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January 10, 2020 |
2019 Year-End German Law Update

Click for PDF Since the end of World War II, Germany’s foreign policy and economic well-being were built on three core pillars: (i) a strong transatlantic alliance and friendship, (ii) stable and influential international institutions and organizations, such as first and foremost, the EU, but also others such as the UN and GATT, and, finally, (iii) the rule of law. Each of these pillars has suffered significant cracks in the last years requiring a fundamental re-assessment of Germany’s place in the world and the way the world’s fourth largest economy should deal with its friends, partners, contenders and challengers. A few recent observations highlight the urgency of the issue: The transatlantic alliance and friendship has been eroding over many years. A recent Civey study conducted for the think tank Atlantic-Brücke showed that 57.6% of Germans prefer a “greater distance” to the U.S., 84.6% of the 5,000 persons polled by Civey described the German-American relationship as negative or very negative, while only 10.4% considered the relationship as positive. The current state of many international institutions and organizations also requires substantial overhaul, to put it mildly: After Brexit has occurred, the EU will have to re-define its role for its remaining 27 member states and its (new) relationship with the UK, which is still the fifth-largest economy on a stand-alone basis. GATT was rendered de facto dysfunctional on December 10, 2019, when its Appellate Body lost its quorum to hear new appeals. New members cannot be approved because of the United States’ veto against the appointment of new appeal judges. The UN is also suffering from a vacuum created by an attitude of disengagement shown by the U.S., that is now being filled by its contenders on the international stage, mainly China and Russia. Finally, the concept of the rule of law has come under pressure for some years through a combination of several trends: (i) the ever expanding body of national laws with extra-territorial effect (such as the FCPA or international sanction regulations), a rule-making trend not only favored by the U.S., but also by China, Russia, the EU and its member states alike, (ii) the trend – recently observed in some EU member states – that the political party in charge of the legislative and executive branch initiates legislative changes designed to curtail the independence of courts (e.g. Poland and Hungary), and (iii) the rise of populist parties that have enjoyed land-slide gains in many countries (including some German federal states) and promulgate simple solutions, not least by cutting corners and curtailing legal procedures and legal traditions. These fundamental challenges occur toward the end of a period of unprecedented rise in wealth and economic success of the German economy: Germany has reaped the benefits of eight decades of peace and the end of the Cold War after the decay of the Soviet Union. It regained efficiencies after ambitious structural changes to its welfare state in the early years of the millennium, and it re-emerged as a winner from the 2008 financial crisis benefiting (among others) from the short-term effects of the European Central Bank’s policy of a cheap Euro that mainly benefits the powerful German export machine (at the mid- and long-term cost to German individual savers). The robust economy that Germany enjoyed over the last decade resulted in record budgets, a reduction of public debt, a significant reduction in unemployment, and individual consumption at record levels. Therefore, the prospects of successfully addressing the above challenges are positive. However, unless straight forward and significant steps are identified and implemented to address the challenges ahead, the devil will be in the detail. The legislative changes across all practice areas covered in this year-end update are partly encouraging, partly disappointing in this respect. It is impossible to know whether the new laws and regulations will, on balance, make Germany a stronger and more competitive economy in 2020 and beyond. Healthy professional skepticism is warranted when assessing many of the changes suggested and introduced. However, we at Gibson Dunn are determined and committed to ensuring that we utilize the opportunities created by the new laws to the best benefit of our clients, and, at the same time, helping them in their quest to limit any resulting threats to the absolute minimum. As in prior years, in order to succeed in that, we will require 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 in times of fundamental change. Your real-world questions and the tasks you entrust us with related to the above developments and changes help us in forming our expertise and sharpening our focus. This adds the necessary color that allows us to paint an accurate picture of the multifaceted world we are living in, and on this basis, it will allow you to make sound business decisions in the interesting times to come. In this context, we are excited about every opportunity you will provide us with to help shaping our joint future in the years to come. _______________________ Table of Contents       Corporate, M&A Tax Financing and Restructuring Labor and Employment Real Estate Compliance and Litigation Antitrust and Merger Control Data Protection IP & Technology  _______________________ 1.   Corporate, M&A 1.1   ARUG II – New Transparency Rules for Listed German Corporations, Institutional Investors, Asset Managers, and Proxy Advisors In November 2019, the German parliament passed ARUG II, a long awaited piece of legislation implementing the revised European Shareholders’ Rights Directive (Directive (EU) 2017/828). ARUG II is primarily aimed at listed German companies and provides changes with respect to “say on pay” provisions, as well as additional approval and disclosure requirements for related party transactions, the transmission of information between a corporation and its shareholders and additional transparency and reporting requirements for institutional investors, asset managers and proxy advisors. “Say on pay” on remuneration of board members; remuneration policy and remuneration report In a German stock corporation, 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. Under ARUG II, shareholders of German listed companies must be asked to vote on the remuneration of the board members pursuant to a prescribed procedure. First, the supervisory board will have to prepare a detailed remuneration policy (including maximum remuneration amounts) 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. The result of the vote on the policy will only be advisory except that the shareholders’ vote to reduce the maximum remuneration amount will be binding. With respect to the remuneration of supervisory board members, the new rules require a shareholder vote at least once every four years. Second, at the annual shareholders’ meeting, the shareholders will vote ex post on the remuneration report which contains the remuneration granted to the present and former members of the management board and the supervisory board in the previous financial year. Again, the shareholders’ vote, however, will only be advisory. Both the remuneration report and the remuneration policy have to be made public on the company’s website for at least ten years. The changes introduced by ARUG II will not apply retroactively and will not therefore affect management board members’ existing service agreements, i.e. such agreements will not have to be amended in case they do not comply with the new remuneration policy. Related party transactions German stock corporation law already provides for various safeguards to protect minority shareholders in 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, for listed companies, these mechanisms will be supplemented by a detailed set of approval and transparency requirements for related party transactions. In particular, transactions exceeding certain thresholds will require prior supervisory board approval, provided that a rejection by the supervisory board can be overruled by shareholder vote, and a listed company must publicly disclose any such material related party transaction, without undue delay over media channels providing for European-wide distribution. Communication / Know-your-Shareholder Listed corporations 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 corporation 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. Increased transparency requirements for institutional investors, asset managers and proxy advisors Institutional investors and asset managers will be required to disclose their engagement policy (including how they monitor, influence and communicate with investee companies, exercise shareholders’ rights and manage actual and potential conflicts of interests). They will also have to report annually on the implementation of their engagement policy and on their voting decisions. Institutional investors will also have to disclose to which extent key elements of their investment strategy match the profile and duration of such institutional investors’ liabilities towards their ultimate beneficiaries. If they involve asset managers, institutional investors also have to disclose the main aspects of their arrangements with them. The new disclosure and reporting requirements, however, only apply on a “comply or explain” basis, i.e. investors and asset managers may choose not to comply with the transparency requirements provided that they give an explanation as to why this is the case. Proxy advisors will have to publicly disclose on an annual basis whether and how they have applied their code of conduct based again on the “comply or explain” principle. They also have to provide 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. Entry into force and transitional provisions The provisions concerning related party transactions already apply. The rules relating to communications via intermediaries and know-your-shareholder information will apply from September 3, 2020. The “mandatory say on pay” resolutions will only have to be passed in shareholder meetings starting in 2021. The remuneration report will have to be prepared for the first time for the financial year 2021. It needs to be seen whether companies will already adhere to the new rules prior to such dates on a voluntary basis following requests from their shareholders or pressure from proxy advisors. 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 1.2   Restatement of the German Corporate Governance Code – New Stipulations for the Members of the Supervisory Board and the Remuneration of the Members of the Board of Management A restatement of the German Corporate Governance Code (Deutscher Corporate Governance Kodex, “DCGK” or the “Code”) is expected for the beginning of 2020, after the provisions of the EU Shareholder Rights Directive II (Directive (EU) 2017/828 of the European Parliament and of the Council of May 17, 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement) were implemented into German domestic law as part of the “ARUG II” reform as of January 1, 2020. This timeline seeks to avoid overlaps and potentially conflicting provisions between ARUG II and the Code. In addition to structural changes, which are designed to improve legal clarity compared to the previous 2017 version, the new Code contains a number of substantial changes which affect boards of management and supervisory boards in an effort to provide more transparency to investors and other stakeholders. Some of the key modifications can be summed up as follows: (a)   Firstly, restrictions on holding multiple corporate positions are tightened considerably. The new DCGK will recommend that (i) supervisory board members should hold no more than five supervisory board mandates at listed companies outside their own group, with the position of supervisory board chairman being counted double, and (ii) members of the board of management of a listed company should not hold more than two supervisory board mandates or comparable functions nor chair the supervisory board of a listed company outside their own group. (b)   A second focal point is the independence of shareholder representatives on the supervisory board. In this context, the amended DCGK for the first time introduces certain criteria which can indicate a lack of independence by supervisory board members such as long office tenure, prior management board membership, family or close business relationships with board members and the like. However, the Government Commission DCGK (Regierungskommission Deutscher Corporate Governance Kodex) (the “Commission”) has pointed out that these criteria should not replace the need to assess each case individually. Furthermore, at least 50% of all shareholder representatives (including the chairperson) shall be independent. If there is a controlling shareholder, at least two members of the supervisory board shall be independent of such controlling shareholder (assuming a supervisory board of six members). (c)   A third key area of reform focuses on the remuneration of members of the board of management. Going forward, it is recommended that companies should determine a so-called “target total remuneration”, i.e. the amount of remuneration that is paid out in total if 100 percent of all previously determined targets have been achieved, as well as a “maximum compensation cap”, which should not be exceeded even if the previously determined targets are exceeded. Under the new Code, the total remuneration of the management board should be “explainable to the public”. (d)  Finally, the Commission has decided to simplify corporate governance reporting and put an end to the parallel existence of (i) the corporate governance report under the Code and (ii) a separate corporate governance statement contained in the management report of the annual accounts. Going forward, the corporate governance statement in the annual financial statements will be the core instrument of corporate governance reporting. In recent years, governance topics have assumed ever increasing importance for both domestic and foreign investors and are typically a matter of great interest at annual shareholders’ meetings. Hence, we recommend that (listed) stock corporations, in a first step, familiarize themselves with the content of the new recommendations in the Code and, thereafter, take the necessary measures to comply with the rules of the revised DCGK once it takes effect . In particular, stock corporations should evaluate and disclose the different mandates of their current supervisory board members to comply with the new rules. Back to Top 1.3   Cross-Border Mobility of European Corporations Facilitated On January 1, 2020 the European Union Directive on cross-border conversions, mergers and divisions (Directive (EU) 2019/2121 of the European Parliament and of the Council of November 27, 2019) (the “Directive”) has entered into force. While a legal framework for cross-border mergers had already been implemented by the European Union in 2005, the lack of a comparable set of rules for cross-border conversions and divisions had led to fragmentation and considerable legal uncertainty. Whenever companies, for example, attempted to move from one member state to another without undergoing national formation procedures in the new member state and liquidation procedures in the other member state, they were only able to rely on certain individual court rulings of the European Court of Justice (ECJ). Cross-border asset transfers by (partial) universal legal succession ((partielle) Gesamtrechtsnachfolge) were virtually impossible due to the lack of an appropriate legal regime. The Directive now seeks to create a European Union-wide legal framework which ultimately enhances the fundamental principle of freedom of establishment (Niederlassungsfreiheit). The Directive in particular covers the following cross-border measures: The conversion of the legal structure of a corporation under the regime of one member state into a legal structure of the destination member state (grenzüberschreitende Umwandlung) as well as the transfer of the registered office from one member state to another member state (isolierte Satzungsitzverlegung); Cross-border division whereby certain assets and liabilities of a company are transferred by universal legal succession to one or more entities in another member state which are to be newly established in the course of the division. If all assets and liabilities are transferred, at least two new transferee companies are required and the transferor company ceases to exist upon effectiveness of the division. In all cases, the division is made in exchange for shares or other interests in the transferor company, the transferee company or their respective shareholders, depending on the circumstances. The Directive further amends the existing legal framework for cross-border merger procedures by introducing common rules for the protection of creditors, dissenting minority shareholders and employees. Finally, the Directive provides for an anti-abuse control procedure enabling national authorities to check and ultimately block a cross-border measure when it is carried out for abusive or fraudulent reasons or in circumvention of national or EU legislation. Surprisingly, however, the Directive does not cover a cross-border transfer of assets and liabilities to one or more companies already existing in another member state (Spaltung durch Aufnahme). In addition, the Directive only applies to corporations (Kapitalgesellschaften) but not partnerships (Personengesellschaften). Member states have until January 2023 to implement the Directive into domestic law. Through this legal framework for corporate restructuring measures, it is expected that the Directive will harmonize the interaction between national procedures. If the member states do not use the contemplated national anti-abuse control procedure excessively, the Directive can considerably facilitate cross-border activities. Forward looking member states may even consider implementing comparable regimes for divisions into existing legal entities which are currently beyond the scope of the Directive. Back to Top 1.4   Transparency Register: Reporting Obligations Tightened and Extended to Certain Foreign Entities The Act implementing the 5th EU Anti-Money Laundering Directive (Directive (EU) 2018/843) which amended the German Anti-Money Laundering Act (Geldwäschegesetz, GwG) with effect as of January 1, 2020 (see below under section 6.2) also introduced considerable new reporting obligations to the transparency register (Transparenzregister), which seeks to identify the “ultimate beneficial owner”. Starting on January 1, 2020, not only associations incorporated under German private law, but also foreign associations and trustees that have a special link to Germany must report certain information on their „beneficial owners“ to the German transparency register. Such link exists if foreign associations acquire real property in Germany. Non-compliance is not only an administrative offence (potential fines of up to EUR 150,000), but the German notary recording a real estate transaction must now check actively that the reporting obligation has been fulfilled before notarizing such transaction and must refuse notarization if it has not. Foreign trustees must in addition report the beneficial owners of the trust if a trust acquires domestic real property or if a contractual partner of the trust is domiciled in Germany. Reporting by a foreign association or trustee to the German transparency register is, however, not required if the relevant information on the beneficial owners has already been filed with a register of another EU member state. Additional requirements apply to foreign trustees. In addition, the reporting obligations of beneficial owners, irrespective of their place of residence, towards a German or, as the case may be, foreign association, regarding their interest have been clarified and extended. Associations concerned must now also actively make inquiries with their direct shareholders regarding any beneficial owners and must keep adequate records of these inquiries. Shareholders must respond to such inquiries within a reasonable time period and, in addition, must also notify the association pro-actively, if they become aware that the beneficial owner has changed as well as duly record any such notification. Furthermore, persons or entities subject to the GwG obligations (“Obliged Persons”) inspecting the transparency register to fulfil their customer due diligence requirements (e.g. financial institutions and estate agents) must now notify the transparency register without undue delay of any discrepancies on beneficial ownership between entries in the register and other information and findings available to them. Finally, the transparency register is now also accessible to the general public without proof of legitimate interest with regard to certain information about the beneficial owner (full legal name of the beneficial owner, the month and year of birth, nationality and country of residence as well as the type and extent of the economic interest of the beneficial owner). As in the past, however, the registry may restrict inspection into the transparency register, upon request of the beneficial owner, if there are overriding interests worthy of protection. In return for any disclosure, starting on July 1, 2020, beneficial owners may request information on inspections made by the general public (in contrast to inspections made by public authorities or Obliged Persons such as, e.g. financial institutions, auditing firms, or tax consultants and lawyers). Although reporting obligations to the transparency register were initially introduced more than 2.5 years ago, compliance with these obligations still seems to be lacking in practice. Therefore, any group with entities incorporated in Germany, any foreign association intending to acquire German real estate and any individual qualifying as a beneficial owner of a domestic or foreign association should check whether new or outstanding inquiry, record keeping or reporting obligations arise for them and take the required steps to ensure compliance. In this context, we note that for some time now the competent administrative enforcement authority (Bundesverwaltungsamt) has increased its efforts to enforce the transparency obligations, including imposing fines on associations that have failed to make required filings. It is to be expected that they will further tighten the reins based on this reform. Back to Top 1.5   UK LLPs with Management Seat in Germany – Status after Brexit? As things stand at present the British government is pushing to enact its Withdrawal Agreement Bill (the “WAB”) to ensure that it can take the UK out of the EU on January 31, 2020. Pursuant to the WAB such withdrawal from the EU is not intended to result in a so-called “Hard Brexit” as the WAB introduces a transition period until December 31, 2020 during which the European fundamental freedoms including the freedom of establishment would continue to apply. Freedom of establishment has, over the last decade in particular, resulted in German law recognizing that UK (and other EU) companies can have their effective seat of management (Verwaltungssitz) in Germany rather than the respective domestic jurisdiction. Until the end of the transition period, UK company structures such as UK Plc, Ltd. or LLP will continue to benefit from such recognition. But what happens thereafter if the EU and the UK (or, alternatively, Germany and the UK) do not succeed in negotiating particular provisions for the continued recognition of UK companies in the EU or Germany, respectively? From a traditional German legal perspective, such companies will lose their legal capacity as a UK company in Germany after the transition period because German courts traditionally follow the real or effective seat theory (Sitztheorie) and thus apply German corporate law to the companies in question rather than the incorporation theory (Gründungstheorie) which would lead to the application of English law. There would be a real risk that UK companies that have their effective management seat in Germany would have to be reclassified as a German company structure under the numerus clausus of German company structures. For some company structures such as the “LLP” German law does not have an equivalent LLP company structure as such, and reclassifying it as a German law limited partnership would not work either in most cases due to lack of registration in the German commercial register. In short, the only alternative for future recognition of a UK multi-person LLP, under German law, may be a German civil law partnership (GbR) or in certain cases a German law commercial partnership (OHG), with all legal consequences that flow from such structures, including, in particular, unlimited member liability. The discussion on how to resolve this issue in Germany has focused on a type of German partnership with limited liability (Partnerschaftsgesellschaft mit beschränkter Haftung, PartGmbB), that has only limited scope. A PartGmbB is only open to members of the so-called liberal or free professions such as attorneys or architects. In addition, the limitation of liability in a PartGmbB applies only to liability due to professional negligence and risks associated with the profession, and would thus not benefit their members generally. Unless UK companies with an effective seat of management in Germany opted to risk reliance on the status quo – in the event there is no new framework for recognition after the transition period – affected companies should either change their seat of management to the UK (or any other EU jurisdiction that applies the incorporation theory) and establish a German branch office, or, alternatively, consider forming a suitable German legal corporate structure before the end of the transition period at the end of December 2020. Back to Top 1.6   The ECJ on Corporate Agreements and the Rome I Regulation In its decision C-272/18, of 3 October 2019, the European Court of Justice (ECJ) further clarified the scope of the EU regulation Rome I (Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (the “Rome I Regulation”) on the one hand, and international company law which is excluded from the scope of the Rome I Regulation on the other hand. The need for clarification resulted from Art. 1 para. 2 lit f. of the Rome I Regulation pursuant to which “questions governed by the law of companies and other bodies, corporate or unincorporated, such as the creation, by registration or otherwise, legal capacity, internal organization or winding-up of companies and other bodies […]” are excluded from the scope of the Rome I Regulation. The ECJ, as the highest authority on the interpretation of the Regulation, held that the “corporate law exception” does not apply to contracts which have shares as object of such contract only. According to the explicit statement of the Advocate General Saugmandsgaard Øe, this also includes share purchase agreements which are now held to be within the scope of the Rome I Regulation. This exception from the scope of the Rome I Regulation is thus much narrower than it has been interpreted by some legal commentators in the past. The case concerned a law suit brought by an Austrian consumer protection organization (“VKI”) against a German public instrument fund (“TVP”), and more particularly, trust arrangements for limited (partnership) interests in funds designed as public limited partnerships. The referring Austrian High Court had to rule on the validity of a choice of law clause in trust agreements concerning German limited partnership interests between the German fund TVP, as trustee over the investors’ partnership interests, and Austrian investors qualifying as consumers, as trustors. This clause provided for the application of German substantive law only. VKI claimed that this clause was, under Austrian substantive law, not legally effective and binding because pursuant to the Rome I Regulation, a contract concluded by a consumer with another person acting in the exercise of his/her trade or profession shall either be governed by the law of the country of the consumer’s habitual residence (in this case Austria) and/or, in the event the parties have made a choice as to the applicable law, at least not result in depriving the consumer of the protection offered to him/her by his/her country of residence. The contractual choice of German law could not therefore, in VKI’s view, deprive Austrian investors of rights guaranteed by Austrian consumer protection laws. TVP, on the other hand, argued that the Rome I Regulation was not even applicable as the contract in question was an agreement related to partnership interests and, thus, to corporate law which was excluded from the scope of the Rome I Regulation. The ECJ ruled that the relevant corporate law exclusion from the scope of the Rome I Regulation is limited to the organizational aspects of companies such as their incorporation or internal statutes. In turn, a mere connection to corporate law was ruled not to be sufficient to fall within the exclusion. Sale and purchase agreements in M&A transactions, or as in the matter at hand trust arrangements, are therefore covered by the Rome I Regulation. The decision provides that the choice of law principle of the Rome I Regulation is, subject to the restrictions imposed by the Regulation itself for particular groups such as consumers and employees, applicable in more cases than considered in the past with respect to corporate law related contracts. Back to Top 1.7   German Foreign Direct Investment – Further Rule-Tightening Announced for 2020 Restrictions on foreign investment is increasingly becoming a perennial topic. After the tightening of the rules on foreign direct investment in 2017 (see 2017 Year-End German Law Update under 1.5) and the expansion of the scope for scrutiny of foreign direct investments in 2018 (see 2018 Year-End German Law Update under 1.3), the German Ministry of Economy and Energy (Bundesministerium für Wirtschaft und Energie) in November 2019 announced further plans to tighten the rules for foreign direct investments in Germany in its policy guideline on Germany’s industrial strategy 2030 (Industriestrategie 2030 – Leitlinien für eine deutsche und europäische Industriepolitik). The envisaged amendments to the German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung, AWV) relate to the following three key pillars: Firstly, by October 2020, the German rules shall be adapted to reflect the amended EU regulations (so-called EU Screening Directive dated March 19, 2019). This would be achieved, inter alia, by implementing a cooperation mechanism to integrate other EU member states as well as the EU Commission into the review process. Further, the criteria for public order or security (öffentliche Ordnung oder Sicherheit) relevant to the application of foreign trade law is expected to be revised and likely expanded to cover further industry sectors such as artificial intelligence, robotics, semiconductors, biotechnology and quantum technology. The threshold for prohibiting a takeover may be lowered to cover not only a “threat” but a “foreseeable impairment” of the public order or security (as contemplated in the EU directive). Secondly, if the rules on foreign direct investments cannot be relied on to block an intended acquisition, but such acquisition nonetheless affects sensitive or security related technology, another company from the German private sector may acquire a stake in the relevant target as a so-called “White Knight” in a process moderated by the government. Thirdly, as a last resort, the strategy paper proposes a “national fallback option” (Nationale Rückgriffsoption) under which the German state-owned Kreditanstalt für Wiederaufbau could acquire a stake in enterprises active in sensitive or security-related technology sectors for a limited period of time. Even though the details for the implementation of those proposals are not yet clear, the trend towards more protectionism continues. For non-EU investors a potential review pursuant to the rules on foreign direct investment will increasingly become the new rule and should thus be taken into account when planning and structuring M&A transactions. Back to Top 2.   Tax – German Federal Government Implements EU Mandatory Disclosure Rules On December 12, 2019 and December 20, 2019, respectively, the two chambers of the German Federal Parliament passed the Law for the Introduction of an Obligation to report Cross-Border Tax Arrangements (the “Law”), which implements Council Directive 2018/822/EU (referred to as “DAC 6”) into Germany’s domestic law effective as of July 1, 2020. DAC 6 entered into force on June 25, 2018 and requires so-called intermediaries, and in some cases taxpayers, to report cross-border arrangements that contain defined characteristics with their national tax authorities within specified time limits. The stated aim of DAC 6 is to provide tax authorities with an early warning mechanism for new risks of tax avoidance. The Law follows the same approach as provided for in DAC 6. The reporting obligation would apply to “cross-border tax arrangements” in the field of direct taxes (e.g. income taxes but not VAT). Cross-border arrangements concern at least two member states or a member state and a non-EU country. Purely national German arrangements are – contrary to previous drafts of the Law – not subject to reporting. (a)   Reportable cross-border arrangements must have one or more specified characteristics (“hallmarks”). The hallmarks are broadly scoped and represent certain typical features of tax planning arrangements, which potentially indicate tax avoidance or tax abuse. (i)    Some of these hallmarks would result in reportable transactions only if the “main benefit test” is satisfied. The test would be satisfied if it can be established that the main benefit that a person may reasonably expect to derive from an arrangement is obtaining a tax advantage in Germany or in another member state. Hallmarks in that category are, inter alia, the use of substantially standardized documentation or structures, the conversion of income into lower taxed categories of revenue or payments to an associated enterprise that are tax exempt or benefit from a preferential tax regime or arrangement. (ii)   In addition, there are hallmarks that would result in reportable transactions regardless of whether the main benefit test is satisfied. Hallmarks in this category are, for example, assets that are subject to depreciation in more than one jurisdiction, relief from double taxation that is claimed more than once, arrangements that involve hard-to-value intangibles or specific transfer pricing arrangements. (b)   The primary obligation to disclose information to the tax authorities rests with the intermediary. An intermediary is defined as “any person that promotes, designs for a third party, organizes, makes available for implementation or manages the implementation of a reportable cross-border arrangement.” Such intermediary must be resident in the EU or provides its services through a branch in the EU. Typical intermediaries are tax advisors, accountants, lawyers, financial advisors, banks and consultants. When multiple intermediaries are engaged in a cross-border arrangement, the reporting obligation lies with all intermediaries involved in the same arrangement. However, an intermediary can be exempt from reporting if he can prove that a report of the arrangement has been filed by another intermediary. In the event an intermediary is bound by legal professional privilege from reporting information, the intermediary would have to inform the relevant taxpayer of the possibility of waiving the privilege. If the relevant taxpayer does not grant the waiver, the responsibility for reporting the information would shift to the taxpayer. Other scenarios where the reporting obligation is shifted to the taxpayer are in-house schemes without involvement of intermediaries or the use of intermediaries from countries outside the EU. (c)   Reporting to the tax office is required within a 30-day timeframe after the arrangement is made available for implementation or when the first step has been implemented. The report must contain the applicable hallmark, a summary of the cross-border arrangement including its value, the applicable tax provisions and certain information regarding the intermediary and the taxpayer. The information will be automatically submitted by the competent authority of each EU member state through the use of a central directory on administrative cooperation in the field of direct taxation. (d)  The reporting obligations commence on July 1, 2020. However, the Law also has retroactive effect: for all reportable arrangements that were implemented in the interim period between June 24, 2018 and June 30, 2020 the report would have to be filed by August 31, 2020. Penalties for noncompliance with the reporting obligations are up to EUR 25,000 while there are no penalties for noncompliance with such reportable arrangements for the interim period between June 25, 2018 and June 30, 2020. Since, as noted above, the reporting obligation can be shifted to the client as the taxpayer and the client will then be responsible for complying with the reporting obligations, taxpayers should consider establishing a suitable reporting compliance process. Such process may encompass sensitization for and identification of reportable transactions, the determination of responsibilities, the development of respective DAC 6 governance and a corresponding IT-system, recording of arrangements during the transitional period after June 24, 2018, robust testing and training as well as live operations including analysis and reporting of potential reportable arrangements. Back to Top 3.   Financing and Restructuring 3.1   EU Directive on Preventive Restructuring Framework – Minimum Standards Across Europe? On June 26, 2019, the European Union published Directive 2019/1023 on a preventive restructuring framework (Directive (EU) 2019/1023 of the European Parliament and of the Council of June 20, 2019) (the “Directive”). The Directive aims to introduce standards for “honest entrepreneurs” in financial difficulties providing businesses with a “second chance” in all EU member states. While some member states had already introduced preventive restructuring schemes in the past (e.g. the UK scheme of arrangement), others, like Germany, stayed inactive, leaving debtors with the largely creditor-focused and more traditional tools set forth in the German Insolvency Code (Insolvenzordnung, InsO). By contrast, the Directive now seeks to protect workers and creditors alike in “a balanced manner”. In addition, a particular focus of the Directive are small and medium-sized enterprises, which often do not have the resources to make use of already existing restructuring alternatives abroad. The key features of the Directive provide, in particular: The preventive restructuring regime shall be available upon application of the debtor. Creditors and employee representatives may file an application, but generally the consent of the debtor shall be required in addition; Member states are required to implement early warning tools and to facilitate access to information enabling debtors to properly assess their financial situation early on and detect circumstances which may ultimately lead to insolvency; Preventive restructuring mechanisms must be set forth in domestic law in the event there is a “likely insolvency”. Debtors must be given the possibility to remain in control of the business operations while restructuring measures are implemented to avoid formal insolvency proceedings. In Germany, it will be a challenge to properly distinguish between the newly introduced European concept of “likely insolvency” which is the door opener for preventive restructuring under the Directive and the existing German legal concept of “imminent illiquidity” (drohende Zahlungsunfähigkeit) which under current insolvency law enables German debtors to proceed with a voluntary insolvency filing; A stay of individual enforcement measures for an initial period of four months (with an extension option of up to a maximum of 12 months) must be provided for, thus putting debtors in a position to negotiate a restructuring plan. During this time period, the performance of executory contracts cannot be withheld solely due to non-payment; Minimum requirements for a restructuring plan include an outline of the contemplated restructuring measures, effects on the workforce, as well as the prospects that insolvency can be prevented on the basis of such measures; Restructuring measures contemplated by the Directive are wide ranging and include a change in the composition of a debtor’s assets and liabilities, a sale of assets or of the business as a going concern, as well as necessary operational changes; Voting on the restructuring plan is generally effected by separate classes of creditors in each case with a majority requirement of not more than 75%. Cross-class cram down will be available subject to certain conditions including (i) a majority of creditor classes (including secured creditors) voted in favor and (ii) dissenting creditors are treated at least equal to their pari passu creditors (or better than creditors ranking junior). In addition, the restructuring plan must be approved by either a judicial or administrative authority in order to be binding on dissenting voting classes. Such approval is also required in the event of new financing or when the workforce is reduced by more than 25%. Member states have until July 17, 2021 to implement the Directive into domestic law (subject to a possible extension of up to one year), but considering the multiple alternative options the Directive leaves to member states, discussions on how to best align existing domestic laws with the requirements of the Directive have already started. Ultimately, the success of the Directive depends on the willingness of the member states to implement a truly effective pre-insolvency framework. The inbuilt flexibility and variety of structuring alternatives left to the member states can be an opportunity for Germany to finally enact an out-of-court restructuring scheme beyond the existing debtor in possession (Eigenverwaltung) or protective shield (Schutzschirm) proceedings which, however, currently kick in only at a later stage of financial distress after an insolvency filing has already been made. Back to Top 3.2   Insolvency Contestation in Cash Pool Scenarios One of the noticeable developments in the year 2019 was that inter-company cash-pool systems have increasingly come under close scrutiny in insolvency scenarios. There were several decisions by the German Federal Supreme Court (Bundesgerichtshof, BGH), the most notable one probably a judgment handed down on June 27, 2019 (case IX ZR 167/18) in a double insolvency case where the respective insolvency administrators of an insolvent group company and its insolvent parent and cash pool leader were fighting over the treatment of mutually granted upstream and downstream loans during the operation of a group-wide cash management system that saw multiple loan movements between the two insolvent debtors during the relevant pre-insolvency period. Under applicable German insolvency contestation laws (Insolvenzanfechtung), the insolvency administrator of the insolvent subsidiary has the right to contest any shareholder loan repayments or equivalent payments made to its parent as shareholder and pool leader within a period of one year prior to the point in time when the insolvency filing petition is lodged. The rationale of this rule is to protect the insolvent estate and regular unsecured trade creditors from pre-insolvency payments to shareholders who in an insolvency would only be ranked as subordinated creditors. The contestation right – if successful – allows the insolvency administrator to claw back from shareholders such earlier repayments to boost the funds available for distribution in the insolvency proceedings. In cases such as the one at hand where the cash pool was operated in a current account system resulting in multiple cash payments to and from the pool leader, the parent’s potential exposure could have grown exponentially if the insolvency administrator of the subsidiary could have simply added up all loan repayments made within the last year, irrespective of the fact that the pool leader, in turn, regularly granted new down-stream loan payments to the subsidiary as and when liquidity was needed. In one of the main conclusions of the judgment, the BGH confirmed the calculation mechanism for the maximum amount that can be contested and clawed back in scenarios such as this: The court, in this respect, does not simply add up all loan repayments in the last year. Instead, it uses the historic maximum amount of the loans permanently repaid within the one-year contestation period as initial benchmark and then deducts the outstanding amounts still owed by the insolvent subsidiary at the end of the contestation period. Interim fluctuations, where further repayments to the pool leader occurred, are deemed immaterial if they have been re-validated by new subsequent downstream loans. Consequently, the court limits the exposure of the pool leader in current account situations to the balance of loans, not by way of a simple addition of all repayments. In a second clarification, the BGH decreed that customary, arm’s length interest charged by the pool leader to the insolvent subsidiary for its downstream loans and then paid to the shareholder as pool leader are not qualified as a “payment equivalent to a loan repayment”, because interest is an independent compensation for the downstream loan, not capital transferred to the lender for temporary use. Beyond the specifics of the decision, the increased focus of the courts on cash pools in crisis situations should cause larger groups of companies that operate such group-wide cash management systems to revisit the underlying contractual arrangements to ensure that participating companies and the pool leader have adequate mutual early warning systems in place, as well as robust remedies and/or withdrawal rights to react as early as possible to the deterioration of the financial position of one or several cash pool participants. Even though the duration of the one-year contestation period will often mean that even carefully and appropriately drafted cash pooling documentation cannot always preempt or avoid all risk in a later financial crisis, at least, the potential personal liability risks for management which go beyond the mere contestation risk can be mitigated and addressed this way. Back to Top 4.   Labor and Employment 4.1   De-Facto Employment – A Rising Risk for Companies A widely-noticed court decision by the Federal Social Court (Bundessozialgericht) (judgment of June 4, 2019 – B12 R11 11/18 R) on the requalification of freelancers as de-facto employees has potentially increased risks to companies who employ freelancers. In this decision, the court requalified physicians officially working as “fee doctors” in hospitals as de-facto employees, because they were considered as integrated into the hospital hierarchy, especially due to receiving instructions from other doctors and the hospital management. While this decision concerned physicians, it found wide interest in the general HR community, as it tightened the leeway for employing freelancers. This aspect is particularly important for companies in Germany, as there is a war for talent, particularly with respect to engineers and IT personnel. These urgently sought-after experts are in high demand and therefore often able to dictate the contractual relationships. In this respect, they often prefer a freelancer relationship, as it is more profitable for them and gives them the opportunity to also work for other (even competing) companies. Against the background of this decision, every company would be well advised to review very thoroughly, whether a “freelancer” is really free of instructions regarding the place of work, the working hours, and the details of the work to be done. Otherwise, the potential liability for the company – both civil and criminal – is considerable if freelancers are deemed to be de-facto employees. Back to Top 4.2   New Constraints for Post-Contractual Non-Compete Covenants A recently published decision by the Higher District Court (Oberlandesgericht) of Munich has restricted the permissible scope of post-contractual non-compete covenants for managing directors (decision of August 2, 2018 – 7 U 2107/18). The court held that such restrictions are only valid if and to the extent they are based upon a legitimate interest of the company. In addition, their scope has to be explicitly limited in the respective wording tailored to the individual case. This court decision is important, because, unlike for “regular” employees, post-contractual non-compete agreements for managing directors are not regulated by statutory law. Therefore, every company should, in a first step, carefully review whether a post-contractual non-compete is really necessary for the relevant managing director. If it is deemed to be indispensable, the wording should be carefully drafted according to the above-mentioned principles. Back to Top 4.3   ECJ Judgments on Vacation and Working Hours The European Court of Justice (ECJ) has handed down two employee-friendly decisions regarding (a) the forfeiture of entitlement to vacation and (b) the control of working hours (case C-684/16, judgment of November 6, 2018 and case C-55/18, judgment of May 14, 2019). According to the first decision, employee vacation entitlement cannot simply be forfeited due to the lapse of time, even if such a forfeiture is stipulated by national statutory law. Rather, the employer has an obligation to actively notify employees of their outstanding entitlement to vacation and encourage them to take their remaining vacation. In the other decision, the ECJ demanded that the company establish a system to control and document all the working hours of its employees, not only those exceeding a certain threshold. In practical terms of the German economy, not all companies currently have such seamless time control and documentation systems in place. However, until this ECJ judgment is implemented into German statutory law, companies cannot be fined solely based upon the ECJ judgment. Thus, a legislative response to this issue and the court decision must be awaited. Back to Top 5.         Real Estate 5.1   Real Estate – Rent Price Cap concerning Residential Space in Berlin On November 26, 2019, the Berlin Senate (the government of the federal state of Berlin) passed a draft bill for the “Act on Limiting Rents on Berlin’s Residential Market” (Gesetz zur Mietenbegrenzung im Wohnungswesen in Berlin), the so-called Berlin rent price cap (Mietendeckel). It is expected that this bill will be adopted by the Berlin House of Representatives (the legislative chamber of the federal state of Berlin) and come into force in early 2020, with certain provisions of the bill having retroactive effect as of June 18, 2019. This bill shall apply to residential premises in Berlin (with a few exceptions) that were ready for occupancy for the first time before January 1, 2014. The three key instruments of this bill are (a) a rent freeze, (b) the implementation of rent caps and (c) a limit on modernization costs that can be passed on to the tenant. (a)   The rent freeze shall apply to all existing residential leases and shall freeze the rent at the level of the rent on June 18, 2019 (or, if the premises were vacant on that date, the last rent before that date). This rent freeze also applies to indexed rents and stepped rents. As of 2022, landlords shall be entitled to request an annual inflation related rent adjustment, however, capped at 1.3% p.a.. Prior to entering into a new residential lease agreement, the landlord must inform the future tenant about the relevant rent as at June 18, 2019 (or earlier, as applicable). (b)   Depending on the construction year and fit-out standards (with / without collective heating / bathroom), initial monthly base rent caps between EUR 3.92 and EUR 9.80 per square meter (m²) shall apply. These caps shall be increased by 10% for buildings with up to two apartments. Another increase of EUR 1 per m² shall apply with respect to an apartment with “modern equipment”, i.e. an apartment that has at least three of the following five features: (i) barrier-free access to a lift, (ii) built-in kitchen, (iii) “high quality” sanitary fit-out, (iv) “high quality” flooring in the majority of the living space and (v) low energy performance (less than 120 kWh/(m²a). The bill does not contain a definition of what constitutes “high quality”. For new lettings after June 18, 2019 and re-lettings after this bill has come into force, the rent must not exceed the lower of the applicable rent caps and the rent level as of June 18, 2019 (or earlier, as applicable). If the agreed monthly rent as of June 18, 2019 (or earlier) was below EUR 5.02 per m², the re-letting rent may be increased by EUR 1 per m² up to a maximum monthly rent of EUR 5.02 per m². Once the act has been in effect for nine months, the tenants may request the public authorities to reduce the rent of all existing leases to the appropriate level if the rent is considered “extortionate”, i.e. if the rent exceeds the applicable rent cap level (subject to certain surcharges / discounts for the location of the premises) by more than 20% and it has not been approved by public authorities. The surcharges / discounts amount to +74 cents per m² (good location), -9 cents per m² (medium location) and –28 cents per m² (simple location). (c)   Modernization costs shall only be passed on to tenants if they relate to (i) measures required under statutory law, (ii) thermal insulation of certain building parts, (iii) measures for the use of renewable energies, (iv) window replacements to save energy, (v) replacement of the heating system, (vi) new installation of elevators or (vii) certain measures to remove barriers. Such costs can also only be passed on to tenants to the extent that the monthly rent is not increased by more than EUR 1 per m² and the applicable rent cap is not exceeded by more than EUR 1 per m². To cover the remaining modernization costs, landlords may apply for subsidies under additional subsidy programs of the state of Berlin. Any rent increase due to modernization measures is to be notified to the state-owned Investitionsbank Berlin. Breaches of the material provisions of this bill are treated as an administrative offence and may be fined by up to EUR 500,000 in each individual case. Many legal scholars consider the Berlin rent price cap unconstitutional (at least, in parts) for infringing the constitutional property guarantee, the freedom of contract and for procedural reasons. In particular, they raise concerns about whether the state of Berlin is competent to pass such local legislation (as certain provisions deviate from the German Civil Code (BGB) as federal law) and whether the planned retroactive effect is permissible. The opposition in the Berlin House of Representatives and a parliamentary faction on the federal level have already announced that they intend to have the Berlin rent cap reviewed by the Berlin’s Regional Constitutional Court (Verfassungsgerichtshof des Landes Berlin) and the Federal Constitutional Court (Bundesverfassungsgericht). In light of the severe potential fines, landlords should nonetheless consider compliance with the provisions of the Berlin rent price cap until doubts on the constitutional permissibility have been finally clarified. Back to Top 5.2   Changes to the Transparency Register affecting Real Property Transactions Certain aspects of the act implementing the 5th EU Anti-Money Laundering Directive (Directive (EU) 2018/843) which amended the German Anti-Money Laundering Act (GwG) are of particular interest to the property sector. We would, therefore, refer interested circles to the above summary in section 1.4. Back to Top 6.   Compliance and Litigation 6.1   German Corporate Sanctions Act German criminal law so far does not provide for corporate criminal liability. Corporations can only be fined under the law on administrative offenses. In August 2019, the German Federal Ministry of Justice and Consumer Protection (Bundesministerium der Justiz und für Verbraucherschutz) circulated a legislative draft of the Corporate Sanctions Act (Verbandssanktionengesetz, the “Draft Corporate Sanctions Act”) which would, if it became law, introduce a hybrid system. The main changes to the current legal situation would eliminate the prosecutorial discretion in initiating proceedings, tighten the sentencing framework and formally incentivize the implementation of compliance measures and internal investigations. So far, German law grants the prosecution discretion on whether to prosecute a case against a corporation (whereas there is a legal obligation to prosecute individuals suspected of criminal wrongdoing). This has resulted not only in an inconsistent application of the law, in particular among different federal states, but also in a perceived advantageous treatment of corporations over individuals. The Draft Corporate Sanctions Act now intends to introduce mandatory prosecution of infringements by corporations, with an obligation to justify non-prosecution under the law. The law as currently proposed would also apply to criminal offenses committed abroad if the company is domiciled in Germany. Under the current legal regime, corporations can be fined up to a maximum of EUR10 million (in addition to the disgorgement of profits from the legal violation), which is often deemed insufficient by the broader public. The Draft Corporate Sanctions Act plans to increase potential fines to a maximum of 10% of the annual—worldwide and group-wide—turnover, if the group has an average annual turnover of more than EUR100 million. Additionally, profits could still be disgorged. The Draft Corporate Sanctions Act would also introduce two new sanctions: a type of deferred prosecution agreement with the possibility of imposing certain conditions (e.g. compensation for damages and monitorship), and a “corporate death penalty,” namely the liquidation of the company to combat particularly persistent and serious criminal behavior. The Draft Corporate Sanctions Act would also allow the prosecutor to either refrain from pursuing prosecution or to positively take into account in the determination of fines the existence of an adequate compliance system. If internal investigations are carried out in accordance with the requirements set out in the Draft Corporate Sanctions Act (including in particular: (i) substantial contributions to the authorities’ investigation, (ii) formal division of labor between those conducting the internal investigation, on the one hand, and those acting as criminal defense counsel, on the other, (iii) full cooperation, including full disclosure of the investigation and its results to the prosecution, and (iv) adherence to fair trial standards, in particular the interviewee’s right to remain silent in internal investigations), the maximum fine might be reduced by 50%, and the liquidation of the company or a public announcement might be precluded. It is unclear under the current legal regime whether work product created in the context of an internal investigation is protected against prosecutorial seizure. The Draft Corporate Sanctions Act wants to introduce a clarification in this respect: only such documents will be protected against seizure that are part of the relationship of trust between the company as defendant and its defense counsel. Therefore, documents used or created in the preparation of the criminal defense would be protected. Documents from interviews in the context of an internal investigations, however, would only be protected in case they stem from the aforementioned relationship between client and defense counsel. Interestingly, and as mentioned above, the draft law requires that counsel conducting the internal investigation must be separate from defense counsel if the corporation wants to claim a cooperation bonus. How this can be achieved in practice, in particular in an international context where criminal defense counsel is often expected to conduct the internal investigation and where the protection of legal privilege may depend on this dual role, is unclear. In particular here, the draft does not seem sufficiently thought-through, and both the legal profession and the business community are voicing strong opposition. Overall, it is doubtful at the moment that the current government coalition, in its struggle for survival, will continue to pursue the implementation of this legislative project as a priority. Therefore, it remains to be seen whether, when, and with what type of amendments the German Corporate Sanctions Act will be passed by the German Parliament. Back to Top 6.2   Amendments to the German Anti-Money Laundering Act: Further Compliance Obligations, including for the Non-Financial Sector On January 1, 2020, the Act implementing the 5th EU Anti-Money Laundering Directive (Directive (EU) 2018/843) became effective. In addition to further extending the scope of businesses that are required to conduct anti-money laundering and anti-terrorist financing procedures in accordance with the German Anti-Money Laundering Act (Geldwäschegesetz, GwG), in particular in the area of virtual currencies, it introduced new obligations and stricter individual requirements for persons or entities subject to the GwG obligations (“Obliged Persons”). The new requirements must be taken into account especially in relation to customer onboarding and ongoing anti-money laundering and countering terrorist financing (“AML/CTF”) compliance. The following overview provides a summary of some key changes, in particular, concerning the private non-financial sector, which apply in addition to the specific reporting obligations to the transparency register already described above under section 1.4. The customer due diligence obligations (“KYC”) were further extended and also made more specific. In particular, Obliged Persons are now required to collect proof of registration in the transparency register or an excerpt of the documents accessible via the transparency register (e.g. shareholder lists) when entering into a new business relationship with a relevant entity. In addition, the documentation obligations with regard to the undertaken KYC measures have been further increased and clarified. Further important changes concern the enhanced due diligence measures required in the case of a higher risk of money laundering or terrorist financing, in particular with regard to the involvement of “high-risk countries”. Obliged Persons must now also notify the registrar of the transparency register without undue delay of any discrepancies on beneficial ownership between entries in the transparency register and other information and findings available to them. Obliged Persons must register with the Financial Intelligence Unit (FIU), regardless of whether they intend to report a suspicious activity, as soon as the FIU’s new information network starts its operations, but no later than January 1, 2024. In accordance with the findings of the First National Risk Assessment, the duties for the real estate sector were significantly extended and increased. Real estate agents are now also subject to the AML/CTF risk management requirements of the GwG and are required to conduct customer due diligence when they act as intermediaries in the letting of immovable property if the monthly rent amounts to EUR 10,000 or more. Furthermore, notaries are now explicitly required to check the conclusiveness of the identity of the beneficial owner before notarizing a real estate purchase transaction in accordance with section 1 of the German Federal Real Estate Transfer Tax Act (Grunderwerbsteuergesetz) and may even be required to refuse notarization, see also section 1.4 above on the transparency register. In an effort towards a more uniform EU-wide approach with regard to politically exposed persons (“PEPs”), EU member states must submit to the EU Commission a catalogue of specific functions and offices which under the relevant domestic law justify the qualification as PEP by January 10, 2020. The EU Commission will thereafter publish a consolidated catalogue, which will be binding for Obliged Persons when determining whether a contractual partner or beneficial owner qualifies as PEP with the consequence that enhanced customer due diligence applies. Furthermore, the new law brought some clarifications by changing or introducing definitions, including in particular a new self-contained definition for the term “financial company”. For example, the legislator made clear that industrial holdings are not subject to the duties of the GwG: Any holding companies which exclusively hold participations in companies outside of the credit institution, financial institution or insurance sector do not qualify as financial companies under the GwG, unless they engage in business activities beyond the tasks associated with the management of their participations. That said, funds are not explicitly excluded from the definition of financial companies – and since their activities generally also include the acquisition and sale of participations, it is often questionable whether the exemption for holding companies applies. Another noteworthy amendment concerns the group-wide compliance obligations in section 9 of the GwG: the amended provision now distinguishes (more) clearly between obligations applicable to an Obliged Person that is the parent company of a group and the other members of the group. The amendments to the GwG have further intensified the obligations not only for the classical financial sector but also the non-financial sector. Since the amendments entered into force on January 1, 2020, the relevant business circles are well advised to review whether their existing AML/CTF risk management system and KYC procedures need to be adjusted in order to comply with the new rules. Back to Top 6.3   First National Risk Assessment on the Money Laundering and Terrorist Financing Risk for Germany – Implications for the Company-Specific Risk Analyses The first national risk assessment for the purposes of combatting money laundering and terrorist financing (“NRA”) was finally published on the website of the German Federal Ministry of Finance (Bundesministerium der Finanzen) on October 21, 2019 (currently in German only). When preparing their company-specific risk analyses under the GwG, Obliged Persons must now take into consideration also the country-, product- and sector-specific risks identified in the NRA. Germany as a financial center is considered a country with a medium-high risk (i.e. level 4 of a five-point scale from low to high) of being abused for money laundering and terrorist financing. The NRA identifies, in particular, the following key risk areas: anonymity in transactions, the real estate sector, the banking sector (in particular, in the context of correspondent banking activities and international money laundering) and the money remittance business due to the high cash intensity and cross-border activities. With regard to specific cross-border concerns, the NRA has identified eleven regions and states that involve a high risk of money laundering for Germany: Eastern Europe (particularly Russia), Turkey, China, Cyprus, Malta, the British Virgin Islands, the Cayman Islands, Bermuda, Guernsey, Jersey and the Isle of Man. Separately, a medium-high cross-border threat was identified for Lebanon, Panama, Latvia, Switzerland, Italy and Great Britain, and a further 17 countries were qualified as posing a medium, medium-low or low threat with regard to money laundering. The results of the NRA (including the assessment of cross-border threats in its annex 4) need to be taken into consideration by Obliged Persons both of the financial and non-financial sector when preparing or updating their company-specific risk analyses in a way that allows a third party to assess how the findings of the NRA were accounted for. Obliged Persons (in particular, if supervised by the BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht) or active in other non-financial key-risk sectors), if they have not already done so, should thus conduct a timely review, and document such a review, of whether the findings of the NRA require an immediate update to their risk assessment or whether they consider an adjustment in the context of their ongoing review. Back to Top 7.   Antitrust and Merger Control 7.1   Antitrust and Merger Control Overview 2019 Germany’s antitrust watchdog, the German Federal Cartel Office (Bundeskartellamt), has had another very active year. On the cartel enforcement side, the Bundeskartellamt concluded several cartel investigations and imposed fines totaling EUR 848 million against 23 companies or associations and 12 individuals from various industries including bicycle wholesale, building service providers, magazines, industrial batteries and steel. As in previous years, leniency applications continue to play an important role for the Bundeskartellamt‘s antitrust enforcement activities with a total of 16 leniency applications received in 2019. With these applications and dawn raids at 32 companies, it can be expected that the agency will have significant ammunition for an active year in 2020 in terms of antitrust enforcement. With respect to merger control, the Bundeskartellamt reviewed approximately 1,400 merger filings in 2019. 99% of these filings were concluded during the one-month phase 1 review. Only 14 merger filings (i.e. 1% of all merger filings) required an in-depth phase 2 examination. Of those, four mergers were prohibited and five filings were withdrawn – only one was approved in phase 2 without conditions, and four phase 2 proceedings are still pending. In addition, the Bundeskartellamt has been very active in the area of consumer protection and concluded its sector inquiry into comparison websites. The agency has also issued a joint paper with the French competition authority regarding algorithms in the digital economy and their competitive effects. For 2020, it is expected that the Bundeskartellamt will conclude its sector inquiry regarding online user reviews as well as smart TVs and will continue to focus on the digital economy. Furthermore, the Bundeskartellamt has also announced that it is hoping to launch the Federal Competition Register for Public Procurement by the end of 2020 – an electronic register that will list companies that have been involved in serious economic offenses. Back to Top 7.2   Competition Law 4.0: Proposed Changes to German Competition Act The German Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie) has compiled a draft bill for the tenth amendment to the German Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen, GWB) that aims at further developing the regulatory framework for digitalization and implementing European requirements set by Directive (EU) 2019/1 of December 11, 2018 by empowering the competition authorities of the member states to be more effective enforcers and to ensure the proper functioning of the internal market. While it is not yet clear when the draft bill will become effective, the most important changes are summarized below. (Super) Market Dominance in the Digital Age Various amendments are designed to help the Federal Cartel Office (Bundeskartellamt) deal with challenges created by restrictive practices in the field of digitalization and platform economy. One of the criteria to be taken into account when determining market dominance in the future would be “access to data relevant for competition”. For the first time, companies that depend on data sets of market-dominating undertakings or platforms would have a legal claim to data access against such platforms. Access to data will also need to be granted in areas of relative market power. Giving up the reference to “small and medium-sized” enterprises as a precondition for an abuse of relative or superior market power takes into account the fact that data dependency may exist regardless of the size of the concerned enterprise. Last but not least, the draft bill refers to a completely new category of “super dominant” market players to be controlled by the Bundeskartellamt, i.e. undertakings with “paramount significance across markets”. Large digital groups may not have significant market shares in all affected markets, but may nevertheless be of significant influence on these markets due to their key position for competition and their conglomerate structures. Before initiating prohibitive actions against such “super dominant” market players, the Bundeskartellamt will have to issue an order declaring that it considers the undertaking to have a “paramount significance across markets”, based on the exemplary criteria set out in the draft bill. Rebuttable Presumptions Following an earlier decision of the German Federal Supreme Court (Bundesgerichtshof, BGH), the draft bill suggests introducing a rebuttable presumption whereby it is presumed that direct suppliers and customers of a cartel are affected by the cartel in case of transactions during the duration of the cartel with companies participating in the cartel. The rebuttable presumption is intended to make it easier for claimants to prove that they are affected by the cartel. Another rebuttable presumption shall apply in favor of indirect customers in the event of a passing-on. However, there is still no presumption for the quantification of damages. Another procedural simplification foreseen in the draft bill is a lessening of the prerequisites to prove an abuse of market dominance. It would suffice that market behavior resulted in an abuse of market dominance, irrespective of whether the market player utilized its dominance for abusive purposes. Slight Increase of Merger Control Threshold The draft bill provides for an increase of the second domestic turnover threshold from EUR 5 million to EUR 10 million. Concentrations would consequently only be subject to filing requirements in the future if, in the last business year preceding the concentration, the combined aggregate worldwide turnover of all the undertakings concerned was more than EUR 500 million, and the domestic turnover of, at least, one undertaking concerned was more than EUR 25 million and that of another undertaking concerned was more than EUR 10 million. This change aims at reducing the burden for small and medium-sized enterprises. The fact that transactions that provide for an overall consideration of more than EUR 400 million may trigger a filing requirement remains unchanged. Back to Top 7.3   “Undertakings” Concept Revisited – Parents Liable for their Children? Following the Skanska ruling of the European Court of Justice (ECJ) earlier this year (case C-724/17 of March 14, 2019) , the first German court decisions (by the district courts (Landgerichte) of Munich and Mannheim) were issued in cases where litigants were trying to hold parent companies liable for bad behavior by their subsidiaries. As a reminder: In Skanska, the ECJ ruled on the interpretation of Article 101 of the Treaty on the Functioning of the European Union (TFEU) in the context of civil damages regarding the application of the “undertakings” concept in cases where third parties claim civil damages from companies involved in cartel conduct. The “undertakings” concept, which the ECJ developed with regard to the determination of administrative fines for violations of Article 101 TFEU, establishes so-called parental liability. This means that parent entities may be held liable for antitrust violations committed by their subsidiaries, as long as the companies concerned are considered a “single economic unit” because the parent has “decisive influence” over the offending company and is exercising that influence. The Skanska case extends parental liability to civil damages cases. The decisions by the two German courts in Mannheim and Munich denied a subsidiary’s liability for its parent company, or for another subsidiary, respectively. Back to Top 8.   Data Protection: GDPR Fining Concept Raises the Stakes While some companies are still busy implementing the requirements of the General Data Protection Regulation (the “GDPR”), the German Conference of Federal and State Data Protection Authorities has increased the pressure in October 2019 by publishing guidelines for the determination of fines in privacy violation proceedings against companies (the “Fining Concept”). Even though the Fining Concept may seem technical at first glance, it has far-reaching consequences for the fine amounts, which have already manifested in practice. The Fining Concept applies to the imposition of fines by German Data Protection Authorities within the scope of the GDPR. Since the focus for determining fines is on the global annual turnover of a company in the preceding business year, it is to be expected that fines will increase significantly. For further details, please see our client update from October 30, 2019 on this subject. In the past few months, in particular after the Fining Concept was published, several German Data Protection Authorities already issued a number of higher fines. Most notably, in November 2019 the Berlin Data Protection Authority imposed a fine against a German real estate company in the amount of EUR 14.5 million (approx. USD 16.2 million) for non-compliance with general data processing principles. The company used an archive system for the storage of personal data from tenants, which did not include a function for the deletion of personal data. In December 2019, another fine in the amount of EUR 9.5 million (approx. USD 10.6 million) was imposed by the Federal Commissioner for Data Protection and Freedom of Information against a major German telecommunications service provider for insufficient technical and organizational measures to prevent unauthorized persons from being able to obtain customer information. Many German data protection authorities have announced further investigations into possible GDPR violations and recent fines indicate that the trend towards higher fine levels will continue. This development leaves no doubt that the German Data Protection Authorities are willing to use the sharp teeth that data protection enforcement has received under the GDPR – and leave behind the rather symbolic fine ranges that were predominant in the pre-GDPR era. This is particularly true in light of the foreseeable temptation to use the concept of “undertakings” as developed under EU antitrust laws, which may include parental liability for GDPR violations of subsidiaries in the context of administrative fines as well as civil damages. For further details on the concept of “undertakings” in light of recent antitrust case law, please see above under Section 7.3. Back to Top 9.   IP & Technology On April 26, 2019, the German Trade Secret Act (the “Act”) came into effect, implementing 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. The Act aims at consolidating what has hitherto been a potpourri of civil and criminal law provisions for the protection of trade secrets and secret know-how in German legislation. Besides an enhanced protection of trade secrets in litigation matters, one of the most important changes to the pre-existing rules in Germany is the creation of a new and EU-wide definition of trade secrets. Trade secrets are now defined as information that (i) is secret (not publicly known or easily available), (ii) has a commercial value because it is secret, (iii) is subject to reasonable steps to keep it secret, and (iv) there is a legitimate interest to keeping it secret. This definition therefore requires the holder of a trade secret to take reasonable measures to keep a trade secret confidential in order to benefit from its protection. To prove compliance with this requirement when challenged, trade secret holders will further have to document and track their measures of protection. This requirement goes beyond the previous standard pursuant to which a manifest interest in keeping an information secret would have been sufficient. There is no clear guidance yet on what is to be understood as “reasonable measures” in this respect. A good indication may be the comprehensive case law developed by U.S. courts when interpreting the requirement of “reasonable efforts” to maintain the secrecy of a trade secret under the U.S. Uniform Trade Secrets Act. Besides a requirement to advise recipients that the information is a confidential trade secret not to be disclosed (e.g. through non-disclosure agreements), U.S. courts consider the efforts of limiting access to a “need-to-know” scope (e.g. through password protection). Another point that is of particular importance for corporate trade secret holders is that companies may be indirectly liable for negligent breaches of third-party trade secrets by their employees. Enhanced liability risks may therefore result when hiring employees who were formerly employed by a competitor and had access to the competitor’s trade secrets. Reverse engineering of lawfully acquired products is now explicitly considered a lawful means of acquiring information, except when otherwise contractually agreed. Previously, reverse engineering was only lawful if it did not require considerable expense. To avoid disclosing trade secrets that form part of a product or object by surrendering prototypes or samples, contracts should provide for provisions to limit the acquisition of the trade secret. In a nutshell, companies would be well advised to review their internal policies and procedures to determine whether there are reasonable and sufficiently trackable legal, technical and organizational measures in place for the protection of trade secrets, to observe and assess critically what know-how is brought into an organization by lateral hires, and to amend contracts for the surrender of prototypes and samples as appropriate. Back to Top The following Gibson Dunn lawyers assisted in preparing this client update: Birgit Friedl, Marcus Geiss, Silke Beiter, Stefan Buehrle, Lutz Englisch, Daniel Gebauer, Kai Gesing, Franziska Gruber, Selina Gruen, Dominick Koenig, Markus Nauheim, Mariam Pathan, Annekatrin Pelster, Wilhelm Reinhardt, Sonja Ruttmann, Martin Schmid, Sebastian Schoon, Benno Schwarz, Dennis Seifarth, Ralf van Ermingen-Marbach, Milena Volkmann, Michael Walther, Finn Zeidler, Mark Zimmer 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, financing and restructuring, tax, labor, real estate, antitrust, intellectual property law and extensive compliance / white collar crime and litigation 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 33 170, ffromholzer@gibsondunn.com) Dirk Oberbracht (+49 69 247 411 503, doberbracht@gibsondunn.com) Wilhelm Reinhardt (+49 69 247 411 502, wreinhardt@gibsondunn.com) Birgit Friedl (+49 89 189 33 122, bfriedl@gibsondunn.com) Silke Beiter (+49 89 189 33 170, sbeiter@gibsondunn.com) Annekatrin Pelster (+49 69 247 411 502, apelster@gibsondunn.com) Marcus Geiss (+49 89 189 33 122, mgeiss@gibsondunn.com) Finance, Restructuring and Insolvency Sebastian Schoon (+49 69 247 411 505, sschoon@gibsondunn.com) Birgit Friedl (+49 89 189 33 122, bfriedl@gibsondunn.com) Alexander Klein (+49 69 247 411 505, 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 69 247 411 504, fzeidler@gibsondunn.com) Markus Rieder (+49 89189 33 170, mrieder@gibsondunn.com) Ralf van Ermingen-Marbach (+49 89 18933 130, rvanermingenmarbach@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 69 247 411 504, fzeidler@gibsondunn.com) Markus Rieder (+49 89189 33 170, mrieder@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) Ralf van Ermingen-Marbach (+49 89 18933 130, rvanermingenmarbach@gibsondunn.com) International Trade, Sanctions and Export Control Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Richard Roeder (+49 89 189 33 122, rroeder@gibsondunn.com) © 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

December 23, 2019 |
Two Gibson Dunn Cases Named Among the Top 10 Copyright Rulings of 2019

Two Gibson Dunn wins – for Jerry Seinfeld in Charles v. Seinfeld et al. and for Rimini Street in Rimini Street Inc. et al. v. Oracle USA Inc. – were named among Law360’s “Top 10 Copyright Rulings of 2019.” Gibson Dunn’s win for HPE in Oracle America Inc. et al. v. Hewlett Packard Enterprise Co. et al. was also mentioned among the “10 More You Should Know.” The list was published on December 20, 2019. Gibson Dunn’s Intellectual Property Practice Group’s lawyers offer strategic insights and solutions to companies facing complex intellectual property issues.  We understand that such issues must be considered in the context of larger business needs and interests.  We partner with our clients to develop strategies that effectively and efficiently advance and protect their interests.  We have deep capabilities across all categories of IP litigation and transactional matters, including patents, trademark, trade dress, false advertising, anti-dilution, counterfeiting, copyright, trade secrets, and unfair competition.

December 19, 2019 |
2018/2019 Federal Circuit Year in Review

We are pleased to present Gibson Dunn’s seventh “Federal Circuit Year In Review,” providing a statistical overview and substantive summaries of the 115 precedential patent opinions issued by the Federal Circuit over the 2018-2019 year.  This term was marked by two en banc decisions, as well as significant panel decisions in patent law jurisprudence with regard to subject matter eligibility (e.g., Athena Diagnostics, Inc. v. Mayo Collaborative Services, LLC, 915 F.3d 743 (Fed. Cir. 2019), and Cellspin Soft, Inc. v. Fitbit, Inc., 927 F.3d 1306 (Fed. Cir. 2019)), venue for patent cases (e.g., In re Google, 914 F.3d 1377 (Fed. Cir. 2019)), and the application of IPR proceedings to pre-AIA patents (Celgene Corp. v. Peter, 931 F.3d 1342 (Fed. Cir. 2019)).  The issues most frequently addressed in precedential decisions by the Court over the last year were: obviousness (38 opinions); claim construction (31 opinions); infringement (20 opinions); subject matter eligibility (16 opinions); and PTO procedures (15 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 on those issues in the past. 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), 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) Omar F. Amin – Washington, D.C. (+1 202-887-3710, oamin@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: Allyson N. Ho – Dallas (+1 214-698-3233, aho@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) © 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.

December 11, 2019 |
California Legislation Increases Antitrust Scrutiny of Patent Settlements between Branded and Generic Pharmaceutical Manufacturers

Click for PDF On October 7, 2019, California enacted Assembly Bill 824 (AB 824)[1] in an effort to increase antitrust scrutiny of patent settlement agreements between branded and generic pharmaceutical manufacturers. The focus of the legislation is on settlements of patent infringement litigation brought under the Hatch-Waxman Act[2] that include a so-called “reverse payment,” i.e., where the generic manufacturer receives a cash payment or some other form of consideration from the branded manufacturer. AB 824 also, however, expressly covers settlements of patent litigation brought under the Biologics Price Competition and Innovation Act (BPCIA). The California legislation threatens to greatly complicate the settlement of these actions and we recommend that any branded or generic manufacturer involved in such matters carefully consider and take account of such legislation. Increased Burdens on Defense. AB 824 seeks to make it more difficult for parties to defend patent settlements with “reverse payments” by shifting the burdens of proof. Under the U.S. Supreme Court’s opinion in FTC v. Actavis, the plaintiff bears the burden of demonstrating that the settlement contains a “large and unjustified” reverse payment and an overall “anticompetitive effect.”[3] Only upon such a showing would the burden shift to the settling parties to demonstrate the agreement’s pro-competitive merit. Under AB 824, however, once an antitrust plaintiff or enforcement body shows that the generic manufacturer agrees to limit or delay its market entry and receives “anything of value” in the patent settlement, anticompetitive effects are presumed and the burden is shifted to the settling parties to show the settlement agreement in question is procompetitive.[4] The settling parties may seek to rebut the presumption of anticompetitive effects by demonstrating that the procompetitive effects of the settlement outweigh any anticompetitive effects, or that the value received by the generic manufacturer was “fair and reasonable compensation solely for other goods and services” that the generic has agreed to provide the branded manufacturer.[5] The legislation also contains several other presumptions that are designed to make it more difficult for the settling parties to argue that their agreement was innocuous and/or had no material effect on competition. ”Anything of Value.” AB 824 defines “anything of value” broadly to include exclusive licenses and so-called “no authorized generic” provisions wherein the branded manufacturer agrees not to market or license an authorized generic during a negotiated period of time.[6] But it expressly excludes several categories of payments or agreements including licenses to market a generic version of a drug before expiration of a listed patent, acceleration clauses based on the NDA holder marketing a different dosage strength or form, waiver of damages accrued from an at-risk launch of the generic drug, and, “reasonable future litigation expenses” that have been previously documented.[7] These exceptions could prove useful in litigation and parties negotiating such settlements will likely want to carefully consider whether their proposed settlements fit within these apparent safe harbors Civil Penalties and Potential for Individual Liability. AB 824 purports to increase parties’ existing exposure under California antitrust and unfair competition law by providing for civil penalties of $20 million or more. Of perhaps greatest concern is that AB 824 could potentially be read to permit those civil penalties to be applied to individuals at the involved companies who “participate” or “assist” in its violation.[8] Retroactivity. A question might be raised as to whether AB 824 could be applied to settlement agreements reached before its enactment. Statutes (especially those that include penalties), are generally presumed to be prospective only, and AB 824 has an effective date of January 1, 2020. There is therefore good reason to believe that AB 824 should not be interpreted to apply retroactively, although the statute is silent on this point. Constitutional? The legislation’s broad sweep—and its departure from the standards set forth by the Supreme Court under federal law—raises serious questions as to whether the statute violates the U.S. Constitution. Although the legislation has provisions that purport to limit its application to agreements within California’s jurisdictional reach, in practice the standards and penalties it provides are likely to effectively regulate the content of almost any patent settlement in the U.S. between a branded and generic manufacturer given that such settlements typically apply nationally and cannot practically be limited to a particular section of the country.   For this reason, the legislation appears to be vulnerable to a challenge based on the Dormant Commerce Clause of the U.S. Constitution. In a recent development, a lawsuit was filed by a consortium of generic drug manufacturers challenging AB 824 on that and a variety of other constitutional grounds.[9] ________________________    [1]   To be codified at Cal. Health & Safety Code § 134000.    [2]   Drug Price Competition and Patent Term Restoration Act (codified at 21 U.S.C. §§ 355 & 360cc).    [3]   See FTC v. Actavis, Inc., 570 U.S. 136, 158 (2013); see also In re Cipro Cases I & II, 61 Cal. 4th 116, 348 P. 3d 845 (Cal. 2015).    [4]   AB 824 § 134002(a)(1)(A) and (B).    [5]   Id. at § 134002(a)(3)(A).    [6]   Id.    [7]   AB 824 § 134002(a)(2)(A)–(F). “Reasonable future litigation expenses” must be documented in budgets by the Abbreviated New Drug Application (ANDA) holder at least six months prior to the settlement, and cannot exceed the greater of $7,500,000 or 5% of the ANDA holder’s projected revenue for the first three years of sales of its generic, with documentation predating the settlement by at least 12 months. Id. at § 134002 (a)(2)(C)(ii)(I-II).    [8]   Id. at § 134002(e)(1)(A)(i) (“Each person that violates or assists in the violation of this section shall forfeit and pay to the State of California a civil penalty sufficient to deter violations of this section . . . an amount up to three times the value received by the party that is reasonably attributable to the violation of this section, or twenty million dollars ($20,000,000), whichever is greater.”) (emphasis added).    [9]   See Association for Accessible Medicines v. Becerra, No. 19-CV-2281 (E.D. Cal. Nov. 12, 2019). Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Antitrust and Competition practice group, or the following authors: Kristen C. Limarzi – Washington, D.C. (+1 202-887-3518, klimarzi@gibsondunn.com) Eric J. Stock – New York (+1 212-351-2301, estock@gibsondunn.com) Please also feel free to contact any of the following practice group members: Antitrust and Competition Group: Washington, D.C. D. Jarrett Arp (+1 202-955-8678, jarp@gibsondunn.com) Adam Di Vincenzo (+1 202-887-3704, adivincenzo@gibsondunn.com) Scott D. Hammond (+1 202-887-3684, shammond@gibsondunn.com) Kristen C. Limarzi (+1 202-887-3518, klimarzi@gibsondunn.com) Joshua Lipton (+1 202-955-8226, jlipton@gibsondunn.com) Richard G. Parker (+1 202-955-8503, rparker@gibsondunn.com) Cynthia Richman (+1 202-955-8234, crichman@gibsondunn.com) Jeremy Robison (+1 202-955-8518, wrobison@gibsondunn.com) Chris Wilson (+1 202-955-8520, cwilson@gibsondunn.com) New York Eric J. Stock (+1 212-351-2301, estock@gibsondunn.com) Los Angeles Daniel G. Swanson (+1 213-229-7430, dswanson@gibsondunn.com) Samuel G. Liversidge (+1 213-229-7420, sliversidge@gibsondunn.com) Jay P. Srinivasan (+1 213-229-7296, jsrinivasan@gibsondunn.com) Rod J. Stone (+1 213-229-7256, rstone@gibsondunn.com) San Francisco Rachel S. Brass (+1 415-393-8293, rbrass@gibsondunn.com) Dallas Veronica S. Lewis (+1 214-698-3320, vlewis@gibsondunn.com) Mike Raiff (+1 214-698-3350, mraiff@gibsondunn.com) Brian Robison (+1 214-698-3370, brobison@gibsondunn.com) Robert C. Walters (+1 214-698-3114, rwalters@gibsondunn.com) Brussels Peter Alexiadis (+32 2 554 7200, palexiadis@gibsondunn.com) Jens-Olrik Murach (+32 2 554 7240, jmurach@gibsondunn.com) Christian Riis-Madsen (+32 2 554 72 05, criis@gibsondunn.com) Lena Sandberg (+32 2 554 72 60, lsandberg@gibsondunn.com) David Wood (+32 2 554 7210, dwood@gibsondunn.com) Munich Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) London Patrick Doris (+44 20 7071 4276, pdoris@gibsondunn.com) Charles Falconer (+44 20 7071 4270, cfalconer@gibsondunn.com) Ali Nikpay (+44 20 7071 4273, anikpay@gibsondunn.com) Philip Rocher (+44 20 7071 4202, procher@gibsondunn.com) Deirdre Taylor (+44 20 7071 4274, dtaylor2@gibsondunn.com) Hong Kong Kelly Austin (+852 2214 3788, kaustin@gibsondunn.com) Sébastien Evrard (+852 2214 3798, sevrard@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.

December 11, 2019 |
Supreme Court Holds That The PTO’s Recovery Of “Expenses” Under The Patent Act Does Not Include Attorney’s Fees

Click for PDF Decided December 11, 2019 Peter v. NantKwest, Inc., No. 18-801 Today, the Supreme Court unanimously held that a provision in the Patent Act requiring the Patent and Trademark Office to recover all “expenses” from a patent applicant who challenges the denial of a patent application does not permit the recovery of attorney’s fees. Background: Section 145 of the Patent Act allows a patent applicant to challenge an adverse decision of the Patent and Trademark Office (“PTO”) in federal district court. The applicant, however, must pay the PTO “[a]ll the expenses of the proceedings” regardless whether the applicant prevails. 35 U.S.C. § 145.  NantKwest sued the PTO Director under Section 145 to challenge the denial of its patent application. After the district court granted summary judgment to the PTO and the Federal Circuit affirmed, the PTO moved for reimbursement of “expenses” under Section 145. For the first time in the 170-year history of Section 145, the PTO sought reimbursement for the pro rata salaries of its in-house attorneys and a paralegal who worked on the case. The district court declined the PTO’s request, holding that the word “expenses” in Section 145 is not clear enough to rebut the “American Rule”—the background principle that each party is responsible for its own attorney’s fees. On appeal, the Federal Circuit initially concluded that the PTO was entitled to attorney’s fees, but on rehearing en banc, affirmed the district court’s decision and denied the PTO’s fee request. Issue: Whether the Patent Act provision requiring a patent applicant to pay “[a]ll the expenses of the proceedings” incurred by the PTO in an action under 35 U.S.C. § 145 authorizes the PTO to recover the salaries of its in-house legal personnel. Court’s Holding: No. The term “expenses of the proceedings” in Section 145 does not encompass the salaries of the PTO’s in-house legal personnel because that language is not a clear enough indication of congressional intent to overcome the background American Rule presumption against fee shifting. “[T]he term ‘expenses’ alone has never been considered to authorize an award of attorney’s fees with sufficient clarity to overcome the American Rule presumption.” Justice Sotomayor, writing for the unanimous Court What It Means: The Court’s ruling means that unsuccessful challengers under Section 145 of the Patent Act should not be required to pay the attorney’s fees of PTO lawyers and legal staff, thus limiting the possible costs of litigating actions under Section 145. A statutory provision providing for the recovery of “expenses” alone generally does not authorize the recovery of attorney’s fees. The Court’s holding also likely prevents the PTO from collecting attorney’s fees from applicants challenging the denial of trademark registration under 15 U.S.C. § 1071(b)—the Lanham Act’s similarly worded analogue to Section 145. Beyond the Lanham Act, the collateral consequences of the Court’s holding are likely to be limited.  At oral argument, the PTO stated that it was aware of no other federal cost-shifting provision that uses the word “expenses” standing alone. More broadly, the Court’s opinion reaffirms that the American Rule presumption against fee shifting applies to all statutes, even those (like Section 145) that require expenses or costs to be shifted to unsuccessful litigants. 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 Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com Mark A. Perry +1 202.887.3667 mperry@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 Howard S. Hogan +1 202.887.3640 hhogan@gibsondunn.com

November 5, 2019 |
Appointment of Administrative Patent Judges Held Unconstitutional

Click for PDF On October 31, 2019, the United States Court of Appeals for the Federal Circuit held that the statutory scheme of appointing Patent Trial and Appeal Board (PTAB) Administrative Patent Judges (APJs) violates the Appointments Clause of the United States Constitution. The court in Arthrex, Inc. v. Smith & Nephew, Inc., No. 18-2140, 2019 WL 5616010 (Fed. Cir. Oct. 31, 2019), ruled that APJs are “principal officers” because neither the Secretary of Commerce nor the Director of the PTO (the two executive branch officials who appoint and monitor APJs) “exercises sufficient direction and supervision over APJs to render them inferior officers.” Id. at *4. APJs are appointed by the Secretary of Commerce, whereas the Constitution requires principal officers to be appointed by the President with the advice and consent of the Senate. To cure the identified constitutional violation, the Arthrex court held that the Director of the PTO must be permitted to remove APJs without cause. This, the court held, allows APJs to be prospectively classified as inferior officers (and hence, appropriately appointed by the Secretary of Commerce). Without reaching the merits of the appeal before it, the Arthrex panel vacated and remanded the Board’s decision that twelve of Arthrex’s patent claims were anticipated. This decision could have substantial impact on pending proceedings before the PTAB as well as pending appeals from PTAB final written decisions and related district court actions. I. The Federal Circuit’s Decision Set forth below is a summary of the governing Supreme Court case law interpreting the Appointments Clause, the Federal Circuit’s decision that the APJs are principal officers under the Appointments Clause, and the court’s severance analysis and imposed remedy. The Appointments Clause. The Appointments Clause provides in pertinent part that the President shall nominate, and by and with the Advice and Consent of the Senate, shall appoint . . . all . . . Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: but the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments. U.S. Const. art. II, § 2, cl. 2. The Supreme Court applies a two-part framework to identify “Officers of the United States,” who are subject to the Appointments Clause, and to distinguish them from mere “employees,” who are not. First, “an individual must occupy a ‘continuing’ position established by law to qualify as an officer.” Lucia v. SEC, 138 S. Ct. 2044, 2051 (2018) (quoting United States v. Germaine, 99 U.S. 508, 511 (1878)). Second, the individual must “exercis[e] significant authority pursuant to the laws of the United States.” Id. (quoting Buckley v. Valeo, 424 U.S. 1, 126 (1976) (per curiam)). In Buckley v. Valeo, the Supreme Court held that members of the Federal Election Commission qualified as officers of the United States because they exercised “extensive rulemaking and adjudicative powers,” including the authority to enforce campaign finance law through civil lawsuits and to disqualify candidates for federal office. 424 U.S. at 110–12, 126. In Freytag v. Commissioner, 501 U.S. 868 (1991), the Court held that Special Trial Judges appointed by the Chief Judge of the Tax Court were officers by virtue of their “significant authority” to “take testimony, conduct trials, rule on the admissibility of evidence, and . . . enforce compliance with discovery orders.” Id. at 881–82. Most recently, in Lucia v. SEC, the Court held that Administrative Law Judges (ALJs) of the Securities and Exchange Commission were officers of the United States, because the ALJs were essentially indistinguishable from—“near carbon-copies of”—the Special Trial Judges addressed in Freytag. 138 S. Ct. at 2052. For that reason, the Court found it unnecessary to elaborate on the “significant authority” test applied in Buckley and Freytag, although several Justices wrote separately to suggest modifications of the standard. See id. at 2056 (Thomas, J., joined by Gorsuch, J., concurring); id. at 2057 (Breyer, J., concurring in the judgment in part and dissenting in part); id. at 2064 (Sotomayor, J., joined by Ginsburg, J., dissenting). The Supreme Court also has addressed the Appointments Clause’s further distinction between principal officers (who must be appointed by the President and confirmed by the Senate) and inferior officers (whose appointment Congress may vest elsewhere). “Generally speaking, the term ‘inferior officer’ connotes a relationship with some higher ranking officer or officers below the President: Whether one is an ‘inferior’ officer depends on whether he has a superior,” meaning that one’s “work is directed and supervised at some level by others who were appointed by Presidential nomination with the advice and consent of the Senate.” Edmond v. United States, 520 U.S. 651, 662–63 (1997). Thus, the Court held in Edmond v. United States that judges of the Coast Guard Court of Criminal Appeals are inferior officers “by reason of the supervision over their work exercised by the General Counsel of the Department of Transportation in his capacity as Judge Advocate General and the Court of Appeals for the Armed Forces.” 520 U.S. at 666. Although these superiors did not exercise “complete” control over the judges’ work, the Court found two factors particularly significant: the superiors had the power to “remove a Court of Criminal Appeals judge from his judicial assignment without cause,” and the judges had “no power to render a final decision on behalf of the United States unless permitted to do so by other Executive officers.” Id. at 664–65. The Court more recently applied the same approach to members of the Public Company Accounting Oversight Board in Free Enterprise Fund v. Public Company Accounting Oversight Board, 561 U.S. 477 (2010). “Given that the [Securities and Exchange] Commission is properly viewed, under the Constitution, as possessing the power to remove Board members at will, and given the Commission’s other oversight authority,” the Court in Free Enterprise Fund had “no hesitation in concluding that under Edmond the Board members are inferior officers.” Id. at 510. In the past, the Supreme Court emphasized that it had “not set forth an exclusive criterion” or a “definitive test” to distinguish principal from inferior officers. Edmond, 520 U.S. at 661. Besides control and supervision by a superior, other factors indicating inferior status may include an individual’s “limited duties,” “narrow” jurisdiction, and “limited” tenure. Id. (citing Morrison v. Olson, 487 U.S. 654, 671–72 (1988)). In Free Enterprise Fund, however, the Court’s analysis rested exclusively on the control-and-supervision question that Edmond identified as “[g]enerally” controlling. 561 U.S. at 510. Some have read the Court’s cases since Edmond as implicitly repudiating the previous multifactor approach. See, e.g., NLRB v. SW Gen., Inc., 137 S. Ct. 929, 947 n.2 (2017) (Thomas, J., concurring); Aurelius Inv., LLC v. Puerto Rico, 915 F.3d 838, 860 n.15 (1st Cir.), cert. granted, 139 S. Ct. 2738 (2019); Intercollegiate Broad. Sys., Inc. v. Copyright Royalty Bd., 684 F.3d 1332, 1337 (D.C. Cir. 2012), cert. denied, 133 S. Ct. 2735 (2013). For now, control and supervision appear to be the predominant criteria that distinguish inferior officers under the Appointments Clause. In particular, the precedents in this area have often focused on the ability to remove subordinates from office: “[t]he power to remove officers, we have recognized, is a powerful tool for control.” Edmond, 520 U.S. at 664. Even beyond the question of principal or inferior officer status, the availability of removal has broad implications rooted in the separation of powers. For example, the Supreme Court in Free Enterprise Fund interpreted Article II’s vesting clause to prohibit the statutory institution of “multilevel protection from removal,” which would restrict the President’s “ability to remove a principal officer, who is in turn restricted in his ability to remove an inferior officer, even though that inferior officer determines the policy and enforces the laws of the United States.” 561 U.S. at 484. Here, as in the Appointments Clause cases, removal is ultimately important as a means to ensure accountability: “The President cannot ‘take Care that the Laws be faithfully executed’ if he cannot oversee the faithfulness of the officers who execute them.” Id. APJs as Principal Officers. The Arthrex panel had little trouble concluding that APJs are officers of the United States, like the Special Trial Judges in Freytag and the ALJs in Lucia, because they exercise significant authority to conduct inter partes review and issue final written decisions on patentability. Indeed, no party disputed that conclusion. Arthrex, 2019 WL 5616010, at *3. The more difficult question was whether APJs are “principal” or “inferior” officers. Congress vested appointment of APJs in the Secretary of Commerce—the Head of a Department under the Appointments Clause—in consultation with the Director of the PTO. 35 U.S.C. § 6(a). As a result, the APJs’ appointment is constitutional only if APJs are inferior officers (because, if they are principal officers, presidential nomination and Senate confirmation would be required). But the panel held that, “in light of the rights and responsibilities in Title 35, APJs are principal officers.” Arthrex, 2019 WL 5616010, at *3. Applying the Supreme Court’s precedents in Edmond and Free Enterprise Fund, the panel noted that “[t]he only two presidentially-appointed officers that provide direction to the PTO are the Secretary of Commerce and the Director,” and concluded that “[n]either of those officers individually nor combined exercises sufficient direction and supervision over APJs to render them inferior officers.” Id. at *4. As the panel read the governing precedents, “[t]he extent of direction or control in that relationship is the central consideration, as opposed to just the relative rank of the officers, because the ultimate concern is ‘preserv[ing] political accountability.’” Arthrex, 2019 WL 5616010, at *4 (second alteration in original) (quoting Edmond, 520 U.S. at 663). In particular, the panel understood Edmond as “emphasiz[ing] three factors” that are “strong indicators of the level of control and supervision appointed officials have over the officers and their decision-making”: (1) whether an appointed official has the power to review and reverse the officers’ decision; (2) the level of supervision and oversight an appointed official has over the officers; and (3) the appointed official’s power to remove the officers. Arthrex, 2019 WL 5616010, at *4. The panel borrowed this three-part formulation from the D.C. Circuit’s decision in Intercollegiate Broadcasting System, Inc. v. Copyright Royalty Board, which applied the test to hold that Copyright Royalty Judges are principal officers under Edmond. 684 F.3d at 1338–40. In Arthrex, the panel determined that the first and third control-and-supervision factors supported the conclusion that APJs are principal officers, while the second did not. As to the first factor, “[n]o presidentially-appointed officer has independent statutory authority to review a final written decision by the APJs before the decision issues on behalf of the United States.” Arthrex, 2019 WL 5616010, at *4. Although the Director may influence or control various aspects of the process of inter partes review, that official conspicuously lacks “sole authority to review or vacate any decision by a panel of APJs.” Id. at *5. That distinction made Arthrex “critically different from the [situation] in Edmond,” where superior officers possessed authority to reverse and order review of decisions by the military judges at issue, who had “no power to render a final decision on behalf of the United States unless permitted to do so by other Executive officers.” Id. at *5 (internal quotation omitted). The Arthrex panel accordingly counted the first factor in support of the conclusion that APJs are principal officers. On the other hand, the second factor weighed in favor of finding the APJs to be inferior officers, because, in the panel’s view, the PTO Director “exercises a broad policy-direction and supervisory authority over the APJs.” Arthrex, 2019 WL 5616010, at *5. That authority includes powers to issue policy directives guiding APJs’ decisionmaking, designate PTAB decisions as precedential and hence binding on future APJ panels, institute inter partes review, designate the panel of judges to decide each review, and adjust APJs’ pay. Id. at *5–6. The Arthrex panel deemed this oversight comparable to the supervisory authority exercised over the military judges in Edmond and the Copyright Royalty Judges in Intercollegiate. However, the third factor reinforced the Arthrex panel’s conclusion that APJs are principal officers. The governing statute provided that APJs “may be removed ‘only for such cause as will promote the efficiency of the service,’” meaning that none of their superiors possessed “unfettered removal authority” over them. Arthrex, 2019 WL 5616010, at *7 (quoting 5 U.S.C. § 7513(a)). The government, which had intervened in the case, argued that the governing statute implicitly granted the Director the power to “de-designate” APJs assigned to particular panels, as a corollary to the statutory power to designate inter partes panel membership in the first instance. But the Arthrex panel expressed reluctance to read the statute as granting that power, which it feared “could create a Due Process problem.” Id. at *6 & n.3. In any event, the panel held that the existence of such authority “would not change the outcome,” because “[t]he Director’s authority to assign certain APJs to certain panels is not the same as the authority to remove an APJ from judicial service without cause”—a much more “powerful” form of control, present in Edmond and lacking here. Id. On balance, the Arthrex panel concluded that the relative lack of effective control and supervision over APJs qualified them as principal officers. The panel acknowledged the possible relevance of other factors beyond the three-part test distilled from Edmond, but found such factors “completely absent here”: “the APJs do not have limited tenure, limited duties, or limited jurisdiction.” Arthrex, 2019 WL 5616010, at *8. In sum, like the Copyright Royalty Judges in Intercollegiate, “the control and supervision of the APJs is not sufficient to render them inferior officers.” Id. “As such, they must be appointed by the President and confirmed by the Senate; because they are not, the current structure of the Board violates the Appointments Clause.” Id. Severance and Remedy. Having concluded that the PTAB’s statutory structure violated the Appointments Clause, the Arthrex panel turned to the question of severability. The panel concluded that the “narrowest viable approach to remedying the violation” was to rule the statutory provision of for-cause removal to be unconstitutional as applied to APJs. Arthrex, 2019 WL 5616010, at *9. Specifically, the panel held unconstitutional the application to APJs of 35 U.S.C. § 3(c), which subjects PTO officers and employees to the provisions of title 5 of the United States Code, including the for-cause removal provision in 5 U.S.C. § 7513(a). For-cause removal generally prevents the President or principal officer from removing a subordinate officer for mere differences of opinion on policy, and thus limits the President or principal officer’s ability to control the subordinate. The government had suggested several other possible ways to cure the constitutional violation, but the panel rejected them as untenable under the statutory language and the Supreme Court’s severability precedents. The panel characterized its severability holding as “follow[ing] the Supreme Court’s approach in Free Enterprise Fund” and the D.C. Circuit’s approach in Intercollegiate, both of which cured constitutional violations by “sever[ing] the problematic ‘for-cause’ restriction from the statue rather than holding the larger structure . . . unconstitutional.” Arthrex, 2019 WL 5616010, at *9. As the D.C. Circuit had held in Intercollegiate, the Arthrex panel determined that giving the APJs’ superiors at-will removal power “was enough to render the [APJs] inferior officers,” and so legitimize, prospectively, their appointment by the Secretary (a Department Head) under the Appointments Clause on a prospective basis. Id. “Because the Board’s decision in this case was made by a panel of APJs that were not constitutionally appointed at the time the decision was rendered,” the panel “vacate[d] and remand[ed] the Board’s decision without reaching the merits.” Arthrex, 2019 WL 5616010, at *11. The panel also held that on remand “a new panel of APJs must be designated and a new hearing granted.” Id. at *12. In so doing, the panel cited the remedial holding of Lucia, which directed a new hearing before a different ALJ in part because “Appointments Clause remedies are designed . . . to create ‘[]incentive[s]’ to raise Appointments Clause challenges.” Lucia, 138 S. Ct. at 2055 (alterations in original) (quoting Ryder v. United States, 515 U.S. 177, 183 (1995)). Under Lucia, the panel reasoned, “the remedy is not to vacate and remand for the same Board judges to rubber-stamp their earlier unconstitutionally rendered decision.” Arthrex, 2019 WL 5616010, at *12. However, the panel clarified that the underlying decision to institute the inter partes review “is not suspect” on remand, because the identified constitutional violation did not undermine the Director’s institution authority under 35 U.S.C. § 314. Arthrex, 2019 WL 5616010, at *12. The panel also stated that it saw “no error in the new panel proceeding on the existing written record,” but left “to the Board’s sound discretion whether it should allow additional briefing or reopen the record in any individual case.” Id. In this, the panel once more followed the example of the D.C. Circuit, which permitted the remand in Intercollegiate to proceed on the existing record. See Intercollegiate Broad. Sys., Inc. v. Copyright Royalty Bd., 796 F.3d 111, 116–21 (D.C. Cir. 2015). II. Further Potential Appellate Proceedings in Arthrex Rehearing. Because the government is an intervenor in Arthrex, the Federal Rules of Appellate Procedure give the parties 45 days to file petitions for panel rehearing or rehearing en banc. See Fed. R. App. P. 35(c), 40(a)(1); see also Federal Circuit Rule 40(e). The government cannot file such a petition without the Solicitor General’s approval. See 28 C.F.R. § 0.20(b). But the Department of Justice has already suggested that a petition for rehearing en banc may be forthcoming. In a number of pending cases, the government’s lawyers have asked the Federal Circuit to refrain from issuing a final decision until the court resolves “any petitions for rehearing that the parties in Arthrex may choose to file.” See, e.g., Citation of Supplemental Authority for Intervenor United States, Image Processing Techs. v. Samsung Elecs. Co., No. 19-1408 (Fed. Cir. Nov. 1, 2019), ECF No. 52. Certiorari. The parties also may seek a writ of certiorari from the Supreme Court. If there is no petition for rehearing en banc, the parties will have 90 days from the date of judgment to petition for certiorari. Sup. Ct. R. 13.1. But if a petition for rehearing is filed, the 90-day clock will run from the date of the Federal Circuit’s denial of rehearing or, if rehearing is granted, the subsequent entry of judgment. Sup. Ct. R. 13.3. Upon application by the aggrieved party, the Circuit Justice responsible for the Federal Circuit—Chief Justice Roberts—can extend the time to file a petition for up to 60 additional days. Sup. Ct. R. 13.5. While the grant rate for certiorari petitions is below 1%, the Supreme Court in recent years has shown an increased appetite for cases presenting Appointments Clause challenges. See Aurelius Inv., LLC v. Puerto Rico, 139 S. Ct. 2736 (2019); Lucia v. SEC, 138 S. Ct. 2044 (2018); Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. 477 (2010). Challenges to Panel Decision. If the government seeks rehearing or certiorari review, it is likely to focus on at least two aspects of the panel’s decision. (The private parties may also raise these or other arguments.) First, the government seems likely to challenge the panel’s conclusion that APJs are “principal” officers, rather than “inferior” officers. The distinction is significant because, as noted, if APJs are inferior officers, then their existing appointments by the Head of a Department would have been constitutional. Second, the government may argue that even if APJs are principal officers who were not appointed consistent with the Appointments Clause, the objecting party is not entitled to a new inter partes review hearing because it did not raise the issue before the Board. The government, through the Solicitor General, also may question the panel’s conclusion that severing the removal restrictions for APJs transformed them from principal officers to inferior officers for purposes of compliance with the Appointments Clause. The Supreme Court has not expressly held that the judicial remedy of severance can transform a principal officer into an inferior officer, and the severability remedy remains controversial. See, e.g., Murphy v. NCAA, 138 S. Ct. 1461, 1485, 1487 (2018) (Thomas, J., concurring) (expressing “my growing discomfort with our modern severability precedents” because they are “in tension with longstanding limits on the judicial power”). To be sure, the government itself recommended this severability remedy to the panel in Arthrex. However, it is unclear to what extent the Solicitor General will agree with that remedy if the case is reheard by the Federal Circuit or argued to the Supreme Court. In the Lucia case, for example, the Solicitor General expressly disagreed with positions taken by lawyers from the Securities and Exchange Commission on the constitutionality of the ALJ appointments. See 138 S. Ct. at 2050. III. Impact on Pending Cases As discussed in more detail below, the Arthrex decision could have substantial impacts on pending proceedings before the PTAB as well as pending appeals from PTAB final written decisions. Preservation and Waiver. The Arthrex panel held that a party need not have presented an Appointments Clause challenge to the Board in order for the court to consider it, because “‘[a]n administrative agency may not invalidate the statute from which it derives its existence and that it is charged with implementing.’” 2019 WL 5616010, at *2, *11 (citation omitted). Nevertheless, given the large number of cases that are potentially affected by the Arthrex decision, the Federal Circuit has tried—and may further try—to limit the impact of its holding. In a precedential, per curiam order, for example, a panel of the Federal Circuit has ruled that an Appointments Clause challenge under Arthrex is forfeited if it is not raised in a party’s opening brief. See Customedia Techs., LLC v. Dish Network Corp., No. 19-1001, 2019 WL 5677704, at *1 (Fed. Cir. Nov. 1, 2019). The government has also already raised concerns about the Federal Circuit’s post-Arthrex remand of another case, in which the government was not a party and so could not contest the issue. See Uniloc 2017 LLC v. Facebook, Inc., No. 18-2251, 2019 WL 5681316 (Fed. Cir. Oct. 31, 2019) (unpublished). Additionally, it remains to be seen whether the Federal Circuit might treat inter partes review petitioners differently than patent owners, given that the former voluntarily availed themselves of the PTAB forum. Cf. CFTC v. Schor, 478 U.S. 833, 850 (1986) (holding that party had “effectively agreed” to an adjudication before an administrative agency, rather than a court, when he “chose to avail himself of the” administrative process). However, to the extent the court tries to draw a bright-line rule, barring parties from raising Appointments Clause challenges that were not raised in their opening briefs before the court of appeals, the court may be in some tension with the Supreme Court’s decisions in Freytag v. Commissioner, 501 U.S. 868, 878–79 (1991), and Glidden Co. v. Zdanok, 370 U.S. 530, 535–36 (1962) (plurality opinion). In both cases, the Supreme Court indicated that structural constitutional challenges to officers could be considered on appeal even if the issue was not raised below. See Freytag, 501 U.S. at 878 (declining to find waiver despite petitioners’ “failing to raise a timely objection to the assignment of their cases to a special trial judge” and “consenting to the assignment”). PTAB Proceedings. The panel did not “see [any] constitutional infirmity” in the Director’s decision to institute inter partes review. Arthrex, 2019 WL 5616010, at *12. That is because, according the panel, the institution decision is within the Director’s—not the APJs’—authority. Id. (citing 35 U.S.C. § 314). Accordingly, the Arthrex decision may have a limited impact on cases that have not yet been instituted. That said, once a case is instituted, parties may wish to raise an Appointments Clause objection before the Board. It is not yet clear whether the “remedy” adopted by the panel will, after rehearing en banc or certiorari review, ultimately be found to cure the constitutional infirmity. Moreover, the government may continue to argue that a Board-level objection is required to preserve an Appointments Clause challenge. Thus, parties to PTAB proceedings should, in appropriate cases, consider raising their challenges before the Board. For cases that are further along, however, whether before or after a final written decision, parties may have an opportunity to seek a new panel of APJs, present issues to the new panel that they had lost before the original panel (e.g., discovery motions), and request another oral argument before the new panel. The panel in Arthrex noted that “we see no error in the new panel proceeding on the existing written record but leave to the Board’s sound discretion whether it should allow additional briefing or reopen the record in any individual case.” 2019 WL 5616010, at *12. If APJs subject to Appointments Clause challenge have participated in the proceedings, then parties may be entitled to fresh consideration from adjudicators who, from the beginning, were not operating under a constitutional infirmity. Federal Circuit Proceedings. Generally speaking, “arguments not raised in the opening brief are waived.” SmithKline Beecham Corp. v. Apotex Corp., 439 F.3d 1312, 1319 (Fed. Cir. 2006). Thus, in cases pending before the Federal Circuit, the best practice is to raise an Appointments Clause challenge in the opening brief or in a motion filed prior to the opening brief. See Uniloc, 2019 WL 5681316, at *1 (“In light of [Arthrex and] . . . the fact that Uniloc has raised an Appointments Clause challenge in its opening brief in this case, . . . [the PTAB decision] is vacated . . . .”). A party, however, that did not raise an Appointments Clause challenge in its opening brief may have other opportunities to attack the Board’s decision on Appointments Clause grounds. To be sure, the Federal Circuit, in Customedia Technologies, held that an Appointments Clause challenge is forfeited if it is not included in the opening brief. 2019 WL 5677704, at *1. But the parties in that case did not brief—and the court, therefore, did not address—the Supreme Court’s decisions in Freytag and Glidden, which suggest that structural errors, such as Appointments Clause issues, can be raised at any time in appropriate cases. With direct briefing on Freytag and Glidden, then, parties may be able to open an opportunity to press the Appointments Clause issue in reply briefs, notices of supplemental authority, petitions for rehearing, and the like. District Court Proceedings. Inter partes reviews often occur in parallel with district court litigation concerning the same patent. And district courts frequently entertain requests to stay the district court proceedings pending inter partes review. See, e.g., British Telecomms. PLC v. IAC/InterActiveCorp, No. 18-cv-366, 2019 WL 4740156, at *2 (D. Del. Sept. 27, 2019); InVue Sec. Prods. Inc. v. Vanguard Prods. Grp., Inc., No. 18-cv-2548, 2019 WL 3958272, at *1 (M.D. Fla. Aug. 22, 2019). Although the test varies by jurisdiction, district courts typically consider three factors in determining whether to grant such a stay: “(1) ‘whether the stay will simplify issues in question in the litigation,’ (2) ‘whether the stay will unduly prejudice the nonmoving party or present a clear tactical disadvantage to the nonmoving party,’ and (3) ‘whether the proceedings before the court have reached an advanced stage, including whether discovery is complete and a trial date has been set.’” Peloton Interactive, Inc. v. Flywheel Sports, Inc., No. 18-cv-390, 2019 WL 3826051, at *1 (E.D. Tex. Aug. 14, 2019) (internal quotation omitted). District courts that had been, before Arthrex, inclined to lift a stay and re-open a case after the PTAB issued its final written decision may now be hesitant to do so before all the Arthrex appeals are exhausted. Unless the party proposing to lift a stay can show a new form of prejudice arising from a delay caused by Arthrex, the district court may determine that the likelihood of vacatur and remand justifies extending the stay through appeal. In district court proceedings following the issuance of a final written decision by the PTAB, estoppel generally applies to any invalidity issue that the petitioner “raised or reasonably could have raised during that inter partes review.” 35 U.S.C. § 315(e)(2). Parties in this situation, however, should take note of Audatex North America, Inc. v. Mitchell International, Inc., which is scheduled for argument at the Federal Circuit on December 4. In that case, the appellant argues that a decision of the PTAB in a covered business method review is not binding on a district court because APJs are principal officers under the Appointments Clause, rendering a decision by a panel of APJs unconstitutional. Because the Federal Circuit already has held in Arthrex that APJs are principal officers (prior to the remedy provided in Arthrex), the Federal Circuit in Audatex will need to address whether a decision of the PTAB that was made by unconstitutionally appointed APJs is binding on a district court. This decision could have further implications for parties involved in district court litigation following an inter partes review or covered business method review proceeding, including whether estoppel will apply in the district court under 35 U.S.C. § 315(e)(2). Additional Litigation. Interested parties should expect and be prepared for rapid developments in this area. The Arthrex decision leaves a host of unanswered questions in its wake. And it contains a number of subsidiary holdings that can be challenged from both sides. Litigants are already seeking to broaden the scope of the Arthrex decision. For example, in Polaris Innovations Ltd. v. Kingston Technology Company, No. 18-1768 (Fed. Cir. argued Nov. 4, 2019), Polaris argued that the Arthrex panel did not go far enough in resolving the constitutional infirmity of the APJs. According to Polaris, because the Director of the PTO cannot review the APJs’ decisions, and because the court cannot itself authorize such a review, the “only remedy” is to declare the entire system constitutionally flawed and “let Congress fix it.” These and other challenges may push the Arthrex decision even farther, and could potentially cast doubt on the Director’s authority to institute inter partes review at all (a power unquestioned by the panel). Among other areas, parties should expect litigation regarding questions such as: Where to draw the line between principal and inferior officers; Limits on courts’ power to sever statutory removal protections; Whether severance can “convert” a principal officer into an inferior officer; Whether institution decisions are less “suspect” than final written decisions; Effects on post grant review and covered business method proceedings in addition to inter partes review; Whether an entirely new hearing is required as opposed to reconsideration of the paper record; Whether other rulings by unconstitutionally appointed APJs (e.g., evidentiary rulings) must be vacated; The role, if any of the de facto officer doctrine and ratification by constitutional actors; Whether decisions by unconstitutional APJs are subject to collateral attacks; Whether, and under what circumstances, decisions by unconstitutionally appointed APJs have estoppel effects in district court; Effects on pending PTAB proceedings; Effects on proceedings that are concluded but have not yet yielded a final written decision; Preservation, forfeiture, and waiver; Whether Federal Circuit panels have discretion to reach Appointments Clause issues not raised in an appellant’s opening brief; The availability of remands to the PTAB following a determination of unconstitutionality; The availability of inter partes review and stays in the event the Supreme Court grants review; and Potential challenges to the appointment of ALJs in other agencies. Finally, it is also possible that Congress or the President could take action to address these issues outside of litigation, although the other branches may wait until the Supreme Court weighs in before acting. In the aftermath of Lucia, for example, the President responded to the Supreme Court’s decision by issuing an Executive Order, E.O. 13843, exempting ALJs from competitive service selection procedures. * * * Arthrex is a major decision that will likely produce serious repercussions across a wide range of cases. Further review is a significant possibility, either from the en banc Federal Circuit or the Supreme Court, and it may be some time before the courts work out the full ramifications of the panel decision. It also remains to be seen whether the Federal Circuit will accede to requests, by the government or other parties, to stay other PTAB proceedings in the meantime. For example, the Federal Circuit notably declined to pause PTAB proceedings pending the Supreme Court’s decisions in SAS Institute, Inc. v. Iancu, 138 S. Ct. 1348 (2018), and Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, 138 S. Ct. 1365 (2018). Interested parties are advised to monitor the case and consult experienced patent appellate counsel to navigate this developing situation. Gibson Dunn has significant experience in this area, including winning the landmark Supreme Court decision in Lucia. Any of the following partners would be pleased to discuss Arthrex and its implications with you: Mark A. Perry – Washington, D.C. (+1 202-887-3667, mperry@gibsondunn.com) Brian M. Buroker – Washington, D.C. (+1 202-955-8541, bburoker@gibsondunn.com) Blaine H. Evanson – Orange County, CA (+1 949-451-3805, bevanson@gibsondunn.com) Lucas C. Townsend – Washington, D.C. (+1 202-887-3731, ltownsend@gibsondunn.com) Please also feel free to contact the following leaders of the firm’s Appellate and Constitutional Law, Intellectual Property or Life Sciences practice groups: Appellate and Constitutional Law Group: Allyson N. Ho – Dallas (+1 214-698-3233, aho@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) Life Sciences Group: Jane M. Love – New York (+1 212-351-3922, jlove@gibsondunn.com) Ryan A. Murr – San Francisco (+1 415-393-8373, rmurr@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.

November 4, 2019 |
Federal Circuit Update (November 2019)

Click for PDF This edition of Gibson Dunn’s Federal Circuit Update first summarizes the Federal Circuit’s far-reaching decision last week that the appointment of Administrative Patent Judges to the PTAB is unconstitutional. We then review pending petitions for certiorari to the Supreme Court in cases appealed from the Federal Circuit, as well as recent filings for en banc review and other news. Recent precedential decisions are also summarized, reflecting the Federal Circuit’s view of patent eligibility, obviousness requirements for methods of medical treatment, PTAB discretion to reverse IPR institution, PTO calculation of term extensions, and design patent protection. Top News—Appointment of Administrative Patent Judges Held Unconstitutional On October 31, the Federal Circuit held that appointment of PTAB Administrative Patent Judges (APJs) violates the Appointments Clause, U.S. Const., art. II, § 2, cl. 2. In Arthrex, Inc. v. Smith & Nephew, Inc., No. 18-2140 (Fed. Cir. Oct. 31, 2019), a Federal Circuit panel (Moore, J., joined by Reyna and Chen, JJ.) ruled that APJs are “principal officers” because neither the Secretary of Commerce nor the Director of the USPTO (the two executive branch officials who appoint and monitor APJs) “exercises sufficient direction and supervision over APJs to render them inferior officers.” APJs are appointed by the Secretary of Commerce, whereas the Constitution requires principal officers to be appointed by the President with the advice and consent of the Senate. To cure the identified constitutional deficiency, the Arthrex panel severed the provisions of the Patent Act that limit the PTO’s ability to remove APJs from the Board, thus allowing them to be removed without cause. In the panel’s view, this severance allows APJs to be prospectively classified instead as inferior officers (and hence, appropriately appointed by the Secretary of Commerce). Without reaching the merits of the appeal before it, the Arthrex panel vacated and remanded the Board’s decision that twelve of Arthrex’s patent claims were anticipated. The panel reasoned that, because the panel had not been constitutionally appointed, patentability had to be decided by a new tribunal of properly appointed APJs. The Arthrex decision could have substantial impacts on pending proceedings before the PTAB as well as pending appeals from PTAB final written decisions. Gibson Dunn will be preparing a standalone analysis considering these issues in more detail. Other Federal Circuit News Supreme Court: In October, the Supreme Court held oral argument in Peter v. NantKwest Inc., which involves the issue of whether the “expenses” that the government may charge a litigant includes time that in-house government attorneys spend on the litigation. The government argued that “expenses” is a broad term that should reach everything that the PTO spends. NantKwest argued that the word “expenses” is not specific enough to overcome the presumption against forcing a party to pay the other side’s attorney’s fees. The Justices seemed skeptical of the government’s position, for example, questioning the recent shift from the government’s longstanding view that it was not entitled to those fees, and referring to the government’s current position as a “radical departure.” Case Status Issue Amicus Briefs Filed Peter v. NantKwest Inc., No. 18-801 Argument on October 7, 2019. Whether the phrase “[a]ll the expenses of the proceedings” in 35 U.S.C. § 145 encompasses the personnel expenses the PTO incurs when its employees and attorneys, defend § 145 litigation. 11 Thryv, Inc., fka Dex Media, Inc. v. Click-To-Call Techs., LP, No. 18-916 Set for argument on December 9, 2019 Whether 35 U.S.C. § 314(d) permits appeal of the PTAB’s decision to institute an inter partes review upon finding that § 315(b)’s time bar did not apply. 9 Romag Fasteners Inc. v. Fossil Inc., No. 18-1233 Petition for certiorari granted on June 28, 2019. Whether, under Section 35 of the Lanham Act, 15 U.S.C. § 1117(a), willful infringement is a prerequisite for an award of an infringer’s profits for a violation of Section 43(a), 15 U.S.C. § 1125(a). 5 Noteworthy Petitions for a Writ of Certiorari: The Supreme Court is currently considering a number of potentially impactful cases, in particular in the area of patent eligibility under 35 U.S.C. § 101. The Court asked for the Solicitor General’s views in three cases, HP v. Berkheimer, Hikma v. Vanda, and Google v. Oracle. HP Inc. v. Berkheimer (No. 18-415): Question presented: “whether patent eligibility is a question of law for the court based on the scope of the claims or a question of fact for the jury based on the state of the art at the time of the patent.” On January 7, 2019, the Supreme Court invited the U.S. Solicitor General to file a brief expressing the views of the United States. Mark Perry of Gibson Dunn continues to serve as co-counsel for HP in this matter. Hikma Pharmaceuticals USA Inc. v. Vanda Pharmaceuticals Inc. (No. 18-817): Question presented: “whether patents that claim a method of medically treating a patient automatically satisfy Section 101 of the Patent Act, even if they apply a natural law using only routine and conventional steps.” On March 18, 2019, the Supreme Court invited the U.S. Solicitor General to express the views of the United States. Atlanta Gas Light Co. v. Bennett Regulator Guards Inc. (No. 18-999): Questions presented: “(1) whether the Federal Circuit erred in concluding that it had jurisdiction to review the PTAB’s decision to institute IPR of a patent over the patent owner’s objection that it was time-barred; and (2) whether the Federal Circuit erred in rejecting the “longstanding principle that a dismissal without prejudice leaves the parties as if a suit had never been brought, splitting the circuits.” Garmin USA, Inc., et al. v. Cellspin Soft, Inc., No. 19-400: Question presented: “Whether patent eligibility is a question of law for the court that can be resolved on a motion to dismiss, notwithstanding allegations in a complaint that the asserted claims are inventive.” Power Analytics Corporation v. Operation Technology, Inc., No. 19-43: Question presented: “Has the Federal Circuit correctly implemented the standards for patent eligibility set forth in 35 U.S.C. § 101 and Alice v. CLS Bank?” Google LLC v. Oracle America, Inc., No. 18-956: Questions presented: “(1) Whether copyright protection extends to a software interface; and (2) whether, as the jury found, the petitioner’s use of a software interface in the context of creating a new computer program constitutes fair use.” On September 27, 2019, the Solicitor General formally recommended that the Supreme Court deny certiorari. The office disagreed with Google’s arguments that the declaring code that organizes Java programming interfaces cannot be copyrighted, although it did state that the correctness of the Federal Circuit’s fair use decision is “not free from doubt.” Noteworthy Denials of Petitions for a Writ of Certiorari: On October 7, 2019, the Supreme Court denied certiorari in a number of patent cases, including a number of cases presenting Berkheimer questions (Glasswall Solutions Ltd. v. Clearswift Ltd., No. 18-1448, StrikeForce Tech., Inc. v. SecureAuth Corp., No. 19-103). Other cases of note in which certiorari was denied include: Acorda Therapeutics, Inc. v. Roxane Labs., Inc., No. 18-1280) (whether objective indicia of non-obviousness may be discounted where the development of the invention was allegedly blocked by the existence of a prior patent). Hyatt v. Iancu, No. 18-1285 (whether MPEP § 1207.04 violates patent applicants’ statutory right of appeal following a second rejection). Senju Pharma. Co., Ltd. v. Akorn, Inc., No. 18-1418 (whether 35 U.S.C. § 144 precludes the Federal Circuit from resolving appeals from the PTO through a Rule 36 judgment; whether the PTAB must consider all relevant evidence, including any objective indicia, when assessing whether a patent is invalid under U.S.C. § 103). Noteworthy Federal Circuit En Banc Petitions: Celgene Corp. v. Peter, Nos. 18-1167 et al.: As noted in our August 2019 update, a Federal Circuit panel (Prost, C.J., joined by Bryson and Reyna, JJ.) held that retroactive application of the AIA’s IPR proceedings to patents that issued before the AIA was enacted is not an unconstitutional taking. Celgene has now petitioned for en banc review. The Court requested that the PTO respond to Celgene’s petition, and the response is due November 19, 2019. In Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, 138 S. Ct. 1365 (2018), Supreme Court held that IPR proceedings did not violate Article III or the Seventh Amendment. Id. at 1370. But the Supreme Court expressly left open the question of whether retroactive application of the AIA is constitutional, adding that its opinion should not be “misconstrued as suggesting that patents are not property for purposes of the Due Process Clause or the Takings Clause.” Id. at 1379. Thus, if en banc review is denied, Celgene may petition for certiorari. Other Federal Circuit News: On October 22, 2019, Judge Wallach spoke at the Federal Circuit Historical Society’s fall lecture at the Dolley Madison House. Judge Wallach is the author of The Law of War in the 21st Century and a recognized expert in the law of war. He served on active duty as an Engineer Reconnaissance Sergeant in the U.S. Army from 1969 to 1971, and as an Attorney/Advisor to the International Affairs Division of the Judge Advocate of the Army at the Pentagon. Judge Wallach discussed various types of war and the means and methods of warfare, and in particular whether cyber warfare covers recent Russian activities directed at the American political system. The second portion of Global Series 2019 took place in Honolulu, Hawaii, on October 14–16. The Series 2019 Session is an outreach of Global Series partners, the Federal Circuit Bar Association, EPLAW, and others. It focused on global challenges in world innovation, IP, and trade systems, and responding to emerging national and international issues in these sectors. Key Case Summaries (August 2019–October 2019) American Axle & Manuf., Inc. v. Neapco Holdings LLC, No. 18-1763 (Fed. Cir. Oct. 3, 2019): Mechanical engineering claims relying on broad, functional language are ineligible. The asserted patent recited claims to methods of making drive-shaft assemblies with internal liners designed to reduce vibrations in the resulting assemblies. While the patent disclosed a few embodiments, the claims were not so limited. Instead, the claims relied on functional language to cover any means of achieving their functional result. On summary judgment, the district court held the patent ineligible under § 101, finding it to merely claim the result of laws of nature governing damping, and otherwise employing only “routine, conventional” additional steps. The Federal Circuit panel majority (Dyk, J., joined by Taranto, J.) affirmed. The majority reasoned that problems with vibration and natural laws that governed dampening were “well known” in the art. The claims were not limited to specific liners or dampening solutions, but rather claimed “achieving that result, by whatever structures or steps happen to work.” Other elements did not convey eligibility as they offered only “conventional additions” or limited “the use of a natural law or mathematical formula to a particular process.” Judge Moore dissented, arguing that the inquiry should instead be framed in terms of an enablement failure. American Axel reaffirms the relevance of eligibility even in the context of mechanical devices or methods. MyMail, Ltd. v. ooVoo, LLC, Nos. 18-1758, -59, (Fed. Cir. Aug. 16, 2019): Disputed claim construction must be decided before an eligibility determination is made. The asserted patents recited methods of using server or network instructions to update “toolbars” on users’ computers without involving the users. The parties disagreed over the construction of “toolbar.” The district court then held that the claims recited the abstract idea of “using communications networks to update software stored on computers” while adding only conventional, generic components such as “Internet-connected computers and servers.” The court dismissed at the pleading stage on eligibility grounds without addressing construction. The Federal Circuit panel majority (Reyna, J., joined by O’Malley, J.) vacated and remanded. According to the majority, “the district court’s failure to address the parties’ claim construction dispute [was] error.” The majority refused to decide “in the first instance” eligibility based on the patentee’s more technical proposed construction, as doing so “may” implicate factual questions such as whether the claimed combination was then “routine” or “conventional.” Judge Lourie dissented, arguing that the claims were “clearly abstract,” regardless of construction. OSI Pharma, LLC v. Apotex Inc., No. 18-1925 (Fed. Cir. Oct. 4, 2019): Method of treating cancer not obvious where prior art lacks specific efficacy data. Generic drug manufacturer Apotex petitioned to cancel OSI’s patent claims to methods of treating non-small cell lung cancer with its erlotinib drug, Tarceva. The PTAB held that OSI’s method was obvious over prior art disclosing erlotinib to treat cancer in mammals and stating that it appears to have “good anti-cancer activity … in patients with non-small cell lung cancer.” The Federal Circuit panel (Stoll, J., joined by Newman and Taranto, JJ.) reversed. The panel reasoned that “[c]ancer treatment is highly unpredictable,” with less than 1% of non-small cell lung cancer treatments succeeding in Phase II trials. In the panel’s view, the prior art lacked substantial evidence of a reasonable expectation of success and offered “no more than hope” because it did “not disclose any data or other information about erlotinib’s efficacy.” The panel caveated, however that neither efficacy data nor “absolute predictability” are always required. BioDelivery Scis. Int’l v. Aquestive Therapeutics, Inc., Nos. 19-1643, -44, -45 (Fed. Cir. Aug. 29, 2019): PTAB has discretion to reverse IPR institution decisions. The PTAB instituted three of BioDelivery’s IPR petitions on some but not all grounds. After SAS Institute, Inc. v. Iancu, the Federal Circuit vacated and remanded the reviews back to the PTAB. On remand, rather than proceed to review on all petitioned grounds, the Board reversed its institution decision and decided not to proceed with review at all. BioDelivery appealed, arguing that reviews were instituted and that this decision could not be reconsidered. The Federal Circuit majority (Reyna, J., joined by Lourie, J.) dismissed the appeal. According to the panel majority, the Board “possess[es] inherent authority to reconsider their decisions … regardless of whether they possess explicit statutory authority to do so.” Although 35 U.S.C. § 314(d) states that the decision “whether to institute … shall be final and nonappealable,” the majority did not interpret the word “final” as meaning that the Board itself could not change its mind. Rather, it meant that the institution decision could not be appealed. And since institution decisions cannot be appealed, the panel dismissed the appeal. Judge Newman dissented. Mayo Found. for Med. Edu. & Research v. Iancu, No. 18-2031 (Fed. Cir. Sept. 16, 2019): Time in an interference during continued examination does not qualify for term extension. During prosecution, Mayo filed a Request for Continued Examination. Time spent in continued examination is exempted from the calculation that determines term extension under 35 U.S.C. § 154. As such, in post-1995 applications, the time spent in continued examination reduces the effective term of the patent. Several months into Mayo’s continued examination, an interference was declared, which lasted for two years. Mayo argued that the interference ended the continued examination because interferences must be declared between otherwise patentable inventions. According to Mayo, the interference period should thus be credited for term extension. The PTO calculated that continued examination did not end until the post-interference notice of allowance, thus negating over two years of potential term extension. On appeal, the district court agreed. The Federal Circuit panel majority (Lourie, J., joined by Dyk, J.) affirmed, holding that a declaration of interference is not the same as a notice of allowance because examination can continue after an interference is decided. Judge Newman dissented, arguing that delay from the interference was caused by PTO procedures and should not be attributed to the patentee. Curver Luxembourg, SARL v. Home Expressions Inc., No. 18-2214 (Fed. Cir. Sept. 12, 2019): Design claim limited to article of manufacture specified in the design patent. The asserted design patent claimed an “ornamental design for a pattern for a chair” as illustrated in the patent’s figures. The patentee sued a home goods manufacturer whose storage baskets featured a similar design. The district court dismissed the suit because the accused products did not apply the claimed pattern to a chair as stated in the patent. The Federal Circuit panel (Chen, J., joined by Hughes and Stoll, JJ.) affirmed. The panel held that the claim language specifying the particular article of manufacturer for the design limited the claim. The panel noted that the Federal Circuit “has never sanctioned granting a design patent for a surface ornamentation in the abstract such that the patent’s scope encompasses every possible article of manufacture to which the surface ornamentation is applied.” Thus, the claimed design could not be disaggregated from the article of manufacture listed in the claim. Update: Amgen Inc. v. Sandoz Inc., Nos. 18-1551 (Fed. Cir. Sept. 3, 2019). In our last update, we noted that the Amgen panel stated that the doctrine of equivalents “applies only in exceptional cases.” In granting rehearing in part, the panel has now removed that statement from its opinion. 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: Allyson N. Ho – Dallas (+1 214-698-3233, aho@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) © 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.

August 28, 2019 |
USPTO Requests Public Comments on Patenting Artificial Intelligence Inventions

Click for PDF Following up on the release of eligibility guidelines for AI-related inventions earlier this year, the United States Patent and Trademark Office (Patent Office) published yesterday a request for public comments on a series of patent-related issues regarding AI inventions. Request for Comments on Patenting Artificial Intelligence Inventions, 84 Fed. Reg. 44889, 44889 (Aug. 27, 2019). The Patent Office hopes that with the input it receives in response to this request for comments from the innovation community and experts in AI, the Patent Office will be in a strong position to evaluate whether further patent examination guidance is needed to (1) “promote the reliability and predictability of patenting artificial intelligence inventions,” and (2) “ensure that appropriate patent protection incentives are in place to encourage further innovation.” Id. The office’s request poses twelve questions covering “a variety of topics from patent examination policy to whether new forms of intellectual property protection are needed.” Id. For example, the questions cover topics such as: Inventorship – Should current inventorship laws and regulations be revised to account for entities other than a natural person contributing to the conception of an invention? What are the different ways in which a natural person can contribute to the conception of an AI invention? Ownership – Who owns an AI invention? Is it the company who trains the AI process that creates the invention? Should entities other than a natural person or the company to which it is assigned be able to own an AI invention? And Patent Application Requirements – Does AI impact the level of a person of ordinary skill in the art? Are there disclosure-related considerations unique to AI inventions, such as written description? Are new forms of intellectual property protections needed for AI inventions? This is an important opportunity for individuals and companies active in AI technologies to provide their perspective on how U.S. intellectual property law and patent office procedures should address some of the unique issues raised by AI inventions. Written comments may be sent by email to AIPartnership@uspto.gov, and must be received on or before October 11, 2019. 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, any member of the firm’s Artificial Intelligence and Automated Systems or Intellectual Property practice groups, or the following authors: H. Mark Lyon – Palo Alto (+1 650-849-5307, mlyon@gibsondunn.com) Jessica A. Hudak – Orange County (+1 949-451-3837, jhudak@gibsondunn.com) Please also feel free to contact any of the following practice group leaders and members: Artificial Intelligence and Automated Systems Group: H. Mark Lyon – Chair, Palo Alto (+1 650-849-5307, mlyon@gibsondunn.com) J. Alan Bannister – New York (+1 212-351-2310, abannister@gibsondunn.com) Lisa A. Fontenot – Palo Alto (+1 650-849-5327, lfontenot@gibsondunn.com) David H. Kennedy – Palo Alto (+1 650-849-5304, dkennedy@gibsondunn.com) Ari Lanin – Los Angeles (+1 310-552-8581, alanin@gibsondunn.com) Robson Lee – Singapore (+65 6507 3684, rlee@gibsondunn.com) Carrie M. LeRoy – Palo Alto (+1 650-849-5337, cleroy@gibsondunn.com) Alexander H. Southwell – New York (+1 212-351-3981, asouthwell@gibsondunn.com) Eric D. Vandevelde – Los Angeles (+1 213-229-7186, evandevelde@gibsondunn.com) Michael Walther – Munich (+49 89 189 33 180, mwalther@gibsondunn.com) Intellectual Property Group: Wayne Barsky – Co-Chair, Los Angeles (+1 310-552-8500, wbarsky@gibsondunn.com) Josh Krevitt – Co-Chair, New York (+1 212-351-4000, jkrevitt@gibsondunn.com) Mark Reiter – Co-Chair, 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.

August 15, 2019 |
Gibson Dunn Lawyers Recognized in the Best Lawyers in America® 2020

The Best Lawyers in America® 2020 has recognized 158 Gibson Dunn attorneys in 54 practice areas. Additionally, 48 lawyers were recognized in Best Lawyers International in Belgium, Brazil, France, Germany, Singapore, United Arab Emirates and United Kingdom.

August 13, 2019 |
Federal Circuit Update (August 2019)

Click for PDF This edition of Gibson Dunn’s Federal Circuit Update summarizes the Supreme Court’s recent decisions in cases appealed from the Federal Circuit as well as key filings for certiorari or en banc review. Recent Federal Circuit news and practice changes are also noted. Recent precedential decisions are also summarized concerning the Federal Circuit’s identification of a presumption of patent eligibility, narrowing of the doctrine of equivalents, rejection of Fifth Amendment and sovereign immunity challenges to IPRs, and clarification of time-bar restrictions on IPRs, of Article III standing to appeal, and of the scope of design patents. Federal Circuit News Supreme Court: In June and July, the Supreme Court issued decisions in both a patent and a trademark case as noted below. The Court also granted certiorari in two more patent cases and one trademark case. Case Status Issue Amicus Briefs Filed Peter v. NantKwest Inc., No. 18-801 Set for argument on October 7, 2019. Whether the phrase “[a]ll the expenses of the proceedings” in 35 U.S.C. § 145 encompasses the personnel expenses the PTO incurs when its employees, including attorneys, defend the agency in Section 145 litigation. 11 Dex Media Inc. v. Click-To-Call Techs., LP, No. 18-916 Petition for certiorari granted on June 24, 2019. Whether 35 U.S.C. § 314(d) permits appeal of the PTAB’s decision to institute an inter partes review upon finding that § 315(b)’s time bar did not apply. 3 Romag Fasteners Inc. v. Fossil Inc., No. 18-1233 Petition for certiorari granted on June 28, 2019. Whether, under Section 35 of the Lanham Act, 15 U.S.C. § 1117(a), willful infringement is a prerequisite for an award of an infringer’s profits for a violation of Section 43(a), 15 U.S.C. § 1125(a). 0 Recent Supreme Court Decisions: Return Mail Inc. v. United States Postal Service (No. 17-1594) (Vote: 6-3, Author: Justice Sotomayor): The Court’s majority held that the government is not a “person” capable of instituting AIA review proceedings. The Court reasoned that, absent an express definition in the statute, “longstanding interpretive presumption” directed that a “person” does not include the sovereign, and “thus excludes a federal agency like the Postal Service.” The majority rejected the government’s view that other references to “person” in the AIA “appear” to include the government or that Congress intended “person” to include the government due to its “longstanding history with the patent system.” Justice Breyer dissented, joined by Justices Ginsburg and Kagan. Iancu v. Brunetti, No. 18-302 (Vote: 6-3, Author: Justice Kagan): A Court’s majority affirmed the Federal Circuit’s holding that the Lanham Act’s prohibition on registration of immoral or scandalous trademarks violates the First Amendment. As the majority explained, the immoral or scandalous bar discriminates on the basis of viewpoint and thus collides with First Amendment doctrine. The majority reasoned that the Lanham Act permits marks “that champion society’s sense of rectitude and morality, but not marks [deemed immoral] that denigrate those concepts.” Likewise, it “allows registration of marks when their messages accord with … society’s sense of decency or propriety,” but not “scandalous” marks that “defy” that sense. Thus, the “facial viewpoint bias in the law results in viewpoint-discriminatory application.” Justice Alito concurred, with Justices Breyer, Sotomayor and Chief Justice Roberts each filing opinions concurring in part and dissenting in part that the “scandalous” portion of the provision could be instead susceptible to a narrower construction. Chief Justice Roberts wrote that “scandalous” could, for example, be read narrowly to bar only marks that are “obscene, vulgar, or profane.” Noteworthy Petitions for a Writ of Certiorari: Acorda Therapeutics, Inc. v. Roxane Labs., Inc. (No. 18-1280): Question presented: “whether objective indicia of nonobviousness may be partially or entirely discounted where the development of the invention was allegedly ‘blocked’ by the existence of a prior patent, and, if so, whether an ‘implicit finding’ that an invention was ‘blocked,’ without a finding of actual blocking, is sufficient to conclude that an infringer has met its burden of proof.” Acorda is represented by Ted Olson, Thomas Hungar, and Amir Tayrani of Gibson Dunn. HP Inc. v. Berkheimer (No. 18-415): Question presented: “whether patent eligibility is a question of law for the court based on the scope of the claims or a question of fact for the jury based on the state of the art at the time of the patent.” On January 7, 2019, the Supreme Court invited the U.S. Solicitor General to file a brief expressing the views of the United States. Mark Perry of Gibson Dunn continues to serve as co-counsel for HP in this matter. Hikma Pharms. USA Inc. v. Vanda Pharms. Inc. (No. 18-817): Question presented: “whether patents that claim a method of medically treating a patient automatically satisfy Section 101 of the Patent Act, even if they apply a natural law using only routine and conventional steps.” On March 18, 2019, the Supreme Court invited the U.S. Solicitor General to express the views of the United States. Atlanta Gas Light Co. v. Bennett Regulator Guards Inc. (No. 18-999): Questions presented: (1) whether the Federal Circuit erred in concluding that it had jurisdiction to review the PTAB’s decision to institute IPR of a patent over the patent owner’s objection that it was time-barred; and (2) whether the Federal Circuit erred in rejecting the “longstanding principle that a dismissal without prejudice leaves the parties as if a suit had never been brought, splitting the circuits.” Federal Circuit En Banc Review: Athena Diagnostics, Inc. v. Mayo Collaborative Services, No. 17-2508 (Fed. Cir. July 3, 2019) (denying petition 7-5): Although Athena’s petition was denied, the Federal Circuit’s response is remarkable for its eight separate opinions, each calling for Supreme Court guidance or legislative intervention to clarify the application of § 101 to novel medical diagnostics. Athena’s disputed claim covered a diagnostic method directed to neurotransmission disorders by examining the presence of naturally occurring MuSK antibodies in bodily fluids. Following the Supreme Court’s ruling in Mayo Collaborative Servs. v. Prometheus Labs., Inc., the Federal Circuit held Athena’s claim to be ineligible because the correlation between MuSK and neurological disease was “a law of nature.” But, as the panel observed, the result may have been different if the claim had been drafted as a method of treatment instead: “claiming a new treatment for an ailment, albeit using a natural law, is not claiming the natural law.” As Judge Moore summarized, all 12 judges reviewing Athena’s en banc petition agreed that its diagnostic should be patent-eligible. The seven judges who voted to deny the petition (Lourie, Reyna, Chen, Hughes, Prost, Taranto, and Dyk) held that the Supreme Court’s decision in Mayo left no room for eligibility, but indicated that Mayo should be revisited by the Supreme Court or Congress. The five dissenting judges found the diagnostic distinguishable from that in Mayo. Other Federal Circuit News: The annual Federal Circuit Bench and Bar Conference took place June 12–15, 2019 at the Broadmoor in Colorado Springs, CO. Next year’s conference will take place in Puerto Rico. On July 30, 2019, former Chief Judges of the Federal Circuit, Paul Michel and Randall Rader, joined a letter with others, including academics and former USPTO officials, urging Congress to pass legislation reforming the “patent eligibility doctrine.” The jurists noted the “extreme uncertainty about how patent examiners or judges will apply the Alice-Mayo framework that was recently created by the Supreme Court.” This letter responded to a letter from the American Civil Liberties Union and other organizations that opposed legislative reform efforts. The retired jurists argued that the ACLU and other’s view was “profoundly mistaken and inaccurate” and that draft legislation, if enacted, would not “authorize patenting products and laws of nature, abstract ideas, and other general fields of knowledge.” The judges and their co-signees stated that such legislative reform would not “eliminate constitutional and statutory bars to patenting laws of nature, abstract ideas, and general fields of knowledge,” and instead “is vitally important to sustain U.S. global leadership in innovation, resulting in increased jobs, economic growth, and a flourishing society.” Federal Circuit Practice Update Change to Electronic Filing Procedures During Weather-Related Closures: The Federal Circuit has announced that, effective October 1, 2019, it will no longer automatically consider weather-related closures as legal holidays for the purposes of Federal Appellate Rule of Procedure 26. In the event of inclement weather closing the courthouse, the Clerk’s office will continue to accept and process electronic filings based on the original electronic filing deadlines. Paper filings due on the date of a weather-related closure would be deemed timely filed if received by the next day the Clerk’s Office is open. The Federal Circuit’s notice can be found here. Key Case Summaries (May 2019–July 2019) Cellspin v. Fitbit, Nos. 18-1817 et al. (Fed. Cir. Jun. 25, 2019): A presumption of patent eligibility exists, just as there is a presumption of validity. Cellspin sued Fitbit and others, asserting multiple patents reciting claims related to connecting digital cameras to mobile devices. Fitbit and other defendants moved to dismiss under Rule 12, alleging lack of patentable subject matter under § 101. The district court granted the motion. The Federal Circuit (O’Malley, J., joined by Lourie and Taranto, JJ) vacated and remanded. Although the panel agreed the patents were directed to an abstract idea, the court followed its precedent in Berkheimer v. HP and held that the district court failed to credit Cellspin’s factual allegations in its pleadings. “Accepting the allegations … as true, we cannot conclude that the asserted claims lack an inventive concept” under step two of the Alice inquiry. The court ruled that patents “are presumptively valid” under § 282, and that this presumption includes § 101, making this the first Federal Circuit precedent to acknowledge a presumption of eligibility. Amgen Inc. v. Sandoz Inc., Nos. 18-1551, -52 (Fed. Cir. May 8, 2019): The doctrine of equivalents applies “only in exceptional cases.” Amgen sued Sandoz under the Biologics Price Competition and Innovation Act, alleging that Sandoz’s biosimilar application infringed, inter alia, Amgen’s patent to a method of preparing purified biologics. Amgen’s U.S. Patent 8,940,878 required a three-step, three-solution process that included specifically “washing” and “eluting” the desired protein. Sandoz’s accused process, however, used only one step, without washing or eluting steps. The district court granted summary judgment of non-infringement. Amgen appealed, asserting among other arguments that infringement should have been found under the doctrine of equivalents. The Federal Circuit (Lourie, J., joined by O’Malley and Reyna, JJ.) affirmed, rejecting Amgen’s view that a one-step method could be “insubstantially different from a claimed three-step, three-solution process” even if it achieved “the same result (protein purification).” The panel held that Amgen’s patent recited a specific sequence of steps, which could not be avoided by equivalents. The panel declared that the doctrine of equivalents “applies only in exceptional cases,” a more restrictive view than previously articulated, suggesting potential future narrowing of the doctrine. Celgene Corp. v. Peter, Nos. 18-1167 et al. (Fed. Cir July 30, 2019): The retroactive application of IPR proceedings to pre-AIA patents is not a Fifth Amendment taking. Celgene sells thalidomide, an immunomodulatory drug that causes severe birth defects. In response to an IPR, the Board held certain of Celgene’s claims to systems for prescription safety to be unpatentable. In addition to appealing the Board’s determinations, Celgene asserted that the retroactive application of an IPR to pre-AIA patents constituted an unconstitutional taking. The Federal Circuit (Prost, CJ., joined by Bryson and Reyna, JJ.) disagreed. According to the panel, patentees always had the expectation that their patents’ validity could be challenged in district court. And, when Celgene filed for its patents, ex parte reexamination had existed for two decades. Inter partes reexamination was also available when Celgene filed for one of its patents. Celgene’s pre-AIA patents were thus granted subject to existing judicial and administrative avenues for reconsidering validity. The court concluded that IPR proceedings do not significantly differ substantively or procedurally from pre-AIA challenges to effect a taking. Regents of the Univ. of Minn. v. LSI Corp., Nos. 18-1559 et al. (Fed. Cir. June 14, 2019). State sovereign immunity does not protect state-owned patents from IPR challenges. The University of Minnesota sued LSI among others for patent infringement and LSI and others petitioned for IPR. Before institution, the patentee filed a motion to dismiss based on sovereign immunity. An expanded panel of the PTAB concluded that sovereign immunity did apply to IPR proceedings but that the patentee waived its immunity by filing suit against the petitioners. The Federal Circuit (Dyk, J., joined by Wallach and Hughes, JJ.) affirmed, but held that sovereign immunity does not apply to IPRs. This followed the Federal Circuit’s recent decision in Saint Regis Mohawk Tribe v. Mylan Pharmaceuticals Inc., holding that IPRs were not barred by tribal immunity. The panel concluded that “differences between tribal and state sovereign immunity [did] not warrant a departure from the reasoning in Saint Regis.” Parallel to the analysis in Saint Regis, the court concluded that an IPR is more like an agency enforcement action, where sovereign immunity is not implicated, than like a private civil suit. Power Integrations, Inc. v. Semiconductor Components Indus., LLC d/b/a ON Semiconductor, No. 18-1607 (Fed. Cir. June 13, 2019)—Real-party-in-interest relationships arising after filing but before institution are considered for the § 315(b) statutory time-bar. In 2009, Power Integrations sued Fairchild Semiconductor for infringement. In late 2015, ON entered an agreement to merge with Fairchild. In March 2016 while the merger was pending, ON filed for an IPR against the patent being litigated against Fairchild. The merger closed later that year and, shortly after, the Board instituted the IPR. In its institution decision, the Board focused its § 315(b) analysis on whether ON and Fairchild were in privity when the petition was filed, holding that the mere agreement to merge did not create privity for the purpose of § 315(b). On appeal, the Federal Circuit (Prost, CJ, joined by Reyna and Stoll, JJ) reversed, holding that the “decision under § 315(b) is whether to institute or not.” The statute “specifically precludes institution, not filing” when time-barred parties are in privity. Thus, “relationships that may arise after filing but before institution [are] relevant to the § 315(b) time-bar.” AVX Corp. v. Presidio Components, Inc., 18-1106 (Fed. Cir. May 13, 2019)—Competitor standing is insufficient for Article III standing to appeal an IPR decision. Presidio and AVX are competitors in the market for electronic capacitors, and Presidio has repeatedly sued AVX for patent infringement. AVX preemptively filed an IPR against one of Presidio’s patents, although AVX did not yet have plans for a potentially infringing product. The Board held some claims unpatentable, but found AVX failed to meet its burden on others. AVX appealed, but the Federal Circuit (Taranto, J, joined by Newman and O’Malley, JJ) dismissed for lack of standing. The panel rejected AVX’s argument that the Board’s decision “reduces AVX’s ability to compete with Presidio” because, without plans for a product covered by the disputed claims, AVX had no “present or nonspeculative interest” in practicing the patent. As such, the panel held that AVX lacked Article III standing to appeal the Board’s decision. Automotive Body Parts Ass’n v. Ford Global Techs., No. 18-1613 (Fed. Cir. July 23, 2019): Showing that a design’s “aesthetic appeal” pleases consumers does not render it functional. Ford asserted that members of the Automotive Body Parts Association infringed its design patents, and the Association brought a declaratory action, alleging that the designs are primarily functional. The Association argued that car owners seeking to repair Ford trucks would desire replacement parts that matched the original part’s design. The district court rejected the Association’s arguments as effectively seeking to “eliminate design patents on auto-body parts.” The Federal Circuit (Stoll, J., joined by Hughes and Schall, JJ) affirmed, rejecting that consumer preference for replacement “hoods and headlamps that restore [a vehicle’s] original appearance” itself is a functional benefit. The court refused to apply the “aesthetic functionality” doctrine of trademark law to design patents, holding that, even if there is a “consumer preference for a particular design,” that aesthetic appeal “is inadequate to render that design functional.” 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: Allyson N. Ho – Dallas (+1 214-698-3233, aho@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) © 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.

June 24, 2019 |
Supreme Court Holds That A Federal Ban on “Immoral or Scandalous” Trademarks Violates the First Amendment

Click for PDF Decided June 24, 2019 Iancu v. Brunetti, No. 18-302 Today, the Supreme Court held 6-3 that the Lanham Act’s prohibition on the registration of “Immoral or Scandalous” trademarks infringes the First Amendment. Background: Two terms ago, in Matal v. Tam, 582 U.S. __ (2017), the Supreme Court declared unconstitutional the Lanham Act’s ban on registering trademarks that “disparage” any “person[], living or dead.”  15 U.S.C. § 1052(a).  The Court held that a viewpoint based ban on trademark registration is unconstitutional, and that the Lanham Act’s disparagement bar was viewpoint based (permitting registration of marks when their messages celebrate persons, but not when their messages are alleged to disparage).  Against that backdrop, Erik Brunetti, the owner of a streetwear brand whose name sounds like a form of the F-word, sought federal registration of the trademark FUCT.  The U.S. Patent and Trademark Office denied Brunetti’s application under a provision of the Lanham Act that prohibits registration of trademarks that “[c]onsist[] of or compromise[] immoral[] or scandalous matter.”  15 U.S.C. § 1052(a).  On Brunetti’s First Amendment challenge, the Federal Circuit invalidated this “Immoral or Scandalous” provision of the Lanham Act, on the basis that it impermissibly discriminated on the basis of viewpoint. Issue:  Does the Lanham Act’s prohibition on the federal registration of “Immoral or Scandalous” trademarks infringe the First Amendment right to freedom of speech? Court’s Holding:  Yes.  In an opinion authored by Justice Kagan on June 24, 2019, the Supreme Court held that the Lanham Act, which bans registration of “immoral … or scandalous matter,” violates the free speech rights guaranteed by the First Amendment because it discriminates on the basis of viewpoint. “If the ‘immoral or scandalous’ bar similarly discriminates on the basis of viewpoint, it must also collide with our First Amendment doctrine.” Justice Kagan, writing for the majority What It Means: The argument that the government advanced in this case—that speech is not restricted when you can call your brand or product anything you want even if you cannot get the benefit of federal trademark protection—will not save statutory bans on trademark registration that are viewpoint based. The Court made clear that its decision was based on the broad reach of the Lanham Act’s ban:  “[T]he ‘immoral or scandalous’ bar is substantially overbroad.  There are a great many immoral and scandalous ideas in the world (even more than there are swearwords), and the Lanham Act covers them all.”  In his concurring opinion, Justice Alito emphasized that the Court’s decision “does not prevent Congress from adopting a more carefully focused statute that precludes the registration of marks containing vulgar terms that play no real part in the expression of ideas,” thus leaving room for legislators to develop a more narrowly tailored alternative. Unless and until a new law is proposed and passed, however, the U.S. Patent and Trademark Office will have no statutory basis to refuse federal registration of potentially vulgar, profane, offensive, disreputable, or obscene words and images. As always, 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 Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com Mark A. Perry +1 202.887.3667 mperry@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 Related Practice: Fashion, Retail and Consumer Products Howard S. Hogan +1 202.887.3640 hhogan@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.

May 21, 2019 |
Gibson Dunn Recognized in 2019 Managing IP Handbook

The 2019 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 2019 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, D.C. partners Brian Buroker and Howard Hogan. Jane Love was also named to the Top 250 Women in IP 2019 list.

May 13, 2019 |
Federal Circuit Update (May 2019)

Click for PDF This edition of Gibson Dunn’s Federal Circuit Update summarizes key filings for certiorari or en banc review, as well as additional new Federal Circuit processes to address scheduling conflicts, for the period February through April 2019.  We also summarize recent Federal Circuit decisions concerning the patent eligibility of method of treatment claims, the impact of an inventor’s subjective views on the on-sale and prior use bars, and the constitutional and statutory standing requirements to appeal IPR decisions. Federal Circuit News Supreme Court: Decisions are pending from the Supreme Court for one patent case and one trademark case from the Federal Circuit.  In March, the Supreme Court also granted certiorari over an additional patent case from the Federal Circuit. Case Status Issue Amicus Briefs Filed Return Mail Inc. v. United States Postal Service, No. 17-1594 Argued on February 20, 2019. Whether the government is a “person” who may petition to institute review proceedings under the Leahy-Smith America Invents Act. 11 Iancu v. Brunetti, No. 18-302 Argued on April 15, 2019. Whether Section 2(a) of the Lanham Act’s prohibition on the federal registration of “immoral” or “scandalous” marks is facially invalid under the free speech clause of the First Amendment. 10 Iancu v. NantKwest Inc., No. 18-801 Petition for certiorari granted on March 4, 2019. Whether the phrase “[a]ll the expenses of the proceedings” in 35 U.S.C. § 145 encompasses the personnel expenses the PTO incurs when its employees, including attorneys, defend the agency in Section 145 litigation. – Noteworthy Petitions for a Writ of Certiorari: Acorda Therapeutics, Inc. v. Roxane Labs., Inc. (No. 18-1280):  Question presented:  “whether objective indicia of nonobviousness may be partially or entirely discounted where the development of the invention was allegedly ‘blocked’ by the existence of a prior patent, and, if so, whether an ‘implicit finding’ that an invention was ‘blocked,’ without a finding of actual blocking, is sufficient to conclude that an infringer has met its burden of proof.”  Acorda is represented by Ted Olson, Thomas Hungar, Amir Tayrani, and Jessica Wagner of Gibson Dunn. Ariosa Diagnostics Inc. v. Illumina Inc. (No. 18-109):  Question presented:  “Do unclaimed disclosures in a published patent application and an earlier application it relies on for priority enter the public domain and thus become prior art as of the earlier application’s filing date, or, as the Federal Circuit held, does the prior art date of the disclosures depend on whether the published application also claims subject matter from the earlier application?” RPX Corp. v. ChanBond LLC (No. 17-1686):  Question presented:  “Can the Federal Circuit refuse to hear an appeal by a petitioner from an adverse final decision in a Patent Office inter partes review on the basis of lack of a patent-inflicted injury in fact when Congress has (i) statutorily created the right to have the Director of the Patent Office cancel patent claims when the petitioner has met its burden to show unpatentability of those claims, (ii) statutorily created the right for parties dissatisfied with a final decision of the Patent Office to appeal to the Federal Circuit, and (iii) statutorily created an estoppel prohibiting the petitioner from again challenging the patent claims?” HP Inc. v. Berkheimer (No. 18-415):  Question presented:  “whether patent eligibility is a question of law for the court based on the scope of the claims or a question of fact for the jury based on the state of the art at the time of the patent.”  On January 7, 2019, the Supreme Court invited the U.S. Solicitor General to file a brief expressing the views of the United States.  Mark Perry of Gibson Dunn continues to serve as co-counsel for HP in this matter. Hikma Pharmaceuticals USA Inc. v. Vanda Pharmaceuticals Inc. (No. 18-817):  Question presented:  “whether patents that claim a method of medically treating a patient automatically satisfy Section 101 of the Patent Act, even if they apply a natural law using only routine and conventional steps.”  On March 18, 2019, the Supreme Court invited the U.S. Solicitor General to express the views of the United States. Other Federal Circuit News On March 22, 2019, the New York Intellectual Property Law Association held the 97th Annual Dinner in Honor of the Federal Judiciary.  The Honorable Kathleen O’Malley of the Federal Circuit was honored with the 17th Annual Outstanding Public Service Award. The annual Federal Circuit Bench and Bar Conference will take place June 12–15, 2019, at the Broadmoor in Colorado Springs, CO. Federal Circuit Practice Update New Process for Notifying Counsel of Accepted Scheduling Conflicts: On December 10, 2019, the Federal Circuit announced revisions to its process for advising it of scheduling conflicts.  Those changes were summarized in our January 2019 newsletter. The Federal Circuit has now issued a follow-up announcement, discussing the new process for notifying counsel of accepted scheduling conflicts: The Federal Circuit will continue to review Responses to Notice to Advise of Scheduling Conflicts to determine whether conflicts are accepted. Only accepted conflict dates will be indicated on the public docket.  Submitted conflict dates that are not accepted will not be listed on the public docket. The non-acceptance of a submitted conflict date does not mean that oral argument necessarily will be scheduled on that date. The Federal Circuit’s notice can be found here. Key Case Summaries (February 2019–April 2019) Natural Alternatives Int’l, Inc. v. Creative Compounds, LLC, No. 18-1295 (Fed. Cir. Mar. 15, 2019): Claims to treatment methods using existing products in new ways are patent eligible. Natural Alternatives’ patents relate to the use of the amino acid beta-alanine as a supplement to increase muscle capacity.  The district court granted judgment on the pleadings that the claims are ineligible as directed to the natural law that ingesting beta-alanine (a natural substance) will increase the carnosine concentration in human tissue and thereby increase muscle capacity. The Federal Circuit (Moore, J., joined by Wallach, J.; Reyna, J., dissenting in part) reversed.  The majority reasoned that the claims not only “embody” the “discovery” that administering certain quantities of beta-alanine alters a human’s natural state, but also require that an infringer actually administer the dosage claimed in the manner claimed to provide the described benefits.  Citing Vanda Pharms. Inc. v. West-Ward Pharms. Int’l Ltd. (Fed. Cir. 2018)—addressed in our January 2019 Update and pending petition for writ of certiorari—the majority reasoned that, because the claims specify a compound and dosages, they go “far beyond merely stating a law of nature, and instead set[] forth a particular method of treatment,” rendering them patent eligible at step one of the Alice inquiry.  The decision thus continues the Federal Circuit’s recent practice of distinguishing claims written as “methods of treatment” (held patent eligible) from those worded in “diagnostic” terms (held ineligible in Mayo).  The majority also ruled that “factual impediments” exist in analyzing step two of the Alice inquiry, such that disputed questions of eligibility “may not be made on a motion for judgment on the pleadings.”  This is challenged in the pending HP Inc. v. Berkheimer certiorari petition prepared by Gibson Dunn (see above). Endo Pharmaceuticals Inc. v. Teva Pharmaceuticals USA, Inc., Nos. 2017-1240, 1455-1887 (Fed. Cir. Mar. 28, 2019):  Claims to treatments relying on natural laws can be patent eligible. Two weeks after Natural Alternatives was decided, another Federal Circuit panel (Wallach, Clevenger, and Stoll, JJ.) continued the Court’s view that “methods of treatment” can avoid ineligibility under Mayo and Alice.  In Endo, the claims relied on the relationship between the body’s rate of clearing the metabolite creatine and the rate for clearing opioids.  The method required measuring a patient’s creatine clearance rate and then administering an opioid based on that rate.  Citing Vanda Pharmaceuticals, the panel reversed the district court’s finding of ineligibility.  As the panel reasoned, method of treatment claims like in Endo and Vanda can be distinguished from Mayo in that, while the claims in Mayo merely required “giving [a] drug to a patent with a certain disorder,” the claims in Endo and Vanda require giving a specific dose of the drug based on specific testing.  According to the panel, such claims are eligible because they are “directed to a specific method of treatment for specific patients using a specific compound at specific doses to achieve a specific outcome” whether or not steps are governed by natural laws. Barry v. Medtronic, Inc., No. 2017-2463 (Fed. Cir. Jan. 24, 2019):  An inventor’s subjective and unclaimed “intended purpose” for an invention can determine public use and on-sale bars. More than a year before filing, Dr. Barry successfully used his claimed surgical method on three patients.  He then saw each patent for follow-up appointments that he deemed necessary to determine if his method worked, with two of the appointments also falling outside the pre-AIA Section 102(b) grace period.  It was only after the third of these appointments, which was within the Section 102(b) grace period, that Dr. Barry felt confident that his invention functioned for its intended purpose.  Accordingly, the district court held that his earlier actions did not constitute invalidating public use or sales (i.e., that the invention was not “ready for patenting” earlier). The Federal Circuit majority (Taranto, J., joined by Moore, J.) affirmed that the invention was not “ready for patenting” before the critical date and that the surgeries fell in the experimental-use exception to “on sale” and “public use” bars.  The majority concluded that Dr. Barry did not reduce his invention to practice until the final postoperative follow-up because that follow up was “reasonably needed” to determine if the invention worked for its “intended purpose.” In dissent, Chief Judge Prost argued that the “ready for patenting” requirement that defines the statutory bars is distinct from “reduction to practice” and meant to answer whether the inventor could have obtained a patent.  According to the dissent, Dr. Barry’s method was ready to patent after the first two surgeries and follow-ups, if not after the first.  Dr. Barry charged his usual fee for the surgeries, and the patients were not told that the surgery was experimental.  The early surgeries worked, and no multiple surgery or follow up requirement or “purpose” was claimed. On April 29, 2019, Medtronic’s petition for panel rehearing and rehearing en banc was denied, leaving stand the panel majority decision that gives strong weight in determining Section 102 bars to the inventor’s subjective view of whether an invention works for its “intended purpose.” Mylan Pharms. Inc. v. Research Corp. Techs., Inc., Nos. 2017-2088, -2089, -2091 (Fed. Cir. Feb. 1, 2019):  Joined parties can appeal adverse IPR decision without initial petitioner. An initial Petitioner timely filed an IPR, but had not been threatened with infringement and thus lacked Article III standing to appeal.  Three days after the Board instituted the initial petition, three other companies filed for joinder under 35 U.S.C. § 315(c).  Each joining company had been sued for infringement more than a year earlier, and thus, absent joinder, their petitions were otherwise time barred.  After an adverse decision from the Board, the initial petitioner did not appeal, leaving only the joined parties to appeal.  The patentee objected that, absent the initial petitioner, the joined parties lacked standing and did not “fall within the zone of interests of 35 U.S.C. § 319”—i.e., absent the initial petitioner, their own petitions were allegedly time barred. The Federal Circuit (Lourie, Bryson, and Wallach, JJ.) disagreed.  As the panel explained, Section 315 allows entities to be joined “as a party” and Section 319 gives a “party” a right to appeal.  Thus, even absent the initial petitioner, the joined parties fell “within the zone of interests of § 319 and are not barred from appellate review.” Momenta Pharma v. Bristol-Myers Squibb Co., No. 2017-1694 (Fed. Cir. Feb. 7, 2019):  IPR petitioner lacked standing for appeal after it suspended plans for a competing product. Momenta petitioned for IPR of a patent covering the immunosuppressant Orencia.  At the time, Momenta was planning a biosimilar, which it had in clinical trials.  But by the time of appeal, Momenta had suspended its development plans after its competing product failed Phase 1 trials.  The Federal Circuit (Newman, Dyk, and Chen, JJ.) held that Momenta thus lacked the present “concrete and particularized” interest required for Article III standing.  The panel rejected the argument that the patent could impact future development, finding a generalized threat of harm fell short of an “impending” injury: “[T]he cessation of potential infringement means that Momenta no longer has the potential for injury, thereby mooting the inquiry.”  Taken with Mylan above, Momenta illustrates that, while statutory standing may be durable, constitutional standing for Article III courts must be preserved up to and through appeal. 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: Allyson N. Ho – Dallas (+1 214-698-3233, aho@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) © 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.

April 17, 2019 |
Wayne Barsky Named a Top Intellectual Property Lawyer of 2019

The Daily Journal named Century City partner Wayne Barsky to its list of the Top Intellectual Property Lawyers of 2019.  Barsky was recognized for “patent litigation in the life science, pharmaceutical and medical device industries, representing high-profile clients in federal courts and before the U.S. International Trade Commission.” The feature was published on April 17, 2019. A Co-Chair of Gibson Dunn’s Intellectual Property Practice Group, Barsky focuses on patent litigation and has extensive trial and appellate experience in federal courts throughout the country.  Routinely called upon in high-profile cases, Barsky has represented clients in more than 100 patent infringement actions.

March 4, 2019 |
Supreme Court Holds Recovery Of “Full Costs” Under Copyright Act Is Limited To Those Costs Enumerated In The General Costs Statute

Click for PDF Decided March 4, 2019 Rimini Street, Inc. v. Oracle USA, Inc., No. 17-1625  Today, the Supreme Court unanimously held that a provision in the Copyright Act authorizing a prevailing party to recover “full costs” entitles that party to recover only those categories of costs enumerated in 28 U.S.C. §§ 1821 and 1920, and not all litigation expenses. Background: While the so-called “American rule” generally provides that each party in litigation must bear its own costs, federal law sets out six discrete and exclusive categories of costs which a court may, in its discretion, award a prevailing party.  28 U.S.C. §§ 1821, 1920.  Those categories include clerk and marshal fees, transcript fees, fees for printing and witnesses, certain fees for exemplification and copies, designated docket fees, and fees for court-appointed experts and interpreters.  Section 505 of the Copyright Act states, “In any civil action under [the Copyright Act], the court in its discretion may allow the recovery of full costs by or against any party . . . . [T]he court may also award a reasonable attorney’s fee to the prevailing party as part of the costs.” 17 U.S.C. § 505. Oracle sued Rimini Street for infringing its copyright and prevailed in part. The district court awarded Oracle nearly $5 million in costs and nearly $12.8 million in additional expenses, including expert witness fees, jury consultant fees, and other expenditures not enumerated in Sections 1821 and 1920. The Ninth Circuit affirmed the award of these additional litigation expenses, holding that the phrase “full costs” in the Copyright Act authorizes an award of costs beyond those categories set forth in Sections 1821 and 1920. Issue:  Whether the Copyright Act provision permitting an award of “full costs” to the prevailing party authorizes an award of expert witness fees, e-discovery expenses, jury consulting fees, and other litigation expenses not authorized as costs under 28 U.S.C. §§ 1821 and 1920. Court’s Holding:  No. The term “full costs” in Section 505 of the Copyright Act refers to the specific categories of costs defined in 28 U.S.C. §§ 1821 and 1920, and a prevailing party may not recover litigation expenses outside those categories. “[T]he term ‘costs’ refers to the costs generally available under the federal costs statute—§§ 1821 and 1920. ‘Full costs’ are all the costs generally available under that statute.” Justice Kavanaugh, writing for the unanimous Court Gibson Dunn represented the winning parties: Rimini Street, Inc. and Seth Ravin What It Means: The Court’s opinion reaffirms that “costs” is a term of art that encompasses only the specific categories of costs enumerated in 28 U.S.C. §§ 1821 and 1920. A statute will not be interpreted as expanding the categories of recoverable costs unless Congress expressly so provides. A statutory provision authorizing the recovery of “full costs” does not expressly expand the categories of recoverable costs beyond those enumerated in 28 U.S.C. §§ 1821 and 1920.  “Full” is an adjective that describes the quantity or amount of the noun “costs,” and so the term “full costs” does not change the meaning of “costs”—the categories of expenses set forth in Sections 1821 and 1920—but instead simply permits an award of all costs otherwise recoverable under those provisions. The Court rejected Oracle’s argument that there was any historical justification for interpreting the term “full costs” to expand the categories of recoverable expenses. As Gibson Dunn successfully argued, none of the more than 800 copyright decisions awarding costs between 1831 and 1976 (when the Copyright Act was amended) awarded expenses other than those specified by state or federal law. The Court’s decision will prevent parties in Copyright Act cases from inflating their recoveries with broad, unbounded awards of litigation expenses, such as expert witness fees, e-discovery expenses, and jury consulting fees. Parties will instead be limited to recovering the specific categories of expenses explicitly authorized by Congress in Sections 1821 and 1920, along with attorneys’ fees. 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 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

March 4, 2019 |
Supreme Court Holds That Copyright Owners May Not Sue For Infringement Until Copyright Office Processes Registration

Click for PDF Decided March 4, 2019 Fourth Estate Public Benefit Corp. v. Wall-Street.com, No. 17-571  Today, the Supreme Court held 9-0 that the Copyright Act requires copyright owners to wait until the Copyright Office has approved or denied an application for registration before bringing an infringement action. Background: The Copyright Act allows the owner of a copyright claim to register the claim with the Copyright Office.  Section 411(a) of the Act provides that a suit for copyright infringement may not be filed “until preregistration or registration of the copyright claim has been made” or “refused.”  Petitioner Fourth Estate, a news organization, filed applications with the Copyright Office to register copyright claims for articles written by its journalists.  Before the Copyright Office acted on the applications, Fourth Estate sued Wall-street.com for copyright infringement for displaying the articles on its website without a license.  Wall-street.com moved to dismiss the suit as premature, arguing that Section 411(a) barred Fourth Estate from suing for infringement until the Copyright Office approved or denied its application for copyright registration. Issue:  Has a copyright claim been “regist[ered]” with the Copyright Office, so that the copyright owner can commence an infringement suit, when the copyright owner delivers the required application, deposit, and fee to the Copyright Office, or only once the Copyright Office acts on that application. Court’s Holding: A copyright claim is not “regist[ered]” with the Copyright Office, and the copyright owner may not file an infringement suit, until the Copyright Office has processed the application. “If infringement occurs before a copyright owner applies for registration, that owner may eventually recover damages for the past infringement, as well as the infringer’s profits. . . . She must simply apply for registration and receive the Copyright Office’s decision on her application before instituting suit.” Justice Ginsburg, writing for the unanimous Court What It Means: The Court acknowledged that waiting for the Copyright Office to process an application to register a copyright claim could take “many months,” delaying enforcement and allowing infringement to continue during the delay.  The Court attributed these delays to “staffing and budgetary shortages that Congress can alleviate, but courts cannot cure.” The Court nevertheless emphasized that copyright owners may obtain monetary relief to remedy any infringement that occurs before registration is complete.  That relief could include actual damages or the infringer’s profits.  But the Court did not address the effect of its decision on the more typical remedy, statutory damages.  Section 412 of the Copyright Act limits the availability of that remedy when infringement occurs before the copyright holder registers its copyright claim. To avoid delay, copyright owners now have a greater incentive to seek registration earlier, rather than waiting until litigation is imminent.  Copyright owners can also pay an $800 special-handling fee to expedite processing of their application for registration.  In addition, the Copyright Act provides carve-outs that allow owners of certain works “especially susceptible to prepublication infringement”—including movies, musical compositions, and live broadcasts—to sue for infringement before the Copyright Office has acted on an application. Prior to the decision, some circuits had allowed copyright owners to commence infringement suits while an application for registration was pending, without waiting for the Copyright Office to process the application.  The decision leaves uncertain the effect of the Court’s ruling on currently pending infringement suits in those circuits that would have been considered timely when filed. 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 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 Related Practice: Media, Entertainment and Technology Scott A. Edelman +1 310.557.8061 sedelman@gibsondunn.com Kevin Masuda +1 213.229.7872 kmasuda@gibsondunn.com Orin Snyder +1 212.351.2400 osnyder@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.

February 21, 2019 |
Media, Entertainment and Technology Group Outlook and Review – 2019

Click for PDF With an active end to 2018 and a quick start to 2019, we have had no shortage of material to report on for our semi-annual Media, Entertainment & Technology Practice Group Update.  From remasters (of pre-1972 recordings) to remand (“Stairway to Heaven”), and from Tweets (Stormy Daniels v. Trump) to retweets (Joy Reid).  There was M&A and the passage of the MMA—the Music Modernization Act, enacted to facilitate the accounting and payment of royalties in the digital streaming era.  Cert denials cemented notable rulings regarding California’s right of publicity, copyright fair use, and the DMCA.  And in trademark law, the Supreme Court’s 2017 ruling in Matal v. Tam continued to make waves.  Here, then, are the deals, rulings, and regulatory actions that capture current legal trends and will define future industry movement. I.    Transaction & Regulatory Overview A.    M&A 1.    Disney’s Acquisition of Twenty-First Century Fox Races to Completion On July 27, 2018, Disney and Fox shareholders voted to approve the acquisition of the majority of Twenty-First Century Fox, Inc. by The Walt Disney Company for $71.3 billion in cash and stock.[1]  The U.S. Department of Justice had already approved the arrangement between Disney and Fox, on June 27, 2018, with the stipulation that Disney must sell Fox’s regional sports networks.[2] Through the latter half of 2018, a number of foreign regulatory bodies evaluated the Disney-Fox merger.  The Competition Commission of India approved the merger of Star India and related assets (Fox Star Studios and National Geographic channels) in August 2018.[3]  The European Commission’s approval of Disney’s purchase of Twenty-First Century Fox assets followed in November 2018, subject to the condition that Disney discharge its A&E channels in Europe to address concerns that the deal with Fox would remove competition with respect to factual channels.[4]  China unconditionally approved the Disney-Fox deal in November 2018.[5]  Despite lingering approvals required from other regulators, approval from the United States, the European Union, and China were thought to be the most important obstacles to clear.[6] Brazil’s antitrust regulator Cade (Administrative Council for Economic Defense) noted on December 3, 2018 that the Disney-Fox deal raised concerns “about undermining competition in the cable television market,” specifically regarding concentration in the market of cable sports channels.[7]  Cade recommended remedial measures and has until March 2019 to issue a decision (which deadline can be extended for 90 days).[8]  On January 4, 2019, Bloomberg Law reported that Cade is expected to approve the proposed merger between Disney and Fox without asking for any asset sale.[9]  Disney and Fox were expected to present a proposal including offers to change behavior to facilitate approval of the deal.[10]  Regulators returned from year-end recess on January 30, 2019.[11]  Despite meetings between Bob Iger, Disney’s Chief Executive Officer, and representatives of CADE in early February 2019, Cade has not issued a decision as of February 12, 2019.[12]  Brazilian regulators remain divided on whether the deal can be approved without Disney’s sale of one of its two sports channels in the country (Fox Sports and ESPN), with reports that some Cade board members still view behavioral remedies as the path to approval.[13]  Bloomberg reports that the deadline for a decision from Cade is March 17, 2019, though an extension can be requested if the case isn’t discussed at Cade’s upcoming February 27 meeting.[14] At the end of 2018, Disney and Fox also awaited authorization of regulatory authorities in Mexico, with speculation of regulations due to the likelihood that this deal will monopolize sports TV and that Disney, after the acquisition, would own 28% of the content distribution market in Mexico.[15]  On January 31, 2019, Mexico’s Federal Economic Competition Commission approved the Disney-Fox merger after Disney agreed to sell its share of Walt Disney Studios Sony Pictures Releasing de México to Sony Pictures Releasing International Corporation.[16] Twenty-First Century Fox announced its filing of a registration statement for Fox Corporation, the new Fox entity to be spun off in connection with the merger, with the SEC on January 7, 2019.[17]  At the end of January 2019, as per a filing with the SEC, Disney expects the Disney-Fox deal to close by June 2019,[18] though other sources expect the deal to close in February or early March 2019.[19] 2.    Universal and Lionsgate Expand on Prior Collaborations On August 6, 2018, Universal Music Group (“UMG”) announced a multi-year, first-look television deal with Lionsgate.[20] Under the deal, Lionsgate and Polygram Entertainment, UMG’s film and television production and development division, will create original scripted and unscripted television projects drawn from UMG’s catalogue of music, labels, and artists.[21] David Blackman, the head of Polygram Entertainment, stated that “[w]ith this partnership, we’ll continue to expand the definition of music-driven stories—whether that means narratives set against entire scenes of eras of music, or projects driven by our artists’ catalogues.”[22] UMG will also produce soundtrack albums associated with the projects.[23] This deal builds on the companies’ past successful collaborations, which includes film scores and soundtracks to La Land, Hunger Games, and Divergent.[24] Additionally, the announcement came days after Universal Music Publishing Group executed an exclusive administration deal to represent Lionsgate’s music publishing properties and administer its music rights.[25] 3.    Sinclair and Tribune Sue Each Other Over Failed Merger In August 2018, Tribune Media Co. terminated its agreement to be acquired by Sinclair Broadcast Group and filed suit against Sinclair, seeking approximately $1 billion in damages for Sinclair’s alleged failure to fulfill its obligation under their merger agreement to use its reasonable best efforts to obtain regulatory approval.  The $3.9 billion deal, which was announced in May 2017, would have created a company that owned television stations in 108 markets, covering 72% of U.S. homes.[26]  Before the agreement was terminated, the U.S. Federal Communications Commission issued an order stating there were “substantial and material questions of fact” as to whether “Sinclair engaged in misrepresentation and/or lack of candor in its applications with the Commission” and referred review of the acquisition to an administrative law judge.[27] Tribune alleged in its lawsuit that “in an effort to maintain control over stations it was obligated to sell, Sinclair engaged in unnecessarily aggressive and protracted negotiations with the [government] over regulatory requirements, refused to sell stations in the markets as required to obtain approval, and proposed aggressive divestment structures and related-party sales that were either rejected outright or posed a high risk of rejection and delay—all in derogation of Sinclair’s contractual obligations.”[28]  Sinclair has called the lawsuit meritless, saying that it fully complied with its obligations under the merger agreement and that Tribune is trying “to capitalize on an unfavorable and unexpected reaction from the Federal Communications Commission to capture a windfall.”[29]  Sinclair also filed a countersuit against Tribune, alleging Tribune breached its obligation under their merger agreement to use its reasonable best efforts to obtain regulatory approval by prioritizing its litigation strategy against Sinclair at the expense of its cooperation with Sinclair to try to close the merger.[30] 4.    Nexstar Agrees to Acquire Tribune A few months after the failure of its merger with Sinclair, Tribune found a new buyer. In December 2018, Tribune signed a deal to be acquired by Nexstar Media Group for $4.1 billion in cash.[31]  If completed, the deal, which is worth $6.4 billion including the assumption of Tribune’s debt, would make Nexstar the largest regional U.S. TV station operator.[32]  Tribune shareholders will receive an additional 30 cents per share per month in consideration (less any dividends paid by Tribune) if the merger does not close by August 31, 2019.[33]  In order to get U.S. Federal Communications Commission approval for the merger, Nexstar said it plans to divest some of the more than 200 television stations that would be owned by the combined company, including stations in 13 of the 15 markets in which both Tribune and Nexstar currently own stations.[34] 5.    Sky Auction Draws to a Close The nearly two-year battle to acquire the European pay-TV broadcaster Sky PLC drew to an end in September 2018, with Comcast prevailing over Twenty-First Century Fox (which was backed by Disney due to the Fox acquisition).[35]  Fox, which held a 39% stake in Sky, was the first to offer a bid in December 2016, but faced delays due to the prolonged regulatory review in the U.K.[36]  Comcast thereafter made its own offer, with each company making competing bids thereafter until they deadlocked at $34 billion.[37]  The stand-off exceeded the September 22, 2018 deadline imposed by U.K. regulators and triggered a rare blind auction to force the companies to disclose their best offers.[38]  The auction was a one-day bidding process that lasted three rounds and required sealed bids with cash-only offers.[39]  After the bidding closed, it would be left to the Sky shareholders to accept either offer.[40] In the final round in September 2018, Comcast outbid Fox by $3.6 billion, offering a total of $38.8 billion.[41]  Comcast officially acquired Sky on October 9, 2018, by purchasing more than 75% of the company’s shares, including the 39% stake that Fox previously owned.[42] 6.    Microsoft Studios Acquires Six Video Game Development Studios and Founds a Seventh in 2018 On November 10, 2018, Microsoft Studios announced its acquisition of two video game development studios, Obsidian Entertainment and inXile Entertainment, for undisclosed amounts.[43]  Both studios are known for their development of role-playing games (RPGs), such as Obsidian’s Fallout: New Vegas and Star Wars Knights of the Old Republic II: The Sith Lords and inXile’s Wasteland series.[44]  The acquisitions followed the June 2018 announcement of Microsoft’s founding of a new video game studio, The Initiative, and its acquisitions of four other gaming developers: Compulsion Games (We Happy Few), Ninja Theory (Hellblade: Senua’s Sacrifice), Undead Labs (State of Decay series), and Playground Games (Forza Horizon series).[45]  Microsoft now owns thirteen gaming development studios.[46] B.    SVOD Update 1.    Diversification, Even More Original Content, and Increased Competition In July 2018, Netflix collected 112 Emmy nominations (across 40 different shows),[47] further illustrating its prioritization of original content to propel growth and influence in the streaming video on demand (SVOD) industry.  By October, Netflix had spent over $8 billion on content in 2018, and announced plans to offer another $2 billion in senior notes on October 22, 2018 to be used “for general corporate purposes, which may include content acquisitions, production and development, capital expenditures, investments, working capital and potential acquisitions and strategic transactions.”[48] Hulu and Amazon have also positioned themselves for continued growth through expansion of original content in early 2019.  Following Disney’s acquisition of Fox, Disney will own a 60% stake in Hulu, and, along with the potential integration of additional Fox content, Disney plans to use its expanded influence to invest in more original content for Hulu and promote international expansion of the service.[49]  Additionally, a study by Ampere Analysis from September 2018 revealed that Amazon’s current plans for new original programming will almost double its original content, with over 100 upcoming projects that will supplement the 105 original programs currently on its roster.[50] In addition to these efforts to expand original content, the latter half of 2018 was marked by efforts to shake up the SVOD industry with numerous new entrants.  In October 2018, AT&T announced that it would be releasing a streaming service in late 2019;[51] in November 2018, Disney officially confirmed that its upcoming streaming service will be called Disney+ and will be launching in late 2019.[52] 2.    Katzenberg & Whitman Launch Short-Form Streamer Quibi Quibi, a new streaming service led by Jeffrey Katzenberg and Meg Whitman, plans to create a library of high-quality, short-form videos for viewing on mobile devices.  Named for the “quick bites” of entertainment it will broadcast, the service plans to launch at the end of 2019 with 5,000 unique pieces of content, each 10 minutes or less, specifically designed to be viewed on a phone.[53]  Despite being nearly a year away from its anticipated launch date, Quibi is already attracting top talent, including Oscar-winning director Guillermo del Toro, Twilight and Lords of Dogtown director Catherine Hardwicke and Spider-Man director Sam Raimi. Incubated at WndrCo, the consumer technology holding company and venture investor, Quibi raised $1 billion in August 2017 from major Hollywood studios, a number of independent television studios and major technology companies.  The aim of such investments, in part, is to allow Quibi to tap into the studios’ creative talent and resources and the technology companies’ innovations like 5G broadband, big data and analytics.  [Disclosure: Gibson Dunn represents WndrCo and Quibi.] C.    China Update 1.    Open Road Films Files for Chapter 11 Bankruptcy On September 6, 2018, Open Road Films LLC, the North American film distributor known for its release of independent films such as the Best Picture Academy Award-winning film Spotlight, and its affiliated entities filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware, reporting approximately $141 million in liabilities.[54]  In August 2017, Tang Media Partners, the Shanghai and Los Angeles-based investment group, had acquired Open Road Films from AMC Entertainment and Regal Entertainment Group for approximately $28.8 million.[55]  This acquisition followed Tang Media Partners’ previous acquisition in summer 2016 of IM Global, a film finance and sales agency, and the related launch of a television joint venture, IM Global Television, with Chinese technology firm Tencent Holdings.[56]  Announcing its plans to combine Open Road Films, IM Global, and IM Global Television under one brand, Tang Media Partners launched Global Road Entertainment in October 2017 as a global content company with a particular focus on the development, production, and distribution of film and television content that would bridge the U.S. and China markets.[57]  In February 2018, Global Road announced a commitment of $1 billion to production finance over three years,[58] but the studio struggled to raise the capital needed to complete the Global Road restructure and suffered from poor box office performance.[59]  In July 2018, Tang Media Partners cut off additional funds to Open Road Films,[60] and shortly thereafter bank lenders froze its cash assets.[61] On December 19, 2018, the U.S. Bankruptcy Court for the District of Delaware approved the asset sale by Open Road, including its library of around 45 films, for approximately $87.5 million to stalking horse bidder Raven Capital Management.[62] 2.    Tencent’s China Literature Acquires New Classics Media for $2.25 Billion On August 13, 2018, China Literature, the publicly listed e-books company that was spun off by Tencent Holdings in November 2017, announced that it would wholly acquire the film and television production company New Classics Media for approximately $2.25 billion.[63] A prolific production company, New Classics Media is known for producing Chinese television series and blockbuster films, including Hello Mr. Billionaire,[64] which was one of last year’s five highest-grossing films at China’s box office, earning $367 million.[65] In March 2018, Tencent had previously purchased a 27 percent stake in New Classics Media from Beijing Enlight Media, an investment that was designed to unlock content for Tencent’s streaming-video platform, Tencent Video.[66] In announcing the buyout of the remaining equity interest in New Classics Media, Tencent cited its desire to join New Classics Media’s production expertise with China Literature’s extensive literary library, considering that a third of the top 50 films and a quarter of the top TV series in China are literary adaptations.[67] The acquisition marked yet another strategic investment in the entertainment sector by Tencent, which, in addition to its own film distribution and production unit, holds minority equity stakes in a number of entertainment companies, including the China-based studios Huayi Brothers Media and Bona Film Group and the U.S.-based entertainment companies Skydance Media and STX Entertainment.[68] 3.    Tencent Music Entertainment Raises $1.1 Billion in its U.S. IPO Following a delay of its planned IPO in October 2018, due to a downturn in technology stocks and a rise in global market volatility fueled, in part, by U.S.-China trade tensions, Tencent Music Entertainment, the online music division controlled by Tencent Holdings, raised $1.1 billion through its U.S. IPO last December, with an implied valuation of $21.3 billion.[69]  Tencent Holdings created Tencent Music after acquiring a controlling interest in China Music Corporation in 2016, which Tencent Holdings then combined with its own music streaming business.[70]  Tencent Music offers the largest music-streaming service in China, and the company focuses on three main offerings: music streaming, online karaoke, and live-streamed performances.  At the time of its IPO, Tencent Music reported over 800 million unique monthly active users,[71] but, unlike traditional subscription-based models, only a small percentage of these users are paying subscribers.[72]  In Q2 2018, the company earned over 70% of its revenue through in-app tipping, virtual gifts, and other music-related “social entertainment services.”[73] 4.    The Dalian Wanda Group Scales Back AMC Ownership As Chinese regulators continue their efforts to retrench Chinese companies’ foreign investments, it was announced on September 14, 2018 that the Dalian Wanda Group would be curtailing its equity interest in AMC Entertainment,[74] which Wanda acquired in 2012 for $2.6 billion.[75] AMC Entertainment repurchased around a third of the shares owned by Wanda and raised $600 million from private equity firm Silver Lake Partners through the issuance of unsecured convertible notes.[76] Following the transaction, Wanda owns around 50% of AMC shares; however, upon a full conversion of the notes, Wanda’s ownership stake in AMC would fall to around 38%.[77] II.    Legislative & Regulatory Updates A.    Music Modernization Act Enacted into Law In October 2018, the Music Modernization Act, the most sweeping update to copyright law in decades, was signed into law, introducing reforms that were designed to modernize copyright law for the digital streaming era.[78]  The bill unanimously passed both houses of Congress and had widespread support among record labels, musicians, and digital service providers.[79]  The act has three main pieces of legislation combined together: First, the Music Modernization Act creates a formalized non-profit agency, the Mechanical Licensing Collective, run by major music publishers, which creates a comprehensive database of recordings and then administers the mechanical license of recordings streamed on services like Spotify, Amazon Music, Google Play, and Tidal.  Rather than identifying who holds the mechanical license to a particular track, this agency will be responsible for establishing blanket royalty rates that would be used to pay the composers and songwriters for interactive streaming or digital downloads.  The legislation also revamps the rate court process when there are disputes over royalty rates by allowing disputes to be adjudicated by a randomly assigned district judge in the Southern District Court of New York, instead of being assigned to a single rate court judge. Second, the Compensating Legacy Artists for their Songs, Service, and Important Contributions to Society (“CLASSICS”) Act ensures that sound recordings made before 1972 are covered by federal copyright law until February 15, 2067.  Previously, sound recordings made prior to February 15, 1972 did not receive federal copyright law protection.  Because some state laws granted these recordings copyright protection and others did not, the CLASSICS Act is intended to address this patchwork of state laws.  Musicians will now have the opportunity to receive royalties for songs recorded before 1972.  The statute also ensures that older songs will enter the public domain.  Recordings made before 1923 will enter the public domain after a three-year period, with recordings from 1923 to 1956 entering within the next few decades. Finally, the Allocation for Music Producers (“AMP”) Act improves royalty payouts for producers, mixers, and sound engineers from SoundExchange, the non-profit organization established by Congress that distributes royalties on sound recordings, when their sound recordings are used on streaming services or digital downloads.  Notably, this is the first time that music producers have ever been mentioned in federal copyright law.[80] Regulations are currently being drafted to implement the provisions of the Music Modernization Act, and we will be watching closely to see how those regulations give effect to the Act, and how such provisions begin to be interpreted by the courts. B.    DOJ Opens Review of Paramount Consent Decrees In October 2018, the Department of Justice opened a review of the Paramount Consent Decrees that for over seventy years have regulated how certain movie studios distribute films to movie theaters.[81]  In 1938, the DOJ brought an antitrust suit against the major movie picture studios at the time (including Paramount, MGM, Universal, Columbia Pictures (now Sony), 20th Century Fox, United Artists, and Warner Brothers), alleging that they had conspired to control the industry through their ownership of film distribution and exhibition.  A decade later, the Supreme Court ruled in United States v. Paramount Pictures, Inc. that the studios had engaged in a widespread conspiracy and required that each studio enter into a consent decree with the DOJ, now known as the “Paramount Consent Decrees.”[82]  The studios were mandated to divest their distribution operations or movie theaters and, going forward, they were not permitted to both distribute movies and own theaters without prior court approval.  The decree also set limits on other practices such as circuit dealing and setting minimum pricing, and the practice of giving exclusive film licenses for certain geographic areas. The premise of the Department of Justice’s review is that the motion picture industry has changed considerably since the Paramount Consent Decrees were entered.[83]  For example, unlike the movie palaces seventy years ago that had one screen and showed one movie at a time, there are now multiplex theaters that have multiple screens showing movies from numerous different distributors at the same time.  Consumers today are also not limited to watching movies in theaters and have the ability to view movies on cable and broadcast television, DVDs, and over the Internet through streaming services.  The Department of Justice recently completed a thirty-day review period for public comment and is now determining whether these decrees should be modified or terminated altogether, which might lead to structural changes in the industry or encourage consolidation. C.    Supreme Court Declines Appeal Against Net Neutrality Laws On November 5, 2018, the Supreme Court denied a petition for writ of certiorari brought by the Trump administration and the telecommunications industry to overturn a D.C. Circuit ruling that had upheld Obama Administration-era net neutrality rules.[84]  Two years ago, the D.C. Circuit held that the Federal Communications Commission (“FCC”) had proper authority to reclassify broadband internet under Title II of the Telecommunications Act and could promulgate rules requiring internet service providers to offer equal access to all web content regardless of who build the facilities that allow that data to be disseminated.[85]  The Supreme Court’s refusal to take up the appeal does not affect a pending challenge to the 2017 repeal of net neutrality rules by the now Republican-led FCC.  The D.C. Circuit heard oral arguments in that case on February 1, 2019, with a decision expected by this summer.[86] In response to the FCC’s net neutrality repeal, some states have taken legislative action.  In September 2018, California passed a net neutrality bill seeking to restore internet access rules.  The Justice Department swiftly sued the state, alleging that Congress granted the federal government, through the FCC, the sole authority to create rules for internet service providers.[87]  A month later, California reached an agreement with the DOJ to stay the lawsuit until the D.C. Circuit issues its ruling on the pending challenge to the FCC’s 2017 repeal of federal net neutrality rules.[88] III.    Recent Litigation Highlights A.    Music Industry 1.    Ninth Circuit Holds Remasters Do Not Defeat Plaintiff’s Copyright Claims On August 20, 2018, the Ninth Circuit overturned the district court’s grant of summary judgment in favor of CBS Corporation in a state-law copyright infringement suit brought by Plaintiff ABS Entertainment, sending the case back to district court for further proceedings.[89]  On August 17, 2015, plaintiffs had filed a putative class action against CBS alleging violations of California state law that protects plaintiffs’ rights in pre-1972 sound recordings—recordings that precede amendments to federal copyright law that went into effect in 1972.  CBS moved for summary judgment, arguing that the digitally remastered recordings it broadcasted constituted derivative works that were themselves capable of federal copyright protection, thereby preempting plaintiffs’ state-law claims.  After excluding plaintiffs’ expert on the subject under FRE 702, the district court held that there was no dispute of material fact as to whether the remastered recordings constituted derivative works, and granted summary judgment in CBS’s favor. On appeal, the Ninth Circuit reversed both the grant of summary judgment and the exclusion of plaintiffs’ expert.  Applying the Durham test for determining whether a recording constitutes a “derivative work” as defined in the Copyright Act, the Ninth Circuit found that “the district court’s identification of ‘perceptible changes’ between the recordings in characteristics relating to ‘quality’ did not ensure that the remastered versions contained anything of consequence owing its origin to the remastering engineers.”[90]  The appellate court concluded that “[a]lthough we do not hold that a remastered sound recording cannot be eligible for a derivative work copyright, a digitally remastered sound recording made as a copy of the original analog sound recording will rarely exhibit the necessary originality to qualify for independent copyright protection.”[91] 2.    Royalty Streaming Disputes Two class action complaints against Sony Music Entertainment and Warner Music Group were filed at the end of 2018 on behalf of various musical artists alleging that the defendant distributors had failed to pay contractually owed royalties for the digital streaming of plaintiffs’ works abroad. In the Southern District of New York, The Rick Nelson Company, as a representative party of a similarly situated class of music artists, sued Sony Music Entertainment, alleging that Sony has been improperly assessing an “intercompany charge” on revenues collected from its wholly owned foreign affiliates that takes “up to 68% off the top of the international revenue earned from streaming sales” of plaintiffs’ artistic works.[92]  Sony has not yet responded to the complaint. In California, Leonard Williams filed a similar complaint against Warner Music Group in the Los Angeles County Superior Court, alleging that Warner was also assessing improper “intercompany charge[s]” in violation of existing agreements.[93]  Shortly thereafter, Warner Music Group removed to the District Court for the Central District of California and filed a motion to dismiss, arguing that there could be no breach of contract as a matter of law because the contract attached to the complaint “contains no provision for royalties to be paid based upon the digital streaming of sound recordings, let alone the foreign digital streaming of sound recordings,” instead limiting royalties to “sales” of “phonograph records” and “tape albums” by the distributor.[94] 3.    Ninth Circuit Walks “Stairway” Back to District Court In September 2018, the Ninth Circuit overturned a 2016 jury verdict in favor of Led Zeppelin and remanded for a new trial in a copyright infringement suit alleging that Led Zeppelin’s hit “Stairway to Heaven” was substantially similar to plaintiffs’ song “Taurus” (performed by the group Spirit).[95] Although at trial the jury found that plaintiff owns the copyright to “Taurus,” a finding not disputed on appeal, it also found that the two songs were not “substantially similar” under the extrinsic test for unlawful appropriation that requires the factfinder to determine similarity “by breaking the works down into their constituent elements, and comparing those elements.”[96]  On appeal, plaintiff Skidmore argued among other points that the court’s instructions to the jury failed to make clear that the selection and arrangement of unprotectable musical elements are themselves protectable by copyright.  The Ninth Circuit agreed, finding that the district court’s failure to include such an instruction, despite receiving such a proposed instruction from both parties, constituted an abuse of discretion. Defendants argued both that plaintiff had failed to preserve an objection to the exclusion of this instruction and that the error was otherwise harmless.  The panel disagreed, calling the waiver argument “baseless” and noting that the error was substantial in light of Skidmore’s heavy reliance at trial on the theory of selection and arrangement in arguing infringement.[97]  The Ninth Circuit similarly agreed with plaintiff that the court had erred in providing instructions to the jury that “copyright does not protect chromatic scales, arpeggios or short sequences of three notes” and that “any elements from prior works or the public domain are not considered original parts and not protected by copyright.”[98]  The panel noted that “[t]here is a low bar for originality in copyright” that can extend to “an arrangement of a limited number of notes.”[99] In remanding the case for retrial, although the panel confirmed that the scope of the protected copyright under the 1909 Act is defined by the deposit copy of the song, it found that the district court abused its discretion in refusing to allow recordings of “Taurus” to be played in the presence of the jury to prove that Led Zeppelin had access to the song for copying.[100]  The district court had found that, although probative, such recordings would be unduly prejudicial as they do not define the scope of the copyright in deciding whether copying occurred.  The Ninth Circuit held that “[l]imiting the probative value of observation was not proper here, as the risk of unfair prejudice or jury confusion was relatively small and could have been reduced further with a proper admonition.”[101]  A petition for rehearing en banc is currently being briefed, accompanied by several amici. 4.    Bluewater v. Spotify On October 4, 2018, the District Court for the Western District of Tennessee denied Spotify USA Inc.’s motion to dismiss a suit filed by Bluewater Music Services Corporation alleging willful copyright infringement of music compositions published by plaintiff and seeking the maximum $150,000 statutory damage award for each of 2,142 music compositions.[102]  Bluewater’s complaint alleged that Spotify failed to obtain licenses for works it streamed that are owned by Bluewater, including after Bluewater demanded proof of licensing and gave notice to Spotify terminating any rights defendant may have claimed to have.[103]  Spotify moved to dismiss the complaint, arguing that Bluewater had no standing as the mere administrator of the underlying copyrights and that Bluewater lacked copyright registrations for 23 of the music compositions in suit. Regarding standing, the court evaluated Bluewater’s administrative agreements and found that their grant of “the sole and exclusive right . . . to print, publish, sell, dramatize, use and license the use of the Compositions” was sufficient, despite another provision that prohibited Bluewater from executing any mechanical licenses except at the “full statutory rate without prior written consent.”[104]  Regarding the failure to obtain copyright registrations before filing suit, the court acknowledged that existing precedent requires such registration but also expressed judicial-efficiency concerns about the dismissal of only 23 works from the case.[105]  Ultimately, the court denied the motion to dismiss the unregistered works with leave to refile after the Supreme Court decides Fourth Estate Pub. Benefit Corp. v. Wall-Street.com, LLC (No. 17-571), which the court expects will decide whether “a copyright infringement action may be taken after the creative work has been filed with the Copyright Office, but before registration is approved.”[106] 5.    Chris Brown Loses Case Against Philippine Church for Alleged Extortion On December 6, 2018, a Los Angeles Superior Court Judge dismissed all claims brought by the singer Chris Brown against Iglesia Ni Cristo (a Philippine church) and its general counsel for alleged extortion.  Brown had brought suit alleging that following a July 2015 concert he performed in Manila, he was detained at a hotel at the direction of the church, which controls an arena where Brown had previously canceled a New Year’s Eve concert.  Brown alleged that the church sought to extort a payment from him in connection with his release and departure from the Philippines and that Brown had suffered emotional distress as a result. In September 2018, Judge Patricia Nieto of the Superior Court granted defendants’ motion to dismiss Brown’s second amended complaint against the church’s California branch (which was named in the lawsuit in an effort to confer California jurisdiction).  The court found that Brown failed to plead an alter ego theory or single enterprise theory as a matter of law and denied Brown an opportunity to replead the theory.  Later that month, the Philippine parent church organization and its general counsel, as specially appearing defendants, brought a separate motion to quash Brown’s service of summons on these two Philippine defendants for lack of personal jurisdiction.  On December 6, 2018, Judge Nieto granted the motion to quash, finding that Brown had failed to provide competent evidence to confer jurisdiction and held that asserting jurisdiction would violate the Supreme Court’s and California’s governing precedents on general and specific jurisdiction.[107]  After filing a notice of appeal, Brown failed to timely pursue that appeal, which the California Court of Appeal dismissed, on February 6, 2019.  [Disclosure: Gibson Dunn represented Iglesia Ni Cristo, its general counsel, and Iglesia Ni Cristo’s California branch.] 6.    Viktor v. Top Dawg Entertainment LLC On October 24, 2018, Judge Engelmayer of the District Court for the Southern District of New York denied a partial motion for summary judgment that sought to bar the plaintiff Lina Iris Viktor from receiving certain damages in her suit alleging that defendant creators of the music video for the single All the Stars by Kendrick Lamar infringed her copyrights by including her paintings in the music video without permission.[108]  The suit seeks actual damages and indirect profits for infringement of Viktor’s unregistered copyrights in her paintings, which appear in a 19-second part of the music video released in connection with the album accompanying the Black Panther film. Because Viktor’s copyrights are unregistered and therefore not entitled to statutory damages, she bears a burden under the Copyright Act to “demonstrate a causal relationship between the infringement and the defendants’ revenues.”[109]  Defendants sought summary judgment on the basis that “no non-speculative evidence could possibly be mustered that would demonstrate a causal nexus between defendants’ profits and defendants’ alleged infringing use of Viktor’s artwork in the video.”[110]  However, the court found the motion to be premature as discovery had not yet concluded, finding that “a challenge by the defense to this claim for damages is properly resolved on a motion for partial summary judgment following the development of a full factual record.”  The court also deferred a decision as to whether Viktor would be entitled to prove damages for reputational harm, an injury not explicitly recognized in the Copyright Act.[111]  On December 21, the case was dismissed following an apparent settlement.[112] B.    Copyright Fair Use Developments 1.    Fox News Network, LLC v. TVEyes, Inc. Ending a legal battle that began in 2013, the Supreme Court denied the media-monitoring company TVEyes’s petition for certiorari, leaving in place the Second Circuit’s February 2018 decision that TVEyes’s media-monitoring service could not be justified as fair use because it “deprives Fox of revenue that properly belongs to the copyright holder.”[113]  TVEyes recorded television around the clock and provided a searchable database of real-time television clips for its subscribers (which include journalists, politicians, and companies), who pay a monthly fee.  In 2013, Fox News sued TVEyes for copyright infringement.[114] After a lengthy battle in the district court, in February 2018 the Second Circuit reversed the lower court’s ruling that the service was protected by the fair use doctrine.  While the video service was a useful tool, the Second Circuit said it was “not justifiable as fair use” because “at bottom, TVEyes is unlawfully profiting off the work of others by commercially redistributing all of that work that a viewer wishes to use, without payment or license.”[115]  TVEyes had argued that its function of allowing users to search the “vast corpus” of available news material rendered it transformative and thus protected by the fair use doctrine, much like Google’s unauthorized digitization of millions of books, the subject of the landmark decision Authors Guild, Inc. v. Google, Inc.[116]  The Second Circuit agreed that the searchability of the material did weigh in favor of fair use, but that the service “usurped a function for which Fox is entitled to demand compensation under a licensing agreement” by allowing excessive use of the recorded clips and thus defeated the defense of fair use.[117] TVEyes sought to overturn the ruling, writing in its petition for certiorari that the ruling would allow networks like Fox News to “wield copyright law as a shield” against criticism and that the fair use doctrine is the “key first Amendment safeguard to protect the public from such abuses.”[118]  Fox News urged the Supreme Court to pass on the case, accusing TVEyes of trying to “clothe itself in the mantle of media criticism” and emphasizing that the Second Circuit’s decision did not involve political speech or First Amendment issues, but rather was a simple case of “unauthorized distribution of copyrighted content.”[119]  Following denial of certiorari, the parties reached a settlement.[120] 2.    Prince/Warhol In a key case regarding artistic expression, a federal judge in New York City will determine whether Andy Warhol’s iconic colorized images are protected from copyright claims by the fair use doctrine.[121]  In April 2017, Warhol’s estate sued photographer Lynn Goldsmith, asking the court for a declaration that his 1984 paintings of Prince did not violate her copyright in the original photo because, although Warhol often used photographs as inspiration, his works were “entirely new creations.”[122]  Goldsmith filed a counterclaim for copyright infringement shortly afterwards, and dueling motions for summary judgment are currently before the court.[123] Goldsmith argues that the court should grant her copyright claim on summary judgment because Warhol’s work directly copied hers and is not eligible for protection under the fair use doctrine.  “In today’s digital world, anyone can easily modify a photograph on a computer to add high contrast, coloration and artifacts” and Warhol “did little more than that” in the works at issue, Goldsmith argues.[124]  If the court were to find these “superficial revisions” transformative, she says, this would give a “free pass to appropriation artists and destroy derivative licensing markets for commercial photographers whose works are used without permission.”[125] Warhol’s estate, on the other hand, argues that the substantial similarity requirement for copyright infringement centers on protectable elements like lighting, shading, and the “aesthetic effect”—precisely the elements that Warhol manipulates in his works.[126]  After Warhol’s artistic manipulations, Warhol’s estate argued, the only commonality remaining between Warhol’s Prince Series and Goldsmith’s photograph is “the rough outline of Prince’s face—which cannot be copyrightable as a matter of law.”[127]  In addition, Warhol’s estate pointed out that the market for Goldsmith’s work is not harmed by Warhol’s works—fine art collectors who buy Warhol’s work are not “rock-and-roll memorabilia collectors” who buy hers.[128]  Finally, Warhol’s estate’s attorneys warned that a contrary ruling would “create a torrent of doubt and dispute over artists long considered to be transformative” and “chill[] future creativity.”[129]  A ruling is expected sometime this year. 3.    Instagram Art Show Was Fair Use, Richard Prince Says Richard Prince, a famous “appropriation artist,” is pushing to end copyright litigation over his Instagram-themed art exhibit, arguing that he was allowed to display largely unaltered versions of other artists’ images because he utilized them in “a radically different aesthetic context.”[130]  Mr. Prince is facing two separate copyright infringement lawsuits from photographers whose works were featured in “New Portraits”—an installation of large images made to look like Instagram posts, with captions written by Mr. Prince.  He moved for summary judgment in both cases, saying that his use of the images was protected by the fair use doctrine.[131] In both instances, Mr. Prince took images of the artists’ works, blew them up, and placed them in art installations designed to look like Instagram posts.  He acknowledges that his copies do not “cut, mark, paint over, scratch or otherwise obscure” the original photograph, but that this was a feature of his fair use argument, not a problem with it.[132]  Mr. Prince argues that his intent was to “authentically replicate[] in the physical world the virtual world of social media,” and therefore that this is protected by the fair use doctrine.[133]  Rulings are expected sometime this year. C.    DMCA 1.    Supreme Court Denies Certiorari for Porn Copyright Case In late October, the Supreme Court rejected an invitation to clarify the scope of the Digital Millennium Copyright Act’s (“DMCA”) safe harbor provision,[134] which immunizes online service providers from liability for infringing material maintained “at the direction of a user . . . on a system or network controlled or operated by or for the service provider” under certain circumstances.[135] As reported in our 2018 Mid-Year Update, in Ventura Content Ltd. v. Motherless Inc., et al.,[136] the Ninth Circuit rejected an attempt to reverse a grant of summary judgment to Motherless, Inc., a website that allows users to upload pornographic videos for public viewing.  Appellant Ventura Content Ltd. argued that Motherless failed to remove material that it knew or should have known was copyright infringing, and that Motherless did not have a proper policy for removing users who repeatedly infringed copyright.  Relying on a case from the Second Circuit, Capitol Records, LLC v. Vimeo, LLC,[137] the panel rejected the notion that Motherless had actual or constructive knowledge of the infringing material, holding that “[t]he copyright owner must show knowledge” of the specific videos “that infringed its copyright and are the subject of its claim.”[138]  Moreover, the panel affirmed the district court’s determination that there was “no issue of triable fact” as to whether Motherless had “adopted and reasonably implemented” a policy of terminating users who repeatedly posted copyright-infringing materials.[139] After its loss, Ventura filed a petition for certiorari in the Supreme Court, but in November 2018 the Supreme Court rejected Ventura’s petition, leaving the Ninth Circuit ruling in place.[140] 2.    Cox Settles BMG Case, Faces New Claims from Labels and Publishers Just days before trial was set to begin, Cox Communications settled a case brought by BMG Rights Management seeking to hold Cox liable for Cox users’ illegal downloads of BMG’s copyright-protected material.  The suit, which began in 2014, alleged that Cox failed to implement a policy for terminating the service of users who repeatedly downloaded the material at issue, a so-called “repeat infringer” policy, thereby allowing offending users to continue to illegally download the material.  After U.S. District Judge Liam O’Grady ruled that Cox’s failure to enact or enforce such a policy deprived Cox of the shelter of the safe harbor provision,[141] the case went to trial, and in 2015 a jury found Cox liable and awarded BMG a multimillion dollar verdict. The Fourth Circuit reversed, holding that the district judge had given improper jury instructions, but the panel importantly also held that the district court had properly found that Cox had failed to enforce its repeat infringer policy.[142]  The case was remanded to the district court for further proceedings.[143] In late 2018, Cox and BMG reached a settlement, but the settlement does not end Cox’s legal woes.  A case brought against Cox by a number of major record labels, including Sony Music Entertainment, Universal Music Corp., and Warner Bros. Records, raises similar issues and is also being presided over by Judge O’Grady.  Given that the Fourth Circuit has already upheld the ruling stripping Cox of safe harbor protection,[144] and that Judge O’Grady recently denied a motion for transfer of venue,[145] the case warrants ongoing attention, given the potential impact it may have on the liability of internet service providers nationwide. D.    Trademark 1.    Lanham Act Ban on Immoral or Scandalous Matter Unconstitutional? In June 2017, the U.S. Supreme Court decided Matal v. Tam, invalidating the provision of the Lanham Act that permitted the USPTO to refuse registration of a trademark if it contained “disparaging” matter.  The Supreme Court held the provision unconstitutional under the First Amendment.[146]  In the wake of that landmark decision, in December 2017 the Federal Circuit also invalidated under the First Amendment a similar provision of the Lanham Act, which permitted the USPTO to refuse registration of a mark if it contained “immoral” or “scandalous” matter.[147]  In September 2018, the government filed a petition for writ of certiorari to the Supreme Court in that case, which is now captioned Iancu v. Brunetti.[148] The Brunetti case involves the clothing brand FUCT.  The USPTO had refused to register the FUCT mark under the immoral or scandalous provision of the Lanham Act because of its similarity to a popular swear word.[149]  In light of the Supreme Court’s decision in Tam, the Federal Circuit held that the immoral or scandalous provision, like the disparaging provision, violates the First Amendment.  Unlike Tam, which was decided on the basis of impermissible viewpoint discrimination, the Federal Circuit held that the immoral or scandalous provision is unconstitutional as impermissibly content discriminatory, without reaching whether the provision is also viewpoint discriminatory.[150] In its petition for a writ of certiorari, the government argues that Tam is not controlling on the immoral or scandalous provision at a minimum because of this distinction between viewpoint discrimination and the less egregious content discrimination, and it further emphasizes several doctrinal questions not fully decided by Tam, such as whether trademark registration could be viewed as either a government subsidy or commercial speech—either of which would lower the level of constitutional scrutiny that would be applied to the provision.  The Supreme Court granted certiorari on January 4, 2019.[151] 2.    Seattle’s Transit Restriction on Disparaging Bus Ads also Falls The Supreme Court’s Matal v. Tam decision has also found influence in the realm of advertising, as the Ninth Circuit recently cited the Tam decision in striking down Seattle’s law that had allowed the transit authority to reject advertisements to be displayed on public buses if those ads were “disparaging.”[152]  In September 2018, the Ninth Circuit held that Tam applied with “full force” to Seattle’s ban on disparaging bus ads.[153]  The decision was a victory for the far-right group American Freedom Defense Initiative, previously known as the Stop Islamization of America.  The group sued the city after the Metro rejected a proposed advertisement featuring the slogan “Faces of Global Terrorism,” which included mugshots of alleged terrorists primarily of Middle Eastern or Asian descent, on the basis that the ad was disparaging.[154]  In light of Tam, the Ninth Circuit struck down Seattle’s ban on disparaging advertising, holding that it too violated the First Amendment as impermissibly viewpoint discriminatory. 3.    San Diego Comic-Con Wins $4M Fee Award in Trademark Dispute In a suit filed in August 2014, the San Diego Comic Convention (“SDCC”) brought trademark infringement allegations against a rival Utah event called Salt Lake Comic Con.  SDCC, which holds trademarks for its logo and various permutations of the term “Comic-Con,” alleged that the Utah event was infringing its “Comic-Con” mark and capitalizing on SDCC’s many decades of brand building.[155]  In response, the Utah event argued that the mark had been diluted, arguing both that the mark was invalid by virtue of its prior generic use, and that the mark had in any event become generic through SDCC’s broad licensing and failure to police.[156]  The case was tried before a jury in December 2017, and the jury found that the Utah event had infringed SDCC’s trademarks, but the infringement was not willful.  The jury awarded $20,000 in corrective advertising damages.[157] On post-trial motions, U.S. District Judge Anthony Battaglia granted SDCC’s request for a permanent injunction barring the Utah event from using the phrase “Comic-Con” with or without the hyphen, as well as anything that sounds similar.  Judge Battaglia further awarded nearly $4 million in attorneys’ fees, citing the Utah event’s questionable litigation tactics and repeated disregard for court rules.[158]  The Utah event has appealed these post-trial rulings to the Ninth Circuit, where briefing is scheduled to be completed in February 2019. 4.    Coachella Settles Trademark Dispute with Filmchella In August 2017, Coachella sued Filmchella founder Trevor Simms, alleging, among other things, trademark infringement.  U.S. District Judge R. Gary Klausner entered a preliminary injunction barring Simms from using either “Filmchella” or “Filmchilla” for his independent Joshua Tree Film Festival, but Judge Klausner denied Coachella’s motion for summary judgment on the issue of trademark infringement, explaining that a reasonable jury could find no likelihood of confusion between Coachella and Filmchella due to the difference in the nature of the festivals.[159]  Trial was scheduled for October 2018, but the parties reached a resolution just before trial was to begin.  Under the settlement, Simms agreed to forgo use of the term Filmchella and to transfer the domain name to Coachella.[160]  The other terms of the settlement remain confidential. E.    1st Amendment 1.    Media Access a.    CNN & Jim Acosta Prevail Over White House On November 7, 2018, the White House revoked CNN chief White House correspondent Jim Acosta’s hard pass—a type of press pass held by regular White House reporters—after a press conference in which President Trump cut off Mr. Acosta’s questions, ordered him to be seated, and called him a “rude, terrible person” after a White House staffer attempted to take the microphone out of his hands.  The next week, CNN and Mr. Acosta filed a lawsuit, claiming First and Fifth Amendment violations. The United States District Court for the District of Columbia granted CNN and Mr. Acosta’s request for a temporary restraining order and ordered the White House to restore Mr. Acosta’s press pass immediately.  The district court found that CNN and Mr. Acosta had a “First Amendment liberty interest” in Mr. Acosta’s hard pass because the Government had opened the White House to reporters.[161]  The district court concluded that CNN and Mr. Acosta were likely to succeed in showing the White House violated CNN and Mr. Acosta’s Fifth Amendment Due Process rights: the White House’s original reason for the revocation was “likely untrue” and was based on “evidence of questionable accuracy,” the decision-making process regarding whether to revoke the hard pass was “shrouded in mystery,” and the White House failed to provide CNN and Mr. Acosta with adequate notice before taking away his hard pass.[162] Further, the district court held that Mr. Acosta and CNN were harmed “every day” they continued to have their constitutional rights infringed.  Finally, the district court decided the harm Mr. Acosta would suffer from losing his hard pass “outweighed” the Government’s interest in holding “respectful” press conferences, so restoring Mr. Acosta’s hard pass served the public interest.[163]  Following the district court’s order, the White House issued a final decision restoring his hard pass, and he returned to reporting news.  [Disclosure: Gibson Dunn represented CNN and Mr. Acosta.] b.    Gubarev v. BuzzFeed, Inc. On December 19, 2018, the District Court for the Southern District of Florida granted summary judgment to BuzzFeed, Inc., in a defamation lawsuit filed against it by a Cyprus tech CEO, Aleksej Gubarev.[164]  The lawsuit arose from BuzzFeed’s publication of an online article entitled These Reports Allege Trump Has Deep Ties to Russia, which contained a 35-page dossier that included statements about the plaintiffs, such as that Gubarev’s company “XBT/Webzilla and its affiliates had been using botnets and porn traffic to transmit viruses, plant bugs, steal data, and conduct ‘altering operations’ against the Democratic Party leadership.”[165]  The Court ruled that BuzzFeed’s decision to publish the dossier was protected by New York’s fair report privilege, which “exists to protect the media while they gather the information needed for the public to exercise effective oversight of the government . . . even when they report on official action that the government would like to keep secret.”[166]  The Court further held that BuzzFeed’s presentation was fair and true, as required by the fair report privilege, because it reproduced the dossier in full without editorializing. Notably, the ruling came one day after the district judge ruled that Gubarev is not a public figure because he had not involved himself in the ongoing public debate about Russian interference in the 2016 election.[167]  This meant that plaintiffs would have had to meet a lower standard for defamation against BuzzFeed, had the district court not granted summary judgment based on the fair report privilege.  Plaintiffs have filed an appeal of the district court’s fair report ruling in BuzzFeed’s favor. 2.    Right of Publicity a.    Supreme Court Declines to Take Up de Havilland’s Feud Against FX On October 5, 2018, the 102-year-old actress Olivia de Havilland filed a petition for writ of certiorari with the U.S. Supreme Court, asking the high court to take up the California Court of Appeal’s ruling in her lawsuit against FX Network.[168]  De Havilland sued FX in June 2017 over its depiction of her in the docudrama Feud: Bette and Joan, alleging misappropriation, violation of her right of publicity, false light, invasion of privacy, and unjust enrichment.[169]  In response, FX filed an anti-SLAPP motion, which the trial court denied in September 2017.  In March 2018, the California Court of Appeal reversed, rejecting de Havilland’s claims and finding that the First Amendment protects expressive works, regardless of whether they are fact, fiction, or a combination thereof.[170]  De Havilland petitioned the California Supreme Court for review, which it denied on July 11, 2018. In de Havilland’s petition for writ of certiorari before the U.S. Supreme Court, de Havilland argued that the California Court of Appeal’s rulings create “absolute First Amendment immunity for docudramas,” even those that include knowingly false statements.[171]  FX filed its brief in opposition to de Havilland’s petition on November 13, 2018, asserting that the Court of Appeal’s “decision rested on a straightforward application of well-established law” and “that there is nothing cert-worthy about this case.”[172]  On January 7, 2019, the Supreme Court denied de Havilland’s petition without explanation.[173] b.    Second Circuit Lifts Injunction Against Lynyrd Skynyrd Film The Second Circuit recently lifted a district court’s injunction against Street Survivor:  The True Story of the Lynyrd Skynyrd Plane Crash, a movie about the plane crash that killed Lynyrd Skynyrd band members Ronnie Van Zant and Steve Gaines as told through the eyes of surviving band member Artimus Pyle.[174]  After the crash, Van Zant’s widow and two of the three surviving band members, Gary Rossington and Allen Collins, entered into a “blood oath” to never use the name Lynyrd Skynyrd again.[175]  The oath remained intact for ten years, until the surviving band members embarked on a tribute tour in 1987 and Van Zant’s widow, Judith, objected to the band’s use of the Lynyrd Skynyrd name.[176]  Judith filed suit, which ended with the district court entering a consent order restricting how the parties to the suit, including Pyle, could use the name Lynyrd Skynyrd, biographical material of Van Zant, the history of the band, and more.[177] After Pyle and Cleopatra Records, Inc., entered into a deal to create the Street Survivor film, heirs of Van Zant and Gaines, as well as founding lead guitarist Gary Rossington, sued Cleopatra.  In August 2017, the District Court entered a permanent injunction prohibiting the film from being made, asserting that it violated the consent order because of Pyle’s participation in the project.[178]  The Second Circuit reversed.  Although the court stated that the district court’s order did not constitute a “prior restraint” because the injunction was imposed as a result of a private contract rather than government censorship, it held that the order “implicates free speech concerns.”[179]  Moreover, the court held that the injunction could not restrict the actions of Cleopatra, which was not a party to the consent order.[180]  Finally, the court examined the language of the consent order and found that it was insufficiently specific to prohibit the making of the film.[181]  The court therefore lifted the injunction. c.    Daniels v. FanDuel Inc. In October 2018, the Indiana Supreme Court held that the use of players’ names, pictures, and statistics in online fantasy sports contests do not violate Indiana’s right of publicity law.[182]  The decision arose as the result of a class action lawsuit filed by collegiate student-athletes against various fantasy sports website operators, including DraftKings, Inc. and FanDuel, Inc., for using the players’ likenesses without their consent.  The district court dismissed the lawsuit, concluding that two statutory exceptions to Indiana’s right of publicity law permit the companies to use players’ names, likenesses, and statistics without compensation.[183]  On appeal, the Seventh Circuit certified the question “[w]hether online fantasy-sports operators that condition entry on payment, and distribute cash prizes, need the consent of players whose names, pictures, and statistics are used in the contests, in advertising the contests, or both,” to the Illinois Supreme Court.[184]  The Illinois Supreme Court held that no consent was needed because the use of the players’ names, pictures, and statistics fell within the “newsworthy value” exception to Illinois’s right of publicity statute.[185]  Ultimately, the court concluded that the use at issue “bears resemblance to the publication of the same information in newspapers and websites across the nation.”[186] Following the Illinois Supreme Court’s decision, the plaintiffs requested that the Seventh Circuit remand the case to the District Court to address the separate question of whether the fantasy-sports games violate Indiana criminal law.[187]  In a decision written by Judge Easterbrook, the Seventh Circuit stated that it had “nothing to say on the question whether the business of FanDuel or DraftKings violates Indiana’s criminal laws,” ruling that “this civil suit is over.”[188] d.    Can LeBron James License His Own Tattoos? In a case that intertwines the issues of whether and when copyright issues arise following the grant of rights of publicity, Defendants 2K Games, Inc. and Take-Two Interactive Software, Inc. recently moved for summary judgment in a lawsuit filed against them by Solid Oak Sketches, LLC.  Sold Oak brought suit over defendants’ depiction of tattoos on several prominent professional basketball players, including LeBron James, who appear in the videogame NBA 2K16.[189]  Solid Oak had obtained copyright licenses for the tattoos for use in a clothing line that was never produced, and now claims that the use in the videogame constitutes copyright infringement.[190]  In their summary judgment motion, defendants argue, amongst other things, that their use of the tattoos constitutes “fair use.”[191]  In opposition to defendants’ motion, Solid Oak argues that while the professional basketball players granted their rights of publicity to the companies, that does not include the copyright to the artwork in their tattoos.[192]  As to defendants’ fair use argument, Solid Oak asserts that the defense must fail, as “it is clear that Defendants’ appropriated the fundamental essence of the tattoo artists’ works, the copyright attached to same being owned by Plaintiff.”[193]  Defendants filed their reply brief on October 12, 2018, and the motion remains pending. 3.    Defamation a.    Stephanie Clifford’s Defamation Lawsuit Against President Trump Dismissed On October 15, 2018, U.S. District Judge S. James Otero dismissed a defamation lawsuit brought by adult-film actress Stephanie Clifford’s (p/k/a Stormy Daniels) against President Trump.[194]  The basis for the lawsuit was a tweet the president posted on April 18, 2018 from his personal Twitter account, @realDonaldTrump, claiming that the composite sketch Clifford released of a man who had purportedly threatened her in Las Vegas in 2011 was a “total con job” and “about a nonexistent man.”[195] In dismissing Clifford’s suit under the Texas anti-SLAPP statute,[196] the district court agreed with the president that the statements he disseminated through Twitter were mere “rhetorical hyperbole.”  The court reached this conclusion in light of the president’s “incredulous tone” and the fact Clifford had publicly positioned herself “as a political adversary to the President.”[197]  The court also reasoned that if it were to conclude that the president’s tweet was actionable under a theory of defamation, “it would significantly hamper the office of the President” by making any “strongly-worded response” by a president to criticism espoused by another public figure potentially unlawful.[198]  The court also found significant the fact that the president’s tweet was a “one-off” comment and not a “sustained attack” on Clifford’s claims regarding the threatening incident.[199]  Clifford appealed the district court’s order the same day it issued.[200] On December 11, 2018, Clifford was ordered to pay the president approximately $292,000 in attorney’s fees.  The court also ordered Clifford to pay $1,000 in sanctions.[201] b.    Discovery Communications Not Liable to Co-Host of Dual Survival On November 2, 2018, a district court in Arizona granted summary judgment to Discovery Communications in a defamation lawsuit brought by Cody Lundin, one of the original co-hosts of the reality television series Dual Survival.[202]  In the suit, Lundin argued that Discovery edited an episode that depicted his departure from the show in a way that portrayed him in a false light and was defamatory.[203]  The district court disagreed.  It held that none of the eight individual scenes that Lundin contended falsely depicted him as “grossly incompetent” and mentally ill was actionable under either theory.  Specifically, each scene depicted Lundin’s character in a “substantially true” manner even if it contained a number of “minor inaccuracies.”[204] In dismissing Lundin’s defamation lawsuit, the district court also described as “significant” the fact that Dual Survival “more than just occasionally falsely depicted what was actually occurring.”[205]  In one scene, for example, Lundin and his co-host unexpectedly encountered a rattlesnake that had, in reality, been purchased and placed there by the film crew.  The court therefore viewed Lundin’s claims with some level of skepticism given that he was “happy to participate in the charade as long as he was portrayed in the manner he preferred.”[206]  In November 30, 2018, Lundin appealed the summary judgment order.  The appeal remains pending before the Ninth Circuit.[207] c.    Court of Appeals Revives Defamation Lawsuit Against Kylin Pictures On November 27, 2018, a California appeals court reversed the grant of an anti-SLAPP motion in a defamation suit Bliss Media and its CEO Wei Han brought against Kylin Pictures.[208]  The suit arose because Kylin’s CFO Leo Shi Young called Han a “swindler” and Bliss a “shell company” at a press conference in China.  Bliss and Kylin had previously worked together to produce various films, but relations between the two companies soured when Kylin sued Bliss over the acquisition rights to Birth of the Dragon, a movie about Bruce Lee.[209] Kylin filed an anti-SLAPP motion in early 2017, arguing that the allegedly defamatory statements were made in connection with an issue of public interest because the purpose of the press conference was to address a dispute about the production of the Chinese-language version of a separate, critically acclaimed film—Hacksaw Ridge.[210]  The trial court agreed, concluding that the dispute between Bliss and Kylin “concerned the production of a very public thing” and that there “is very little that is private about the movie business.”[211] The California Court of Appeal reversed.  It first noted that the fact the press conference was held to discuss a dispute about Hacksaw Ridge was immaterial, because the alleged defamatory comments were about the plaintiffs’ conduct “concerning financing and rights acquisitions” for two different films, Birth of the Dragon and The King’s Daughter.[212]  It also rejected the defendants’ argument that the public is “specifically interested” in these two films merely because Birth of the Dragon is about Bruce Lee and The King’s Daughter features two movie stars.[213]  Because the alleged defamatory statements “in no way mention[ed] or implicat[ed] Bruce Lee or the movie stars,” the defendants failed to draw “any connection” between the statements and what purportedly made the films at issue of interest to the public.[214]  The appeals court also concluded that Han was not, at the time the statements were made, in the “public eye” simply because she is active in the Chinese film industry and in Hollywood.[215] d.    Retweets and the Communications Decency Act of 1996 On September 25, 2018, Roslyn La Liberte sued MSNBC host Joy Reid in the Eastern District of New York, alleging that several of Reid’s posts on Twitter, Instagram, and Facebook are defamatory.[216]  La Liberte’s original complaint focused primarily on Reid’s retweet of a photograph of La Liberte wearing a “Make America Great Again” hat and seemingly yelling at a high school student.  This photo was accompanied by a caption stating that “[s]he . . . in her MAGA hat” called the student a “dirty Mexican” and warned him that he would “be the first deported.”[217] La Liberte’s complaint alleges that because she never made any racial slurs directed at the student, Reid’s retweet is defamatory.[218]  It also alleges that Reid’s subsequent posts on Facebook and Instagram of the photograph alongside an image dating from the Jim Crow era are defamatory.[219] The allegations in the original complaint raised the question of whether section 230 of the Communications Decency Act of 1996 shielded Reid from civil liability for her retweet.  Section 230 provides, in relevant part, that “[n]o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.”[220]  However, La Liberte recently dropped the allegations from her complaint regarding Reid’s retweet.  Section 230 is therefore no longer at issue in the case.[221]  The remainder of the case remains pending before the district court. F.    Profit Participation/Royalties 1.    Back to the Future Royalties Dispute Dismissed In October 2018, after years of disputes between the parties, a New Jersey district judge ruled that John DeLorean’s estate will not be able to collect additional royalties regarding the famous Back to the Future DeLorean from the DeLorean Motor Company (“DMC”) arising out of DMC’s separate licensing agreement with Universal Pictures.[222]  In 2014, John DeLorean’s estate filed a suit alleging that DMC violated the estate’s trademark by designing and selling various items under the estate’s asserted trademarks and by licensing use of the marks to others.[223]  The parties settled the case in 2015, and in relevant part the estate agreed “not to sue [DMC] pertain[ing] to [DMC’s] use of the following words and trademarks: (i) the name DeLorean Motor Company, (ii) the DMC logo, and (iii) the stylized word ‘delorean.’”[224] In 2018, the estate brought another suit against DMC, claiming that DMC had improperly claimed a right to royalty payments arising from an agreement between the Mr. DeLorean and Universal.  That agreement between the estate and Universal gave Universal “the right to use (i) ‘[t]he appearance of the DeLorean automobile,’ (ii) ‘[t]he name ‘DeLorean,’’ and (iii) ‘[t]he logo ‘DMC’ as it appears on the radiator grille of the DeLorean automobile.’”[225]  The estate alleged that DMC had improperly represented to Universal that DMC was entitled to certain royalties arising from the Back to the Future DeLorean, and the estate sought to receive the payments from Universal instead. The court dismissed the estate’s case, finding that the two agreements covered “the same or similar terms” and holding that that because “both agreements pertained to the merchandizing of similar items associated with the DeLorean automobile’s image, brand and related trademarks,” the “Plaintiff’s claims under the Universal Agreement were incorporated in, and therefore barred by, the Settlement Agreement.”[226] 2.    Donald Glover Fights Label Over Royalties Donald Glover (who records and performs as Childish Gambino) is countersuing his music label, Glassnote Entertainment Group, in an ongoing dispute regarding royalties from non-interactive streaming of Glover’s albums Awaken, My Love!, Because the Internet, and Camp.  In 2011, Glover signed a license agreement with Glassnote in which he retained the rights to master recordings of up to three future albums but “granted to Glassnote the exclusive right to exploit the master recordings on those albums” in exchange for a royalty equal to fifty percent of net proceeds.[227]  The license expired in late 2017, at which time Glassnote alleges that Glover “took the position that he was entitled to the entirety of Glassnote’s []share of public performance royalties” and “that Glassnote was not entitled to any such royalty.”[228] In July 2018, Glassnote sued Glover seeking a declaration that it is entitled to 50% of all performance royalties from non-interactive streams on Pandora, Spotify, SiriusXM, and others.  The suit claims that, under the Copyright Act, “it is Glassnote—not Glover—which is ‘the copyright owner of the exclusive right [] to publically perform’ Glover’s sound recordings,” and the statutory royalties due to the copyright holder should therefore belong to Glassnote.[229] In September 2018, Glover countersued Glassnote, alleging that after an audit in 2017, Glover discovered “Glassnote’s multiple breaches under the License Agreement” and “significant amounts that [Glassnote] failed to account and pay to” Glover.[230]  According to Glover, Glassnote agreed “to pay [Glover] a royalty equal to 50% of the ‘Net Proceeds’ realized from the exploitation of each” licensed album.[231]  After a 2017 audit of Glassnote’s accountings and payments to Glover, Glover determined that Glassnote had breached the License Agreement by failing to pay Glover his “share of digital transmission royalties” and by failing to fully pay Glover the share of the “Net Proceeds” to which he was entitled under the License Agreement.[232]  In his countersuit, Glover is seeking a full payment of the royalties Glassnote is alleged to owe and seeking a full accounting from Glassnote that includes any further monies earned from Glover’s albums.[233]  The case remains pending.     [1]    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.     [2]    Paul Bond, The DOJ said Disney must sell Fox’s regional sports networks, The Hollywood Reporter (June 27, 2018), https://www.hollywoodreporter.com/news/disney-fox-deal-approved-by-department-justice-1123614.     [3]    Urvi Malvania, Fox-Disney deal: CCI approves takeover of Murdoch’s company in India, SmartInvestor (Aug. 12, 2018), https://smartinvestor.business-standard.com/market/Compnews-539887-Compnewsdet-Fox_Disney_deal_CCI_approves_takeover_of_Murdochs_company_in_India.htm.     [4]    Stewart Clarke, E.U. Approves Disney-Fox Deal, With Conditions, Variety (Nov. 6, 2018), https://variety.com/2018/biz/news/eu-approves-walt-disney-21st-century-fox-deal-conditions-1203020918/.     [5]    Patrick Brzeski and Georg Szalai, Disney Gets China Approval for Fox Acquisition, The Hollywood Reporter (Nov. 19. 2018), https://www.hollywoodreporter.com/news/disney-gets-china-approval-fox-acquisition-1162571.     [6]    Jull Disis, Disney gets approval from China for Fox purchase, CNN Business (Nov. 19, 2018), https://www.cnn.com/2018/11/19/media/disney-fox-china-approval/index.html.     [7]    Alberto Alerigi and Lisa Richwine, Brazil antitrust body raises concerns over Disney-Fox deal, Reuters (Dec. 3, 2018), https://www.reuters.com/article/us-fox-m-a-walt-disney-brazil/brazil-antitrust-body-raises-concerns-over-disney-fox-deal-idUSKBN1O22LS.     [8]    Id.     [9]    Brazil Regulator Said to Pass Fox-Disney Deal Without Asset Sale, Bloomberg Law (Jan. 4, 2019), https://news.bloomberglaw.com/tech-and-telecom-law/brazil-regulator-said-to-pass-fox-disney-deal-without-asset-sale-1.     [10]    Id.; see also Jason Aycock, Bloomberg: Brazil expected to OK Fox-Disney deal without divestment, Seeking Alpha (Jan. 3, 2019), https://seekingalpha.com/news/3420509-bloomberg-brazil-expected-ok-fox-disney-deal-without-divestment.     [11]    Aycock, supra note 10.; Jason Aycock, MLex: Brazil decision on Disney/Fox now put off past January, Seeking Alpha (Jan. 23, 2019), https://seekingalpha.com/news/3425253-mlex-brazil-decision-disney-fox-now-put-past-january.     [12]    Mario Sergio Lima and Christopher Palmeri, Disney CEO Flies to Brazil to Seal Fox Deal, Leaves Empty-Handed, Bloomberg (Feb. 12, 2019), https://www.bloomberg.com/news/articles/2019-02-12/disney-s-brazil-meeting-is-said-to-end-without-fox-deal-accord.     [13]    Id.     [14]    Id.     [15]    Carla Martinez, Strict regulation needed for Disney-Fox merger in Mexico, El Universal (Dec. 14, 2018), https://www.eluniversal.com.mx/english/strict-regulation-needed-disney-fox-merger-in-mexico-0.     [16]    Press Release, Comisión Federal de Competencia Económica, Clarification on Disney/Fox Transaction (Feb. 6, 2019), https://www.cofece.mx/wp-content/uploads/2019/02/COFECE-009-2019-English.pdf.     [17]    Dawn C. Chmielewski, 21st Century Fox Files Registration Statement With SEC To Form ‘New’ Fox, Deadline Hollywood (Jan. 7, 2019), https://deadline.com/2019/01/21st-century-fox-files-registration-statement-sec-new-fox-1202530940/; see also Press Release, 21st Century Fox, 21st Century Fox Announces Filing of Registration Statement On Form 10 For Fox Corporation (Jan. 7, 2019), https://www.21cf.com/news/21st-century-fox/2019/21st-century-fox-announces-filing-of-registration-statement-on-form-10-for-fox-corporation/.     [18]    Hannah Shaw-Williams, Disney Now Expects To Complete Fox Purchase By June, ScreenRant (Jan. 31, 2019), https://screenrant.com/disney-fox-deal-complete-june-2019/.     [19]    Cynthia Littleton, Fox Confirms It Won’t Bid on Disney’s Regional Sports Networks, Variety (Jan. 11, 2019), https://variety.com/2019/biz/news/fox-disney-regional-sports-networks-bid-1203105421/.     [20]    Tim Ingham, Universal Music Group Is Making TV Shows in Tandem With Lionsgate, Music Business Worldwide (Aug. 6, 2018), https://www.musicbusinessworldwide.com/universal-signs-deal-to-make-tv-projects-with-lionsgate/.     [21]    Dade Hayes, Lionsgate and Universal Music Group Set First-Look TV Deal, Deadline (Aug. 6, 2018), https://deadline.com/2018/08/lionsgate-and-universal-music-group-set-first-look-tv-deal-1202440406/.     [22]    Id.     [23]    Etan Vlessing, Lionsgate Sets First-Look TV Deal With Universal Music Group, The Hollywood Reporter (Aug. 6, 2018), https://www.hollywoodreporter.com/news/lionsgate-universal-music-group-announce-tv-project-deal-1132308.     [24]    Hayes, supra note 21.     [25]    Lionsgate and Universal Music Publishing Group Sign Exclusive Multiyear Agreement, PR Newswire (Aug. 2, 2018), https://www.prnewswire.com/news-releases/lionsgate-and-universal-music-publishing-group-sign-exclusive-multiyear-agreement-300691060.html.     [26]    Mike Snider, $4 billion TV deal creates nation’s largest broadcaster, USA Today (May 8, 2017), https://www.usatoday.com/story/money/business/2017/05/07/sinclair-broadcasting-buy-tribune-media-4-billion-deal-reports-say/101409222/.     [27]    Hadas Gold, FCC calls out ‘lack of candor’ in Sinclair-Tribune deal, CNN (July 19, 2018), https://money.cnn.com/2018/07/19/media/fcc-hearing-order-sinclair/index.html.     [28]    Press Release, Tribune Media Company, Tribune Media Terminates Merger Agreement with Sinclair Broadcast Group, Inc.; Files Lawsuit For Breach of Contract (Aug. 9, 2018), http://investors.tribunemedia.com/2018-08-09-Tribune-Media-Terminates-Merger-Agreement-with-Sinclair-Broadcast-Group-Inc-Files-Lawsuit-For-Breach-of-Contract.     [29]    Press Release, Sinclair Broadcast Group, Inc., Sinclair Responds to Tribune Lawsuit in Delaware Court of Chancery (Aug. 29, 2018), https://www.prnewswire.com/news-releases/sinclair-responds-to-tribune-lawsuit-in-delaware-court-of-chancery-300704251.html.     [30]    Sinclair’s Answer, Affirmative Defenses, & Verified Countercl. to the Verified Compl., Tribune Media Company v. Sinclair Broadcast Group, Inc., No. 2018-0593-JTL, 2018 WL 4194628 (Del. Ch. Aug. 29, 2018).     [31]    Arjun Panchadar and Sonam Rai, U.S. broadcaster Nexstar to buy Tribune Media for $4.1 billion, Reuters (Dec. 3, 2018), https://www.reuters.com/article/us-tribune-media-m-a-nexstar-media/nexstar-to-buy-tribune-media-in-6-4-billion-deal-idUSKBN1O217Z.     [32]    Id.     [33]    Cynthia Littleton, Nexstar Media Group Vaults Into TV’s Big League With Tribune Media Acquisition, Variety (Dec. 3, 2018), https://variety.com/2018/tv/news/tribune-media-nexstar-acquisition-4-1-billion-1203078104/.     [34]    Id.     [35]    Jim Waterson, Comcast Outbids Rupert Murdoch’s Fox to Win Control of Sky, The Guardian (Sept. 22, 2018), https://www.theguardian.com/business/2018/sep/22/comcast-outbids-rupert-murdochs-fox-to-win-control-of-sky.     [36]    Ben Martin, Comcast and Fox Take $34 Billion Battle for Britain’s Sky to the Wire, Reuters (Sept. 21, 2018), https://www.reuters.com/article/us-sky-plc-m-a-auction/comcast-and-fox-take-34-billion-battle-for-britains-sky-to-the-wire-idUSKCN1M12CV.     [37]    Id.     [38]    Id.     [39]    Georgina Prodhan & Ben Martin, Factbox: How the Auction Process for Sky Will Work, Reuters (Sept. 20, 2018), https://www.reuters.com/article/us-sky-plc-m-a-auction-process-factbox/factbox-how-the-auction-process-for-sky-will-work-idUSKCN1M01RF.     [40]    Spiha Srivastava, et al., Comcast Outbids Fox in a $39 Billion Takeover of Sky, CNBC (Sept. 22, 2018), https://www.cnbc.com/2018/09/22/sky-comcast-fox-36-billion-takeover-auction.html.     [41]    Id.     [42]    Stu Woo & Ben Dummett, Sky Takeover Explained, The Wall Street Journal (Oct. 10, 2018), https://www.wsj.com/articles/sky-takeover-explained-1523539364.     [43]    Keza MacDonald, Microsoft Buys Two More Video Game Studios, The Guardian (Nov. 10, 2018), https://www.theguardian.com/games/2018/nov/10/microsoft-buys-two-new-video-game-studios.     [44]    Id.; see also Stefanie Fogel, Microsoft Acquires Obsidian Entertainment, Variety (Nov. 10, 2018), https://variety.com/2018/gaming/news/obsidian-entertainment-joins-microsoft-studios-1203024898/; Stefanie Fogel, Microsoft Acquires ‘The Bard’s Tale’ Developer inXile Entertainment, Variety (Nov. 10, 2018), https://variety.com/2018/gaming/news/microsoft-acquires-inxile-entertainment-1203024762/.     [45]    Paul Tassi, Microsoft Acquires Ninja Theory, Undead Labs, Playground Games And More For Xbox, Forbes (June 10, 2018), https://www.forbes.com/sites/insertcoin/2018/06/10/microsoft-has-acquired-ninja-theory-undead-labs-and-playground-games/#16aee068277c; see also Stefanie Fogel, Xbox E3 2018: The 10 Biggest Announcements, Variety (June 10, 2018), https://variety.com/2018/gaming/news/e3-2018-biggest-microsoft-announcements-1202839671/.     [46]    MacDonald, supra note 43.     [47]    Cynthia Littleton, Netflix’s Ascent in Emmy Nominations Reflects Broader TV Industry Shakeup, Variety (July 12, 2018), https://variety.com/2018/biz/news/emmys-2018-nominations-netflix-tv-shakeup-1202871387/.     [48]    Annlee Ellingson, Netflix Aims to Raise $2 Billion for More Content, L.A. Business Journal (Oct. 22, 2018), https://www.bizjournals.com/losangeles/news/2018/10/22/netflix-aims-to-raise-2-billion-for-more-content.html.     [49]    Sarah Perez, Disney to Invest In More Original Content for Hulu, Expand Service Internationally, Tech Crunch (Nov. 12, 218), https://techcrunch.com/2018/11/09/disney-to-invest-in-more-original-content-for-hulu-expand-service-internationally/.     [50]    Craig Elvy, Netflix & Amazon Planning to Double Amount of Original Content, Screen Rant (Sept. 26, 2018), https://screenrant.com/netflix-amazon-prime-original-content-movies-shows/.     [51]    Travis Clark, AT&T Will Jump Into the Streaming Bloodbath By Launching a Netflix Competitor Next Year, Business Insider (Oct. 10, 2018), https://www.businessinsider.com/att-launching-streaming-service-next-year-with-hbo-included-2018-10.     [52]    Sarah Toy, Disney’s Netflix Rival Now Has a Name: Disney+, Which Will Launch in 2019. MarketWatch (Nov. 10, 2018), https://www.marketwatch.com/story/disneys-netflix-rival-now-has-a-name-disney-2018-11-08.     [53]    Lizette Chapman & Anousha Sakoui, Jeffrey Katzenberg’s Investment Firm Takes a Risky Bet on Mobile Video, Bloomberg Business (Dec. 20, 2018), https://www.bloomberg.com/news/articles/2018-12-20/hollywood-makes-a-big-bet-on-jeffrey-katzenberg-s-quibi.     [54]    Eriq Gardner and Pamela McClintock, Global Road Files Chapter 11 Bankruptcy for Film Division, The Hollywood Reporter (Sept. 6, 2018), https://www.hollywoodreporter.com/thr-esq/global-road-files-bankruptcy-1140266; Andrew Scurria, Open Road Films Is Placed in Chapter 11 by New Owner, The Wall Street Journal (Sept. 6, 2018), https://www.wsj.com/articles/open-road-films-is-placed-in-chapter-11-by-new-owner-1536265087; Rose Krebs, ‘Spotlight’ Studio Open Road Hits Ch. 11 In Del. With Sale Plan, Law360 (Sept. 6, 2018), https://www.law360.com/articles/1080248/-spotlight-studio-open-road-hits-ch-11-in-del-with-sale-plan.     [55]    Pamela McClintock and Patrick Brzeski, Why Global Road’s Film Studio Is Collapsing Less Than a Year After Launch, The Hollywood Reporter (Aug. 24, 2018), https://www.hollywoodreporter.com/news/why-global-roads-film-studio-is-collapsing-a-year-launch-1137298.     [56]    Patrick Brzeski, IM Global Acquired by Tang Media Partners, Launches TV Joint Venture With Tencent, The Hollywood Reporter (June 2, 2016), https://www.hollywoodreporter.com/news/im-global-acquired-by-tang-898927.     [57]    Mila Galuppo, Tang Media Partners Rebrands as Global Road Entertainment, The Hollywood Reporter (Oct. 30, 2017), https://www.hollywoodreporter.com/news/tang-media-partners-rebrands-as-global-road-entertainment-1053053.     [58]    Patrick Frater, Berlin: Global Road Touts $1 Billion Production Spend, Variety (Feb. 15, 2018), https://variety.com/2018/film/news/berlin-global-road-touts-1-billion-production-spend-1202700062/.     [59]    Krebs, supra note 54.     [60]    Id.     [61]    Scurria, supra note 54.     [62]    Vince Sullivan, Open Road Settles Contract Issues To Get OK On Ch. 11 Sale, Law360 (Dec. 19, 2018), https://www.law360.com/articles/1111145/open-road-films-ch-11-sale-delayed-by-assumption-issue; Eriq Gardner, Open Road Bankruptcy: Auction Called Off; Raven Capital Set to Acquire ‘Spotlight’ Studio, The Hollywood Reporter (Nov. 6, 2018), https://www.hollywoodreporter.com/thr-esq/open-road-bankruptcy-auction-called-raven-capital-set-acquire-spotlight-studio-1158472.     [63]    Patrick Brzeski, China’s Tencent Buys Film Studio New Classics Media for $2.25B, The Hollywood Reporter (Aug. 13, 2018), https://www.hollywoodreporter.com/news/tencents-china-literature-acquires-film-studio-new-classics-media-225b-1134569.     [64]    Id.     [65]    Patrick Brzeski, China Box Office Growth Slows to 9 Percent in 2018, Ticket Sales Reach $8.9B, The Hollywood Reporter (Jan. 2, 2019), https://www.hollywoodreporter.com/news/china-box-office-total-revenue-2018-1172725.     [66]    Patrick Brzeski, Tencent Buys Stake in Chinese Production Company New Classics Media for $524M, The Hollywood Reporter (Mar. 12, 2018), https://www.hollywoodreporter.com/news/tencent-buys-stake-chinese-production-company-new-classics-media-524m-1094124.     [67]    Patrick Frater, Tencent Unit Buys New Classics Media for $2.25 Billion, Variety (Aug. 13, 2018), https://variety.com/2018/biz/asia/tencent-unit-buys-new-classics-media-1202904254/.     [68]    Brzeski, supra note 66.     [69]    Joshua Franklin and Julia Fioretti, China’s Tencent Music Raises Nearly $1.1 Billion in U.S. IPO, Reuters (December 11, 2018), https://www.reuters.com/article/us-tencent-music-ipo/chinas-tencent-music-raises-nearly-1-1-billion-in-u-s-ipo-idUSKBN1OA2GR; Sara Salinas, Tencent Music Ends its First Day of Trading Up 9 Percent, CNBC (December 12, 2018), https://www.cnbc.com/2018/12/12/tencent-music-ipo-tme-stock-starts-trading-on-the-nyse.html.     [70]    Corrie Driebusch and Maureen Farrell, Tencent Music Prices Its IPO at Bottom of Range, The Wall Street Journal (December 11, 2018), https://www.wsj.com/articles/tencent-music-readies-its-ipo-after-a-turbulent-process-11544558237.     [71]    Id.      [72]    Kevin Kelleher, What Tencent Music’s $1.1B IPO Says About China’s Market Downturn, Fortune (December 12, 2018), http://fortune.com/2018/12/11/tencent-musics-ipo-chinas-market-turndown/.     [73]    Cherie Hu, From Social Entertainment to Licensing & Data Challenges: What You Need to Know About Tencent Music’s IPO, Billboard (December 13, 2018), https://www.billboard.com/articles/business/8490089/tencent-music-ipo-analysis-streaming-china-data-trends.     [74]    Paul Bond, Dalian Wanda Scales Back AMC Investment, The Hollywood Reporter (September 14, 2018), https://www.hollywoodreporter.com/news/dalian-wanda-scales-back-amc-investment-1143481; Allison Prang, Chinese Conglomerate Trims Staprake in AMC Entertainment, The Wall Street Journal (September 14, 2018), https://www.wsj.com/articles/chinese-conglomerate-trims-stake-in-amc-entertainment-1536934377.     [75]    Michelle Kung and Aaron Back, Chinese Conglomerate Buys AMC Movie Chain in U.S., The Wall Street Journal (May 21, 2012), https://www.wsj.com/articles/SB10001424052702303610504577417073912636152.     [76]    Prang, supra note 74.     [77]    Id.     [78]    The Orrin G. Hatch-Bob Goodlatte Music Modernization Act, H.R. 1551, 115th Cong. (2018).     [79]    Amy X. Wang, Music Modernization Act Passes, Despite Music Industry Infighting, Rolling Stone (Sept. 18, 2018), https://www.rollingstone.com/music/music-news/music-modernization-act-passes-despite-music-industry-726091/; The Music Modernization Act, SoundExchange, https://www.soundexchange.com/advocacy/music-modernization-act/.     [80]    Dani Deahl, The Music Modernization Act has been signed into law, The Verge (Oct. 11, 2018), https://www.theverge.com/2018/10/11/17963804/music-modernization-act-mma-copyright-law-bill-labels-congress.     [81]    Eriq Gardner, Justice Dept. Reviewing Movie Licensing Restrictions on the Books for Decades, The Hollywood Reporter (Aug. 2, 2018), https://www.hollywoodreporter.com/thr-esq/justice-dept-reviewing-movie-licensing-restrictions-books-decades-1131827; Dawn C. Chmielewski and Dade Hayes, DOJ To Review Paramount Consent Decrees Governing How Studios Distribute Movies to Theaters, Deadline (Aug. 2, 2018), https://deadline.com/2018/08/doj-to-review-paramount-consent-decrees-governing-how-studios-distribute-movies-to-theaters-1202439066/.     [82]    United States v. Paramount Pictures, Inc., 334 U.S. 131 (1948).     [83]    See U.S. Dep’t of Justice, Office of Public Affairs, Department of Justice Opens Review of Paramount Consent Decrees, US Dep’t of Justice (Aug. 2, 2018), https://www.justice.gov/opa/pr/department-justice-opens-review-paramount-consent-decrees.     [84]    Lawrence Hurley, U.S. Supreme Court ends fight over Obama-era net neutrality rules, Reuters (Nov. 5, 2018), https://www.reuters.com/article/us-usa-court-netneutrality/u-s-supreme-court-ends-fight-over-obama-era-net-neutrality-rules-idUSKCN1NA1UW.     [85]    Alina Selyukh, U.S. Appeals Court Upholds Net Neutrality Rules In Full, Nat’l Pub. Radio (June 14, 2016), https://www.npr.org/sections/thetwo-way/2016/06/14/471286113/u-s-appeals-court-holds-up-net-neutrality-rules-in-full.     [86]    Ted Johnson, Net Neutrality Back in Court: Takeaways From Marathon Oral Arguments, Variety (Feb. 1, 2019), https://variety.com/2019/politics/news/net-neutrality-marathon-oral-arguments-1203126249/.     [87]    Cecilia Kang, Justice Department Sues to Stop California Net Neutrality Law, N.Y. Times (Sept. 30, 2018), https://www.nytimes.com/2018/09/30/technology/net-neutrality-california.html.     [88]    Eriq Gardner, California Will Hold Off Enforcing State’s Net Neutrality Law, The Hollywood Reporter (Oct. 26, 2018), https://www.hollywoodreporter.com/thr-esq/california-will-hold-enforcement-states-net-neutrality-law-1155484.     [89]    ABS Entm’t, Inc. v. CBS Corp., 908 F.3d 405 (9th Cir. 2018).     [90]    Id. at 422.     [91]    Id. at 423.     [92]    The Rick Nelson Company, LLC v. Sony Music Entertainment, C.A. No. 1:18-cv-08791-LLS, D.I. 1 ¶ 2 (S.D.N.Y. Sept. 25, 2018).     [93]    Williams v. Warner Music Group Corp., C.A. No. 18STCV00006, 2018 WL 5078046 (Cal. Super. Ct. Oct. 4, 2018).     [94]    Williams v. Warner Music Group Corp., C.A. No 2:18-cv-09691-RGK-PJW, at 7–9 (C.D. Cal. Dec. 7, 2018).     [95]    Skidmore v. Led Zeppelin, et al., No. 16-56057 (9th Cir. Sept. 28. 2018).     [96]    Id., slip op. at 7, 13.     [97]    Id. at 16–18.     [98]    Id. at 18-19.     [99]    Id. at 20.     [100]    Id. at 33–34.     [101]    Id. at 34.     [102]    Bluewater Music Servs. Corp. v. Spotify USA Inc., No. 3:17-CV-01051-JPM, 2018 WL 4714812 (W.D. Tenn. Sept. 29, 2018).     [103]    Id. at *1.     [104]    Id. at *4.     [105]    Id. at *5.     [106]    Id. at *6.     [107]    Brown v. Giongco, et al., No. BC669532, Ruling Re: Motion to Quash Service of Summons for Lack of Personal Jurisdiction, or, in the Alternative, Motion to Dismiss or Stay the Action for Forum Non Conveniens by Specially Appearing Defendants Iglesia Ni Cristo and Glicerio P. Santos IV (LA Super. Ct. Dec. 6, 2018).     [108]    Viktor v. Top Dawg Entm’t LLC, No. 18 CIV. 1554 (PAE), 2018 WL 5282886 (S.D.N.Y. Oct. 24, 2018).     [109]    Id. at *1.     [110]    Id.     [111]    Id. at *4.     [112]    Viktor v. Top Dawg Entm’t LLC, No. 18 CIV. 1554 (PAE), D.I. 125 (S.D.N.Y. Dec. 21, 2018).     [113]    Tiffany Hu, Supreme Court Won’t Hear IP Appeals by TVEyes, DHL, Law360 (Dec. 3, 2018), https://www.law360.com/media/articles/1107209/supreme-court-won-t-hear-ip-appeals-by-tveyes-dhl.     [114]    Bill Donahue, Siding with Fox, 2nd Circ. Says TVEyes Is Not Fair Use, Law360 (Feb. 27, 2018), https://www.law360.com/articles/1016495.     [115]    Id.     [116]    Id.     [117]    Id.     [118]    Hu, supra note 113.     [119]    Id.     [120]    Eriq Gardner, TVEyes Will No Longer Carry Fox News in Negotiated End to Big Copyright Fight, The Hollywood Reporter (Jan. 21, 2019), https://www.hollywoodreporter.com/thr-esq/tveyes-will-no-longer-carry-fox-news-negotiated-end-big-copyright-fight-1177661.     [121]    Ashley Cullins, Photographer Suing Andy Warhol’s Estate Claims His Work Isn’t ‘Transformative’, The Hollywood Reporter (Oct. 15, 2018), https://www.hollywoodreporter.com/thr-esq/photographer-suing-andy-warhols-estate-claims-his-work-isnt-transformative-1152405.     [122]    Id.     [123]    Id.     [124]    Id.     [125]    Id.     [126]    Id.     [127]    Id.     [128]    Id.     [129]    Id.     [130]    Bill Donahue, Instagram Art Show Was Fair Use, Richard Prince Says, Law360 (Oct. 9, 2018), https://www.law360.com/media/articles/1090373/instagram-art-show-was-fair-use-richard-prince-says.     [131]    Id.     [132]    Id.     [133]    Id.     [134]    17 U.S.C. § 512(c).     [135]    Id.     [136]    885 F.3d 597 (9th Cir).     [137]    826 F.3d 78 (2d Cir. 2016).     [138]    885 F.3d at 565.     [139]    Id.     [140]    Denial of Writ of Certiorari, Ventura Content Ltd. v. Motherless Inc., (No. 18-235).     [141]    BMG Rights Mgmt. LLC v. Cox Commc’ns, Inc., 149 F. Supp. 3d 634, 655–56 (E.D. Va. 2015).     [142]    BMG Rights Mgmt. LLC v. Cox Commc’ns, Inc., 881 F.3d 293, 303 (4th Cir. 2018).     [143]    Id.     [144]    Id.     [145]    Sony Music Entm’t v. Cox Commc’ns, Inc., No. 1:18-CV-950, 2018 WL 6059386 (E.D. Va. Nov. 19, 2018),     [146]    137 S. Ct. 1744 (2017).     [147]    See In re Brunetti, 877 F.3d 1330 (Fed. Cir. 2017).     [148]    U.S. Supreme Court Case No. 18-302.     [149]    See Brian Iverson, Supreme Court Asked to Consider Immoral or Scandalous Trademarks, IP Watchdog (Oct. 11, 2018), https://www.ipwatchdog.com/2018/10/11/supreme-court-asked-to-consider-immoral-or-scandalous-trademarks/id=101815/.     [150]    See id.     [151]    Bill Donahue, Supreme Court Will Hear ‘Scandalous’ Trademark Case, Law360 (Jan. 4, 2019), https://www.law360.com/articles/1115566/supreme-court-will-hear-scandalous-trademark-case.     [152]    See Am. Freedom Defense Initiative, et al. v. King County, Case No. 17-35891 (9th Cir. Sep. 27, 2018).     [153]    See Bill Donahue, 9th Cir. Strikes Down Seattle Ban On ‘Disparaging’ Bus Ads, Law360 (Oct. 3, 2018), https://www.law360.com/media/articles/1088992/9th-circ-strikes-down-seattle-ban-on-disparaging-bus-ads.     [154]    See id.     [155]    See San Diego Comic Convention v. Dan Farr Prods. et al., Case No. 3:14-cv-01865 (S.D. Cal. Aug. 7, 2014).     [156]    See Shayna Posses, San Diego Comic-Con Wins TM Use Ban, $4M Fee Award, Law360 (Aug. 24, 2018), https://www.law360.com/media/articles/1076513/san-diego-comic-con-wins-tm-use-ban-4m-fee-award.     [157]    See id.     [158]    See id.     [159]    See Ashley Cullins, Hollywood Docket: Coachella Trademark Fight Settles, The Hollywood Reporter (Oct. 12, 2018), https://www.hollywoodreporter.com/thr-esq/hollywood-docket-coachella-trademark-fight-settles-1145285.     [160]    See id.     [161]    Cable News Network, Inc. et al. v. Trump et al., Case No. 1:18-cv-2610 (D.D.C Nov. 16, 2018) (Trans. of Mot. Hrg.).     [162]    Id.     [163]    Id.     [164]    Gubarev v. BuzzFeed, Inc., Case No. 1:17-cv-60426-UU, Dkt. No. 388 (S.D. Fla. Dec. 18, 2018).     [165]    Id.     [166]    Id.     [167]    Gubarev v. BuzzFeed, Inc., Case No. 1:17-cv-60426-UU, Dkt. No. 385 (S.D. Fla. Dec. 18, 2018).     [168]    Petition for Writ of Certiorari, Olivia de Havilland, DBE v. FX Networks, LLC, No. 18-453.     [169]    de Havilland v. FX Networks, LLC, 21 Cal. App. 5th 845 (2018), review filed (May 4, 2018).     [170]    de Havilland, 21 Cal. App. 5th at 850.     [171]    Petition for Writ of Certiorari, Olivia de Havilland, DBE v. FX Networks, LLC, No. 18-453.     [172]    Opposition to Petition for Writ of Certiorari, Olivia de Havilland, DBE v. FX Networks, LLC, No. 18-453.     [173]    Dominic Patten, Olivia De Havilland Last Hope Petition Over ‘Feud’ Feud Denied By SCOTUS, Deadline (Jan. 7, 2019), https://deadline.com/2019/01/olivia-de-havilland-feud-us-supreme-court-petition-denied-ryan-murphy-1202530510/     [174]    Ronnie Van Zant, Inc. v. Cleopatra Records, Inc., 906 F.3d 253 (2d Cir. 2018).     [175]    Id. at 255.     [176]    Id.     [177]    Id.     [178]    Id. at 256.     [179]    Id. at 257.     [180]    Id.     [181]    Id. at 258.     [182]    Daniels v. FanDuel, Inc., 109 N.E.3d 390, 393 (Ind. 2018).     [183]    Daniels v. FanDuel, Inc., 884 F.3d 672, 674 (7th Cir. 2018).     [184]    Id.     [185]    Daniels, 109 N.E.3d at 394.     [186]    Id. at 396.     [187]    Daniels v. FanDuel, Inc., 909 F.3d 876, 877 (7th Cir. 2018).     [188]    Id. at 878.     [189]    Solid Oak Sketches, LLC v. Visual Concepts, LLC, Case No. 1:16-cv-00724-LTS-SDA, Dkt. 128.     [190]    Id.     [191]    Id.     [192]    Id., Dkt. 148.     [193]    Id.     [194]    Order Granting Defendant’s Special Motion to Dismiss/Strike at 1, Clifford v. Trump, No. 18-6893 (C.D. Cal. Oct. 15, 2018).     [195]    Id. at 1-2.     [196]    The district court applied Texas law to Clifford’s defamation claim and the Defendant’s Special Motion to Dismiss/Strike because Clifford is domiciled in Texas.  Id. at 4.     [197]    Id. at 9-11.     [198]    Id. at 11.     [199]    Id. at 12.     [200]    Notice of Appeal, Clifford v. Trump, No. 18-6893 (C.D. Cal. Oct. 15, 2018).     [201]    Matt Stevens, Stormy Daniels Ordered to Pay Trump $293,000 in Legal Fees, The N.Y. Times (Dec. 11, 2018), https://www.nytimes.com/2018/12/11/us/stormy-daniels-donald-trump.html.     [202]    Eriq Gardner, Discovery Beats Defamation Lawsuit as Judge Ponders What’s True in “Reality” Television, The Hollywood Reporter (Nov. 5, 2018), https://www.hollywoodreporter.com/thr-esq/discovery-beats-defamation-lawsuit-as-judge-ponders-whats-true-reality-television-1158089.     [203]    Order Granting Defendants’ Motion for Summary Judgment at 1, Lundin v. Discovery Commc’ns Inc., No. 16-cv-01568 (C.D. Cal. Nov. 2, 2018).     [204]    See, e.g., id. at 13-14.     [205]    Id. at 2.     [206]    Id.     [207]    Notice of Appeal, Lundin v. Discovery Commc’ns Inc., No. 2:16-cv-01568 (C.D. Cal. Nov. 2, 2018).     [208]    Ashley Cullins, Defamation Lawsuit Against ‘Hacksaw Ridge’ Financier Revived by Appeals Court, The Hollywood Reporter (Nov. 27, 2018), https://www.hollywoodreporter.com/thr-esq/defamation-lawsuit-hacksaw-ridge-financier-revived-by-appeals-court-1164328     [209]    Order at 3, Han v. Kylin Pictures, Inc., No. B282947 (Cal. Ct. App. Nov. 27, 2018).     [210]    Id. at 4.     [211]    Id.     [212]    Id. at 10.     [213]    Id. at 14.     [214]    Id.     [215]    Id. at 11-12.     [216]    Complaint at 12-13, La Liberte v. Reid, No: 1:18-cv-5398 (E.D.N.Y. Sept. 25, 2018); see also Ashley Cullins, MSNBC’s Joy Reid at Center of Free-Speech Legal Fight Over Retweets, The Hollywood Reporter (Nov. 6, 2018), https://www.hollywoodreporter.com/thr-esq/msnbc-s-joy-reid-at-center-free-speech-legal-fight-retweets-1158266.     [217]    Complaint at 12-13, La Liberte v. Reid, No: 1:18-cv-5398 (E.D.N.Y. Sept. 25, 2018).     [218]    Id.     [219]    Id. at 11.     [220]    47 U.S.C. § 230.     [221]    Amended Complaint, La Liberte v. Reid, No: 1:18-cv-5398 (E.D.N.Y. Nov. 27, 2018); see also Eriq Gardner, MSNBC’s Joy Reid to Escape Libel Claim Over Retweet, The Hollywood Reporter (Nov. 14, 2018), https://www.hollywoodreporter.com/thr-esq/msnbcs-joy-reid-escape-libel-claim-retweet-1161090.     [222]    Delorean v. Delorean Motor Co., No. CV 18-8212 (JLL), 2018 WL 4941790 (D.N.J. Oct. 12, 2018).     [223]    Id.     [224]    Id. at *4 (cleaned up).     [225]    Id. at *2.     [226]    Id. at *4.     [227]    Compl., Glassnote Entertainment Group, LLC, v. MC DJ Recording et al., 2018 WL 3327743 (S.D.N.Y. July 6, 2018).     [228]    Id. ¶ 7.     [229]    Id. ¶ 38.     [230]    Countercompl. ¶  37, Glassnote Entertainment Group, LLC, v. MC DJ Recording et al., 1:18-cv-06167-LGS (Sept. 14, 2018).     [231]    Id. ¶ 20.     [232]    Id. ¶¶ 52–53.     [233]    Id. ¶¶ 34–35. The following Gibson Dunn lawyers assisted in the preparation of this client update: Scott Edelman, Howard Hogan, Benyamin Ross, Nathaniel Bach, Jillian London, Corey Singer, Aaron Frumkin, Andrew Blythe, Gatsby Miller, Sara Ciccolari-Micaldi, DeDe Mann, Brittany Schmeltz, Sarah M. Kushner, Aaron M. Smith, Brian Castelloe, Bree Love, and Harrison Korn. 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) © 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.

February 7, 2019 |
WTR1000 Recognizes Gibson Dunn’s Trademark Work

The 2019 edition of the World Trademark Review 1000 recognized Gibson Dunn’s work in the area of trademarks, noting that the firm “utilises its resources across the country to encourage IP knowledge flow.”  Washington, D.C. partner Howard Hogan is also recognized as “a force to be reckoned with, combining top-flight skills with innovative thinking.”  The WTR1000 was published in February 2019.

January 31, 2019 |
Federal Circuit Update (January 2019)

Click for PDF This edition of Gibson Dunn’s Federal Circuit Update summarizes the Supreme Court’s on-sale bar decision as well as key filings for certiorari or en banc review.  The Update lists the Federal Circuit’s new guidelines to address scheduling conflicts.  We also summarize recent Federal Circuit decisions confirming the scope of required IPR review, deciding the impact of term changes on obvious-type double patenting, and reflecting differences in how infringement letters can give rise to personal jurisdiction for declaratory judgment claims. Federal Circuit News Supreme Court: Helsinn Healthcare S.A. v. Teva Pharm. USA, Inc. (No. 17-1229):  On January 22, 2019, the Supreme Court unanimously affirmed the Federal Circuit’s decision that a commercial sale to a third party may trigger the “on-sale bar” under 35 U.S.C. § 102(a), even if that third party is required to keep the sale confidential.  The Supreme Court explained that its pre-AIA precedent did not require a sale to be public for purposes of the bar.  Writing for the Court, Justice Thomas explained: “we presume that when Congress reenacted the same language in the AIA, it adopted the earlier judicial construction of that phrase.”  The AIA’s addition of the phrase “or otherwise available to the public” was insufficient to support a different conclusion. Helsinn stands to particularly impact companies where inventors need to raise capital before an invention, although sufficiently complete for a patent application, is ready to be commercialized.  Biotechnology and life sciences firms, for example, may need to consider earlier filings at the research and development stage or strategically review how capital acquisition is structured.  A summary of the decision from our Appellate and Constitutional Law Practice can be found here. There is one additional patent case from the Federal Circuit scheduled to be heard in 2019, and one trademark case for which certiorari was granted. Case Status Issue Amicus Briefs Filed Return Mail Inc. v. United States Postal Service, No. 17-1594 Argument scheduled February 19, 2019. Whether the government is a “person” who may petition to institute review proceedings under the Leahy-Smith America Invents Act 9 Iancu v. Brunetti, No. 18-302 Certiorari granted January 4, 2019. Whether Section 2(a) of the Lanham Act’s prohibition on registration of “immoral” or “scandalous” marks is facially invalid under the free speech clause of the First Amendment – Noteworthy Petitions for a Writ of Certiorari: HP Inc. v. Berkheimer (No. 18-415):  On September 28, 2018, HP filed for certiorari, presenting the question of “whether patent eligibility is a question of law for the court based on the scope of the claims or a question of fact for the jury based on the state of the art at the time of the patent.”  HP argued that, based on Supreme Court precedent, including Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014), patent eligibility is a question of law for the court. As we earlier reported, the Federal Circuit (Moore, Taranto, Stoll, JJ.) held that step two of the Alice patent-eligibility analysis—whether claims involve well-known, routine, or conventional activities—presents a question of fact.  Accordingly, the panel vacated in part and remanded a grant of summary judgment under Section 101, holding that a genuine issue of material fact existed.  HP petitioned for rehearing en banc, which the Federal Circuit denied.  Judge Reyna dissented from that denial, arguing that the decision is a “change in” the Federal Circuit’s law and “counter to guidance from the Supreme Court” in Alice.  As a practical matter, the decision limits accused infringers ability to obtain a dismissal on subject matter grounds before trial. Several amici have filed to support HP’s petition, including the Electronic Frontier Foundation, T-Mobile USA, Inc. and Sprint Spectrum L.P.  On January 7, 2019, the Supreme Court invited the Solicitor General to file a brief expressing the views of the United States on this issue. Mark Perry of Gibson Dunn serves as co-counsel for HP in this matter.  Mark, as well as Gibson Dunn attorneys Helgi Walker, Brian Buroker, and Alex Harris, also successfully represented CLS Bank in the Supreme Court Alice case. Hikma Pharmaceuticals USA Inc. v. Vanda Pharmaceuticals Inc. (No. 18-817):  On December 27, 2018, Hikma filed for certiorari, seeking review of “whether patents that claim a method of medically treating a patient automatically satisfy Section 101 … even if they apply a natural law using only routine and conventional steps.”  Hikma argues that the Federal Circuit’s decision “sharply breaks” from and “effectively overrules” Supreme Court precedent in Alice and Mayo. The Federal Circuit panel majority (Lourie, Hughes, JJ.) held that a method of treating schizophrenia with iloperidone, with dosage based on a patient’s genotype, is patent-eligible.  According to the ruling, the method “makes iloperidone safer” and requires a doctor to administer the drug in set amounts based on testing.  The claims are thus “directed to a specific method . . . using a specific compound at specific doses to achieve a specific outcome.” Chief Judge Prost dissented, arguing the claims were no more than an “optimization” of an existing treatment and that the specific dosage required added “nothing inventive . . . beyond [a] natural law.”  Adding to Judge Prost’s criticism, Hikma argues that, so long as claims are now drafted as methods of treatment, the Federal Circuit’s ruling no longer requires claims directed to natural laws to contain other inventive elements as Mayo dictates, with the PTO now using the challenged ruling to instruct examiners that “it is not necessary for ‘method of treatment’ claims that practically apply natural relationships to include nonroutine or unconventional steps.” Noteworthy Petitions for En Banc Review: Eli Lilly has petitioned for en banc review from the decision in Erfindergemeinschaft UroPep Gb v. Eli Lilly and Co. (No. 17-2603).  The petition asks as one of its two questions: Does a single-step therapeutic method claim violate the “written description” and “enablement” requirements of 35 U.S.C. § 112 under longstanding precedent of this Court and the Supreme Court where: a)      the sole limitation in the claim’s single step that potentially imparts patentability to the claim merely recites a function to be performed, b)      the claim preempts all future ways that might be discovered to perform the function recited in the claim, and c)      the specification fails to identify which, if any, of the embodiments disclosed in the specification actually perform the function to which the claim is directed. This petition could allow the Federal Circuit to clarify written description and enablement requirements for methods of medical treatment, particularly in light of decisions such as Mayo and Alice.  Coupled with the certiorari petition from Hikma, it also reflects further challenge to the Federal Circuit’s upholding method of treatment claims, albeit in the context of Section 112.  The Washington Legal Foundation and Eisai Co. have filed amicus briefs in support of Eli Lilly. Federal Circuit Practice Update Revision to Process for Advising of Scheduling Conflicts: On December 10, 2018, the Federal Circuit revised its process for advising it of scheduling conflicts: The court will only consider scheduling conflicts by arguing counsel; non-arguing counsel and client conflicts will no longer be considered when scheduling argument. Arguing counsel must provide an explanation, including a showing of good cause, for any submitted scheduling conflict. Arguing counsel will be limited to submitting only ten total days of unavailability during the six consecutive court weeks identified in the Notice to Advise of Scheduling Conflicts. The Federal Circuit also stated that “[c]onflicts submitted without a sufficient showing of good cause will not be considered by the court when scheduling argument.”  The Federal Circuit’s notice can be found here. Key Case Summaries (December 2018 – January 2019) AC Technologies S.A. v. Amazon.com Inc., No. 18-1433 (Fed. Cir. Jan. 9, 2019):  If the Board institutes an IPR, it must address all grounds of unpatentability raised by the petitioner. Amazon petitioned for review of one of AC’s patents relating to a data management system.  Although Amazon only identified one piece of prior art, it asserted three grounds depending on how a key term was construed.  The Board instituted the IPR on the basis of one construction.  Later, the Board construed the claim differently, finding that Amazon had failed to show invalidity on two of its three grounds.  Amazon moved for reconsideration, noting that the Board did not address its third ground.  The patentee argued that the third ground had never been instituted, but the Board evaluated it and invalidated the challenged claims on that basis. The Federal Circuit (Stoll, J.) affirmed, rejecting the patentee’s argument that the Board erred by addressing a ground of invalidity that was not expressly part of its institution decision.  The panel explained that the Board either institutes review, or does not, and it must render a final decision addressing all challenged claims.  Likewise, “if the Board institutes an IPR, it must similarly address all grounds of unpatentability raised by the petitioner” (emphasis added). Novartis AG v. Ezra Ventures LLC, No. 2017-2284 (Fed. Cir. Dec. 7, 2018) and Novartis Pharms. Corp. v. Breckenridge Pharm. Inc., Nos. 2017-2173, -2175, -2176, -2178, -2179, -2180, -2182, -2183, -2184 (Fed. Cir. Dec. 7, 2018): Term extensions do not give rise to obviousness-type double patenting (Novartis represented successfully by Gibson Dunn in Ezra). Obviousness-type double patenting (ODP) is a judicial doctrine that prevents patentees from obtaining sequential patents on the same invention, or obvious variants, that extend exclusivity beyond the original patent term.  In the two Novartis cases, the Federal Circuit addressed how to apply ODP if an earlier-filed patent obtains a later expiration than a later-filed patent due to a term extension or due to the term change in the 1995 Uruguay Round Agreements Act (URAA). In Ezra, the Federal Circuit considered ODP in the context of Section 156, which can extend term up to five years when an invention could not be commercialized without approval from a regulatory agency, such as the FDA.  Novartis’s first patent was to expire in 2014, and a second, related patent to expire in 2017.  But, based on an extension, the first patent’s term was extended to 2019—after expiration of the second, later-filed patent.  Ezra argued that the first patent was invalid or should be at least terminally disclaimed to the expiration of the later-filed patent. The Federal Circuit (Chen, J.) rejected Ezra’s positions.  According to the panel, Section 156 allows a patentee to choose one patent to extend, and “[a]s long as the requirements for a patent term extension recited in § 156(a) are met, the Director of the Patent and Trademark Office ‘shall’ grant a [patent term extension] on the patent of the patentee’s choice.”  ODP does not invalidate a patent with a validly-obtained patent term extension because holding otherwise “would mean a judge-made doctrine would cut off a statutorily-authorized time extension.” Breckenridge considered ODP in light of the 1995 change in patent term from 17 years after issuance to 20 years from the earliest effective filing date.  Novartis had two patents that both claimed the same priority date.  Because of the URAA’s change in term, the first, earlier-filed patent, a pre-URAA patent, was to expire later than the second post-URAA patent. The Federal Circuit (Chen, J.) held that the URAA change did not give rise to ODP.  Novartis had not tried to extend its patent term.  Rather, the difference was created by the URAA—indeed, it “truncated” the term of Novartis’s second-filed patent.  The panel held that a change in law “should not truncate the term statutorily assigned” to the first patent, and that holding otherwise “would abrogate Novartis’s right to enjoy one full patent term on its invention.” Jack Henry & Assoc., Inc. v. Plano Encryption Techs. LLC, No. 16-2700 (Fed. Cir. Dec. 7, 2018): Infringement letters can establish personal jurisdiction and venue in a declaratory action. Jack Henry brought a declaratory action against Plano in the Northern District of Texas.  Plano had sent enforcement letters to Jack Henry (which did business in the district) identifying Plano’s patents, stating its belief that infringement was occurring, and offering a license.  Thus, minimum contacts were met—the issue was whether exercising jurisdiction would be reasonable and fair.  The district court held that Plano’s contacts should not subject it to jurisdiction. The Federal Circuit (Newman, J., joined by Wallach and Stoll, JJ.) reversed, rejecting the view that infringement letters alone cannot provide a basis for personal jurisdiction in a declaratory action.  The panel noted that Plano did not contend that jurisdiction in the district would be inconvenient.  Plano was also subject to general jurisdiction in Texas and was registered to do business throughout the state.  Under these facts, personal jurisdiction and venue were satisfied. Maxchief Investments v. Wok & Pan, Indus., No. 18-1121 (Fed. Cir. Nov. 29, 2018): Infringement letters do not establish jurisdiction just because they are directed to the forum. Maxchief brought a declaratory judgment action against Wok & Pan in the Eastern District of Tennessee.  Wok & Pan had sent infringement notices to Maxchief’s attorney in the district, although Maxchief itself was a Kansas company that did not operate in Tennessee.  Maxchief also argued that a separate suit by Wok in California, which sought a broad injunction impacting Maxchief’s products, would have “effects” in Tennessee as one of its distributors operated there.  But the district court dismissed the suit, holding Maxchief failed to allege the minimum contacts. The Federal Circuit (Dyk, J., joined by Reyna, J., and Hughes, J.) affirmed, holding that personal jurisdiction based on enforcement activity requires intentional conduct “directed at the forum.”  “[I]t is not enough that Wok’s lawsuit might have ‘effects’ in Tennessee.”  As to infringement letters, the panel deemed the contact to be with Maxfield in Kansas, notwithstanding that the letter was sent to a lawyer in Tennessee.  Taken with Jack Henry above, this illustrates the fact-dependent nature of the personal jurisdiction inquiry for declaratory judgment actions. 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) © 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 28, 2019 |
Peter Alexiadis Recognized in Who’s Who Legal Data

Who’s Who Legal has named Peter Alexiadis to its 2019 list of leading data lawyers. The list recognizes practitioners in the fields of IT, privacy and protection, security, and telecoms and media issues and was published in January 2019.