Licensing International Patent Portfolios & Understanding National Laws – A Trap for the Unwary

Companies having portfolios of both domestic and international patents that consist of patents in both domestic and international jurisdictions need to account for variances between the laws of the different countries when contemplating licensing such portfolios.   While it is possible to execute individual licenses for specific subsets of jurisdictions, a common approach is to execute a single, comprehensive license to an entire global portfolio.  Since most licensing agreements select the laws and courts of a single jurisdiction for adjudication of disputes, it is important to understand limitations of the selected jurisdiction.

 

United States vs. Europe vs. Canada

One notable instance of differences in the laws of various countries is whether patent licenses can be structured to require royalties beyond the term of the licensed  patents.

In the United States, under the “Brulotte rule”, a requirement in an agreement for a licensee to pay royalties to a licensor after the expiration of the licensed patents is “unlawful per se.” Brulotte v. Thys Co., 379 U. S. 29 (1964).  In Brulotte, an inventor had licensed patents for a hop-picking machine to farmers, with royalties due prior to and after the expiration of the patents on the machine.  The Supreme Court reasoned  that, “contracts to pay royalties for such use continue the patent monopoly beyond the [patent] period.” [i]

The Brulotte rule was affirmed as recently as 2015, when the Supreme Court ruled in Kimble v. Marvel Entertainment, LLC, that post-expiration patent royalties are unlawful, and “when the patent expires, the patentee’s prerogatives expire too.” Kimble v. Marvel Entertainment, LLC 135 S. Ct. 2401 (2015).  In Kimble, inventor Steven Kimble had obtained and licensed to Marvel the rights to his patent for a glove that shot “Web” via an attached can of spray foam.  The license agreement in this case contained no end date for the royalty payment.  Relying heavily on the doctrine of  stare decisis, the  Kimble Court affirmed the decision that Marvel could stop paying Kimble royalties on the expired patent.

The European Union treats extending royalty payments beyond the term of licensed patents differently than the US.   In particular, Paragraph 187 of the Guidelines to the EU Technology Transfer Block Exemption Regulation states:

Notwithstanding the fact that the block exemption only applies as long as the technology rights are valid and in force, the parties can normally agree to extend royalty obligations beyond the period of validity of the licensed intellectual property rights without falling foul of Article 101(1) of the Treaty. Once these rights expire, third parties can legally exploit the technology in question and compete with parties to the agreement. Such actual and potential competition will normally be sufficient to ensure that the obligation in question does not have appreciable anti-competitive effects.

So unless one or more of the parties has such a dominant position in the market that the relevant license agreement has appreciable anti-competitive effects, an obligation to pay royalties post-expiry of a patent should be enforceable in the European Union.

In Canada, a patent license can validly require royalty payments extending beyond patent expiration. However, case law in Canada indicates, “In the absence of an express provision on the subject a license continues until the expiration of the original term of the patent, but not beyond. However, an express stipulation in the contract as to the duration of the license will control.”  Therefore, even if the License  Kimble had with Marvel was reviewed under Canadian law, it is likely that the obligation to pay royalties beyond the term of the licensed patent would not have been enforceable, as it left open the term of the license, which would have been a death blow to fees due post expiration of the patents.

 

Choice of Law

In light of the above with respect to the laws of the United States, European Union and Canada, it is easy to see that each could provide a different outcome for the same license agreement.  This is complicated by the fact that most agreements, including such licensing agreements, have clauses in them that require the agreement to be reviewed under one set of controlling laws.

The Brulotte rule is not absolute.  For example, courts have found that licenses can require payment of royalties on unexpired foreign patents even after U.S. licensed patents have expired.   Licenses often require royalties to be paid until the latest-running patent expires.

However, how would a U.S. court interpret an obligation to pay royalties on European Union patents beyond their term?  How would a European court deal with royalties associated with a Canadian patent portfolio where the agreement did not address royalties beyond the term of the patents?

While these questions may remain open, the better course is to address differences in the law of different jurisdictions on this issue specifically in the license agreement itself.  Instead of relying on a single choice of law provision in the license agreement, parties could consider addressing choice of law separately for licensed patents of patents of different jurisdictions when seeking to structure a license to require royalties to be paid beyond the term.  This is particularly important when using the U.S. as the choice of law and venue, as doing so may also require addressing royalty rates of the U.S. patents separately from foreign patents and other potential fees and payments.

 

Alternatives

When seeking to structure licensing agreements with obligations to pay royalties beyond the terms of the licensed patents, in many cases, parties license know-how or trade secrets in addition to patents so that royalties can be required to be paid on the trade secrets or know-how (typically at different royalty rates) after the patent rights expire.

The Kimble Court also noted that, “[P]arties can often find ways around Brulotte, enabling them to achieve those same ends.”[ii] Parties can: i) provide for license fees to accrue under the patent term and to be amortized over time; ii) include non-patents rights in the license (e.g., trade secrets, know-how); and iii) forming business arrangements, such as joint ventures.

 

Conclusion

Parties negotiating licensing fees associated with a global patent portfolio need to account for differences in national laws and how such fees are impacted by such laws.  Considering these aspects early benefits the process and allow for the parties to have clarity on the long-term strategy for the portfolio.  There are a multitude of options to structure these licensing arrangements to benefit all those involved.

 

[i] Kimble v. Marvel Entertainment, LLC 135 S. Ct. 2401

[ii] Id.

Artificial Intelligence Systems Are Not Inventors… Yet.

Recently, an Artificial Intelligence (AI) named DABUS (“Device for Autonomous Bootstrapping of Unified Sentience”) made international media buzz when it was listed as an inventor on patent applications filed in the United States Patent and Trademark Office (USPTO), United Kingdom Intellectual Property Office (UKIPO) and the European Patent Office (EPO).  While there have been thousands of patent applications for various AI systems, from machine learning (ML) systems, to neural networks, generative adversarial networks (GANs) and beyond, this is at least one of the first AI systems to be listed as the inventor itself.

What is DABUS

Developed by Stephen Thaler, a well-known expert in the field of AI, DABUS is an implementation of a type of generative adversarial network (GAN), where two or more neural networks are used to play against one another in order to improve the outputs of at least one of the neural networks to create something different and new.

In the most common implementation, a GAN comprises two neural networks.  The first is a generator, which is used to generate new data (e.g., images, text).  The second is a discriminator, which is used to determine whether the data generated by the generator is real or fake.

In order to determine fakes, the discriminator is given a (preferably large) dataset of real data to compare the data generated by the generator against.  Like a high-tech game of cops and robbers, the discriminator is trying to identify the fake data provided to it from the generator.  Each time the generator fails to convince the discriminator of the validity of its generated data, it learns.  This process is repeated at the incredible rate that computing does these days.  The results, can be stunning.   In fact, a piece of artwork generated by such GANs recently sold at Christie’s for $432,000.

DABUS operates on this same principal.  Give a dataset to a discriminator as a training model and let the generator try to fool the discriminator.  Now, of course, Dr. Thaler uniquely calls his generator an Imagitron, and his discriminator a Perceptron, but ultimately it is still a GAN, doing what a GAN does.

What did DABUS “Invent”

Without getting into the debate or hype over what was actually “conceived” by DABUS, the actual products that were more aptly described as “designed” by DABUS are: 1) an interlocking food container; and 2) a light that flashes in a particular way that mimics neural activity.  I do not intend to go into the details of these inventions, as they have been discussed ad nauseum elsewhere.

Regardless of what DABUS designed, the inventions themselves were based on datasets and information provided to it.  As was said excellently elsewhere, “[DABUS] was ‘mentored’ by Dr. Thaler over a two month period to produce increasingly complex concepts.”  Put differently, DABUS did not set out on its own to solve the problem of interlocking containers or calming pulsating lights; rather, DABUS was tasked with solving these concerns.

The Patent Applications

The three patent applications were submitted by a group led by Ryan Abbott, a professor of law and health sciences at the University of Surrey in the United Kingdom.  Not unsurprisingly, a novel question of law has been raised by an academic.  And that is not a criticism, but rather an acknowledgement that patent law will have to address certain pressing questions about the patentability and ownership of inventions in a world that is increasingly being influenced by artificial intelligence and its effects.

The question at issue here is whether, given the “creative” output of DABUS qualifies it as an “inventor” under the laws of the patent offices the applications were filed in.  For instance, in the USPTO, the Manual for Patent Examining Procedure defines an inventor as a person who contributes to the conception of the invention.

Here, Dr. Abbott and his team are suggesting that DABUS, through its processing of the data into a useful invention, contributed to its conception in such a manner that it would have to be considered an inventor under that definition.  Others, such as Dr. Noam Shemtov, state that DABUS, and other AI systems are merely tools.  In a 2019 report commissioned by the EPO, Dr. Shemtov writes:

When it comes to a human actor that uses an AI system, whose identity may be inconsequential to the invention process, who simply uses a machine learning technique developed by another, the inventor may be the person who “tooled” the AI system in a particular way in order to generate the inventive output. Hence, under such circumstances the person that carries out the intelligent or creative conception of the invention may be the one who geared up the AI system towards producing the inventive output, taking decisions in relation to issues such as the choice of the algorithm employed, the selection of parameters and the design and choice of input data, even if the specific output was somewhat unpredictable[i].

While I tend to agree with Dr. Shemtov’s analysis of current AI systems as tools that individuals use to provide useful output, that is not to say that it is impossible to conceive that an AI system in the future will able to identify a problem, identify available materials/components/data, and solve the problem on its own, all without human intervention or direction.  And herein lies where Dr. Abbott’s filing of the patent applications with DABUS as an inventor is truly aimed at addressing – AIs as inventors.

AI Inventorship

Dr. Abbott’s true intention appears to be raising the debate over whether current statutory regimes at the various patent offices would allow for an AI to be listed as an inventor, given that even at present, it could be rationalized that the AI is part of the conception of the invention.  However, in the case of DABUS, it seems that there is a strong argument that the conception was at the hands of Dr. Thaler, and DABUS merely reduced the invention to practice.

Regardless, the issues related to having an AI system as an inventor are definitely worth bringing to light.  Dr. Abbott told BBC News, “These days, you commonly have AIs writing books and taking pictures – but if you don’t have a traditional author, you cannot get copyright protection in the US.”  And Dr. Abbott is not incorrect.  The United States Copyright Office published an opinion in 2014 stating that, “[O]nly works created by a human can be copyrighted under United States Law.”

Dr. Abbott continued, stating to BBC News, “So with patents, a patent office might say, ‘If you don’t have someone who traditionally meets human-inventorship criteria, there is nothing you can get a patent on.’ In which case, if AI is going to be how we’re inventing things in the future, the whole intellectual property system will fail to work.”  And again, Dr. Abbott is not incorrect.  35 U.S.C. § 100 defines an “inventor” as the “individual” who invented or discovered the subject matter of the invention.  If an AI system conceived of both the problem and the inventive solution to that problem, it becomes more difficult to say that the inventor of the AI system itself was the inventor of that invention, leaving that IP unable to be secured by patents under the current regime.

Similar inventorship issues arise in both the UK, where the UK Patents Act of 1977 requires an inventor to be a person, and the EPO, where in the EPO’s published opinion written by Dr. Shemtov states, “[I]t has been shown that is is unambiguously implicit that AI systems cannot be identified as inventors.”

All three patent offices where these DABUS patent applications have filed are aware of the issue and are reviewing options and requesting input from the community.  In fact, On August 27, 2019, the USPTO just released a Request for Comments on Patenting Artificial Intelligence on the Federal Register, asking for input on whether current US patent laws need to be revised to take into account inventions where an entity or entities other than a natural person contributed to the conception of an invention.

 Conclusion

While lofty news articles have hyped the filing of these patents in DABUS’s name, let us not fall for the smoke and mirrors associated with the current state of AI systems.  At least in the vast majority of existing AI systems, they are not inventors as we define them for the purpose of patents in the US.  They are advanced tools that assist in the reduction to practice of inventive concepts and inventions themselves.  DABUS is not an inventor for the purpose of US patent law.  However, using the leverage and momentum of a good news cycle, DABUS has been able to push forward the conversation on what will inevitably be questions about ownership and protection of all forms of Intellectual Property generated by AI systems in the future.

[i] Dr Noam Shemtov, “A study on inventorship in inventions involving AI activity” (2019)

Content Creators be Warned: Twitch’s New Subscriber Only Streams May be at Odds with Game Publishers’ Terms of Service

Just last week, Amazon owned preeminent streaming platform, Twitch, launched a beta program for providing a subscription-only streaming service.  Through the program, content creators can provide a stream that is only accessible to viewers who have a paid subscription to the content creator’s channel.

While it may be admirable that Twitch is attempting to create new revenue streams for content creators who can have a hard time generating revenue from their streams, this new program likely runs afoul of the terms of service of many major publishers.

 

Terms of Use Examples

Blizzard

Neither you nor the operator of any website where your Production(s) may be viewed can force a viewer to pay a “fee” to be able to view your Production(s).

Riot

We permit individual players to solicit personal donations or offer subscription-based content while live-streaming games, so long as non-subscribers can still watch the games concurrently.

Epic

[Videos] must have no commercial (i.e., monetary) objective. As an exception to this, fans are permitted to monetize web videos (such as YouTube) with advertisements, so long as those videos otherwise meet the requirements of this Policy.

Steam

Use of our content in videos must be non-commercial. By that we mean you can’t charge users to view or access your videos. You also can’t sell or license your videos to others for a payment of any kind.

 

Each of these policies seems to restrict the pay-for-subscription streaming model being pushed by Twitch’s new beta program.  Some of these Terms of Service do have additional caveats, but none of them specifically address whether a subscription-based model offered by Twitch would be covered by them.  For instance, Steam’s Terms of Service notes that, “You are free to monetize your videos via the YouTube partner program and similar programs on other video sharing sites,” but it is unclear whether Steam would view Twitch’s subscription model as something similar to YouTube’s partner program.

One thing to consider as a content creator is that the punishment for violations of these Terms of Service are likely to be only enforced against the content creator using Twitch’s subscriber view only model.  Content creators could face restrictions placed on their game accounts, or have their account banned altogether for using the service.  A risky proposition for most content creators.

However, banning an account is not the only action a publisher could take.  A published could take a content creator to court for copyright infringement and breach of their Terms of Service.  While unlikely, it is no longer unheard of.  For instance, Epic recently sued two gamers for copyright infringement for modifying Fortnite code.  This may be the extreme case, but it would technically be in the publisher’s right to bring content creators to court for making unauthorized derivative works of their copyrighted materials.

Given the size and clout that a platform like Twitch has, it is likely that the publishers will be quickly issuing insight on how Twitch’s subscription model fits into their Terms of Service.  Particularly since it is well known that having a large Twitch audience increases game sales.

Until then, it may be advisable for content creators to know the terms of service for the games they intend to stream under the subscription model, and take caution or avoid utilizing the subscription service until such time as the publisher of that game gives guidance on the acceptability of the model with their own Terms of Service.

Amazon’s New Patent Infringement Review Process is Boon to Patent Holders but Holds the Potential for Abuse

Amazon recently implemented a streamlined process for patent holders to assert claims of infringement against sellers of products on the Amazon marketplace.  The process, which Amazon is calling the Utility Patent Neutral Evaluation Procedure (UPNEP), allows for patent holders to request a neutral evaluator to determine whether a single claim of a granted utility patent is infringed by up to 50 separate products.

The timelines are tight, the stakes are high, and the process is over in a relatively short period of time.  With no current option for appeal or review, it is important for those that rely on Amazon for their profits to take these UPNEP reviews seriously.  Below, we discuss the process, the pitfalls and how the system can be potentially gamed, and how to navigate this new process as Amazon more fully rolls it out into production.

 

The Process

The patent holder initiates the process by submitting a simple complaint to Amazon, which largely identifies who the patent holder is, the patent and single claim to be reviewed, and the identification of products to be evaluated.  One submitted, the sellers are contacted and given three weeks to decide whether they wish to participate in the dispute.  The seller confirms its desire to participate by completing a similarly simple agreement that identifies the seller and the products the seller wishes to have reviewed.  Any identified seller that does not participate in the process will have their listing removed from Amazon.

Once the seller(s) and the patent holder have submitted the necessary paperwork, Amazon identifies a neutral patent attorney to act as an arbiter for the evaluation.  Each side must then submit $4,000 to the identified patent attorney, to be held in escrow until the resolution of the matter.  Where there are multiple sellers, the sellers split the $4,000 payment equally.  If the seller(s) fail to submit payment, their listings will be removed.  If the patent owner fails to submit the payment, any deposits paid by the seller(s) will be returned, and the listings will remain.

After the agreements and the escrow is handled, the Patent Neutral Evaluation Procedure begins, and with it, some very tight deadlines.  Unlike traditional litigation, where discovery, motion practice, settlement conferences and other matters can require years to complete, the UPNEP process takes less than four months.  While the shortened timeline is great for patent owners, it does create some issues, as there are no provisions for extensions, and the response and reply deadlines are tight.

The deadlines for the UPNEP are:

  • The patent owner has 21 days from the commencement of the UPNEP to submit its initial brief;
  • The seller(s) then have 14 days to respond to the initial brief; and
  • The patent owner then has 7 days to file a reply to the response.

The filings are similar to standard motion for summary judgment practice, with the first filing being from the patent owner attempting to show how the accused product(s) infringe the single identified claim, through use of images, claim charts, and written arguments.

The seller(s) then get the right to respond to the patent owner’s initial filing.   The three arguments seller(s) are allowed to make are: i) non-infringement of the claim of the patent; ii) invalidity of the patent based on prior ruling of the United States Patent and Trademark Office (USPTO), International Trade Commission (ITC), or a federal court of the United States; and iii) invalidity of the patent based on products being sold more than one year before the earliest priority date of the patent (i.e., the “on-sale bar”).

Finally, the patent owner can reply to the response of the seller(s), in order to counter any information submitted by the seller(s).  The reply is optional, but is generally advisable, and failure to file a reply will not trigger an automatic victory to the seller(s).

There are page limits for each of the above filings, making it important to focus on the best arguments and evidence available.  This also helps both sides, as it keeps the review laser focused, and not bogged down in tons of information collected in discovery, as would be the case in standard patent litigation practices.

After all the filings are completed, the neutral patent evaluator will return a decision within fourteen days.  The evaluator will determine whether the product(s) of the seller(s) “likely infringe” the claim of the patent at issue.  If the evaluator determines that the product(s) do likely infringe the patent, then the listings are removed and the patent owner is refunded her $4,000.  If the evaluator determines that the product(s) are not likely to infringe the claim, then the seller(s) get their $4,000 back and the listings are unaffected.

Before the conclusion of the evaluation, the parties may independently settle with one another.  If the patent owner and the seller(s) come to an agreement, then the evaluator keeps $1,000 from each of the parties (total $2,000), and the balance is returned to the parties.

 

Pros for Patent Owners

Ultimately, for valid patent owners that have their patents being infringed upon on Amazon, the Utility Patent Neutral Evaluation Procedure is a real boon.  It provides quick and easy resolution to infringement matters, and can be done across numerous sellers in a single filing.  If the patent owner were to do this through federal courts or other legal avenues, an action would need to be filed against each seller individually, and would take potentially years to complete.  The time and cost savings here are immense.

Another advantage of the Utility Patent Neutral Evaluation Procedure is that, given these are administrative filings with Amazon, the location of the sellers is irrelevant.  This means that troublesome jurisdictional issues, especially with regards to foreign sellers, are also not an issue that can complicate the proceedings.

With that said, there are strategies to be considered by patent owners with respect to how to file.  For instance, given that sellers can effectively pool their resources, allowing up to 50 sellers to assemble their finances to hire top patent counsel to submit a response on their behalf, it is important to consider the strength and weaknesses of any UPNEP before filing.  In some instances, filing individual complaints against sellers may be advantageous, in order to see which sellers are willing to pony up the $4,000 to fight a UPNEP proceeding by themselves – especially considering that the patent owner can have one initial brief prepared and file that brief individually against each separate seller that does continue to fight.

Conversely, where the case for infringement is strong, then assembling as many sellers into one big group can save the patent owner significantly on both expense and time, knocking out whole groups of competitors at one time.  For many patent owners, this could be an extremely enticing option, as bringing that many small sellers into

Further, where settlement is the desire, such as attempting to obtain a license from one or more sellers, patent owners may leverage the UPNEP process to force quick action on settlement negotiations, with the risk of the seller’s products being delisted from Amazon as a consequence of not taking prompt action on acquiring a license from the patent owner.  This may also play into the decision as to whether to bring the UPNEP against one or a group of sellers, as it may be easier to negotiate with one seller, as opposed to a group of sellers.

 

Potential for Abuse

Of course, the Utility Patent Neutral Evaluation Procedure comes with the potential for abuse as well.  Patent owners, even those with weak or otherwise questionable patents, may file actions against sellers, with the idea that at least some will not have the wherewithal to put up the $4,000 payment for the action, or be able to pay for counsel to prepare a response to submissions by the patent holder.  Amazon is filled with small mom and pop sellers that would be unable to proceed and would have to accept licensing terms from the patent owner or have their product delisted.

Further, given the limited ways in which a seller can defend against the claims of the patent owner, which consist of a smaller subset of the entire list of arguments defendants in federal court actions can use, patent holders with otherwise invalid patents may wield them as a sword in these UPNEP proceedings without fear of invalidation.  In fact, many non-practicing entities may look to capitalize on forcing settlement/licensing agreements with sellers, since there is no risk of invalidation through the UPNEP proceeding.

Finally, given the quick and tight deadlines, sellers may be under the gun to try to get representation and follow through with the filings in order to protect their listings.  For those sellers not currently engaged with counsel, it could take precious time away from their ability to prepare an adequate defense to a patent owner’s claim.  Where in federal courts or before the USPTO, a defendant can request extensions when counsel needs time to review a matter in full, that does not appear to be an option with Amazon’s UPNEP.

With all of the above said, however, nothing prevents sellers or patent owners from taking the matter to a federal court, ITC or the USPTO, if they do not get their way via Amazon’s UPNEP.

 

Conclusion

All-in-all, Amazon’s UPNEP is just one more way in which Amazon is getting serious about infringement on its platform.  The UPNEP offers a very viable and cost-effective platform for both patent owners and sellers to adjudicate their rights quickly and relatively easily.

No matter whether you are a patent owner or an Amazon seller, it is important to consider retaining counsel for these disputes.  Given the limited amount of back-and-forth, the short timelines, and the significance of what is on the line, ensuring that your submissions are as legally sound as possible is a must.

If you are a patent owner looking to file UPNEP complaints, speak first with a qualified patent attorney, preferably one with experience dealing with Amazon and sellers on Amazon.  If you are a seller that has received a UPNEP action against one or more of your listings, the same goes – quickly obtain patent counsel to provide a substantive defense, as the dates will pass quickly, and the more time counsel has, the better job they can do to protect your rights.

 

 

 

 

Nike’s Deal to Bring Virtual Jordan Brand Air Jordan 1s to Fortnite is the Best Example of Crossover Branding Ever

 

 

With over 250 million registered players, Fortnite is unquestionably become a gaming phenomenon.  The free to play battle royale style game, where up to 100 players drop from flying bus into a large island in order to gun one another down in a slightly cartoonish style in order to become the last person standing, has taken over the gaming industry.  It’s no secret that the Fortnite style of game play, known as battle royale, has become ubiquitous in the gaming community, with most multiplayer game developers launching some form of the game play style on their own titles.

Fortnite is largely funded by players who, as opposed to paying anything for the game itself, pay for items that personalize their appearance (i.e., “skins”).   This is a strategy that has clearly worked for Epic Games, the developer of Fortnite, which reportedly grossed $3 billion in 2018 with this model.

Epic has been running a massively successful branding and advertising operation through Fortnite, having collaborations with the likes of Marvel’s Avengers: Endgame, Summit Entertainment’s John Wick, the NFL, and Wendy’s.

Now, in its latest move, Epic has teamed with Nike’s Jordan Brand to bring a set of skins that have the characters wearing classic Air Jordan 1s.  These virtual kicks will be offered in various color schemes, like the venerable red and black associated with the Chicago Bulls.  The skins, like most in Fortnite, will be offered only for a limited time.

This collaboration between Nike and Epic is perfect on so many levels.  Given the limited time offering of the skins in Fortnite, and the similar mass appeal of Jordan Brand shoes among a very dedicated type of consumer, the synergies are perfectly aligned.  There is little doubt that the sneaker heads will be dropping plenty of V-Bucks (the in-game currency used in Fortnite, which can be earned over time or purchased with real world currencies) on these new skins.

Another great aspect of this collaboration is that we are seeing real world companies put branded products in virtual worlds, and capitalizing off of it.  While it is not public what the split is on these virtual goods, it is in any case a win for both Epic, which is undoubtedly going to profit from the sales of the Air Jordan 1 skins, and Nike, by keeping its products relevant in new mediums in attempts to maintain one of its flagship brands, which faltered slightly in 2018.

From an intellectual property standpoint, the deal is interesting as we see not only Nike’s licensing the Jordan branding for certain use in the game, but also the generation of new virtual IP, in the form of the in-game graphical representations of the sneakers.  These are the kind of deals we will undoubtedly see more and more of, as video games and eSports become ever more a part of the mainstream fabric.   It will become even more interesting as the professional eSports players start having not only brand deals with companies for out-of-game endorsements, but what will invariably be in-game endorsement deals as well.

The future is bright for the eSports community, and deals like the one between Nike’s Jordan Brand and Epic’s Fortnite serve as a reminder that we are on the verge of an entirely new world of advertising and branding principles.

Federal Circuit Decides You Can Patent Those Gains – Dietary Supplements Are Subject Matter Eligible

On March 15, 2019, the Court of Appeals for the Federal Circuit (CAFC) heard an appeal in the matter of Natural Alternatives International, Inc. v. Creative Compounds, LLC regarding the subject matter eligibility of dietary supplements.  At issue in the case were six patents related to the CarnoSyn® beta-alanine athletic performance supplement.

In reversing the lower court’s ruling, the CAFC found that each of the six patents contained patent eligible subject matter under 35 U.S.C. § 101.   In fact, the court found that the patents directed at the beta-alanine product, method of manufacturing the beta-alanine product, and method of using the beta-alanine product for treatment (i.e., improving athletic performance), were are all subject matter eligible, and therefore patentable.

With regards to the patents on the beta-alanine product, the Court noted that, “A claim to a manufacture or composition of matter made from a natural product is not directed to the natural product where it has different characteristics and ‘the potential for significant utility.’”  In the present case, the court found that the combination of a specific form of beta-alanine and glycine, and that the specific dosages of beta-alanine may increase athletic performance in a way that naturally occurring beta-alanine may not.

With respect to the patents on the method of administering beta-alanine, the Court likened the claims to those at issue in Vanda Pharmaceuticals Inc. v. West-Ward Pharmaceuticals International Ltd, noting that, “Claims that are directed to particular methods of treatment are patent eligible[i].”  Here, the claims in the method patents are directed to administering beta-alanine to a human subject in order to overcome homeostasis and increase creatine production, resulting in physiological benefits to the subject.  The Court, in no unclear terms noted, “These are treatment claims, and as such they are patent eligible.[ii]

Finally, with regards to the manufacturing claims, the Court also found that subject matter eligibility under 35 U.S.C. § 101 was met by the fact that the claims were “[D]irected to the manufacture of a human dietary supplement with certain characteristics,[iii]” and that, “The supplement is not a product of nature and the use of the supplement to achieve a given result is not directed to a law of nature.[iv]

It is clear from the Court’s analysis that it is important to take certain precautions when drafting the specification and claims of patents directed to these dietary supplements and related products.  Here, the Court appeared to rely heavily on interpretations pulled from the specification of the patents at issue in order determine the claims were subject matter eligible.  For instance, the court looked to the specification of the patents to find the significance of dosing ranges, how they were calculated based on bodyweight, and how those dosing ranges were required to effectively increase athletic performance.   Applicants would be wise not to submit skimpy disclosures with a bare minimum of detail, as it could mean the difference between validity and invalidity of a patent.

Ultimately, the Court’s findings in the matter provide welcome guidance on the ever-challenging issue of subject matter eligibility under U.S.C. § 101.  The ruling gives clarity on the ability of sports nutrition companies to secure the lucrative rights in their proprietary performance enhancing dietary supplements; the dietary supplement market being valued at $152 billion (USD) as of 2018, and expected to grow to $220 billion (USD) by 2022[v].

 

 

[i] Natural Alternatives International, Inc. v. Creative Compounds, LLC

[ii] Id.

[iii] Id.

[iv] Id.

[v] https://www.statista.com/statistics/828514/total-dietary-supplements-market-size-globally/

Federal Circuit Ruling Cast Shadow Over USPTO Subject Matter Eligibility Guidance

In January of 2019, the United States Patent and Trademark Office (USPTO) issued revised guidance relevant to 35 U.S.C. § 101 (Subject Matter Eligibility) rejections. Entitled, 2019 Revised Patent Subject Matter Eligibility Guidance, the document added a new pathway for patent eligibility, whereby a claim that includes a judicial exception is still subject matter eligible under 35. U.S.C. § 101, if the judicial exception, such as an abstract idea, is “integrated into a practical application” of the judicial exception.

A large portion of the legal community felt that the guidance would cut the number of rejections under 35 U.S.C. § 101.  The guidance provided much needed clarity on how to present claims in an application to avoid such rejections, which had become commonplace in several art units at the USPTO.

This updated guidance has been largely welcomed by the legal community.  In fact, in its comments to the USPTO on the matter, the American Bar Association stated, “[T]he guidelines are a significant improvement in the examination of patent eligibility by providing a greater degree of certainty and increased predictability in subject matter eligibility determinations at the USPTO.[i]”  However, with quite a bit of foreshadowing, the American Bar Association’s letter noted, “We understand that these Guidelines, however, do not constitute substantive rulemaking and thus do not ‘have the force and effect of law.’”

Fast forward to April 1, 2019, the Federal Circuit found two patents owned by Cleveland Clinic invalid for being directed to ineligible subject matter.  The patents in question were related to testing for cardiovascular disease, and in the opinion of the court, “invalid under 35 U.S.C. § 101 as directed to an ineligible natural law.[ii]

Cleveland Clinic had argued that the courts “failed to give the appropriate deference to subject matter eligibility guidelines published by the PTO.”  Relying on Skidmore v. Swift & Co., 323 U.S. 134 (1944), Cleveland Clinic argued that, “Skidmore ‘requires courts to give some deference to informal agency interpretations of ambiguous statutory dictates, with the degree of deference depending on the circumstances.’[iii]”.

However, the Federal Circuit noted, “While we greatly respect the PTO’s expertise on all matters relating to patentability, including patent eligibility, we are not bound by its guidance. And, especially regarding the issue of patent eligibility and the efforts of the courts to determine the distinction between claims directed to natural laws and those directed to patent-eligible applications of those laws, we are mindful of the need for consistent application of our case law.”

So while the USPTO appears to be loosening the reigns on subject matter eligibility, the Federal Circuit does not appear to be following suit.  And while the Cleveland Clinic v. True Health case did not specifically address the 2019 Revised Patent Subject Matter Eligibility Guidance, the courts opinion clearly noted that the USPTO’s guidance was not the ultimate arbiter on subject matter eligibility.

Ultimately, from a prosecution perspective, it may be wise to not solely rely on the broader interpretations of subject matter eligibility provided under the latest USPTO guidance, and include at least some claims that would survive more rigorous scrutiny under the tests outlined and applied by the Federal Circuit and the Supreme Court of the United States.

 

[i] https://www.uspto.gov/sites/default/files/documents/eligibility2019comments_a_abaipl_2019mar07.pdf

[ii] http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/18-1218.Opinion.4-1-2019.pdf

[iii] See, Stephenson v. Office of Pers. Mgmt., 705 F.3d 1323, 1330) (Fed Cir. 2013)