L&G’s Andrea Kott and Patrick Viktora presented “Avoiding Harassment Claims in Your Practice” yesterday to a major Chicago hospital system. The presentation was designed to educate and remind healthcare providers of the importance of knowing what constitutes harassment in the work place, as well as provide guidance on how to avoid and protect from claims brought by patients and co-workers.
On March 21, 2018, Christopher Cahill moderated the live webinar “Purchase Order Finance”, co-produced by Financial Poise and the New York Institute of Credit. Purchase order finance can enable a supplier with limited liquidity to make and ship a substantial order to a retailer or reseller.
By Michael J. Weil
(Originally published in ISBA March 2018 Intellectual Property Newsletter)
On December 29, 2017 Wixen Music Publishing Inc. filed a lawsuit in California Federal Court which could impact millions of music fans in the U.S. and around the world. The complaint, lodged against the popular music service Spotify, alleges that Spotify has been streaming thousands of Wixen’s songs without permission. In response, Wixen seeks a staggering $1.6 Billion in monetary damages, in addition to injunctive relief. This is a significant development because Wixen is the exclusive licensee of several popular Spotify tracks including: “Free Fallin’” by Tom Petty, “Light My Fire” by the Doors, and “(Girl We Got a) Good Thing” by Weezer. Furthermore, Wixen also owns rights to songs by Steely Dan, Stevie Nicks and Neil Young, and administers “more than 50,000 songs written and/or owned by its more than 2,000 clients”. The publisher alleges that its songs were downloaded and streamed “billions of times” through Spotify’s Service.
Wixen’s complaint invokes parts of the United States Copyright Act. Under the Copyright Act, there are two separate copyrights inherent in every recorded song. First, there is a copyright in the sound recording (the original or “master recording”). Second, there is a copyright in the musical composition–for example, a song’s words and musical notes. Moreover, streaming services like Spotify are required to pay “mechanical royalties”. The mechanical royalties are covered through a mechanical license, which grants streaming services a broad license for a set rate. When applying for a mechanical license, the licensee is obligated to file a formal “notice of intent” or “NOI” with the Copyright Office. In this case, Wixen contends that Spotify did not obtain the required composition and mechanical licenses. Furthermore, Wixen states that Spotify did not publish a Notice of Intent.
The Wixen case is the latest in a recent line of lawsuits against Spotify. In the summer of 2017, a settlement in the class action case of Ferrick et.al. v. Spotify USA Inc. awarded over $43 million to song owners for past unauthorized uses. Additionally, Spotify had to pay the National Music Publishers’ Association roughly $25 million in a private settlement for similar infringement allegations. However, both of the settlement amounts fall well below the $1.6 Billion being requested by Wixen.
In addition to the money involved, the Wixen case is significant because it could be the last of its kind. Congress currently is evaluating a new law called the Music Modernization Act (“MMA”). Some music licensors fear that the Act will make it much harder to obtain restitution for copyright infringement: “If the Music Modernization Act passes the bill ‘would eliminate important legal remedies’ for any music publishing company’s lawsuits…filed after January 1st, 2018.” Conversely, proponents of the MMA say that the Act would create a much needed blanket license, along with a new agency and song database, aimed at modernizing America’s outdated music laws. For example, many of the laws governing United States music copyright were drafted in an era when phonographs were the predominant “music streaming” device. Accordingly, many legislators argue that the U.S.’s music laws are not suited to contemporary methods of music consumption—especially digital streaming services; as a result the bill has bipartisan support in Congress.
Finally, in addition to updating the copyright laws, the Music Modernization Act would require a change in controversial royalty rate setting practices. Currently, there is a labyrinthine method for calculating music royalty rates taking into account “service type”, like terrestrial radio, satellite radio, etc. as well as “type of copy” (ranging from a physical record to a ringtone). The result of this process is that digital forms of music cost the licensee multiple times more than physical forms. For example, a ringtone recently has been valued at 24 cents per song fragment in royalties while a record is $.091 per song or $.0175 per minute of playing time. The MMA’s supporters say that instead of having rigid rate setting based on copy and service type, the Act will open rates up to a “willing buyer/seller marketplace”.
Given these recent developments, 2018 looks to be a watershed year for music law. By the end of the year, music streaming services will likely have a clearer sense of the regulatory framework they must navigate. Moreover, if the MMA gets passed, the U.S. musical copyright laws will receive a long-overdue revamping. Overall, it will be intriguing to keep an eye on both Wixen and the MMA’s development in the months ahead.
Michael J. Weil is an associate and licensed patent attorney at Lowis & Gelien LLP in Chicago. Michael can be reached at email@example.com.
Christopher Cahill appeared on March 13, 2018 as a panelist on the live webinar Credit Insurance – 101, co-produced by Financial Poise and West LegalEdCenter. Chris spoke on how trade credit insurance interacts with bankruptcy law when non-paying United States customers become debtors.
Christopher Cahill authors and updates annually the following Practice Notes on Lexis Practice Advisor:
• Make-Whole Premiums in Bankruptcy Cases
• Understanding Adequate Protection
• Contractual Provisions to Effectively Forestall a Borrower’s Bankruptcy Case
• Borrower as a Single Purpose Entity
• Sale Leaseback of Real Property and Bankruptcy Recharacterization
• Bankruptcy Risks for Landlords When Tenants Go Bankrupt
• Bankruptcy Risks for Tenants When Landlords Go Bankrupt
• Bankruptcy Risks in Subleasing
• Claims for Attorney’s Fees in Bankruptcy
• Single Asset Real Estate Status
• When a Purchaser or Seller of Real Property Goes Bankrupt
• Bankruptcy Considerations in Owner-Contractor Agreements and Owner-Architect Agreements
• Bankruptcy Issues in Residential Real Property Transactions
On November 17, Lowis & Gellen’s Bryan Larsen participated in a legal panel entitled “The Reptile Theory – Cutting Off The Head Of The Snake: How The Defense Can Effectively Combat Reptile Tactics In Litigation” at CHRMS Law Day.
By Michael J. Weil and Andrew C. Warnecke
In 2017, the Court of Appeals for the Federal Circuit (“CAFC”) rendered an impactful decision regarding what constitutes the sale of an invention under the America Invents Act (“AIA”). The decision, known colloquially as Helsinn, is already shaping subsequent patent law decisions in the district courts and altering the U.S. Patent Office’s (“PTO”) evaluation of AIA patents.
The Legal Environment Leading up to Helsinn
In 2013, the AIA became the legal standard which governs United States patents filed on or after March 16, 2013. The AIA replaced the “Pre-AIA” regulations of 35 U.S.C. § 102, which were largely derived from the Patent Act of 1952 (the Pre-AIA statute still governs patents filed before March 16, 2013). Included in both the AIA and Pre-AIA law is a provision known by practitioners as the “On-Sale Bar”. The relevant text of the AIA’s “On-Sale Bar” statute provides that “[a] person shall be entitled to a patent unless—(1) the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention…” The effective filing date is the date when a patent application is filed, or submitted, with the PTO. The word “effective” is there to cover earlier “priority dates”. For example, if a provisional patent application or international application is filed, the filing date claimed may be the date of the earlier filed application (the priority date). Priority dates are regulated by their governing statutes (i.e. a non-provisional patent application must be filed within one year of a provisional, or it loses its right to the provisional filing date ). Patent applicants use priority dates to lengthen the timeframe of their invention’s exclusivity.
The AIA also states that a disclosure which would otherwise qualify as prior art may be disqualified as prior art if the disclosure is made: (1) one year or less before the effective filing date of the claimed invention; and (2) by the inventor or a joint inventor. Thus, the AIA On-Sale Bar prohibits a patent applicant from making a public commercial sale of his or her invention more than one year prior to the earliest filing date of the invention. “Prior art” refers to any information publicly known before the filing date of the invention disclosed in earlier patents and other published material. Prior art is used to reject an application because it shows that the invention is not novel, and/or obvious—requirements for a patent.
Under Pre-AIA law, the broad rule (excluding several complex exceptions) was that a prior commercial sale or offer for sale of an invention, made more than one year before the filing date of the patent application would preclude a patent. Indeed, “[a] person shall be entitled to a patent unless…the invention was patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of the application for patent in the United States.” There is a notable difference in language between the Pre-AIA law and the AIA law. Specifically, the AIA law includes the new provision “otherwise available to the public.”
Debate has surrounded the AIA’s inclusion of the “or otherwise available to the public” clause. Public policy disfavors monopolies, and their ability to charge higher prices. A patent is an exception for a limited time; if proper maintenance fees are paid, a patent currently gives an applicant exclusivity for 20 years from filing (for a utility patent) or 14 years from filing (for a design patent). Permitting commercialization more than one year prior to filing could extend the patent monopoly beyond Congress’ intent. Additionally, some foreign jurisdictions require patent application filing before any commercialization of disclosure.
The hot-button question is whether this new language requires a more explicit disclosure of the purported inventions with a sale or offer for sale. In other words, if a sale did not disclose details of the invention involved, would it be exempted from the on-sale bar under the AIA? Initially, it appeared the PTO interpreted the AIA to require that specifics of an invention be publicly disclosed in connection with the sale before the on-sale bar applied. This stance was codified in the Manual of Patent Examining Procedure (“MPEP”), the authoritative guidebook of United States patent examiners. Specifically, the MPEP provides that “[t]he phrase ‘on sale’ in AIA 35 U.S.C. 102(a)(1) is treated as having the same meaning as ‘on sale’ in pre-AIA 35 U.S.C. 102(b), except that the sale must make the invention available to the public . . . . The pre-AIA 35 U.S.C. 102(b) ‘on sale’ provision has been interpreted as including commercial activity even if the activity is secret…AIA 35 U.S.C. 102(a)(1) uses the same ‘on sale’ term as pre-AIA 35 U.S.C. 102(b). The ‘or otherwise available to the public’ residual clause of AIA 35 U.S.C. 102(a)(1), however, indicates that AIA 35 U.S.C. 102(a)(1) does not cover secret sales or offers for sale.” These MPEP provisions arguably mean that until Helsinn, under the new AIA, the USPTO interpreted “on-sale” to exclude sales where the invention was not explicitly disclosed—unlike the Pre-AIA statute. This was a boon to inventors who made sales that did not disclose an invention. To summarize, under pre-AIA law any sale—regardless of the level of detail disclosed—triggered the on-sale bar. In contrast, under AIA law, sales lacking detail seemed to avoid the on-sale bar’s clutches.
The Helsinn Case
Case Background: The Helsinn case revolved around four pharmaceutical patents, owned by Helsinn Healthcare, and one of the patents at issue was governed by AIA law. The AIA patent disclosed a drug aimed at easing the side effects of chemotherapy. In 2001, two years before it applied for its patents, Helsinn entered into a supply and distribution agreement with MGI Pharmaceuticals (“MGI”), and the deal was publicly disclosed in both a press release and MGI’s 8-K filing. Subsequently, Helsinn sued Teva Pharmaceuticals (“Teva”), arguing that the patents disclosed in Teva’s Abbreviated New Drug Application (“ANDA”) would be infringed if the generic drug was allowed to be sold . Teva countered that Helsinn’s AIA patent was not enforceable because Helsinn and MGI entered into their agreement more than one year before filing—violating the on-sale bar statute (AIA 35 U.S.C. 102(a)).
District Court’s Ruling: The district court found that Helsinn’s AIA patent was valid because no public commercial sale or offer for sale took place more than one year prior to filing. This was significant because the court interpreted the newly added phrase “or otherwise available to the public” to change the established standard by which AIA patents were evaluated. Under the Pre-AIA law, Helsinn’s sale to MGI likely triggered the on-sale bar clock, because any commercial sale or offer—regardless of whether the terms detailed the patented invention to the public –was a sale which started the one-year clock. In contrast, applying the new AIA law, the district court ruled that there was no public sale here because the press release and 8-K form did not detail the recommended dosage of the drug claimed in Helsinn’s patent, or its pricing structure. Since the disclosure lacked the requisite details, it was not actually “available to the public” and the district court ruled that the disclosure did not trigger the on-sale bar.
CAFC Ruling: After the district court upheld Helsinn’s AIA patent, Teva appealed to the CAFC. The main question the CAFC addressed was whether the AIA’s “otherwise available to the public” clause altered how courts interpreted the on-sale bar. The CAFC first looked at contract law when crafting its opinion, explaining that the “question must be ‘analyzed under the law of contracts as generally understood’ and ‘must focus on those activities that would be understood to be commercial sales and offers for sale in the commercial community.’” The court stated that under the Uniform Commercial Code (“UCC”), the contract here was valid. The CAFC also rejected Helsinn’s contention that the deal’s promise of future goods and a lack of FDA approval, made it unenforceable. The Federal Circuit reasoned that “‘[a] contract for sale that includes a condition precedent does not invalidate it’… ‘FDA approval is not required before a sale can bar patent rights.’”
After establishing that the contract was valid, the court turned to the on-sale bar question, and the “otherwise available to the public” language. The CAFC ruled that the district court’s interpretation of AIA 35 U.S.C. 102(a) was flawed because disclosure of details was not a requirement to trigger the on-sale bar clock. The CAFC explained that “an invention is made available to the public when there is a commercial offer or contract to sell a product embodying the invention and that sale is made public. Our cases explicitly rejected a requirement that the details of the invention be disclosed in the terms of sale… there can be ‘a definite offer for sale or a sale of a claimed invention even though no details are disclosed’”.” The Court also looked at Congressional intent and stated that Congress did not mean to change the on-sale bar or override established legal precedents, noting that “[i]f Congress intended to work such a sweeping change to our on-sale bar jurisprudence and “wished to repeal … [these prior] cases legislatively, it would do so by clear language.” Ultimately, the CAFC decided to overturn the district court’s opinion that the sale did not qualify as an on-sale bar under AIA law: “We conclude that, after the AIA, if the existence of the sale is public, the details of the invention need not be publicly disclosed in the terms of sale. For the reasons already stated, the Supply and Purchase Agreement between Helsinn and MGI constituted a sale of the claimed invention.” Because the CAFC ruled that the agreements constituted a commercial sale, and since the sale took place more than one year before Helsinn filed its AIA patent, its patent is invalid under the on-sale bar.
Impact and Appeals:
Overall, the CAFC’s opinion in Helsinn gives the AIA’s on-sale bar essentially the same meaning as the Pre-AIA on sale bar. Consequently, the decision has wide ranging practical impacts. Notably, AIA patent applicants and owners who made an “undetailed” public disclosure more than one year prior to filing now may see their patents challenged. Moreover, the PTO will need to adjust its standards to comport with the CAFC ruling.
In response to the CAFC’s decision, Helsinn Healthcare filed a petition for en banc review by the Federal Circuit—as of September 24, 2017 there has not been a response. If Helsinn’s petition fails, it will have 90 days to appeal to the Supreme Court. It will be interesting to monitor whether the CAFC grants a rehearing (a rarity) and if necessary, whether Helsinn elects to petition the Supreme Court for certiorari.
Congratulations to Andrea Kott, Brian Levin, Jim Bream, Pam Gellen and Tom Koessl on being named Leading Lawyers for 2017-2018!
Debra (Deb) Winiarski has joined our Phoenix office. Deb received her J.D. from the University of Wisconsin in 1985 and earned her M.B.A. from the University of Chicago in 2004. She spent much of her career in Chicago in large law firms before entering graduate business school and relocating to Phoenix. After achieving her M.B.A., she joined a large international law firm in Phoenix, and then went in-house with a commercial real estate and mortgage banking company. Her areas of expertise are broad and include both litigation and transactional work. She has sub-specialties in professional liability, intellectual property, securities, real estate, banking, insurance, and employment law. She is licensed in California and, at this very moment, is following the procedures to renew her license in Arizona, Illinois and, ultimately, Wisconsin. She has practiced in courts across the country. Deb enjoys engaging in outside legal activities and has written and spoken extensively; including co-authoring a treatise on financial malfeasance and risk management, and numerous other publications and speeches on a variety of legal and business topics. We welcome her to our team!