Significant Cyberspace Developments of 2014

It's a bit late for a year-end wrap-up, but better late than never, right?  For those who may have missed some of these, here are my picks for some of the more important developments in Cyberspace law that occurred in 2014. This is not meant to be an exhaustive list, and there are certainly other important developments not on the list.  

In no particular order:

·        Data Breaches --- 2014 may be “the Year of the Data Breach”.  Either that or we are just discovering and reporting them more.  The Identity Theft Resource Center identified 783 data breaches in 2014, exposing over 85 MILLION records!  One real problem is who pays for it.  The retailers (Home Depot, etc.) just shrug and say “Not our problem.  Banks, you pay for remediation”  The banks are fighting back.  Indemnification battles are getting fierce on data protection clauses in contracts.  If the industry does not sort things out, we may need the regulators to step in.

·        Alice Corp. v CLS Bank  -- A major decision in patent law from the U.S. Supreme Court.  The Court invalidated a patent that implemented an escrow process by using a computer, holding that the invention only covered an abstract idea and was not eligible for patent protection.  The decision has already being used to invalidate over a dozen patents (including one to run a bingo game on a computer), and my guess is many more are no longer being enforced but will never see a formal decision.  The decision is a bad one for patent trolls, who are often trying to enforce relatively weak or unenforceable patents.

·        ABC V. Aereo --- Not a fair use case, but a corollary of the “Don’t build a business model based on fair use” theorem.  The Supreme Court held that Aereo's system was just too contrived, and violated the broadcasters' exclusive right to perform copyrighted works by transmission.  The Court's holding was narrowly drawn,   probably due to a gut feeling that what Aereo was doing just was not kosher, and the Court avoided applying its decision broadly to "cloud computing" and other Internet business models.  We shall have to wait and see how the decision is applied to new streaming services like Slingstream.

·        I-O-T --- I don’t like the acronym, but it works.  Everything is being connected to everything. In May, the White House Report on Big Data recognized opportunities and concerns about data collection.   BUT WHO OWNS THE DATA???    In the absence of regulation, contracts will determine who can do what with the data.  But vendors like Sirius need to learn how to do online contracting correctly.  Once the vendors figure it out,  mass market consumers may have little ability to say "No."  Watch for the FTC to step in, at least to "encourage" transparency in data collection practices.

·        Online Contracting --- Cases like Barnes & Noble (and others) reaffirm that there is a right way and a wrong way to obtain assent to online terms.  Now Safeway also reaffirms Douglas v. California (9th Cir. 1997), that you can’t simply modify the terms at will without providing notice to the users and expect to be able to enforce the new terms.  Despite the prevailing practice, the American Bar Association's Cyberspace Law Committee (disclosure: of which I am a member) has been preaching this for over a decade!

·        Riley v California --- The U.S. Supreme Court recognized that a cell phone is not the same as a pack of cigarettes, and ruled that police cannot search the data on a cell phone without a warrant.  This is a big victory for privacy.  But where does the Supreme Court's analogy stop?  Does it extend to personal content stored on the cloud (query how the police could get access)?  What about personal data stored on a PC? 

·        Right to be Forgotten --- This is a big enough topic in Europe it needs to be mentioned.  In May the European Court of Justice ruled that Google needs to comply with EU data privacy laws and must remove links to a 1998 story about the plaintiff.  Whether the concept takes hold in the United States remains to be seen, especially with the tradition of robust First Amendment jurisprudence.

·        ApplePay --- Fad or flop?  Time will tell.  I vote flop.  Not enough vendors have the proper equipment, and there is not a huge installed base of iPhone 6 users yet.  

What do you consider to be the top Cyberspace law developments of 2014? 

(Edit) Here is Professor Eric Goldman's list of Top 10 Internet Law developments for 2014

http://www.forbes.com/sites/ericgoldman/2015/01/23/top-10-internet-law-developments-of-2014/

"Intellectual Property Protection for Small Businesses" Presentation

On Tuesday, I had the pleasure of co-presenting a workshop at the "Beacon for Small Business Expo," sponsored by Beacon Mutual for its policyholders and the general public.  My presentation was titled "Intellectual Property Protection for Small Businesses."  Here is a copy of the slide deck.

My co-presenter was Ted Howell,  of Partridge, Snow & Hahn.  Ted spoke about strategies for protecting corporate assets in the broader sense, including confidential business information and relationships with customers and vendors.

New Design Patent Infringement Case Filed in DRI --- Kitchen Gadget Wars

Blair v. Media Brands Co., Ltd. , No. 11-cv-234S (D.R.I. filed June 8, 2011).

A new patent infringement case was filed in the District of Rhode Island last week. Barry Blair and Norman Blier own two design patents for a kitchen utensil that holds vegetables and fruit for easy peeling, cutting and slicing, marketed under the PREP N' POP brand. The plaintiffs sell their product on QVC. As the picture shows, the product looks vaguely like a bicycle pump.

In their Complaint, the Plaintiffs allege that the defendants, a Canadian company called Media Brands Co., and its owners, have infringed the design patents by marketing an identical but inferior product under a PREP-XPRESS brand. The Complaint also alleges that in order to promote the PREP-XPRESS product, Media Brands sent out a mass e-mail containing links to a QVC video and a YOUTUBE video in which the plaintiffs can be seen demonstrating their own products. The complaint also asserts claims for federal trademark infringement, federal unfair competition, and Rhode Island state law claims for misappropriation and dilution. The case has been assigned to Judge Smith.

Supreme Court Affirms 'Clear and Convincing' Standard for Invalidating Patents

Microsoft Corp. v. i4i Limited Partnership, No. 10-290 (U.S. Sup. Ct. June 9, 2011). [link]


Thursday's U.S. Supreme Court opinion in the Microsoft case did not make any significant changes to patent law or patent litigation as some observers had predicted. The Supreme Court affirmed the long standing rule that the invalidity defense to a patent infringement action must be proven by "clear and convincing evidence," even if relying on new evidence that had not been presented to the Patent and Trademark Office during the prosecution of the patent in question. But the opinion contained some language that indicates it might be easier to challenge the invalidity of patents in the future.

Background

Section 282 of the federal Patent Act provides that "[a] patent shall be presumed valid" and that "[t]he burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity." In its 1984 decision in American Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350 (Fed. Cir. 1984), the Federal Circuit interpreted Section 282 to require that the burden of proving invalidity is "to convince the court of invalidity by clear evidence." Since 1984, the Federal Circuit has been consistent in this interpretation.

In 2007, i4i sued Microsoft for willful patent infringement, claiming Microsoft's manufacture and sale of certain Microsoft Word products infringed i4i's patent. Microsoft asserted a counterclaim and sought a declaration that i4i's patent was invalid and unenforceable, alleging that i4i had sold software incorporating the patented inventions in the U.S. more than a year prior to filing its patent application. It was undisputed that the disputed evidence concerning the sale of the software has not been presented to the Patent and Trademark Office examiner during the prosecution of the patent application. At trial, Microsoft objected to the proposed jury instruction that the invalidity defense must be proved by 'clear and convincing evidence,' with respect to the prior art that was not examined by the PTO examiner. Microsoft proposed the following alternative jury instruction:

"Microsoft's burden of proving invalidity and unenforceability is by clear and convincing evidence. However, Microsoft's burden of proof with regard to its defense of invalidity based on prior art that the examiner did not review during the prosecution of the patent-in-suit is by preponderance of the evidence."

The District Court rejected Microsoft's proposed jury instruction. At trial, the jury found that Microsoft had willfully infringed i4i's patent, and that Microsoft failed to prove invalidity. The Court of Appeals for the Federal Circuit affirmed the ruling in 2010, relying on its longstanding interpretation of Section 282 in the American Hoist decision.

Supreme Court Decision

The Supreme Court affirmed the lower court decisions in an 8-0 ruling. (Chief Justice Roberts did not participate in the ruling, reportedly because he owns Microsoft stock).

Writing for the majority, Justice Sotomayor reviewed the history of Section 282 of the Patent Act. She found that in adopting Section 282 in 1952, Congress had codified the common-law presumption that patents are valid, and, implicitly, the heightened 'clear and convincing' standard of proof that attached to this presumption. She also found that Congress had had many opportunities to amend Section 282 and other patent laws since 1984, but apparently has never considered any proposal to lower the standard of proof for invalidity. As a result, any change to the standard of proof must be made by Congress.

Under an agreement between the parties, Microsoft must now pay i4i $300 million within 15 days.

Change for the Future?

One interesting part of Justice Sotomayor's decision addressed Microsoft's contention that the 'preponderance of the evidence' standard should apply where the evidence being presented in the trial was not presented to the PTO during the examination process. Her opinion found that there was no evidence that Congress intended to deviate from the 'clear and convincing evidence' standard in these circumstances. However, the Court's opinion noted that:

"[a] jury instruction on the effect of new evidence can, and when requested, most often should be given. When warranted, the jury may be instructed to consider that it has heard evidence that the PTO has had no opportunity to evaluate before granting the patent. When it is disputed whether the evidence presented to the jury differs from that evaluated by the PTO, the jury may be instructed to consider that question. In either case, the jury may be instructed to evaluate whether the evidence before it is materially new, and if so, to consider that fact when determining whether an invalidity defense has been proved by clear and convincing evidence."

As a result, the 'clear and convincing evidence' standard for proving the invalidity of a patent remains in place. But the Court's decision also clearly instructs lower courts to permit juries to consider new evidence, and the effect of new evidence when making their 'clear and convincing' determination. We will need to wait for a number of patent infringement cases to move their way through the lower courts to see whether or not this new evidence has any actual affect on the juries. In theory, however, it would appear that by endorsing the consideration of new evidence by juries, the Court's decision may make it easier to prove the invalidity of patents in the future.

New Patent Case Filed in DRI

A new patent case was filed in the federal District Court in Rhode Island last week. In its Complaint, Ira Green Inc. of Providence alleges that JL Darling Corp. of Tacoma, Washington, has sold products that falsely claim they are covered by patents, in violation of the federal Patent Act.

Both companies manufacture and sell weatherproof paper, and products such as books and notepads comprised of weatherproof sheets. Ira Green alleges that JL Darling is misleading the public by claiming its books and notepads are covered by a U.S. patent, when that patent does not cover the books and notepads in question.

The "false marking" provisions of the federal patent law make it illegal to put a patent number on a product that is not in fact covered by that patent "for the purpose of deceiving the public." The penalty is a fine of not more than $500. The statute also allows private individuals to bring "qui tam" suits against an alleged offender. If successful, the private plaintiff gets part of the fine and the government gets the other part.

For many years, the provision was not used very often, as it was interpreted to mean that a continuous false marking--such as the entire production run of a product--is a "single offense." So the fines were rarely worth the bother of filing a lawsuit. But in December 2009, the Federal Circuit Court of Appeals changed this interpretation and ruled that each wrongly marked item could be viewed as a separate offense under the statute. This ruling opened the floodgates for these "false marking" cases. In 2010, over 670 false marking cases were filed in the federal courts. Through the first quarter of 2011, an additional 199 cases were filed.

These false marking cases have been subject to question recently. In March, a federal court in Ohio reaffirmed a ruling declaring the provisions allowing a private individual to bring suit unconstitutional. Around the same time, the Federal Circuit held in In re BP Lubricants USA Inc. that conclusory allegations that a defendant is a sophisticated company, and "knew or should have known" that a patent had expired are insufficient, and that a complaint must "provide some objective indication to reasonably infer that the defendant was aware that the patent expired." Together, these two judicial limitations have substantially slowed down the filing of new false marking cases, as only 26 cases were filed in total in the federal courts in April and May 2011.

Whether or not the Ira Green complaint can overcome these limitations remains to be seen.