar featured in Grand Theft Auto was not recognizable as Lohan.[163] In doing so, the court sidestepped larger First Amendment issues, including whether or not individuals featured in video games are subject to the state’s right of publicity law, which “makes it a misdemeanor to use a living person’s name, portrait or picture for advertising or trade purposes . . .”[164] The intermediate appellate court had confronted that issue, in 2016, finding that works of fiction or satire (like the video game) are not of “advertising” or “trade,” in the language of the statute.[165] But the state’s high court specifically declined to address the issue, ruling for Take-Two on the narrower ground that the woman in the video game was simply not recognizable as Lohan. c.    “Simpsonized” Character Is Not Actionable In February 2018, a California appeals court affirmed the dismissal of a lawsuit filed by Frank Sivero against Twentieth Century Fox for misappropriation of his name and likeness in The Simpsons.[166] On October 21, 2014, Sivero filed the complaint, alleging common law infringement of right of publicity, misappropriation of name and likeness, misappropriation of ideas, interference with prospective economic advantage, and unjust enrichment.[167] Fox moved to strike the complaint under California’s anti-SLAPP statute.[168] The appeals court found that the cause of action arose from protected activity within the meaning of the anti-SLAPP statute, and that Sivero then failed to carry his burden to prove the merits of his claim.[169] Here, the court found that Sivero’s character had been “Simpsonized,” and thus contained “significant transformative content,” insulating it against a right of publicity claim[170] The court explained: Louie, the alleged look-a-like, “is a cartoon character with yellow skin, a large overbite, no chin, and no eyebrows. Louie has a distinctive high-pitched voice which, as the trial court pointed out, has ‘no points of resemblance to [Sivero].'”[171] The court concluded that this was not a “trivial variation,” but rather, the creators had created something “recognizably [their] own.”[172] Like in Lohan’s case, the California court gave weight to the difference between the depicted character and the plaintiff alleging misappropriation. 2.    Defamation a.    HBO & John Oliver Prevail over Coal CEO In June 2017, coal CEO Robert Murray brought suit against John Oliver, Partially Important Productions, HBO, and Time Warner claiming that on Oliver’s show “Last Week Tonight,” the comedian defamed the coal magnate by depicting a “villainous” portrait of him.[173] The segment at issue was critical of the coal industry, referring to Murray as a “geriatric Dr. Evil.”[174] Oliver’s segment stated that a mining accident that killed nine people was at least partially the result of improper mining practices rather than an earthquake, as Murray’s company had claimed.[175] Murray filed the suit for defamation, false light invasion of privacy, and intentional infliction of emotional distress. Following remand, and in a single-page order, West Virginia state judge Jeffrey Cramer dismissed the action, agreeing entirely with HBO’s argument that Murray failed to state a claim for defamation.[176] The critical portions of Oliver’s segment that alleged facts were based on judicial opinions and government reports. Oliver’s more “personal” jabs at Murray—including the Austin Powers-inspired name-calling—qualified as satire protected under the First Amendment.[177] b.    Did Cosby’s Lawyer’s Statements Defame Accuser? Even after his criminal trial ended in a conviction in April 2018, Bill Cosby’s reckoning with the #metoo movement continues in the courts. The actor is defending a defamation action arising from his alleged sexual misconduct with the former supermodel Janice Dickinson, one of several women who has accused Cosby of drugging and raping her in the 1980s. Dickinson alleges that a 2014 press statement by Cosby’s former attorney calling her story “fabricated” and “an outrageous lie,” constitutes defamation.[178] In November 2017, a California appeals court allowed Dickinson’s suit to move forward, rejecting Cosby’s contention that his attorney’s statement was non-actionable opinion.[179] The court held that based on the totality of the circumstances, “a reasonable fact finder could conclude that the demand letter states or implies a provably false assertion of fact—specifically, that Cosby did not rape Dickinson, and she is lying when she said that he did.”[180] However, several courts examined nearly the same factual claims in other actions to reach different results. The First[181] and Third Circuits[182] dismissed actions brought by two other Cosby accusers on the grounds that Cosby’s lawyer’s statements constituted non-actionable opinions protected by the First Amendment. On July 12, 2018, in considering Cosby’s and Singer’s anti-SLAPP motions to strike following remand, Los Angeles Superior Court Judge Randolf Hammock dismissed the defamation claims against Singer, holding that actual malice could not be established regarding Singer’s statements without invading the attorney-client privilege.[183] That same day, Cosby filed his petition for writ of certiorari with the U.S. Supreme Court, asking the high court to determine whether Singer’s statement qualifies as an opinion under the Supreme Court’s 1990 holding in Milkovich v. Lorain Journal Co., 497 U.S. 1 (1990).[184] 3.    Public Fora in the 21st Century a.    @RealDonaldTrump Ruled a Public Forum President Trump’s use of Twitter as his favored communication platform is well known, and his tweets invariably lead to strong and diverse responses from other Twitter users. In a May 2018 ruling in Knight First Amendment Institute v. Trump, U.S. District Judge Naomi Reice Buchwald examined whether Trump’s and several of Trump’s close aides’ use of Twitter’s “blocking” feature—which prevents blocked users from viewing or replying to the blocker’s Tweets—violated the First Amendment rights of the seven plaintiffs, all of whom had been blocked by the President’s @realDonaldTrump’s account. The court ruled in plaintiffs’ favor, finding that the President’s account is a “designated” public forum operated by the government.[185] Thus, the President is prohibited from blocking other users because of their viewpoints—namely, in this case, for their criticisms of him. The decision does not hold, contrary to the criticisms leveled against it, that Twitter is public property or that a user violates the First Amendment every time he or she blocks a “troll” on the platform. Rather, commentators observed that “Twitter is how the president speaks to the people; replies on Twitter are how the people speak to each other, in a ‘place’ the government uses for expression and has opened to the public for expression as well,”[186] adapting First Amendment precedent to the political and technological realities of 2018. The 75-page ruling rejected the Justice Department’s argument that Trump was largely acting in a personal capacity and thus as a private individual, much like, as the DOJ argued, “giving a toast at a wedding or giving a speech at a fundraiser.”[187] In contrast, Judge Buchwald reasoned, through his Twitter “bio” and his use of the medium to comment on public policy, Trump portrays his account as presidential “and, more importantly, uses the account to take actions that can be taken only by the President as President,” referring to his use of the platform to propagate executive-order like decrees.[188] Furthermore, Buchwald said, the space below Trump’s tweets that show the public’s replies is a public forum, because it is “generally accessible to the public” and anyone with a Twitter account is able to view those responses, assuming that the user has not been blocked.[189] b.    Conservative Institution’s Lawsuit Against YouTube Fails In March 2018, U.S. District Judge Lucy Koh dismissed a censorship claim against YouTube and its parent company, Google, ruling that the online video-sharing platform is not a public forum subject to the First Amendment.[190] Plaintiff Prager University, a conservative media company owned by Dennis Prager, claimed that YouTube’s restricted mode, which filters out inappropriate content to protect young or sensitive viewers, was restricting access to Prager University videos about topics such as gun control and Islam while permitting access to left-leaning videos by liberal commentators like Bill Maher on the same topics.[191] Amongst other claims, PragerU’s complaint alleged that Google and YouTube’s practice of selectively restricting PragerU’s videos—and thus the group’s speech—violates the U.S. and California constitutions. In response, Google claimed its own First Amendment protection, arguing that because YouTube is a private company, it is not subject to laws prohibiting governmental restrictions on free speech. In dismissing the case, Judge Koh ruled that YouTube is not a “state actor” required to provide free speech protection merely because the company operates its private property as a forum for expression of diverse perspectives. Rather, “[Google and YouTube] are private entities who created their own video-sharing social media website and make decisions about whether and how to regulate content that has been uploaded on that website.”[192] Additionally, Plaintiff failed to show “that defendants have engaged in one of the very few public functions that were traditionally exclusively reserved to the state.”[193] 4.    California’s IMDB-Targeted Age Discrimination Law Declared Unconstitutional In February 2017, Judge Chhabria of the Northern District of California issued a preliminary injunction enjoining California from enforcing AB 1687—a law enacted to address age discrimination in Hollywood that would have prevented in certain instances the popular industry website IMDB.com from posting actors’ ages—writing that “it’s difficult to imagine how AB 1687 could not violate the First Amendment.”[194] In February 2018, Judge Chhabria made the injunction permanent.[195] The court held that the law “singles out specific, non-commercial—age-related information—for differential treatment.”[196] Applying strict scrutiny, the court held that California did not prove that the measure was “actually necessary” to combat age discrimination.[197] Judge Chhabria noted that “the record provides no evidence that California explored less-speech-restrictive alternatives,” such as better enforcement of preexisting anti-discrimination laws.[198] He also explained that the law was both under- and over-inclusive, and therefore not narrowly tailored.[199] The law only bans one speaker from sharing age-related information and only requires IMDb to remove some age-related information.[200] Moreover, the law is not restricted to age-related information of those individuals protected by age discrimination laws.[201] F.    Trademark Litigation 1.    No TRO Against Movie Trailer for The Happytime Murders Sesame Workshop, the makers of Sesame Street, brought suit in the Southern District of New York against STX Entertainment over its upcoming film The Happytime Murders. The film, a raunchy comedy starring Melissa McCarthy, follows two detectives—McCarthy and her partner, a puppet named Phil Phillips—as they work to solve the murders of the former cast of a classic puppet television show. Sesame Workshop sued the film’s backers, seeking a restraining order to block the production companies from using the phrase “No Sesame, All Street” in trailers and promotions for the film, alleging that the tagline seeded “confusion in the mind of the public as to the association between the movie, Sesame Street, and its beloved Muppets.”[202] STX Entertainment responded that the phrase “No Sesame, All Street” actually distinguished its film from Sesame Street. The court sided with STX Entertainment, denying Sesame Workshop’s bid for a restraining order on May 31, 2018.[203] Sesame Workshop dismissed the suit shortly thereafter. 2.     Generic TDLs Receive Protection After All? In August 2017, a federal district court in Virginia reversed a decision of the Trademark Trial and Appeal Board (“TTAB”) that “Booking.com” could not be registered as a trademark, ruling that the addition of “.com” to a generic term makes it potentially protectable under the Lanham Act.[204] The ruling specifically split from precedents in the Federal Circuit that have found the addition of a top-level domain to a generic word does not render it protectable, including the domain names Mattress.com and Hotels.com, finding that precedent unpersuasive.[205] Even though it was successful in that TTAB appeal, the court ordered Booking.com to pay the U.S. Patent and Trademark Office $76,000 in attorneys’ fees under the PTO’s new legal interpretation that the agency must be reimbursed such fees after certain types of patent and trademark appeals, regardless of the outcome. On April 11, 2018, Booking.com asked the Fourth Circuit to strike down that new policy, arguing that it violates the First Amendment right to “petition the government for redress of grievances.”[206] A separate case challenging the same PTO policy is currently pending en banc before the Federal Circuit. As of the date of this writing, neither the Fourth Circuit nor the Federal Circuit has ruled on this issue. 3.    Suit Over Seussian Trekkie Book Dismissed ComicMix LLC created a book entitled Oh, the Places You’ll Boldly Go! that combines creative elements from the Star Trek science fiction franchise with the underlying Dr. Seuss classic Oh, the Places You’ll Go! (“OTPYG“). Dr. Seuss Enterprises brought a trademark, copyright infringement, and unfair competition action against ComicMix for the unauthorized exploitation of Dr. Seuss’s works. Dr. Seuss Enterprises alleges that the new book misappropriates key protected elements of OTPYG, including its trademarks. On December 7, 2017, the district court denied ComicMix’s motion to dismiss the amended complaint on the basis that the book is protected by fair use and nominative fair use doctrines. But on May 21, 2018, the court granted ComicMix’s motion for judgment on the pleadings with respect to the trademark claims.[207] ComicMix had argued that its work merited First Amendment protection under Rogers v. Grimaldi, which tasks judges with determining whether the use of a mark has artistic relevance, and if so, whether the work is explicitly misleading.[208] Previously, the court had held that a potential exception to the First Amendment protection provided in Rogers for misleading titles that are confusingly similar to other titles perhaps applied to ComicMix’s work. But in light of the Ninth Circuit’s recent decision in the Empire case, which treated the Rogers test similarly to the likelihood-of-confusion test, the court held that this exception from Rogers did not apply, dismissing Dr. Seuss Enterprises’ trademark claims.[209] G.    Music 1.    “Blurred Lines” and a Narrow Ruling at 9th Circuit In March 2018, in a hotly awaited decision, the Ninth Circuit upheld on narrow grounds a 2015 jury’s finding that Robin Thicke and Pharrell Williams’s song “Blurred Lines” infringed the copyright of Marvin Gaye’s “Got to Give It Up.”[210] In the appeals court’s 2-1 decision, the majority focused largely on questions of procedure and trial strategy in declining to review a summary judgment motion, noting a full jury trial had taken place and Thicke and Williams’ lawyers had not preserved the issue by filing a motion.[211] The majority explained that after a jury trial, a court must measure the verdict against the weight of the evidence and such verdict may only be overturned in “an absolute absence of evidence supporting the jury’s verdict.”[212] With this, the majority upheld the damages award of $5.3 million. In dissent, Judge Jacqueline Nguyen sharply criticized the majority and did not hesitate to engage with the substantive legal issues and industry concerns that the trial court result created, writing that, “[t]he majority allows the Gayes to accomplish what no one else has before: copyright a musical style.”[213] In doing so, she wrote, “[t]he majority establishes a dangerous precedent that strikes a devastating blow to future musicians and composers everywhere.”[214] Judge Nguyen concluded that the two songs differ in melody, harmony, and rhythm, and Gaye’s expert witness “. . . identified four similar elements, none of which is protectable: (a) each phrase begins with repeated notes; (b) the phrases have three identical pitches in a row in the first measure and two in the second measure; (c) each phrase begins with the same rhythm; and (d) each phrase ends on a melisma (one word sung over multiple pitches).”[215] She would have concluded that such evidence is not appropriate to support an infringement verdict.[216] Nguyen seemed to encourage courts to appoint their own experts when the parties’ experts seem to have “starkly different” assessments of the works’ similarity.[217] The majority, in rebutting Nguyen’s dissent, stated that “[t]he dissent’s position violates every controlling procedural rule involved in this case” and “improperly tries, after a full jury trial has concluded, to act as judge, jury and executioner.”[218] On July 11, the Ninth Circuit declined to rehear the case en banc and issued an amended opinion.[219] 2.    Wolfgang’s Vault Found Liable for Streaming Recordings of Live Performances In April 2018, U.S. District Judge Edgardo Ramos found that Wolfgang’s Vault, a collection of thousands of live concert performances, and its owners had committed a large-scale copyright infringement by streaming its collection to the public, but stopped short of issuing an injunction, finding that the availability of the recordings is in the public interest, while suggesting a licensing deal could remedy the injury to plaintiffs.[220] In 2015, plaintiffs (music publishers and other rights holders) alleged that Wolfgang’s Vault lacked the requisite mechanical licenses to stream a collection of works.[221] Judge Ramos held that Defendants had failed to properly license 206 concert videos, pursuant to Section 115 of the U.S. Copyright Act.[222] Judge Ramos rejected the Defendants’ argument that certain contracts entered into with three major record labels were proof of the necessary consent needed.[223] To this same point, Judge Ramos underscored the fact that Defendants could not produce a single performance agreement.[224] A pending trial will explore whether the copyright infringement was willful, meaning that Plaintiffs could be entitled to statutory damages of up to $150,000 per work.[225] 3.    No Moral Rights for Foreign “Big Pimpin” Sample Holder On May 31, 2018, after years of legal action regarding Jay-Z’s 1999 hit, “Big Pimpin,” the Ninth Circuit Court of Appeals affirmed a win for Shawn “Jay-Z” Carter and other defendants by refusing to allow the Egyptian plaintiff the ability to enforce moral rights over a sample used in the song.[226] Judge Bea wrote that “[s]ince our federal law does not accord protection of moral rights to American copyright holders as to non-visual art, neither does it recognize [Plaintiff’s] claim to moral rights,” and “[t]hat [Plaintiff] retains moral rights in Egypt does him no good here.”[227] The case involved the hook of “Big Pimpin,” which came from a song titled “Khosara Khosara,” composed by Baligh Hamday for a 1960 Egyptian film.[228] Shortly after Jay-Z’s song came out in 1999, its producer, Timbaland paid EMI for a license to use the song.[229] Plaintiff, an heir of the composer Hamday, sought to enforce moral rights by alleging his uncle’s song had been “mutilated” (a term of art that moral rights, common in foreign countries, may protect against). The District Court first found the suit barred due to delay, but the case was revived following the Supreme Court’s Petrella decision and went to trial in 2015—with the main issue being whether Hamday’s heirs retained an inalienable moral right under Egyptian law—although District Judge Christina Snyder cut the suit short, granting Jay-Z’s motion for a judgment as a matter of law.[230] Judge Snyder held that Plaintiff lacked standing to pursue the copyright infringement claim. The Ninth Circuit upheld that ruling and further held that the foreign plaintiff’s moral rights are not enforceable in the United States.       [1]        United States v. AT&T Inc., No. CV 17-2511 (RJL), 2018 WL 2930849 (D.D.C. June 12, 2018); Press Release, AT&T Inc., AT&T Completes Acquisition of Time Warner Inc. (June 14, 2018), http://about.att.com/story/att_completes_acquisition_of_time_warner_inc.html.       [2]        Press Release, AT&T Inc., AT&T Debuts “WatchTV” With 2 New Unlimited Wireless Plans (June 21, 2018), http://about.att.com/newsroom/watchtv_app_with_unlimited_wireless.html.       [3]        Brent Kendall & Drew FitzGerald, Justice Department Appeals Ruling Allowing AT&T-Time Warner Merger, The Wall Street Journal (July 12, 2018), https://www.wsj.com/articles/justice-department-to-appeal-court-ruling-allowing-at-t-time-warner-merger-1531427031.       [4]        Liz Moyer, Comcast drops pursuit of 21st Century Fox assets, ending bidding war with Disney, CNBC (July 19, 2018), https://www.cnbc.com/2018/07/18/comcast-drops-pursuit-of-its-bid-for-21st-century-fox-assets.html.       [5]        Keach Hagey and Erich Schwartzel, 21st Century Fox Agrees to Higher Offer from Disney, The Wall Street Journal (June 20, 2018), https://www.wsj.com/articles/fox-disney-announce-new-deal-1529496937.       [6]        Id.       [7]        Press Release, The Walt Disney Company, U.S. Department of Justice Clears Disney Acquisition of 21st Century Fox (June 27, 2018), https://www.wsj.com/articles/PR-CO-20180627-911016.       [8]        Id.       [9]        Edmund Lee and Brooks Barnes, Disney and Fox Shareholders Approve Deal, Ending Corporate Duel, N.Y. Times (July 27, 2018), https://www.nytimes.com/2018/07/27/business/media/disney-fox-merger-vote.html.      [10]        Shalini Ramachandran, Comcast Drops Bid for Fox Assets, Will Focus on Pursuit of Sky, The Wall Street Journal (July 19, 2018), https://www.wsj.com/articles/comcast-drops-bid-for-fox-assets-will-pursue-sky-1532004447/.      [11]        Id.      [12]        Andria Calatayud, Fox’s Sky News Plan Meets Criteria: U.K. Official, Marketwatch (June 19, 2018), https://www.marketwatch.com/story/foxs-sky-news-plan-meets-criteria-uk-official-2018-06-19.      [13]        Adam Rhodes, Sky Brushes Off Fox As $41B Comcast Offer Rolls In, Law360 (Apr. 25, 2018), https://www.law360.com/media/articles/1037029/sky-brushes-off-fox-as-41b-comcast-offer-rolls-in.      [14]        Calatayud, supra note 12.      [15]        Jessica Toonkel, Viacom, CBS CEOs discuss potential merger – sources, Reuters (Jan. 25, 2018), https://ca.reuters.com/article/businessNews/idCAKBN1FE2XT-OCABS; Cynthia Littleton, CBS and Viacom Merger Discussions Set to Accelerate, but Valuation Remains a Big Hurdle, Variety (Mar. 23 2018), Variety (May 14, 2018), https://variety.com/2018/tv/news/cbs-viacom-merger-talks-deal-1202735168/.      [16]        Cynthia Littleton, CBS Sues Share Redstone and National Amusements in Bid to Block Viacom Merger, Variety (May 14, 2018), https://variety.com/2018/biz/news/cbs-sues-shari-redstone-national-amusements-in-bid-to-block-viacom-merger-1202809526/.      [17]        Meg James, Shari Redstone sues CBS, taking aim at Leslie Moonves, L.A. Times (May 29, 2018), http://www.latimes.com/business/hollywood/la-fi-ct-nai-redstone-sues-cbs-20180529-story.html.      [18]        Meg James, CBS shareholders sue Shari Redstone, National Amusements, L.A. Times (May 31, 2018), http://www.latimes.com/business/hollywood/la-fi-ct-redstone-shareholder-lawsuit-20180531-story.html.      [19]        Gene Maddaus, Ron Burkle Sues Lantern Capital Over Weinstein Co. Costs, Variety (July 16, 2018), https://variety.com/2018/biz/news/ron-burkle-lantern-suit-1202874814/.      [20]        Id.      [21]        Elise Sandberg, ‘Stranger Things’ Producer Inks Massive Overall Deal With Netflix, Hollywood Reporter (Dec. 6, 2017), https://www.hollywoodreporter.com/live-feed/netflix-inks-deal-shawn-levys-21-laps-1064839.      [22]        Debra Birnbaum and Cynthia Littleton, Ryan Murphy Inks Mammoth Overall deal with Netflix, Variety (Feb. 13, 2018), https://variety.com/2018/tv/news/ryan-murphy-netflix-overall-deal-fox-1202698305/.      [23]        Id.      [24]        Natalie Jarvey and Lesley Goldberg, ‘Handmaid’s Tale’ Showrunner Bruce Miller Inks Overall Deal at Hulu, The Hollywood Rep. (Apr. 30, 2018), https://www.hollywoodreporter.com/live-feed/handmaids-tale-showrunner-bruce-miller-inks-deal-at-hulu-1106790.      [25]        Id.      [26]        John Koblin, Jordan Peele Signs TV Deal With Amazon, N.Y. Times (June 5, 2018), https://www.nytimes.com/2018/06/05/business/media/amazon-jordan-peele.html.      [27]        Press Release, WndrCo, WndrCo Announces Initial Capital Raise of $1 Billion for New Media Platform (Aug. 7, 2018), https://www.businesswire.com/news/home/20180807005288/en/WndrCo-Announces-Initial-Capital-Raise-1-Billion.      [28]        Kevin Tran, Netflix furthers US cable partnership push, Business Insider (Jan. 31, 2018), http://www.businessinsider.com/netflix-furthers-us-cable-partnership-push-2018-1.      [29]        Bruce Haring, Comcast, Netflix Expand Partnership In Xfinity Packages, Deadline (Apr.13, 2018), https://deadline.com/2018/04/comcast-netflix-expand-partnership-in-xfinity-packages-1202363637/.      [30]        Sarah Perez, YouTube TV becomes first-ever presenting partner for the NBA Finals, following similar deal with MLB, TechCrunch (Mar. 26, 2018), https://techcrunch.com/2018/03/26/youtube-tv-becomes-first-ever-presenting-partner-for-the-nba-finals-following-similar-deal-with-mlb/.      [31]        Todd Spangler, YouTube TV Offers One-Week Credit After World Cup Outage, Variety (July 12, 2018), https://variety.com/2018/digital/news/youtube-tv-outage-one-week-credit-world-cup-1202872304/.      [32]        Todd Spangler, CBS All Access Available to Amazon Prime Members in U.S. as Add-On Channel, Variety (Jan. 5, 2018), https://variety.com/2018/digital/news/cbs-all-access-amazon-prime-channel-1202654346/.      [33]        Sahil Patel, Amazon has become an important distributor for over-the-top networks, Digiday (June 4, 2018), https://digiday.com/media/amazon-has-become-an-important-middle-man-for-over-the-top-networks/.      [34]        Tom Zanki, ‘China’s Netflix’ Leads 6 IPO Launches Exceeding $3B Total, LAW360 (March 19, 2018), https://www.law360.com/articles/1023526.      [35]        Id.      [36]        Tom Zanki, Chinese Streaming Co Leads 4 IPOs Netting $828M, LAW360 (March 28, 2018), https://www.law360.com/articles/1027175/chinese-streaming-co-leads-4-ipos-netting-828m.      [37]        Id.      [38]        Patrick Brzeski, Blumhouse Teams with Tang Media Partners to Make Horror Movies in China, The Hollywood Reporter (June 18, 2018), https://www.hollywoodreporter.com/news/blumhouse-teams-tang-media-partners-make-horror-movies-china-1120827.      [39]        Nancy Tartaglione, Blumhouse Partners With Tang Media On Chinese Horror/Thriller Pics, Deadline (June 18, 2018), https://deadline.com/2018/06/blumhouse-tang-media-chinese-horror-thriller-movies-deal-american-nightmare-1202412372/.      [40]        Cheang Ming, China’s Box Office Recently Beat The US, And Is Now On The Cusp Of A ‘New Growth Cycle,’ CNBC (May 24, 2018), https://www.cnbc.com/2018/05/24/china-beats-us-box-office-in-q1-and-is-entering-new-growth-cycle-hsbc.html.      [41]        Id.      [42]        J. DeMorel, Alibaba Buys State in Wanda Film in 41.2 Billion Share Sale, Bloomberg (February 5, 2018), https://www.bloomberg.com/news/articles/2018-02-05/alibaba-takes-stake-in-wanda-film-as-part-of-1-2-billion-sale.      [43]        Id.      [44]        Id.      [45]        Jason Raish, Can China’s Tech Giants Restore Confidence in Wanda?, The Hollywood Reporter (February 16, 2018), https://www.hollywoodreporter.com/news/can-chinas-tech-giants-restore-confidence-wanda-1084151.      [46]        Patrick Brzeski, China’s Wanda Plans $1.78B Consolidation of Film Assets, The Hollywood Reporter (June 25, 2018), https://www.hollywoodreporter.com/news/chinas-wanda-plans-178b-consolidation-film-assets-1123282.      [47]        Vivienne Chow, Wanda Unveils $1.77 Billion Plan to Consolidate Film Units, Variety (June 26, 2018), https://variety.com/2018/film/news/dalian-wanda-consolidate-film-units-china-1202857977/.      [48]        Brzeski, supra note 46.      [49]        Id.      [50]        Press Release, Epic Games, Fortnite Pro Am 2018, https://www.epicgames.com/fortnite/en-US/pro-am2018.      [51]        Justin Kirkland, 10 Celebrities Who Play Fortnite, Ranked, Esquire (May 11, 2018), https://www.esquire.com/entertainment/g20139550/celebrities-playing-fortnite/; Paul Tassi, Twitch Comments on the Record-Breaking Drake-Ninja ‘Fortnite’ Stream, Forbes (Mar. 15, 2018), https://www.forbes.com/sites/insertcoin/2018/03/15/twitch-comments-on-the-record-breaking-drake-ninja-fortnite-stream/#4a4bbb5f46c6.      [52]        Max Miceli, Epic Games Unveils Esports Plans With Fortnite World Cup Coming in 2019, The Esports Observer (June 25, 2018), https://esportsobserver.com/epic-games-fortnite-world-cup/.      [53]        Id.      [54]        Blake Hester, Tencent Invests $15 Million to Bring ‘Fortnite’ to China, Variety (Apr. 24, 2018), https://variety.com/2018/gaming/news/fortnite-tencent-china-1202785279/.      [55]        Patrick Hipes, ICM Partners Inks Partnership With Esports Talent Agency Evolved, Deadline Hollywood (June 14, 2018), https://deadline.com/2018/06/icm-partners-esports-evolved-joint-venture-1202410240/.      [56]        Id.      [57]        Jordan Crook, PlayVS, Bringing Esports Infrastructure to High Schools, Picks Up $15 Million, Techcrunch (June 4, 2018), https://techcrunch.com/2018/06/04/playvs-bringing-esports-infrastructure-to-high-schools-picks-up-15-million/.      [58]        Id.      [59]        Id.      [60]        Keith Collins, Net Neutrality Has Officially Been Repealed. Here’s How That Could Affect You., N.Y. TIMES (June 11, 2018), https://www.nytimes.com/2018/06/11/technology/net-neutrality-repeal.html.      [61]        Cecilia Kang, Senate Democrats Win Vote on Net Neutrality, a Centerpiece of 2018 Strategy, N.Y. TIMES (May 16, 2018), https://www.nytimes.com/2018/05/16/technology/net-neutrality-senate.html.      [62]        Cecilia Kang, Flurry of Lawsuits Filed to Fight Repeal of Net Neutrality, N.Y. Times (Jan. 16, 2018), https://www.nytimes.com/2018/01/16/technology/net-neutrality-lawsuit-attorneys-general.html.      [63]        Kelcee Griffis, 9th Cir. Hands Net Neutrality Litigation to DC Circ., Law360 (Mar. 28, 2018), https://www.law360.com/media/articles/1027383.      [64]        Klint Finley, New California Bill Restores Strong Net Neutrality Protection, Wired (July 5, 2018), https://www.wired.com/story/new-california-bill-restores-strong-net-neutrality-protections/; Klint Finley, Washington State Enacts Net Neutrality Law, In Clash With FCC, Wired (Mar. 5, 2018), https://www.wired.com/story/washington-state-enacts-net-neutrality-law-in-clash-with-fcc/.      [65]        Adam Satariano, What the G.D.P.R., Europe’s Tough New Data Law, Means For You, N.Y. Times (May 6, 2018), https://www.nytimes.com/2018/05/06/technology/gdpr-european-privacy-law.html.      [66]        Kieren McCarthy, US government weighs in on GDPR-Whois debacle, orders ICANN to go probe GoDaddy, The Register (Apr. 17, 2018),  https://www.theregister.co.uk/2018/04/17/us_government_whois_debacle/.      [67]        Mike Fleming Jr., It Will Soon Be Illegal For Studios To Verify Salary Quotes: Hollywood Dealmakers Brace For California Labor Code 432.3, Deadline (Dec. 13, 2017), https://deadline.com/2017/12/hollywood-dealmaking-california-labor-code-432-3-salary-quotes-1202225985/.      [68]        Philip Bonoli, Studios And Agencies Prepare For The Labor Code 432.3 Earthquake, Forbes (Dec. 13, 2017), https://www.forbes.com/sites/legalentertainment/2017/12/13/studios-and-agencies-prepare-for-the-labor-code-432-3-earthquake/#221350426509.      [69]        Eriq Gardner, Ozzy Osbourne Brings Antitrust Lawsuit Against AEG for Tying London and L.A. Venues, The Hollywood Rep. (Mar. 21, 2018), http://www.hollywoodreporter.com/thr-esq/ozzy-osbourne-brings-antitrust-lawsuit-aeg-tying-london-la-venues-1096448.      [70]        Id.      [71]        Id.      [72]        Id.      [73]        Id.      [74]        Eriq Gardner, AEG Says Ozzy Osbourne Lawsuit Isn’t What It Pretends to Be, The Hollywood Rep. (Jun. 4, 2018), http://www.hollywoodreporter.com/thr-esq/aeg-says-ozzy-osbourne-lawsuit-isnt-what-it-pretends-be-1116729.      [75]        Id.      [76]        Id.      [77]        Bonnie Eslinger, Coachella Owner Faces Antitrust Suit Over Artist Controls, Law360 (Apr. 9, 2018), http://www.law360.com/articles/1031313/coachella-owner-faces-antitrust-suit-over-artist-controls.      [78]        Eriq Gardner, AEG Faces Antitrust Lawsuit over Territorial Restrictions for Coachella Artists, The Hollywood Rep. (Apr. 10, 2018), http://www.hollywoodreporter.com/thr-esq/aeg-faces-antitrust-lawsuit-territorial-restrictions-coachella-artists-1101313.      [79]        Id.      [80]        Id.      [81]        Id.      [82]        Eriq Gardner, Disney Headed to Trial Over ‘Turner & Hooch’ Profits, The Hollywood Rep. (May 7, 2018), https://www.hollywoodreporter.com/thr-esq/disney-headed-trial-turner-hooch-profits-1109326.      [83]        Daniel Siegal, Disney Must Face ‘Turner & Hooch’ Royalty Fraud Claim, Law360 (May 4, 2018), https://www.law360.com/articles/1040685/disney-must-face-turner-hooch-royalty-fraud-claim.      [84]        Id.      [85]        Id.; Gardner, supra note 82.      [86]        Id.      [87]        Id.     [88]       Eriq Gardner, Judge Judy’s $47 Million Salary Isn’t Too Much, Rules Real Judge, The Hollywood Rep. (April 5, 2018), https://www.hollywoodreporter.com/thr-esq/judge-judys-47-million-salary-isnt-rules-real-judge-1100081.      [89]        Id.      [90]        Id.      [91]        Id.      [92]        Id.      [93]        Eriq Gardner, Judge Allows ‘Columbo’ Fraud Lawsuit Against Universal, The Hollywood Rep. (Feb. 9, 2018), https://www.hollywoodreporter.com/thr-esq/judge-allows-columbo-fraud-lawsuit-universal-1083344.      [94]        Id.      [95]        Id.      [96]        Id.      [97]        Goldman v. Breitbart News Network, LLC, No. 17-CV-3144, 2018 WL 911340, at *1 (S.D.N.Y. Feb. 15, 2018).      [98]        Id. at *2.      [99]        Id. at *3 (quoting Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 430 (1984)).    [100]        Id. at *4.    [101]        Id. at *3 (quoting H.R. Rep. 94–1476, 47, 51 (1976)).    [102]        Id. at *1.    [103]        Id. at *5.    [104]        Id.    [105]        Id. at *8.    [106]        Id. at *9.    [107]        Id. at *10.    [108]        Bill Donahue, Embedded Tweet Copyright Case Sent To 2nd Circ., Law360 (Mar. 20, 2018), https://www.law360.com/articles/1024012.    [109]        Heavy, Inc. v. Goldman, Case No. 18-910, Dkt. 35 (2d Cir. July 17, 2018).    [110]        Fox News Network, LLC v. TVEyes, Inc., 883 F.3d 169, 174 (2d Cir. 2018). See also Bill Donahue, Siding With Fox 2nd Circ. Says TVEyes Is Not Fair Use, Law360 (Feb. 27, 2108), https://www.law360.com/media/articles/1016495.    [111]        TVEyes, 883 F.3d at 173–74.    [112]        Id. at 174    [113]        Id. at 174, 176–79.    [114]        Id. at 174, 180.    [115]        Id. at 180, 181.    [116]        Bill Donahue, 2nd Circ. Won’t Rehear TVEyes Fair Use Case, Law360 (May 15, 2018), https://www.law360.com/articles/1043784/2nd-circ-won-t-rehear-tveyes-fair-use-case.    [117]        Eriq Gardner, ‘Cosby Show’ Producer Sues BBC for Using Clips in Bill Cosby Doc, The Hollywood Rep. (Nov. 6, 2017), https://www.hollywoodreporter.com/thr-esq/cosby-show-producer-sues-bbc-using-clips-bill-cosby-doc-1055167.    [118]        Eriq Gardner, BBC Points to Geoblocking in Bid To Defeat Lawsuit Over Use of ‘Cosby Show’ Clips, The Hollywood Rep. (Jan. 12, 2018), https://www.hollywoodreporter.com/thr-esq/bbc-points-geoblocking-bid-defeat-lawsuit-use-cosby-show-clips-1074282; The Carsey-Werner Co., LLC v. British Broad. Corp., No. CV 17-8041 PA (ASX), 2018 WL 1083550, at *1 (C.D. Cal. Feb. 23, 2018).    [119]        Id.; see also Eriq Gardner, BBC Points to Geoblocking in Bid To Defeat Lawsuit Over Use of ‘Cosby Show’ Clips, The Hollywood Rep. (Jan. 12, 2018), https://www.hollywoodreporter.com/thr-esq/bbc-points-geoblocking-bid-defeat-lawsuit-use-cosby-show-clips-1074282.    [120]        Carsey-Werner Co., 2018 WL 1083550, at *1.    [121]        Id. at *6.    [122]        Id. at *7.    [123]        See Complaint, Rearden LLC, et al. v. The Walt Disney Co., et al., No. 17-cv-04006, 2017 WL 3015899 (N.D. Cal. July 17, 2017).    [124]        See id.    [125]        See Reply in Support of Defendants’ Motion to Dismiss, Rearden LLC, et al. v. The Walt Disney Co., et al., No. 17-cv-04006, 2017 WL 7716172 (N.D. Cal. Nov. 9, 2017).    [126]        Rearden LLC v. Walt Disney Co., 293 F. Supp. 3d 963, 970 (N.D. Cal. 2018).    [127]        See First Amended Complaint, Rearden LLC, et al. v. The Walt Disney Co., et al., No. 17-cv-04006, 2018 WL 2948187 (N.D. Cal. Mar. 6, 2018).    [128]        See Notice of Motions and Motions for Partial Dismissal of First Amended Complaints, Rearden LLC, et al. v. The Walt Disney Co., et al., No. 17-cv-04006, 2018 WL 29498109 (N.D. Cal. Apr. 5, 2018).    [129]        See Bill Donahue, Hollywood Giants Must Face Copyright Claims Over Digital FX, Law360 (June 19, 2018), https://www.law360.com/articles/1054886/hollywood-giants-must-face-copyright-claims-over-digital-fx.    [130]        Disney Enterprises, Inc. v. Redbox Automated Retail, LLC, No. 2:17-cv-08655, Dkt. 1 (C.D. Cal. Nov. 30, 2017).    [131]        Disney Enterprises, Inc. v. Redbox Automated Retail, LLC, No. 2:17-cv-08655, Dkt. 74 (C.D. Cal. Feb. 20, 2018).    [132]        Id. at 17.    [133]        Id. at 18.    [134]        Dave Simpson, Term Changes Don’t Fix Disney’s Copyright Misuse: Redbox¸ Law360 (May 10, 2018), https://www.law360.com/articles/1042340/term-changes-don-t-fix-disney-s-copyright-misuse-redbox.    [135]        Disney Enterprises, Inc. v. Redbox Automated Retail, LLC, No. 2:17-cv-08655, Dkt. 86 at 2 (C.D. Cal. Apr. 9, 2018).    [136]        Disney Enterprises, Inc. v. Redbox Automated Retail, LLC, No. 2:17-cv-08655, Dkt. 94 at 12 (C.D. Cal. May 7, 2018).    [137]        Disney Enterprises, Inc. v. Redbox Automated Retail, LLC, No. 2:17-cv-08655, Dkt. 113 (C.D. Cal. Jul. 11, 2018).    [138]        Kat Greene, Playboy May Amend Centerfold Copyright Suit, Judge Rules, Law360 (February 15, 2018), https://www.law360.com/articles/1012972.    [139]        Id.    [140]        Playboy Entm’t Grp. Inc. v. Happy Mutants, LLC, No. CV-178140, 2018 WL 2315936, at *1 (C.D. Cal. Feb. 14, 2018).    [141]        Id. at *1, n.1.    [142]        See Response to Order to Show Cause, Playboy Entertainment Group, Inc. v. Happy Mutants, LLC, Case No. 2:17-cv-08140-FMO-PLA (March 12, 2018).    [143]        Capitol Records, LLC v. Vimeo, LLC, 826 F.3d 78 (2d Cir. 2016).    [144]        Capitol Records, LLC v. Vimeo, LLC, 137 S. Ct. 1374 (2017).    [145]        Capitol Records, LLC v. Vimeo, LLC, No. 09-CV-10101, 2018 WL 1634123, at *6 (S.D.N.Y. Mar. 31, 2018).    [146]        Id. at *4.    [147]        Id. at *6.    [148]        Dave Simpson, Split 9th Circ. Tosses Porn Co. Copyright Suit, Law360 (March 14, 2018), https://www.law360.com/media/articles/1022316.    [149]        Id.    [150]        Id.    [151]        Id.    [152]        Id.    [153]        Id.    [154]        de Havilland v. FX Networks, LLC, 21 Cal. App. 5th 845 (2018), review filed (May 4, 2018).    [155]        Id. at 851.    [156]        Id.    [157]        de Havilland, 21 Cal. App. 5th at 845.    [158]        Id. at 856, 870–71.    [159]        Id. at 849.    [160]        Id. at 864.    [161]        Id. at 864–67.    [162]        Lohan v. Take-Two Interactive Software, Inc., 97 N.E.3d 389, 392–93 (2018).    [163]        Id. at 122.    [164]        Id. at 119 (internal quotations omitted).    [165]        Bill Donahue, NY Top Court Says ‘Game Over’ For Lohan’s ‘GTA V’ Suit, Law360 (Mar. 29, 2018), https://www.law360.com/media/articles/1027785/ny-top-court-says-game-over-for-lohan-s-gta-v-suit.    [166]        Sivero v. Twentieth Century Fox Film Corp., No. B266469, 2018 WL 833696 (Cal. Ct. App. Feb. 13, 2018), reh’g denied (Mar. 2, 2018), review denied (May 23, 2018); see also Eriq Gardner, Appeals Court Won’t Let ‘Goodfellas’ Actor Have Another Shot at ‘Simpsons’ Mob Character, The Hollywood Rep. (Feb. 13, 2018), https://www.hollywoodreporter.com/thr-esq/appeals-court-wont-let-goodfellas-actor-have-shot-at-simpsons-mob-character-1084379.    [167]        Sivero, 2018 WL 833696, at *1.    [168]        Id. at 2.    [169]        Id.    [170]        Id. at 10.    [171]        Id.    [172]        Id.    [173]        Ashley Cullins, John Oliver, HBO Beat Coal Executive’s Defamation Lawsuit, The Hollywood Rep. (Feb. 24, 2018), https://www.hollywoodreporter.com/thr-esq/john-oliver-hbo-beat-coal-executives-defamation-lawsuit-1088133.    [174]        See id.    [175]        See id.    [176]        See Marshall Cty. Coal Co. v. Oliver, No. 17-C-124, 2018 WL 1082525, at *1 (W. Va. Cir. Ct. 2018).    [177]        See Amy B. Wang, A coal exec sued John Oliver for calling him a ‘geriatric Dr. Evil.’ A judge tossed the case, The Washington Post (Feb. 26, 2018), https://www.washingtonpost.com/news/arts-and-entertainment/wp/2018/02/26/a-coal-exec-sued-john-oliver-for-calling-him-a-geriatric-dr-evil-a-judge-tossed-the-case/.    [178]        See Eriq Gardner, Bill Cosby Asking Supreme Court to Review Janice Dickinson Defamation Lawsuit, The Hollywood Rep. (June 4, 2018), https://www.hollywoodreporter.com/thr-esq/bill-cosby-asking-supreme-court-review-janice-dickinson-defamation-lawsuit-1116912.    [179]        See Dickinson v. Cosby, 17 Cal. App. 5th 655, 660-61 (2017).    [180]        See id. at 687.    [181]        See McKee v. Cosby, 874 F.3d 54, 62 (1st Cir. 2017).    [182]        See Hill v. Cosby, 665 F. App’x 169, 177 (3d Cir. 2016).    [183]        Eriq Gardner, Bill Cosby’s Ex-Lawyer Marty Singer Escapes Janice Dickinson Lawsuit, The Hollywood Rep. (July 16, 2018), https://www.hollywoodreporter.com/thr-esq/bill-cosbys-lawyer-marty-singer-escapes-janice-dickinson-lawsuit-1127509.    [184]        Petition for Writ of Certiorari, Cosby v. Dickinson, No. 18-70.    [185]        Knight First Amendment Inst. at Columbia Univ. v. Trump, 302 F. Supp. 3d 541, 574-75 (S.D.N.Y. 2018).    [186]        Garrett Epps, What the @RealDonaldTrump Ruling Actually Means, The Atlantic (May 24, 2018), https://www.theatlantic.com/technology/archive/2018/05/what-the-realdonaldtrump-ruling-actually-means/561146/.    [187]        Bryan Fung and Hamza Shaban, Trump violated the Constitution when he blocked his critics on Twitter, a federal judge rules, The Washington Post (May 23, 2018), https://www.washingtonpost.com/news/the-switch/wp/2018/05/23/trump-cannot-block-twitter-users-for-their-political-views-court-rules/.    [188]        Knight First Amendment Inst., 302 F. Supp. 3d at 567.    [189]        Id. at 574.    [190]        See Prager Univ. v. Google LLC, No. 17-CV-06064-LHK, 2018 WL 1471939, at *8 (N.D. Cal. Mar. 26, 2018).    [191]        Eriq Gardner, Why Won’t Google Comment on a Lawsuit Accusing YouTube of Censoring Conservatives?, The Hollywood Rep. (Oct. 27, 2017), https://www.hollywoodreporter.com/thr-esq/why-wont-google-discuss-a-lawsuit-accusing-youtube-censoring-conservatives-1052497.    [192]        Prager Univ., 2018 WL 1471939, at *8.    [193]        Id. [194] IMDb.com, Inc. v. Becerra, No. 16-CV-06535-VC, 2017 WL 772346, at *1–2 (N.D. Cal. Feb. 22, 2017). [195] IMDb.com, Inc. v. Becerra, No. 16-CV-06535-VC, 2018 WL 979031, at *3 (N.D. Cal. Feb. 20, 2018). See also Eriq Gardner, California’s IMDb Age Censorship Law Declared Unconstitutional, The Hollywood Rep. (Feb. 20, 2018), https://www.hollywoodreporter.com/thr-esq/californias-imdb-age-censorship-law-declared-unconstitutional-1086540.    [196]        IMDb.com, 2018 WL 979031, at *2.    [197]        Id.    [198]        Id.    [199]        Id. at *3.    [200]        Id.    [201]        Id.    [202]        See RJ Vogt, Sesame Street Can’t Block Raunchy Movie Tagline In TM Row, Law360 (May 31, 2018), https://www.law360.com/articles/1048982/sesame-street-can-t-block-raunchy-movie-tagline-in-tm-row.    [203]        See id.    [204]        See Bill Donahue, Overturning TTAB, Judge Rules ‘Booking.com’ Not Generic, Law360 (Aug. 10, 2017), https://www.law360.com/articles/952925/overturning-ttab-judge-rules-booking-com-not-generic.    [205]        Id.    [206]        See Bill Donahue, Booking.com Asks Full 4th Cir. To Nix USPTO Atty Fee Rule, Law360 (Apr. 12, 2018), https://www.law360.com/articles/1032794/booking-com-asks-full-4th-circ-to-nix-uspto-atty-fee-rule.    [207]        See Eriq Gardner, ‘Star Trek’/Dr. Suess Mashup Creator Beats Trademark Claims, The Hollywood Rep. (May 22, 2018), https://www.hollywoodreporter.com/thr-esq/star-trek-dr-seuss-mashup-creator-beats-trademark-claims-1113911.    [208]        See id.; Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989).    [209]        See Gardner, supra note 207.    [210]        Ben Sisario, “Blurred Lines” Verdict Upheld by Appeals Court, The New York Times (Mar. 21, 2018), https://www.nytimes.com/2018/03/21/business/media/blurred-lines-marvin-gaye-copyright.html.    [211]        Bill Donahue, “Blurred Lines” Ruling Leaves Big Questions Unanswered, Law360 (Mar. 21, 2018), https://www.law360.com/articles/1024899/.    [212]        Williams et al. v. Gaye et al., No. 15-56880, 2018 WL 3382875, at *21 (9th Cir. Mar. 21, 2018) (Amend. Op.).    [213]        Williams, 2018 WL 3382875, at *23.    [214]        Id.    [215]        Id. at *27.    [216]        Id. at *31-32.    [217]        Id. at *33, n.14.    [218]        Id. at *19.    [219]        Eriq Gardner, Appeals Court Won’t Rehear “Blurred Lines” Case, The Hollywood Rep., July 11, 2018, https://www.hollywoodreporter.com/thr-esq/appeals-court-wont-rehear-blurred-lines-case-1126253.    [220]        Eriq Gardner, Music Publishers Win Major Copyright Fight Over Streaming of Legendary Rock Concerts, The Hollywood Rep. (Apr. 10, 2018), https://www.hollywoodreporter.com/thr-esq/music-publishers-win-major-copyright-fight-streaming-legendary-rock-concerts-1101359.    [221]        Id.    [222]        Abkco Music, Inc., et al. v. William Sagan, et al., 2018 WL 1746564, at *12 (S.D.N.Y. Apr. 9, 2018).    [223]        Id. at *12-15; see also Gardner, supra note 220.    [224]        Gardner, supra note 220.    [225]        Id.    [226]        Eriq Gardner, Jay-Z Triumphs in “Big Pimpin” Appeal as Egyptians Can’t Enforce Moral Rights, The Hollywood Rep. (May 31, 2018), https://www.hollywoodreporter.com/thr-esq/jay-z-triumphs-big-pimpin-appeal-as-egyptians-cant-enforce-moral-rights-1116131.    [227]        Fahmy v. Jay-Z, 891 F.3d 823, 823, 831 (9th Cir. 2018).    [228]        Id. at 826.    [229]        Id.    [230]        Id. at 829. The following Gibson Dunn lawyers assisted in the preparation of this client update: Scott Edelman, Howard Hogan, Ben Ross, Nathaniel Bach, Corey Singer, Jonathan Soleimani, Sara Ciccolari-Micaldi, Michael Policastro, Aaron Frumkin, Andrew Blythe, Rachil Davids, Lauryn Togioka, Harrison Korn, Brittany Schmeltz, Sarah Graham, and Sean O’Neill. Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or the following leaders and members of the firm’s Media, Entertainment & Technology Practice Group: Scott A. Edelman – Co-Chair, Los Angeles (+1 310-557-8061, sedelman@gibsondunn.com) Kevin Masuda – Co-Chair, Los Angeles (+1 213-229-7872, kmasuda@gibsondunn.com) Orin Snyder– Co-Chair, New York (+1 212-351-2400, osnyder@gibsondunn.com) Ruth E. Fisher – Los Angeles (+1 310-557-8057, rfisher@gibsondunn.com) Howard S. Hogan – Washington, D.C. (+1 202-887-3640, hhogan@gibsondunn.com) Ari Lanin – Los Angeles (+1 310-552-8581, alanin@gibsondunn.com) Benyamin S. Ross – Los Angeles (+1 213-229-7048, bross@gibsondunn.com) Helgi C. Walker – Washington, D.C. (+1 202-887-3599, hwalker@gibsondunn.com) Nathaniel L. Bach – Los Angeles (+1 213-229-7241,nbach@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

August 1, 2018 |
Who’s Who Legal Recognizes Nine Gibson Dunn Partners

Nine Gibson Dunn partners were recognized by Who’s Who Legal in their respective fields. In Who’s Who Legal Corporate Tax 2018, three partners were recognized: Sandy Bhogal (London), Hatef Behnia (Los Angeles) and Eric Sloan (New York). In the 2018 Who’s Who Legal Project Finance guide, two partners were recognized: Michael Darden (Houston) and Tomer Pinkusiewicz (New York). In the Who’s Who Legal Labour, Employment & Benefits 2018 guide, two partners were recognized: William Kilberg (Washington, D.C.) and Eugene Scalia (Washington, D.C.). Two partners were recognized by Who’s Who Legal Patents 2018: Josh Krevitt (New York) and William Rooklidge (Orange County). These guides were published in July and August of 2018.

July 31, 2018 |
Federal Circuit Update (July 2018)

Click for PDF This July 2018 edition of Gibson Dunn’s Federal Circuit Update discusses the recent Federal Circuit Bar Association Bench and Bar Conference, provides a summary of the pending Helsinn Healthcare case before the Supreme Court regarding the on-sale bar, and briefly summarizes the joint appendix procedure at the Federal Circuit.  This Update also provides a summary of the recent en banc case involving attorneys’ fees for litigation involving the PTO.  Also included are summaries of recent decisions regarding means-plus-function terms, the entire market value rule, the interplay between software patents and section 101, and tribal sovereign immunity before the Patent Trial & Appeal Board. Federal Circuit News The annual Federal Circuit Bench and Bar Conference was held this year in Coronado, CA, from June 20 to June 23, 2018.  Nicole Saharsky, co-chair of Gibson Dunn’s Appellate and Constitutional Law practice, presented on the Supreme Court Term in Review panel, and Kate Dominguez, a partner in the firm’s New York office, participated in the conference’s first-ever moot oral argument. Supreme Court.  The Supreme Court decided three cases from the Federal Circuit in the recently concluded OT2017 Term (Oil States v. Greene’s Energy; SAS v. Iancu; WesternGeco v. ION Geophysical).  The Court also granted certiorari recently in a new case to be heard next Term: Case Status Issue Helsinn Healthcare S.A. v. Teva Pharm. USA Inc., No. 17-1229 Petition granted on June 25, 2018 Whether the sale of a patented invention by the inventor to a third party that is obligated to keep the invention confidential constitutes prior art for determining patentability Recent En Banc Federal Circuit Cases NantKwest, Inc. v. Matal, No. 16-1794 (Fed. Cir.) (July 27, 2018) (en banc):  The PTO cannot recover attorneys’ fees in litigation pursuant to 35 U.S.C. § 145. After the PTAB affirmed the rejection of NantKwest’s patent application, NantKwest appealed to the district court under Section 145.  The PTO prevailed and moved to recover both its attorneys’ fees and expert fees pursuant to section 145, which states that “[a]ll the expenses of the proceedings shall be paid by the applicant.”  Applying this statutory provision, the district court granted the expert fees, but rejected the request for attorneys’ fees.  On appeal, a Federal Circuit panel (Prost, CJ) reversed the award of attorneys’ fees, holding that the “[a]ll expenses” provision of section 145 authorizes attorneys’ fees.  Judge Stoll dissented.  The Federal Circuit sua sponte ordered that the panel decision be vacated and that the case be reheard en banc. The en banc majority (Stoll, J.) noted that the American Rule—where each litigant pays its own attorneys’ fees—is a “bedrock principle” of U.S. jurisprudence and prohibits courts from shifting attorneys’ fees from one party to the other absent a “specific and explicit directive from Congress.”  The en banc majority held that the phrase “all the expenses of the proceedings” falls short of this “stringent standard,” and thus affirmed the district court’s denial of the request for attorneys’ fees.  Chief Judge Prost dissented, joined by Judges Dyk, Reyna, and Hughes. Federal Circuit Practice Update This month, we are highlighting the difference between the Federal Rules of Appellate Procedure and the Federal Circuit Rules of Practice as relating to the content of the appendix to the briefs.  As the Federal Circuit explains in its practice notes, an appendix prepared without careful attention to Federal Circuit Rule 30 may be rejected and could result in dismissal. Contents:  In addition to the documents required by FRAP 30(a)(1)(A)-(C), Federal Circuit Rule 30(a)(2) requires that each appendix include: (1) the entire docket sheet from the proceedings below; (2) the judge’s charge to the jury, the jury’s verdict, and the jury’s responses to questions; (3) the patent-in-suit in its entirety; and (4) any nonprecedential opinion or order cited in the briefs.  Rule 30(a)(2) further explains that parties should not include other parts of the record unless they are “actually referenced in the briefs,” and the briefs should not contain “indiscriminate referencing” to blocks of pages.  To the extent the parties wish to include briefs and memoranda from the trial court in the appendix, the parties must obtain leave of the court to file the briefs or memoranda in their entirety; otherwise, the parties should include only excerpts of the documents cited in the briefs. Determination of Contents:  The Federal Circuit Rules do not follow FRAP 30(b)’s instructions for determining the contents of the appendix, but the Rules lay out a similar process.  In the absence of an agreement on the contents of the appendix, the appellant must serve on the appellee a designation of materials for the appendix within 14 days after docketing of the appeal from a court or the service of the certified list or index in an appeal from an agency.  The appellee then has 14 days to provide the appellant with a counter-designation that identifies additional parts to include.  The appellant then has 14 days to serve on all parties a table that designates the page numbers for the appendix.  The parties can agree to an extension of these time limits without leave of the court as long as it does not require an extension of the time required for filing the appellant’s brief. Format of the Appendix:  FRAP 30(d) governs the arrangement of the appendix except that the appellant must place the judgment or order from which it appeals, plus any opinion, memorandum, or findings and conclusions supporting it, as the first documents. Timing:  The Federal Circuit Rules disregard many of the FRAP 30(c) provisions relating to deferred appendices.  The Rules explain that the appellant must serve and file an appendix within seven days of the filing of the last reply brief.  If the appellant does not file a reply brief, the appellant must file the appendix within the time period for filing the reply brief. Key Case Summaries (June – July 2018) ZeroClick, LLC v. Apple Inc., No. 17-1267 (Fed. Cir. June 1, 2018):  Claim limitations without the word “means” require intrinsic or extrinsic evidence to support a finding that they are governed by § 112, ¶ 6. ZeroClick asserted patent infringement claims for patents related to modifications to a graphical user interface that allow the interface to be controlled using a pre-defined pointer or touch movements instead of a mouse.  The district court found that two claim limitations recite means-plus-function limitations:  (1) “program that can operate the movement of the pointer” and (2) “user interface code being configured to detect one or more locations touched by a movement of the user’s finger on the screen without requiring the exertion of pressure and determine therefrom a selected operation.”  After determining that these limitations were subject to § 112, ¶ 6, the district court found that the claims were invalid because the specifications do not disclose sufficient structure. The Federal Circuit (Hughes, J.) vacated the district court’s findings, explaining that, because the two limitations did not include the word “means,” the presumption is that § 112, ¶ 6 does not apply and the presumption had not been rebutted.  The court explained that the determination as to whether § 112, ¶ 6 applies must be made under the traditional claim construction principles, on an element-by-element basis, and in light of the intrinsic and extrinsic evidence.  The Federal Circuit reasoned that the district court improperly treated “program” and “user interface code” as nonce words that could substitute for “means” and presumptively bring the limitations within the ambit of § 112, ¶ 6.  The court therefore vacated the court’s invalidity finding and remanded for further proceedings. Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., Nos. 2016-2691, -1875 (Fed. Cir. July 3, 2018):  The entire market value rule for damages calculations is a narrow exception that a patentee can invoke only if it shows that the patented feature alone motivated consumers to buy the accused products. Power Integrations sued Fairchild for infringement of two patents.  In two separate trials, the first jury found that Fairchild infringed various claims of the asserted patents, and a second jury awarded damages of $140 million based on expert testimony from Power Integrations that relied solely on applying the entire market value rule.  The district court denied Fairchild’s post-trial motions, and Fairchild appealed. The Federal Circuit (Dyk, J.) affirmed the jury’s infringement finding but vacated and remanded the damages award.  The court reiterated that a patentee damages calculations must include apportionment so that royalties cover only the value that the infringing features contribute to the value of the accused product.  The court explained that the entire market value rule is “a demanding alternative to our general rule of apportionment,” and that it is appropriate “only when the patented feature is the sole driver of customer demand or substantially creates the value of the component parts.”  When the accused product “contains multiple valuable features, it is not enough to merely show that the patented feature is viewed as essential, that a product would not be commercially viable without the patented feature, or that consumers would not purchase the product without the patented feature.”  Instead, “the patentee must prove that those other features did not influence purchasing decisions.”  Because the patentee had failed to meet its burden showing that the patented feature “alone motivated consumers to buy the accused products,” the patentee could not invoke the entire market value rule.  The court accordingly vacated the damages award and remanded for a new damages trial. Interval Licensing LLC v. AOL, Inc., Nos. 2016-2502, -2505, -2506, -2507 (Fed. Cir. July 20, 2018):  Application of section 101 to software patents. After remand from an initial appeal to the Federal Circuit addressing claim construction issues, defendants moved for judgment on the pleadings, arguing that the claims were ineligible under 35 U.S.C. § 101.  The district court concluded that the claims were directed to the abstract idea and contained no inventive concept because the elements of the claims were “purely conventional” and did nothing more than apply the abstract idea in the environment of networked computers without any explanation as to how the claim elements solved technical issues. The Federal Circuit (Chen, J.) affirmed.  The majority explained that computer software inventions, due to their “intangible nature,” “can be particularly difficult to assess under the abstract idea exception.”  Although the court has found some software-based claims eligible for patentability, other claims “failed to pass section 101 muster” because they did not recite any “inventive technology for improving computers as tools” or “because the elements of the asserted invention were so result-based that they amounted to patenting the patent-ineligible concept itself.”  The majority concluded that the claims in this case were abstract because they were directed to “broad, result-oriented” terms that simply demanded “the production of a desired result” without “a solution for producing that result”; i.e., the claims never addressed how to reach the claimed result. Judge Plager concurred with the court’s opinion based on the “current state of the law” but wrote separately to “highlight the number of unsettled matters as well as the fundamental problems that inhere in this formulation of ‘abstract ideas.'”  In addressing the “almost universal criticism” of the application of “abstract idea” jurisprudence, he joined with Judge Lourie’s concurrence from Berkheimer v. HP Inc. in encouraging Congress to clarify § 101 law, and he also encouraged district courts to consider withholding judgment on § 101 motions until after addressing §§ 102, 103, and 112 defenses. Saint Regis Mohawk Tribe v. Mylan Pharm. Inc., Nos. 2018-1638, -1639, -1640, -1641, -1642, -1643 (Fed. Cir. July 20, 2018):  Tribal immunity does not apply in IPR proceedings. Mylan petitioned the Board to institute IPR proceedings on various patents owned by Allergan, Inc.  While the IPR was pending, Allergan transferred title of the patents to Saint Regis Mohawk Tribe, which in turn asserted sovereign immunity.  The Board denied the Tribe’s motion to terminate on the basis of sovereign immunity and Allergan’s related motion to withdraw from the proceedings.  The Tribe and Allergan appealed. The Federal Circuit (Moore, J.) held that tribal immunity does not apply in IPR proceedings.  The court explained that Indian tribes possess “inherent sovereign immunity” but that this immunity does not extend to actions brought by the federal government, including where the federal government, acting through an agency, engaged in an investigative action or pursued adjudicatory agency action.  The court concluded that IPR proceedings are hybrid proceedings, with elements of both judicial proceedings and specialized agency proceedings, but that they are more akin to specialized agency proceedings because the Director has full discretion whether to institute review of a petition, the Board can choose to continue review even if the petitioner chooses not to participate, and PTO procedures do not mirror the Federal Rules of Civil Procedure.  Because the court concluded that IPR proceedings are more akin to specialized agency proceedings, tribal sovereign immunity does not apply. Upcoming Oral Argument Calendar For a list of upcoming arguments at the Federal Circuit, please click here. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Federal Circuit.  Please contact the Gibson Dunn lawyer with whom you usually work or the authors of this alert: Blaine H. Evanson – Orange County (+1 949-451-3805, bevanson@gibsondunn.com) Blair A. Silver – Washington, D.C. (+1 202-955-8690, bsilver@gibsondunn.com) Please also feel free to contact any of the following practice group co-chairs or any member of the firm’s Appellate and Constitutional Law or Intellectual Property practice groups: Appellate and Constitutional Law Group: Mark A. Perry – Washington, D.C. (+1 202-887-3667, mperry@gibsondunn.com) Caitlin J. Halligan – New York (+1 212-351-4000, challigan@gibsondunn.com) Nicole A. Saharsky – Washington, D.C. (+1 202-887-3669, nsaharsky@gibsondunn.com) Intellectual Property Group: Josh Krevitt – New York (+1 212-351-4000, jkrevitt@gibsondunn.com) Wayne Barsky – Los Angeles (+1 310-552-8500, wbarsky@gibsondunn.com) Mark Reiter – Dallas (+1 214-698-3100, mreiter@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

July 2, 2018 |
Gibson Dunn Recognized in 2018 Managing IP Handbook

The 2018 edition of Managing IP Handbook recognized Gibson Dunn among the top International Trade Commission (ITC) Litigation and Patent Contentious firms in the United States, and additionally recognized the firm’s California and New York practices for their Patent Contentious work. Based on recommendations from peers and clients, the guide also named nine partners to its 2018 IP Stars list: Dallas partner Mark Reiter; Los Angeles partners Wayne Barsky and Debra Wong Yang; New York partners Josh Krevitt, Jane Love and Daniel Thomasch; Palo Alto partner Shaalu Mehra; and Washington DC partners Brian Buroker and Howard Hogan. Jane Love was also named to the Top 250 Women in IP 2018 list.

June 22, 2018 |
Supreme Court Says That Patent Holders May Recover Lost Foreign Profits Resulting From Patent Infringement In The United States

Click for PDF WesternGeco LLC v. ION Geophysical Corp., No. 16-1011  Decided June 22, 2018 Today, the Supreme Court held 7-2 that federal law permits a patent holder to recover damages for overseas losses from a defendant that infringes its patent by shipping components of a patented invention from the United States to be assembled abroad. Background: 35 U.S.C. § 271(f)(2) imposes liability for patent infringement when a company ships components of a patented invention overseas to be assembled in a way that would constitute patent infringement in the United States.  35 U.S.C. § 284 permits patent owners who prove infringement under § 271(f)(2) to recover damages, but the statute is silent on whether damages are available for losses incurred outside of the United States as a result of the infringement.  WesternGeco, which owns patents related to ocean-floor surveying technology, proved patent infringement under § 271(f)(2) and was awarded damages pursuant to § 284 for lost profits incurred abroad. Issue: Whether awarding damages for lost foreign profits to a patent owner who proves patent infringement under 35 U.S.C. § 271(f)(2) comports with the presumption that federal statutes apply only within the territorial jurisdiction of the United States. Court’s Holding: Yes.  Awarding damages for lost foreign profits to a patent owner who proves patent infringement under § 271(f)(2) does not violate the presumption against extraterritoriality. “[T]he focus . . . , in a case involving infringement under [35 U.S.C.] § 271(f)(2), is on the act of exporting components from the United States.” Justice Thomas, writing for the 7-2 majority What It Means: The Court’s holding means that a patent holder who proves infringement under 35 U.S.C. § 271(f)(2) can recover damages for lost foreign profits.  The Court expressly declined to decide whether a patent holder can recover lost foreign profits for infringement under other provisions of the Patent Act. The Court did not reach the question of whether the damages provision of the Patent Act, 35 U.S.C. § 284, applies extraterritorially.  Instead, the Court concluded that WesternGeco’s claim for lost foreign profits involved a domestic application of § 284 because it sought a remedy for conduct that occurred in the United States—the export by domestic entities of component parts from the United States. Whether the decision will have broader implications in other areas of U.S. law remains to be seen, since the language of the decision strongly suggests that its holding will be cabined to the context of patent infringement. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court.  Please feel free to contact the following practice leaders: Appellate and Constitutional Law Practice Caitlin J. Halligan +1 212.351.3909 challigan@gibsondunn.com Mark A. Perry +1 202.887.3667 mperry@gibsondunn.com Nicole A. Saharsky +1 202.887.3669 nsaharsky@gibsondunn.com   Related Practice: Intellectual Property Wayne Barsky +1 310.552.8500 wbarsky@gibsondunn.com Josh Krevitt +1 212.351.4000 jkrevitt@gibsondunn.com Mark Reiter +1 214.698.3100 mreiter@gibsondunn.com   © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice

June 7, 2018 |
Jane Love Recognized by LMG Americas Women in Business

New York partner Jane Love was recognized as Best in Patent at the seventh annual Euromoney Legal Media Group Women in Business Law Awards. The awards recognize “the individuals, team and firms setting a new standard in progressive work practices and leading the way in their field.” The awards were held on June 7, 2018.  

May 30, 2018 |
Federal Circuit Update (May 2018)

Click for PDF This May 2018 edition of Gibson Dunn’s Federal Circuit Update discusses the proposed elimination of the broadest reasonable interpretation standard during post-issuance proceedings before the PTAB, provides a summary of the pending WesternGeco case before the Supreme Court regarding extraterritorial damages, and briefly summarizes the differences between precedential and non-precedential opinions. This Update also provides a summary of the pending en banc case involving the PTO’s ability to recover attorneys’ fees.  Also included are summaries of recent decisions regarding the burden in venue disputes, the pleading standard for patent infringement following the abrogation of Form 18, and whether equitable estoppel applies after substantial claim amendments. Federal Circuit News On May 8, 2018, the PTO announced proposed rulemaking that would change its prior policy of using the broadest reasonable interpretation (BRI) standard for construing unexpired and proposed amended patent claims in post-issuance proceedings before the PTAB.  Instead, the PTAB would use the Phillips standard applied in district courts and ITC proceedings.  The Notice of Proposed Rulemaking states:  “The Office’s goal is to implement a fair and balanced approach, providing greater predictability and certainty in the patent system.” Judges Prost, Moore, O’Malley and Reyna, who dissented from the denial of the petition for rehearing en banc in In re Cuozzo Speed Technologies, and Judge Newman, who dissented in the panel opinion and from the denial of the petition for rehearing en banc, have historically supported the use of the Phillips standard in post-issuance proceedings.  The notice of proposed rulemaking is available here. On April 26, 2018, the PTO also released guidance on the impact of SAS Institute Inc. v. Iancu, where the Supreme Court mandated that “the Board [] address every claim the petition has challenged.  138 S. Ct. 1348, 1354, 1358 (2018).  In light of this decision, the PTO announced that the Board will now “institute as to all claims or none” and, in addition, if the Board institutes, it “will institute on all challenges raised in the petition.”  Furthermore, “[t]he final written decision will address, to the extent claims are still pending at the time of decision, all patent claims challenged by the petitioner and all new claims added through the amendment process.”  For pending trials that had only been partially instituted, the panels may “issue an order supplementing the institution decision to institute on all challenges raised in the petition” and “may take further action to manage the trial proceeding, including, for example, permitting additional time, briefing, discovery, and/or oral argument, depending on various circumstances and the stage of the proceeding” and even, in some cases, extend the statutory 12-month deadline.  The PTO’s guidance is available here. Supreme Court.  The Supreme Court has decided two cases from the Federal Circuit this Term (Oil States v. Greene’s Energy and SAS v. Iancu); we are awaiting the Court’s decision on a third case: Case Status Issue WesternGeco LLC (Schlumberger) v. ION Geophysical Corp., No. 16-1011 Argued on Apr. 16, 2018 Recoverability of lost profits for foreign use in cases where patent infringement is proven under 35 U.S.C. § 271(f) Upcoming En Banc Federal Circuit Cases NantKwest, Inc. v. Matal, No. 16-1794 (Fed. Cir.):  Whether the PTO can recover attorneys’ fees in litigation under 35 U.S.C. § 145. After the PTAB affirmed the examiner’s rejection of NantKwest’s patent application, NantKwest appealed to the district court.  The PTO prevailed on the merits of the appeal and moved to recover both attorneys’ fees and expert fees.  Section 145 provides that “[a]ll the expenses of the proceedings shall be paid by the applicant.”  Applying this provision, the district court granted the PTO’s request for expert fees, but rejected the PTO’s request for attorneys’ fees.  A panel of the Federal Circuit reversed the district court’s holding as to attorneys’ fees, holding that the “[a]ll expenses of the proceedings” provision under § 145 authorizes an award of attorneys’ fees.  (Decision available here.) The Federal Circuit sua sponte ordered that the panel decision be vacated and that the case be reheard en banc.  Seven amicus briefs were filed, five in support of NantKwest (the International Trademark Association, the Intellectual Property Owners Association, the Intellectual Property Law Association of Chicago, the Association of Amicus Counsel, and the American Bar Association) and two in support of neither party (Federal Circuit Bar Association and American Intellectual Property Law Association).  Oral argument was held on March 8, 2018.  (Audio recording is available here.) Question presented: Did the panel in NantKwest, Inc. v. Matal, 860 F.3d 1352 (Fed. Cir. 2017) correctly determine that 35 U.S.C. § 145’s “[a]ll the expenses of the proceedings” provision authorizes an award of the United States Patent and Trademark Office’s attorneys’ fees? Federal Circuit Practice Update Precedential vs. Non-Precedential Opinions. Internal Operating Procedure (“IOP”) No. 10 governs the use of precedential opinions vs. non-precedential opinions and Rule 36 affirmances.  IOP No. 10 provides that “the purpose of a precedential disposition is to inform the bar and interested persons other than the parties.”  IOP No. 10 at ¶ 2.  Precedential opinions should not be used merely to explain the reasons for the disposition to the parties; that can be conveyed through the use of a non-precedential opinion.  Id. The IOP identifies fourteen situations in which a precedential opinion is appropriate.  See id. at ¶ 4.  Reasons include:  resolution of an issue of first impression; the criticism, clarification, alteration, or modification of an existing rule of law; an actual or apparent conflict in or with past holdings of the court or other courts that is created, resolved or continued; the correction of procedural errors; or the case has been returned by the Supreme Court for disposition, requiring more than mere ministerial obedience to directions of the Supreme Court.  Id. The decision to make an opinion non-precedential is generally governed by a majority vote of the panel.  But, if the decision includes a dissenting opinion, the judge authoring the dissenting opinion may elect to have the entire opinion issue as precedential, regardless of the preferences of the majority judges.  Id. at ¶ 6.  All three judges must agree to use a Rule 36 judgment in order to do so.  Id. Key Case Summaries (April – May 2018) In re ZTE (USA) Inc., No. 18-113 (Fed. Cir. May 14, 2018) (Motion Panel Order):  Burden of persuasion for venue for foreign defendants. American GNC filed a complaint against ZTE in the Eastern District of Texas, and ZTE moved to dismiss for improper venue under 28 U.S.C. § 1406.  While that motion was pending, ZTE moved to transfer to the Northern District of Texas or the Northern District of California under 28 U.S.C. § 1404(a).  The first magistrate judge denied ZTE’s motion to transfer.  A second magistrate judge denied ZTE’s motion to dismiss for improper venue after finding that ZTE failed to show it did not have a regular and established place of business in the Eastern District of Texas.  The magistrate judge noted the lack of uniformity among courts in who bears the burden of proof with respect to venue but determined that, under Fifth Circuit law, the burden lies with the objecting defendant.  Over ZTE’s objections regarding the burden of proof, the district court denied ZTE’s motion to dismiss. ZTE petitioned for a writ of mandamus, which the Federal Circuit granted.  The Court first determined that Federal Circuit—not regional circuit—law governs the placement of the burden of persuasion on the propriety of venue under § 1400(b).  It then held as a matter of Federal Circuit law that, upon motion by the Defendant challenging venue in a patent case, the Plaintiff bears the burden of establishing proper venue and that this holding  “best aligns with the weight of historical authority among the circuits and best furthers public policy.”  The Court remanded to the district court to consider whether venue was proper in light of its holding that the plaintiff, American GNC, bears the burden. Disc Disease Solutions Inc. v. VGH Solutions, Inc., No. 2017-1483 (Fed. Cir. May 1, 2018):  Pleading standard for patent infringement following the abrogation of Form 18. In December 2015, certain amendments to the Federal Rules of Civil Procedure took effect.  Among them was the abrogation of Rule 84 (stating that the “Forms in the Appendix suffice under these rules”) and Form 18 (a form adequate to plead a direct patent infringement claim).  Absent Form 18, complaints now must meet the Iqbal/Twombly standard for pleading to survive a 12(b)(6) motion. Disc Disease filed its complaint the day before the 2015 amendments became effective.  The district court determined that Iqbal/Twombly—not Form 18—applied to Disc Disease’s complaint and dismissed the complaint for failure to state a claim.  The district court later denied reconsideration because it did not view the 2015 amendments to be an intervening change in the law. The Federal Circuit reversed.  The Federal Circuit did not address whether Form 18 or Iqbal/Twombly governed because, it held, the district court erred in dismissing Disc Disease’s complaint even under Iqbal/Twombly‘s pleading standard.  The Court noted that the case “involves simple technology” with only four independent claims in the asserted patents.  Disc Disease’s complaint “specifically identified the three accused products—by name and by attaching photos of the product packaging as exhibits—and alleged that the accused products meet each and every element of at least one claim” of the asserted patents.  This was sufficient to state a claim for patent infringement in these circumstances. John Bean Technologies Corp. v. Morris & Associates, Inc., No. 17-1502 (Fed. Cir. Apr. 19, 2018):  Equitable estoppel when claims are substantively amended or added following ex parte reexamination. John Bean (and its predecessor) and Morris are competitors in the poultry chiller market.  After the patent-in-suit issued to John Bean, Morris sent John Bean’s counsel a demand letter on June 27, 2002, informing him that John Bean had been contacting Morris’s customers and asserting that Morris’s equipment infringes the recently issued patent.  The letter demanded that John Bean stop telling Morris’s customers that Morris’s products infringe John Bean’s patent and advised John Bean that the patent was invalid over a specific prior art reference.  John Bean did not respond, and Morris continued to develop and sell its product. Eleven years later, on December 18, 2013, John Bean filed a request for ex parte reexamination of the patent-in-suit.  During reexamination, John Bean amended the two original claims and added six additional claims in response to a rejection by the PTO.  Shortly after the reexamination certificate issued, John Bean filed a complaint in the U.S. District Court for the Eastern District of Arkansas against Morris for patent infringement.  The district court granted summary judgment in favor of Morris that John Bean’s infringement action was barred by equitable estoppel given John Bean’s silence after the demand letter. The Federal Circuit (Reyna, J.) reversed, holding that the district court abused its discretion in applying equitable estoppel to bar John Bean’s infringement action without considering how the ex parte reexamination affected the patent claims.  The Court explained that the amendments made during reexamination in this case were both substantial and substantive, including by adding new limitations.  As a result, the asserted claims did not exist at the time of Morris’s demand letter.  But the Court recognized that there may be other cases where the asserted claims may be considered identical for the purposes of infringement and also for applying equitable estoppel.  The Court also acknowledged that Morris may have recourse under the affirmative defenses of absolute and intervening rights. Upcoming Oral Argument Calendar For a list of upcoming arguments at the Federal Circuit, please click here. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Federal Circuit.  Please contact the Gibson Dunn lawyer with whom you usually work or the authors of this alert: Blaine H. Evanson – Orange County (+1 949-451-3805, bevanson@gibsondunn.com) Blair A. Silver – Washington, D.C. (+1 202-955-8690, bsilver@gibsondunn.com) Please also feel free to contact any of the following practice group co-chairs or any member of the firm’s Appellate and Constitutional Law or Intellectual Property practice groups: Appellate and Constitutional Law Group: Mark A. Perry – Washington, D.C. (+1 202-887-3667, mperry@gibsondunn.com) Caitlin J. Halligan – New York (+1 212-351-4000, challigan@gibsondunn.com) Nicole A. Saharsky – Washington, D.C. (+1 202-887-3669, nsaharsky@gibsondunn.com) Intellectual Property Group: Josh Krevitt – New York (+1 212-351-4000, jkrevitt@gibsondunn.com) Wayne Barsky – Los Angeles (+1 310-552-8500, wbarsky@gibsondunn.com) Mark Reiter – Dallas (+1 214-698-3100, mreiter@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

May 25, 2018 |
Gibson Dunn Receives Chambers USA Excellence Award

At its annual USA Excellence Awards, Chambers and Partners named Gibson Dunn the winner in the Corporate Crime & Government Investigations category. The awards “reflect notable achievements over the past 12 months, including outstanding work, impressive strategic growth and excellence in client service.” This year the firm was also shortlisted in nine other categories: Antitrust, Energy/Projects: Oil & Gas, Energy/Projects: Power (including Renewables), Intellectual Property (including Patent, Copyright & Trademark), Labor & Employment, Real Estate, Securities and Financial Services Regulation and Tax team categories. Debra Wong Yang was also shortlisted in the individual category of Litigation: White Collar Crime & Government Investigations. The awards were presented on May 24, 2018.  

April 24, 2018 |
Supreme Court Clarifies That Inter Partes Review Must Decide All Challenged Claims

Click for PDF SAS Institute, Inc. v. Iancu, No. 16-969 Decided April 24, 2018 Today, the Supreme Court held 5-4 that if the Patent Trial and Appeal Board (PTAB) exercises its discretion to institute inter partes review, it must issue an opinion on all challenged claims. Background: Inter partes review is an administrative process in which the PTAB revisits the patentability of claims in existing patents. The PTAB may institute that review if the petitioner shows a “reasonable likelihood” of success on at least one claim. 35 U.S.C. § 314(a). If the PTAB institutes inter partes review, it “shall issue” a written decision as to the patentability of “any patent claim challenged by the petitioner.” 35 U.S.C. § 318(a). In this case, SAS Institute petitioned the PTAB for inter partes review of a certain patent. The PTAB reviewed only some of the claims, as U.S. Patent and Trademark Office (PTO) regulations permit. SAS Institute argues that the PTAB was required to issue a final decision on all of the claims. Issue: Whether the PTAB must issue a final written decision as to every claim challenged by the petitioner when it institutes an inter partes review. Court’s Holding: Yes, if the PTAB institutes inter partes review, it must rule on all challenged claims. “Even under Chevron, we owe an agency’s interpretation of the law no deference unless, after ‘employing traditional tools of statutory construction,’ we find ourselves unable to discern Congress’s. meaning.” Justice Gorsuch, writing for the majority What It Means: The Court determined that the statute’s plain text does not permit the PTAB to decide which claims to review when it grants inter partes review. Instead, if the PTAB decides that the petitioner is reasonably likely to succeed on at least one claim, the statute requires the PTAB to review all of the claims in the petition. The Court rejected SAS Institute’s invitation to overrule Chevron U.S.A. Inc. v. National Resources Defense Council, Inc., 467 U.S. 837 (1984), under which courts defer to reasonable agency interpretations of an ambiguous statute. Here, the Court held that the PTO is not entitled to deference because the statute is not ambiguous. The majority left open the possibility that the PTAB could deny a petition while noting that one or more claims merit reexamination and permitting the petitioners to file a new petition limited to those claims. The America Invents Act’s estoppel provisions prevent a petitioner from arguing that a claim is invalid, in a district court or before the International Trade Commission, on any ground raised or that reasonably could have been raised on inter partes review if the PTAB issues a final written decision on the claim. As a result of today’s decision, if the PTAB institutes review, every claim raised must be addressed—and so likely will trigger the estoppel provisions. The Supreme Court’s ruling may lead the PTAB to grant fewer petitions—meaning more patent litigation in the district courts. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court. Please feel free to contact the following practice leaders: Appellate and Constitutional Law Practice Caitlin J. Halligan +1 212.351.3909 challigan@gibsondunn.com Mark A. Perry +1 202.887.3667 mperry@gibsondunn.com Nicole A. Saharsky +1 202.887.3669 nsaharsky@gibsondunn.com Related Practice: Intellectual Property Wayne Barsky +1 310.552.8500 wbarsky@gibsondunn.com Josh Krevitt +1 212.351.4000 jkrevitt@gibsondunn.com Mark Reiter +1 214.698.3100 mreiter@gibsondunn.com   © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

April 24, 2018 |
Supreme Court Upholds PTO Inter Partes Review of Patent Validity

Click for PDF Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, No. 16-712 Decided April 24, 2018 The Supreme Court held 7-2 that the U.S. Patent and Trademark Office’s inter partes review process does not violate the Constitution. Background: In 2011, Congress passed the America Invents Act, which created a new adversarial process within the U.S. Patent and Trademark Office (PTO), known as inter partes review. This process allows anyone to challenge the validity of an existing patent on the grounds that the patent was anticipated by is or obvious in light of the prior art. Under that process, the Patent Trial and Appeal Board (PTAB) – rather than a federal court – decides whether to cancel or confirm a challenged patent, subject to deferential review by the Federal Circuit. Issue: Whether inter partes review violates Article III’s grant of judicial power to the federal courts and the Seventh Amendment’s right to a jury trial. Court’s Holding: No, patents are public rights, and not purely private rights, so Congress may allow non-Article III tribunals (like the PTAB) to adjudicate those rights. “[T]he decision to grant a patent is a matter involving public rights—specifically, the grant of a public franchise. Inter partes review is simply a reconsideration of that grant, and Congress has permissibly reserved the PTO’s authority to conduct that reconsideration.” Justice Thomas, writing for the majority Gibson Dunn filed an amicus brief defending inter partes review for Dell, Facebook, Hewlett Packard, Twitter and others. What It Means: The Court held that patents are public rights that may be granted, abridged, or withdrawn without adjudication by an Article III court or factfinding by a jury. The Court explained that a patent owner’s property rights in an issued patent are subject to PTO’s authority to reexamine or cancel the patent. Although inter partes review resembles adversarial litigation, it determines a party’s patent right against the government – not liability between private parties. The Court rejected the argument that, historically, the validity of a patent could only be challenged in court. Instead, drawing on the argument that Gibson Dunn made in its amicus brief, the Court concluded that inter partes review is consistent with historical practice under the English patent system. The Court emphasized that its holding is narrow and that it did not decide whether infringement actions or other patent matters could be heard outside of an Article III court or whether the retroactive application of inter partes review is constitutional. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court. Please feel free to contact the following practice leaders: Appellate and Constitutional Law Practice Caitlin J. Halligan +1 212.351.3909 challigan@gibsondunn.com Mark A. Perry +1 202.887.3667 mperry@gibsondunn.com Nicole A. Saharsky +1 202.887.3669 nsaharsky@gibsondunn.com   Related Practice: Intellectual Property Wayne Barsky +1 310.552.8500 wbarsky@gibsondunn.com Josh Krevitt +1 212.351.4000 jkrevitt@gibsondunn.com Mark Reiter +1 214.698.3100 mreiter@gibsondunn.com   © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

March 29, 2018 |
Federal Circuit Update (March 2018)

Click for PDF This March 2018 edition of Gibson Dunn’s Federal Circuit Update discusses the three pending Federal Circuit cases before the Supreme Court that consider issues regarding inter partes review proceedings and extraterritorial damages, and a brief summary of the process for seeking an interlocutory appeal.  This Update also provides a summary of the pending en banc case involving attorneys’ fees for litigation involving the PTO.  Also included are summaries of recent decisions regarding the fair use defense to copyright infringement, factual issues underlying patent eligibility under 35 U.S.C. § 101, and the jurisdiction of the Federal Circuit over Walker Process antitrust claims. Federal Circuit News On Friday, March 16, 2018, the Judicial Conference of the U.S. Court of Appeals for the Federal Circuit was held in Washington, D.C.  At the Conference, Judge Pauline Newman was recognized with the 2018 American Inns of Court Professionalism Award.  Judge Newman has served on the Federal Circuit in active status for the past 34 years. Supreme Court.  The Supreme Court has heard oral argument on two cases from the Federal Circuit this term, and recently granted certiorari on a third case: Case Status Issue WesternGeco LLC (Schlumberger) v. ION Geophysical Corp., No. 16-1011 Certiorari granted Jan. 12, 2018; Argument Apr. 16, 2018 Recoverability of lost profits for foreign use in cases where patent infringement is proven under 35 U.S.C. § 271(f) Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, No. 16-712 Argued on Nov. 27, 2017 Constitutionality of inter partes review under Article III and the Seventh Amendment SAS Institute Inc. v. Matal, No. 16-969 Argued on Nov. 27, 2017 The number of claims that must be addressed by the Patent Trial and Appeal Board in a final written decision during inter partes review Upcoming En Banc Federal Circuit Cases NantKwest, Inc. v. Matal, No. 16-1794 (Fed. Cir.):  Whether the PTO can recover attorneys’ fees in litigation under 35 U.S.C. § 145. After the PTAB affirmed the examiner’s rejection of NantKwest’s patent application, NantKwest appealed to the United States District Court for the Eastern District of Virginia under 35 U.S.C. § 145.  The PTO prevailed on the merits of the appeal and moved to recover both attorneys’ fees and expert fees.  Section 145 provides that “[a]ll the expenses of the proceedings shall be paid by the applicant.”  Applying this provision, the district court granted the PTO’s request for expert fees, but rejected the PTO’s request for attorneys’ fees.  A panel of the Federal Circuit reversed the district court’s holding as to attorneys’ fees, holding that the “[a]ll expenses of the proceedings” provision under § 145 authorizes an award of attorneys’ fees.  (Decision available here.) The Federal Circuit sua sponte ordered that the panel decision be vacated and that the case be reheard en banc.  Seven amicus briefs were filed, five in support of NantKwest (the International Trademark Association, the Intellectual Property Owners Association, the Intellectual Property Law Association of Chicago, the Association of Amicus Counsel, and the American Bar Association) and two in support of neither party (Federal Circuit Bar Association and American Intellectual Property Law Association).  Oral argument was held on March 8, 2018.  (Audio recording is available here.) Question presented: Did the panel in NantKwest, Inc. v. Matal, 860 F.3d 1352 (Fed. Cir. 2017) correctly determine that 35 U.S.C. § 145’s “[a]ll the expenses of the proceedings” provision authorizes an award of the United States Patent and Trademark Office’s attorneys’ fees? Federal Circuit Practice Update How to Appeal from an Interlocutory Decision.  The Federal Circuit has exclusive jurisdiction over interlocutory orders in patent law cases.  See 28 U.S.C. § 1292(c)(1).  Interlocutory orders are appealable as of right if they relate to an injunction, receivers, or certain admiralty cases.  See § 1292(a)(1)–(3).  All other interlocutory appeals are discretionary and require that both the district court and the appeals court agree to hear the issue on appeal. The district court judge must first certify that the issue “involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation.”  28 U.S.C. § 1292(b).  There is no deadline after the substantive order to move for certification under section 1292(b), but the prospective appellant should move promptly.  If the district court declines to issue such a certification order, that is the end of the road (absent mandamus or other extraordinary relief). If the district court certifies an issue for interlocutory appeal, the appeals court has discretion to permit the appeal.  See § 1292(b); see also Regents of U. of Cal. v. Dako N. Am., Inc., 477 F.3d 1335, 1336 (Fed. Cir. 2007) (“Ultimately, this court must exercise its own discretion in deciding whether it will grant permission to appeal an interlocutory order certified by a trial court.”).  A party has ten days after the district court’s certification order to petition the court of appeals.  See § 1292(b); see also Fed. R. App. P. 5(a)(3).  The petition must contain a summary of relevant facts, the question presented, the relief sought, a statement of the reasons why the appeal should be allowed, and copies of the relevant district court orders.  Fed. R. App. P. 5(b)(1)(A)–(E).  A party then has ten days to file an answer in opposition to the petition.  Fed. R. App. P. 5(b)(2).  The petition is decided without the benefit of oral argument, unless the court of appeals orders otherwise.  Fed. R. App. P. 5(b)(3). Key Case Summaries (February – March 2018) Oracle Am., Inc. v. Google LLC, Nos. 17-1118, 17-1202 (Fed. Cir. Mar. 27, 2018):  Direct copying of a copyrighted work for use in a competing platform using the material for the same purpose and function did not, on the facts of the case, amount to fair use. After a jury had determined that Google’s use of Oracle’s copyright in Java API packages was a fair use, the district court denied Oracle’s post-trial motions for judgment as a matter of law and for a new trial.  Applying the four factors for fair use from 17 U.S.C. § 107, the district court held that a reasonable jury could have concluded that the use was fair because:  (1) the purpose and character of Google’s use was transformational; (2) the nature of the copyrighted work was not “highly creative”; (3) the amount and substantiality of the portion used was only as much of the work as was necessary for its transformative use; and (4) Google’s use of the code did not cause harm to the potential market for the copyrighted work. The Federal Circuit (O’Malley, J.) reversed.  At the outset, the Federal Circuit discussed the standard of review and found that fair use is “primarily a legal exercise” and thus, under the Supreme Court’s recent decision in U.S. Bank Nat’l Ass’n ex rel. CWCapital Asset Mgmt. LLC, No. 15-1509 (U.S. Mar. 5, 2018), the inferences to be drawn from the fair use factors are legal in nature and subject to de novo review. In analyzing the first factor, the court found that Google’s use of the Java APIs to create its Android platform was commercial under Ninth Circuit law even though Google gave a free open source license to Android because direct economic benefit is not required, and Google profited indirectly from the platform.  The court also found that Google’s use was not transformative because Google (1) used the API packages for the same purpose as they were used in the Java platform, (2) made no alterations to the expressive content of the copyrighted material, and (3) did not adapt the material for a “new context” when it provided Android for smartphones.  As to the second factor, the court found that the evidence presented at trial would allow reasonable jurors to conclude that functional considerations were substantial and important.  Addressing the third factor, the court noted that Google directly copied 37 API packages and 11,500 lines of code, even though only 170 lines of code were necessary to write in the Java language.  Although the amount of code was a small percentage of the roughly 2.86 million lines of code in Java libraries, the court found the copying qualitatively substantial because it copied 37 APIs in their entirety—even though Google admitted they could have written their own APIs—in order to make the Android platform familiar and attractive to Java programmers.  Turning to the fourth factor, the court noted that Android competed directly with Oracle’s Java platform and that the free nature of Android caused significant market harm to Oracle’s efforts to license Java. Based on those findings, the court noted that the second factor favored a finding of fair use, whereas the first and fourth factors weighed “heavily against” a finding of fair use.  The court considered the third factor to be neutral “at best.”  In balancing these factors, the court concluded that the factors weighed against a finding of fair use, and the court explained that “[t]here is nothing fair about taking a copyrighted work verbatim and using it for the same purpose and function as the original in a competing platform.”  The court added the caveat that it was “not conclud[ing] that a fair use defense could never be sustained in an action involving the copying of computer code.” Berkheimer v. HP Inc., No. 2017-1437 (Fed Cir. Feb. 8, 2018):  Patent eligibility under section 101 presents issues of fact and, under the facts of that case, summary judgment was not appropriate. The Federal Circuit held that the second prong of the Alice ineligibility inquiry under 35 U.S.C. § 101—whether the claim elements “transform the nature of the claim” into patent-eligible subject matter if they “involve more than performance of well-understood, routine, [and] conventional activities previously known to the industry”—is “a factual determination” that may not be suitable for summary judgment if facts are disputed. The district court ruled on summary judgment that eight claims from U.S. Patent No. 7,447,713 were directed to abstract ideas and thus ineligible for patenting under section 101.  The ‘713 Patent describes a means of digitally processing and archiving files by “parsing” the files into multiple parts, comparing those parts, and eliminating redundant material to allegedly improve storage efficiency and reduce storage costs. The Federal Circuit (Moore, J.) reversed.  Berkheimer alleged that the claims at issue covered linking data so as to facilitate “one-to-many” editing (i.e., allowing a single edit to populate to multiple points that use the same data).  The patentee asserted that this “inventive feature” operated in an “unconventional manner” versus mere “copy-and-paste” functionality in the prior art.  Although the panel agreed that all the challenged claims were directed to the abstract ideas of parsing and comparing data—the first prong of the Supreme Court’s Alice test—the panel reversed the district court’s ruling on the second Alice prong for four claims on the basis that the second prong “is a question of fact.”  Specifically, the Federal Circuit panel held that whether the “one-to-many” editing feature was “well-understood, routine, and conventional” was a disputed factual question that could not be decided on summary judgment.  In light of this, the Federal Circuit panel held that whether this added feature was “well-understood, routine, and conventional” was a disputed factual question that could not be decided on summary judgment. On March 12, HP petitioned for rehearing en banc, supported by several amici curiae.  On March 15, the Federal Circuit invited a response to HP’s petition. Aatrix Software, Inc. v. Green Shades Software, Inc., No. 2017-1452 (Fed. Cir. Feb. 14, 2018):  Patent eligibility presents issues of fact not amenable to a Rule 12 motion to dismiss. Following Berkheimer, the Federal Circuit (Moore, J.) issued a parallel ruling concerning the appropriateness of deciding patent eligibility at the Rule 12 stage.  Judge Reyna wrote separately in partial dissent. Aatrix Software asserted two patents directed to systems and methods for importing data onto a computer to allow that data to be processed and viewed.  The district court granted defendant’s motion to dismiss, holding that the claims were not directed to patentable subject matter. On appeal, the Federal Circuit reversed, holding that the complaint set forth a question of fact as to patentability because the complaint alleged that “the claimed software uses less memory, and results in faster processing speed” and thus is patent eligible because “the claimed invention is directed to an improvement in the computer technology itself.” Judge Reyna dissented, challenging the practical implications of the ruling and arguing that Federal Circuit precedent “is clear that the § 101 inquiry is a legal question” and a question “that can be appropriately decided on a motion to dismiss.” Xitronix Corp. v. KLA-Tencor Corp., No. 2016-2746 (Fed. Cir. Feb. 9, 2018):  Jurisdiction over Walker Process-antitrust claims is in the regional circuits, not the Federal Circuit. Under 28 U.S.C. § 1295(a)(1), the Federal Circuit has appellate jurisdiction over actions arising under “any Act of Congress relating to patents.”  Walker Process claims involve allegations that enforcing a patent procured by fraud on the PTO constitutes an antitrust violation under the Sherman Act.  The Federal Circuit has historically treated such claims as presenting “a substantial question of patent law” and thus accepted jurisdiction over them. In Gunn v. Minton, the Supreme Court held that a state law claim alleging legal malpractice in handling a patent case—which likewise implicates U.S. Patent law—did not itself “arise under” or depend on a question of patent law sufficient to convey jurisdiction to federal courts.  568 U.S. 251, 258 (2013). In Xitronix, both sides asserted that the Federal Circuit had appellate jurisdiction over the Walker Process claim under appeal in that case.  No other patent-related claim was asserted on which to base Federal Circuit jurisdiction.  The Federal Circuit, however, raised the question of jurisdiction sua sponte, ruling that, given the Supreme Court’s analogous view in Gunn, jurisdiction for Walker Process claims rested with the regional circuits.  Accordingly, the Federal Circuit overruled its prior contrary precedent and transferred the appeal to the Fifth Circuit. Upcoming Oral Argument Calendar For a list of upcoming arguments at the Federal Circuit, please click here. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Federal Circuit.  Please contact the Gibson Dunn lawyer with whom you usually work or the authors of this alert: Blaine H. Evanson – Orange County (+1 949-451-3805, bevanson@gibsondunn.com) Blair A. Silver – Washington, D.C. (+1 202-955-8690, bsilver@gibsondunn.com) Please also feel free to contact any of the following practice group co-chairs or any member of the firm’s Appellate and Constitutional Law or Intellectual Property practice groups: Appellate and Constitutional Law Group: Mark A. Perry – Washington, D.C. (+1 202-887-3667, mperry@gibsondunn.com) Caitlin J. Halligan – New York (+1 212-351-4000, challigan@gibsondunn.com) Nicole A. Saharsky – Washington, D.C. (+1 202-887-3669, nsaharsky@gibsondunn.com) Intellectual Property Group: Josh Krevitt – New York (+1 212-351-4000, jkrevitt@gibsondunn.com) Wayne Barsky – Los Angeles (+1 310-552-8500, wbarsky@gibsondunn.com) Mark Reiter – Dallas (+1 214-698-3100, mreiter@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.