Newsletter - Volume 46, November 2009
Supreme Court Hears Oral Arguments In In re Bilski Business Methods Patents Case
On November 9, 2009, the Supreme Court heard oral arguments on behalf of the
patent applicants and the U.S. Patent Office in In re Bilski. At the
heart of In re Bilski is how a business method may fall within the
definition of "process" as it is used in Section 101 of the U.S. Patent Act.
Section 101 of the Patent Act broadly defines proper patentable subject matter
in the United States as "any new and useful process, machine, manufacture, or
composition of matter, or any new and useful improvement thereof." Due
to the breadth of this definition, it is often left to the courts to render
decisions concerning how new technologies or advancements fit within this
definition and ultimately left to Congress to enact legislation that further
restricts or defines the patentability of these new technologies or
advancements. While the term "process" has an ordinary meaning that is quite
broad, the Supreme Court has previously limited the definition to something
narrower than its ordinary meaning by concluding that a patent claim covering a
"process" is not patent-eligible if it claims "laws of nature, natural
phenomena, [or] abstract ideas."
The Bilski case stems from an application for patent protection filed by
Bernard L. Bilski and Rand A. Warsaw in 1997 and covering a method of hedging
risk in the field of commodities trading. The U.S. Patent Office refused
Bilski's claims as failing to meet the patent eligibility standard of Section
101. The patent examiner supported the refusal of all claims in the application
stating that "the invention is not implemented on a specific apparatus and
merely manipulates [an] abstract idea and solves a purely mathematical problem
without any limitation to a practical application, therefore, the invention is
not directed to the technological arts." The applicants appealed the patent
examiner's decision to the Board of Patent Appeals and Interferences at the
U.S. Patent Office. While the Board rejected the patent examiner's reasoning,
it did agree that the claimed method was not proper patentable subject matter.
Specifically, the Board concluded that the applicants' claims did not involve
any patent-eligible transformation, holding that transformation of
"non-physical financial risks and legal liabilities of the commodity provider,
the consumer, and the market participants" is not patent-eligible subject
matter. The Board also held that Applicants' claims "preempt[] any and every
possible way of performing the steps of the [claimed process], by human or by
any kind of machine or by any combination thereof," and thus concluded that
they only claim an abstract idea ineligible for patent protection. Finally, the
Board held that Applicants' process as claimed did not produce a "useful,
concrete and tangible result," and for this reason as well was not drawn to
patent-eligible subject matter.
The applicants timely appealed the decision of the Board to the Federal Circuit
Court of Appeals. The Federal Circuit, sitting en banc, affirmed the Board's
decision that the applicants' claims did not meet the patent eligibility
standard of Section 101. The Federal Circuit held that a "process" must be tied
to a particular machine or apparatus, or must transform a particular article
into a different state or thing (the "machine-or-transformation" test), to be
eligible for patenting under Section 101 of the Patent Act. Of particular
significance during prosecution of the application, the appeal to the Board and
appeal to the Federal Circuit was the admission by the applicants that the
claimed "process" was not limited to application on a computer, removing the
"machine" portion of the "machine-or-transformation" test from consideration by
the Federal Circuit. Because the applicants' claims do not involve the
transformation of any physical object or substance, or an electronic signal
representative of any physical object or substance, the Federal Circuit
concluded that "transformation" portion of the "machine-or-transformation" test
was not met.
The applicants appealed the Federal Circuit's decision to the Supreme Court,
asking the Supreme Court to consider whether the Federal Circuit erred by
holding that a "process" must be tied to a particular machine or apparatus, or
transform a particular article into a different state or thing
("machine-or-transformation" test), to be eligible for patenting under Section
101 of the Patent Act. The matter was fully briefed on behalf of the applicants
and the Patent Office earlier this year. A total of 67 "friends of the court"
or amicus curiae briefs have been filed by patent owners, bar
associations, interested organizations, academics, and individuals, both
supporting and refuting the Federal Circuit's "machine-or-transformation" test.
Supportive briefs generally fell in line with the position that the
"machine-or-transformation" test would provide meaningful limits to the scope
of patent claims as they apply to methods and processes. Briefs refuting the
test generally criticize it as being arbitrary, more restrictive than what has
been previously applied by the Federal Circuit in similar matters, and in
conflict with accepted definitions of statutory terms. Some amicus curiae
briefs plead the case of application or non-application of the
"machine-or-transformation" test to software patents, clearly requesting the
Supreme Court to render a decision beyond the scope of the case at issue.
At oral argument, Justices Sotomayor, Kennedy and Breyer were particularly
active, with only slightly lesser participation by Justices Scalia and Ginsburg
and Chief Justice Roberts. The Court clearly understood the far reaching
implications this decision will have on business methods and methods covering
new technologies yet to be developed. During the presentation of the
applicants' argument, the Justices peppered applicants' counsel with questions
on where to establish a limitation on patentable subject matter, should the
"machine-or-transformation" test not be accepted. The Justices all appeared
concerned of the consequences of setting no limits and affording patent
protection to abstract ideas. The Justices appeared equally concerned that the
"machine-or-transformation" test could ultimately turn into something too
easily applied on a rigid basis. The Solicitor General answered the Justices'
questions by seeking to demonstrate how the "machine-or-transformation" test
was a flexible test and a test that would not have changed the result of other
seminal cases regarding patentability of processes.
The Supreme Court's decision is expected in the spring of 2010. The business and
legal world alike anxiously await this decision. The Supreme Court may decide
the issue without much analysis beyond the specific circumstances at hand,
leaving open the possibility for more arguments and analysis as new issues
arise, or the Supreme Court may decide to render a broad reaching decision that
could extend to cover a host of issues concerning methods and processes.
Sunrise Registration Period Begins for .РФ
Russian registrar RU Center has begun accepting applications for domain names
under .РФ, the Cyrillic country-code top-level domain for Russian Federation.
Following a four-month sunrise registration period for trademark owners that
began on November 25, 2009, registration will open to general public, first
through an auction process planned between April and June 2010, and then at a
fixed price, beginning July 2010. The domain names will be in the Russian
language, using the Cyrillic alphabet. During the sunrise period, instead of
granting registrations on a first-come, first-served basis, the registrar will
consider applicants' underlying trademark registrations and give priority to
holder of the earlier registration. Thus, if there are two identical
registrations in different classes, and both owners have applied for the
corresponding .РФ domain name, holder of the earlier-issued registration will
prevail. The domain is still pending final approval by ICANN and the delegation
is not expected until February 2010 at the earliest.
ACTA's Controversial Internet Provisions
On November 30, 2009, a leaked European Commission document dated October 29,
2009, confirmed suspicions regarding the Anti-Counterfeiting Trade Agreement's
controversial Internet chapter. This comes after Round Six of ACTA negotiations
that took place November 4-6, 2009, focusing on enforcement in the digital
environment, ramped into controversy in light of a different leaked document, a
summary dated September 30, 2009, also drafted by the European Commission. The
leaked summary discussed the US Trade Representative's oral briefing on the
progress of the proposed Internet Chapter, and led many in the technology
industry to fear that ACTA would impose DMCA-like regulations worldwide. The
October document leaked on November 30th is the European Commission's analysis
of the ACTA Internet Chapter proposed by the United States, and it confirms
suspicions that the US is pushing for ACTA to contain DMCA-like provisions,
third-party liability, and criminal sanctions.
ACTA
ACTA is a proposed agreement between the United States, the European Union,
Australia, Canada, Japan, Singapore, Morocco, Mexico, the Republic of Korea,
New Zealand and Switzerland to address global counterfeiting and piracy. The
idea was launched by the United States and Japan in 2006; thus far, ACTA has
been negotiated to cover a broad scope of infringements related to intellectual
property and their consequences, including (1) depriving legitimate businesses
and their workers of income; (2) discouraging innovation and creativity; (3)
threatening consumer health and safety; (4) providing an easy source of revenue
for organized crime; and (5) causing a loss of tax revenue. The aim is to
enhance international co-operation and to create worldwide standards for
enforcing intellectual property rights. Negotiations began in June 2008 and are
set to be completed in 2010.
The leaked October document titled "European Union's Comments to the US
Proposal" confirms the suspicions generated by the previously leaked September
document, in which the EU summarized the USTR's briefing on its progress in
drafting the Internet Provisions for ACTA. Taken together, these documents
confirm that the US is pushing to model ACTA's Internet Chapter generally on
the respective Internet section of the recently completed US-Korea Free Trade
Agreement (KORUS), which was based on Section 512 of the Digital Millennium
Copyright Act (DMCA).
According to the documents, the US has drafted ACTA's Internet provisions to
consist of 7 sections:
Section 1
First section covers general obligations, focusing on "effective enforcement
procedures" with language inspired by article 41 TRIPS. Critics have noted,
however, that absent from this language is a statement that the procedures
shall be fair, equitable, and/or proportionate, contained in the corresponding
sections of TRIPS, the WIPO Copyright Treaty, and Europe's Intellectual
Property Rights Enforcement Directive.
Section 2
The real controversy begins with Section 2, which would require ACTA members to
provide for third-party liability for copyright infringement. Although this is
something that copyright owners have long sought after, it is not required by
any of the major international IP treaties, including the 1994 Trade Related
Aspects of IP agreement (TRIPS), the WIPO Copyright Treaty and WIPO
Performances and Phonograms Treaty. Opponents are concerned that this section
focuses solely on copyright, and that it may incorporate US "contributory
copyright infringement" standards, including the "inducement" standard from the
Grokster case which would significantly change the law in many countries.
Section 3
Perhaps the most controversial, Section 3 discusses limitations on third-party
liability, laying out the conditions under which an ISP could qualify for
safe-harbors. The section is reported to require ISPs to adopt and reasonably
implement a policy "to address the unauthorized storage or transmission of
materials protected by copyright or related rights" and mandate "broad"
provisions regarding notice-and-takedown mechanisms.
The concern here is that the requirement that ISPs must develop and implement a
certain policy goes beyond the law already in place in the EU by essentially
conditioning the application of the liability limitations on an ISP actively
policing its content. An example of a reasonable policy is explained in
footnote 6 which discusses requiring ISPs to terminate subscriptions. This is
highly controversial as the issue of whether such an account can be terminated
without court decision is still subject to negotiation between the European
Parliament and the Council of Telecoms Ministers.
Further, the leaked September document mentioned the following:
"to benefit from safe-harbours, ISPs need to put in place policies to
deter unauthorized storage and transmission of IP infringing content (ex.
Clauses in customer's contracts allowing, inter alia, a graduated response)"
Opponents are concerned that the "graduated response" language may imply that
negotiators are considering a sort of "three-strikes" policy under which ISPs
would be required to terminate a customer upon repeated allegations of
copyright infringement, or the ISP could be vulnerable to liability. The Three
Strikes/Graduated Response has been sought by the entertainment industry since
the European office of the Motion Picture Association began advertising the
Three Strikes policy as an ISP "best practice" in 2005. Those in the technology
and telecom industries are concerned that requirements of this type will make
it too costly to successfully operate online enterprises such as Flickr or
YouTube.
Such Three Strikes regime has previously been rejected by the European
Parliament and in several ACTA-negotiating countries, and has never been
proposed by US legislators. Opponents argue that even the suggestion of such a
policy is contrary to the USTR's own statement that ACTA will not change US
law. The current safe harbors under the US DMCA require ISPs to adopt and
reasonably implement a policy for termination of "repeat infringers" "in
appropriate circumstances." ISPs are given the flexibility to determine what
constitutes "appropriate circumstances." If a Three Strikes policy were
adopted, this would change. ISPs would no longer be able to determine
"appropriate circumstances," but instead would be required to automatically
terminate a customer.
Further, many are concerned that this section's aim at implementing a notice and
take down procedure will be at odds with the current European Commission's
E-Commerce Directive (2000/31/EC), under which an ISP may adopt such policies,
but they are not a requirement to benefiting from liability exemptions.
Section 4
Section 4 of the US proposal focuses on technical protection measures (TPMs, aka
DRM), and includes language inspired by the US-Jordan Free Trade Agreement
(article 4.13) and WIPO Internet Treaties (articles 11 WCT and 18 WPPT). This
section would cover prohibitions on use, manufacture and trafficking in
circumvention of access controls and provide both civil and criminal penalties,
separate and apart from "general" copyright infringements.
Sections 5, 6 and 7
Section 5 focuses on Civil and Criminal Enforcement of Anti-Circumvention and
requires both civil and criminal provisions. These provisions are also
reportedly designed to stop efforts towards establishing interoperability
requirements (i.e., ability for consumers to play purchased music on different
devices).
Finally, Section 6 focuses on Rights' Management, again inspired by the
US-Jordan Free-Trade Agreement and WIPO Internet Treaties and provides for
civil and criminal remedies, and Section 7 focuses on the limitations to Rights
Management Information protection.
The Good and Bad
The main concern with sections 4, 5, and 6 is that they go beyond current EU law
by requiring members to provide for civil and criminal remedies. Under
current EU law, member states are merely required to provide "adequate legal
protection."
Opponents are concerned that the proposed Internet provisions of ACTA will
impede consumer privacy, civil liberties and the free flow of information on
the internet. They also fear that many of the provisions may mandate
requirements above and beyond, or even in the face of, what is already required
under other treaties and/or international law. Because the purpose of ACTA is
to create new global standards, many fear that implementation of ACTA by
developing countries could become a condition imposed in future free trade
agreements and ensure that US' chosen implementation of the WIPO Internet
Treaty becomes a global standard, hindering the ability of developing countries
(which, opponents argue, are excluded from negotiations) to choose polices best
suited for their domestic priorities and economy.
Members of the entertainment and content industries take the position that in
light of the substantial technological changes since the drafting of TRIPS
nearly 20 years ago and the growth of online theft, new tailored rules are long
overdue.
On November 19, the MPAA wrote a letter to Congress expressing its support for a
"robust" ACTA and requesting codification of the "best practices" for copyright
enforcement (aka "three strikes") in order to protect members of the
entertainment and content industry whose livelihood is dependent on
intellectual property. In light of the technological changes that have occurred
in the last decade, they argue, internet piracy is the fastest growing threat
to their industry and copyright protection needs to be strengthened
accordingly. They argue that opponents' view that stronger rules are
"anti-innovation" disregards that innovation thrives only with adequate
incentive. A number of movie studios, labels, and other copyright-holding
companies wrote a similar letter in support of ACTA on the same date also
requesting codification of "best practices" for copyright and urging for
stronger protections.
Conclusion
Since no official draft has been released, it is yet to be seen how far the
Internet provisions may go. In any case, negotiating countries are set to meet
again in Morocco in July 2010, and the intention is still to conclude
negotiations in 2010.
Cloud Computing: Potential Benefits Come With Legal Risks
Cloud computing has come to the forefront recently as a means for businesses to
reduce costs and create efficiencies for IT departments and company employees
in utilizing software, infrastructure, and platform as a service. However, the
use of cloud computing also comes with potential legal risks and issues of
concern. This brief article will touch on some of the issues that should be
considered when moving a company's documents and applications to a "cloud."
Cloud computing refers to computing services provided over the internet.
Consumers and businesses have been using cloud computing for years, through
services such as web-based email from AOL, Yahoo and Gmail, or
social-networking and information-sharing sites like Twitter, Facebook and
WebMD. Generally, third-party service providers supply various software and/or
hardware infrastructures on an as-needed "pay as you go" basis, thereby making
cloud computing more scalable and flexible to meet a company's changing needs
for software, infrastructure or storage. Frequently, these services include
software applications that an end user might access for basic functions like
email and word processing. Additional services provided by a third-party vendor
would be infrastructure such as networking and storage capabilities, and more
advanced software applications, which could include custom applications.
Although cloud computing can reduce costs and provide flexibility, there are
risks that must be assessed and accounted for when moving a company's valuable
data, including intellectual property, to a cloud hosted by a third-party. Of
prime importance is making sure that a company's assets and data are in a safe
environment, protected from theft and modification, while also complying with
the laws of the location(s) where the company and the cloud may be located. The
risks can be minimized by entering into a detailed agreement dictating the
terms relating to security, access, performance, location, management and
control of a company's assets in the cloud.
The security of a company's data is a primary concern, as the third-party
provider has access to the data which is stored on servers and systems over
which the company does not have complete control. While the customer legally
owns its data in the cloud, it is important that the customer ensures that the
provider is contractually obligated to protect the data on a level that
complies with the customer's internal policies. Also of concern is protecting
the data in a fashion sufficient to meet the regulatory levels of protection
required by the locales of the cloud and the customer. This is of particular
importance to companies operating in Europe, Canada, or other foreign locations
where data protection, security and privacy obligations may be different. It
may therefore be necessary to specify particular locations for cloud storage,
rather than unknowingly run afoul of the law due to the provider's location or
movement of the cloud.
Security issues are also of utmost importance when protecting intellectual
property, such as undisclosed patents and trade secrets. Since it is not
uncommon for third-party providers to store one company's data at a location
where data belonging to other companies (potentially including company's
competitors) is also stored, proper protocols should be contractually defined
to ensure that there is no commingling of data with that of another company.
These terms would include protocols for access rights and encryption standards,
thereby preventing data from being improperly accessed or removed by an
unauthorized user.
Performing due diligence on the service provider, including stability of the
service provider as an on-going entity, continuous availability of data, backup
contingencies, and ability to retain and transfer data to another provider are
also of utmost importance. If entering into an agreement with a service
provider, a company should also secure assurances that the service provider has
obtained any necessary intellectual property licenses, while also getting
indemnification for any potential infringement by the provider. The negotiated
contract must also provide for the safeguarding and transfer of data in the
event the provider ceases to exist. Inability to fully control company's data
and intellectual property assets on a daily basis, as well as in a force
majeure event, including bankruptcy or change of ownership of the third-party
provider, can negate potential benefits of using a cloud.
Location of the cloud is important not only in terms of compliance with privacy
and security laws. Where the data resides may be a critical factor in
determining what law applies to the dispute, and how easy it may be to actually
access and control the electronic information. Since data stored in foreign
countries may be subject to strict requirements with respect to privacy and
security, cross-border litigation can become more complicated. Preservation and
record-retention policies, including segregation of privileged, confidential or
proprietary information such as intellectual property, must be reviewed in
light of compliance with litigation protocols.
While cloud computing can provide financial and scalable benefits to companies
and IT departments, potential legal issues and risks that it carries must be
carefully assessed, evaluated and contractually provided for in a negotiated
agreement before a company's valuable data and intellectual property is moved
to the cloud.
December 10 Landrush for Non-Latin .EU Domain Names
EURid, the European Registry for .EU domain names, has announced that starting
December 10, 2009, companies and individuals based in the European Union will
be able to register .EU Internationalized Domain Names (IDNs). IDNs are domain
names that contain non-Latin characters such as the Swedish å, the German ü,
the Romanian ş and characters from the Bulgarian and Greek alphabets as a
whole. IDN support will enable companies and individuals to register
second-level .EU domain names in any of the 23 official languages, many of
which have non-Latin characters in their alphabets. Rather than having a
sunrise period for existing registrants, EURid has decided to allow
registrations on a landrush, first-come, first-served basis. Any disputes
regarding these newly-registered domains will have to be resolved through
EURid's Alternative Dispute Resolution process administered by the Prague-based
Czech Arbitration Court.
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Disclaimer: The contents of this newsletter are presented for information purpose only, and as such are not intended to constitute legal advice and should not be construed as such or acted upon without seeking advice of legal counsel. This information is not intended to and shall not create an attorney-client relationship of any kind or nature with IpHorgan Ltd. Please contact the firm with queries, concerns or for further details regarding the information presented herein. The entire contents are current only as of the date of the newsletter and are not to be interpreted as the opinions of our clients past, present, pending or future. (c)2009, IpHorgan Ltd. All Rights Reserved.
Newsletter Volume 49, February 2010
