In re Lewis Ferguson, Darryl Costin and Scott C. Harris
Federal Circuit, March 6, 2009, Serial No. 09/387,823
Order

On March 6, 2009, the Federal Circuit Court of Appeals upheld a ruling by the Board of Patent Appeals and Interferences that a marketing paradigm for multiple independent software companies fashioned by Lewis Ferguson, Darryl Costin, and Scott C. Harris was not patentable under the U.S. Patent Act, 35 U.S.C. § 101.

Judge Gajarsa, writing for the majority, applied the test set forth in In re Bilski opinion from October 30, 2008, which rejected the “useful, concrete and tangible result” test the Federal Circuit had established ten years earlier in State Street v. Signature Financial Group. Judge Newman argued in her concurrence that the majority redefines Bilski and unduly undermines legitimate tests established by precedent, introducing ambiguity into the law.

The authors at Mass Law Blog gave a brief description of the case and applaud the outcome. PatentlyO.com explores the case with commentary. The Digest covered the In re Bilski decision back in October.

Following Bilski, Judge Gajarsa applied the machine-or-transformation test to determine whether the marketing method submitted by the applicants was “tailored narrowly enough to encompass only a particular application of a fundamental principle rather than to pre-empt the principle itself.”

By the Bilski test, a process is patentable under the statute if it is either “tied to a particular machine or apparatus,” or “it transforms a particular article into a different state or thing.” The court stated that the marketing paradigm did not implicate a machine, and went on to hold that “organizing business or legal relationships in the structuring of a sales force” does not constitute a transformation as required by the statute. The court revisited State Street, noting that in Bilski the court found that the State Street test was not “valid” or “useful.”

Additionally, the court concluded that the Applicants’ “paradigm” did not fall within any of the categories of eligible subject matter required and defined by U.S.C. § 101. While the Applicants asserted that their company was tangible, and as such, was analogous to a machine, the court noted that their paradigm claims did not invoke a concrete thing as defined by precedent. As the Applicants conceded during oral argument, “you cannot touch the company.” The majority concluded that the Applicants “do no more than provide an abstract idea,” and thus did not meet the criteria required by the statute.

Judge Newman, in her concurrence, argued that the majority opinion goes “farther than is necessary or appropriate” by redefining Bilski, and that it “expound[s] dicta that transcend the facts” of the case. Specifically, Newman characterized the majority as inappropriately overturning not only State Street but also other precedent in which alternative tests were used. In doing so, Newman argued that the court “enlarg[ed] the taint” on the thousands of other patents which were granted on the basis of those tests. Newman noted that the State Street test, though not dispositive, is useful where applied to processes performed by a computer, and that when the machine test is clearly met, the “useful, concrete and tangible” test serves a different role.

The majority, in a footnote, countered that it does not overturn State Street, but merely notes that the “useful, concrete and tangible” test alone is insufficient to determine whether a claim is patent-eligible under the statute.

Finally, Newman stated that the majority mischaracterized the Applicants’ claim and dismissed it on the basis that it was an “abstract idea.” She described this as “circular,” in that it defines “abstract” as anything that does not meet the machine-or-transformation test. Newman described the marketing paradigm as “definite and concrete and limited,” if not patentable, and portrayed the majority’s dicta as irresponsible in light of the potential ramifications that that view might have on innovation from new information technologies.

Jones v. Blige
United States Court of Appeals for the Sixth Circuit, March 9, 2009
Slip Opinion

On March 9, 2009, the US Court of Appeals for the Sixth Circuit affirmed a Michigan district court’s grant of summary judgment for defendant, Mary J. Blige in a copyright infringement case. Plaintiffs Leonard Jones and James E. White had filed suit against Defendants Mary J. Blige, Andre Young (aka “Dr. Dre”), Universal Music Group (“UMG”), and others for copyright infringement.

The Court of Appeals affirmed the lower court’s decision, holding that the songs were not substantially similar and that the Plaintiffs had not provided sufficient evidence to establish Defendants’ access to their work under the “corporate receipt” doctrine. Exclusive Rights offers commentary, focusing on the distinction made in this case between the corporate receipt doctrine and “bare corporate receipt.” The Michigan Messenger briefly summarized the opinion here.

Music producers Leonard Jones and James White claimed that the Mary J. Blige’s 2001 hit song “Family Affair” infringed on their own work “Party Ain’t Crunk.” “Family Affair” was released in August 2001 as the second song in Blige’s album, No More Drama, which sold over two million copies. Blige wrote the lyrics with her brother and a team of writers and recorded her vocals over music created by Dr. Dre. “Party Ain’t Crunk” was created by Jones and White and recorded by an aspiring rap artist named Tim Acker (aka “Benevolence”). White submitted the CD to several companies, including Blige’s publisher, UMG. Andy Mckaie, Senior Vice President of Artists and Repertoire for Universal Music Enterprises, allegedly received the package, decided to pass on the CD, and returned the contents to White. When White heard Mary J. Blige’s song “Family Affair” on the radio, he believed that it infringed his own song “Party Ain’t Crunk” and filed this lawsuit.

In 2006, the district court held that there was no infringement because the Plaintiffs failed to show that Blige had access to “Party Ain’t Crunk.” The district court also concluded that the melodies were not so similar that they were necessarily copied. They also held that no reasonable jury could find that the lyrics in the two songs were similar.

Judge R. Guy Cole wrote the opinion for the Court of Appeals. The opinion began with the basic legal standard for copyright infringement, which requires that the plaintiff has proof of ownership of a valid copyright and proof that the defendant copied original elements of the allegedly infringed work.

White’s ownership of the copyright was undisputed, and therefore the main dispute was whether there was any evidence that Blige had copied the song. The court found no direct evidence of copying, and noted that when there is no such evidence a plaintiff may “establish an inference of copying by showing (1) access to the allegedly–infringed work by the defendant(s) and (2) a substantial similarity between the two works at issue.”

Arguing that Blige and Dr. Dre had access to their work, Jones and White relied on the “corporate receipt” doctrine, under which “possession of a work by one employee of a corporation implies possession by another corporate employee who allegedly infringed the work.” Jones and White asserted that because they had delivered a demo CD of “Party Ain’t Crunk” to McKaie prior to the release of “Family Affair,” under the doctrine, it could be inferred that the creators of “Family Affair” had access to their work. The court rejected this argument, stating that such “bare corporate receipt” was not sufficient proof of access. The court itself had not previously ruled on the matter, but it cited opinions from other circuits requiring plaintiffs to introduce evidence that there was a “close relationship” through which the infringers had a “reasonable possibility” of viewing the allegedly infringed work. Jones and White did not show that Mary J. Blige or Dr. Dre knew McKaie or worked with him, or that their relationships with Universal employees supported an inference that McKaie transferred the CD to them through intermediaries.

The court noted that the failure to offer proof of access can be excused if the two works are so strikingly similar that there is no possibility of independent creation. The melodies and beats bore a “passing resemblance” to each other, but court held that the similarity was not so striking as to excuse Plaintiffs from failure to prove access. Furthermore, Dr. Dre offered sufficient evidence showing that he and Mary J. Blige had independently created “Family Affair” before “Party Ain’t Crunk” was in Universal’s possession.

Boring v. Google, Inc.
Western District of Pennsylvania, February 17, 2009, No. 08-694
District Court Memorandum Opinion

A magistrate judge in the Western District of Pennsylvania dismissed all claims by Aaron and Christine Boring against Google for photographs taken of the Borings’ house and pool for use in the Street View feature of Google Maps. The Borings had filed suit in April 2008 after discovering pictures of their house on Google’s Street View. They noticed that the pictures were taken from their unpaved driveway, which had allegedly been marked with signs reading “Private Road” and “No Trespassing.”

Law.com cites EFF lawyer Kevin Bankston as stating that Google might, in some cases, be held liable for the actions of their Street View photographers. Calling the lawsuit silly, blogger Eric Goldman was nonetheless concerned that the magistrate judge appeared to punish the Borings for bringing increased attention to themselves by filing suit publicly. InformationWeek discussed the judge’s reasoning, reporting that the Borings had not used Google’s own opt-out procedure before filing suit. PlexLex notes that a side effect of the lawsuit is that news agencies’ use of the photos of the Borings’ property has been rendered more permissible as fair use of copyrighted material.

The Pittsburgh Metblogs raises the question of why Google is under fire in light of the amount of publicly available information on the Allegheny County website, and CNET News notes that Google has been under criticized for their Street View photography before.

Considering the Borings’ several claims, the court focused primarily on the claim for invasion of privacy. Judge Hay considered and rejected two distinct torts upon which invasion of privacy may be established: intrusion upon seclusion, and publicity given to private life. In each case, the court based its rejection on a finding that the Borings had failed to allege actions sufficient to shame, humiliate, or offend a reasonable person. The court noted that the Borings had “drawn [attention] to themselves and the Street View images of their property” by failing to request that Google remove the images from view using the available opt-out procedure. The court also suggested that the plaintiffs had not attempted to “mitigate their alleged pain” by eliminating their address from the pleadings, or filing this action under seal.

Perhaps with some irony, the court itself relied on the Google search engine in gathering facts for the case, stating that “‘Googling’ the name of the Borings’ attorney demonstrates that publicity regarding this suit has perpetuated dissemination of the Borings’ names and location, and resulted in frequent re-publication of the Street View images.”

With regards to the Borings’ trespass claim, the opinion reasoned, somewhat confusingly, that the plaintiffs had 1) failed to alleged facts sufficient to sustain any damages and 2) Google’s trespass was not the proximate cause of the mental suffering and diminution in property value the plaintiffs alleged they had experienced.

The court also dismissed the Borings’ claims of negligence and unjust enrichment.

On January 12^th, 2008, Judge Bransten dismissed Amazon’s lawsuit challenging a recently enacted New York State tax law.  The law requires certain sellers, who have no physical presence within the state, to collect sales tax if the seller has commissions-based independent contractors in-state that generate more than $10,000 worth of business in a given year.  Among other things, Amazon alleged the law violated the Commerce Clause because it imposes tax obligations on out-of-state sellers who lack a “substantial nexus” with New York. Judge Bransten rejected all of Amazon’s claims, noting that the statute was “carefully crafted to ensure that there is a sufficient basis for requiring collection of New York taxes . . . .” 

Law.com and Ars Technica provide an overview of the order and litigation thus far.

Erick Schonfeld of Tech Crunch comments, agreeing with New York’s motive but objecting to the means state legislators used to achieve them.  He writes that the law creates “bad precedent” insofar as it overstates the connection between Amazon and its “affiliates.”

Enacted in April of 2008, the new tax law targets sellers who solicit business from within New York through “independent contractors or other representatives if the seller enters into an agreement with a resident of [New York] under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by link or an internet website or otherwise, to the seller. . . .” N.Y. Tax Law § 1101(b)(8)(vi).  

Amazon ran afoul of the statue by way of its “Affiliates Program” in which participating websites maintain links to Amazon.com.  Generally, when affiliate websites refer customers to Amazon, they receive a “$12 bounty” for each new Amazon enrollee, as well as a commission calculated as percentage of revenues generated by the referral. In its pleadings, Amazon admitted to having “thousands” of such affiliates who provided New York State addresses on their applications, but noted that the program is responsible for less than 1.5% of its total New York sales revenue. 

Amazon raised a variety of constitutional challenges, alleging (a) the law improperly taxed out-of-state entities in violation of the Commerce Clause; (b) the statute was overly broad and vague with regard to defining “solicitation” in violation of Amazon’s Due Process rights and; (c) violated the Equal Protection clause insofar as it specifically “targeted” Amazon in an impermissible “class of one.” 

Judge Bernstein dismissed the complaint in full, noting “there is no basis on which Amazon can prevail.”  The court stated that in order for state taxation to be constitutional, the seller must have a “substantial nexus” with the state; physical presence in the state is necessary, but it need only be more than “a slightest presence.”  Noting the careful wording of the tax law, Judge Bernstein rejected Amazon’s facial challenge and proceeded to analyze the law as applied to the retailer.  Reasoning that Amazon had contracted with New York residents and could reasonably expect this to result in New York referrals in excess of $10,000, the court upheld the tax law as applied. 

Amazon next contended that there was no rational relationship between contracting with New York residents, and the statutory presumption that these residents would solicit business for Amazon from other New York residents.  The court rejected the Due Process claim, recognizing the “high degree of probability” that in-state residents would be motivated by the commission structure to encourage sales, and that the encouragement would be directed towards other state residents. 

Finally, the court rejected Amazon’s Equal Protection claim, noting that the retailer had not asserted any instance in which it had been treated differently from other similarly situated businesses.  

On December 1, 2008, the Federal Circuit affirmed in part the District Court for the Southern District of California, no. 05-CV-1958, holding that Qualcomm breached its duty to disclose relevant video-compression technology patents during its participation in a standards-setting organization (“SSO”). However the Federal Circuit limited the scope of the remedy; rather than make the patent unenforceable against the world, the court held the patent unenforceable only against products compliant with the standard created by the SSO.

The judgment arises from a patent infringement suit brought against Broadcom in which Qualcomm asserted two patents concerning video compression technology. After a concealment effort that resulted in sanctions for litigation misconduct, it came to light that Qualcomm had participated in an SSO called the Joint Video Team (“JVT”) that was responsible for creating a video compression standard known as H.264. The H.264 standard was intended to be achievable at a baseline by anyone without requiring them to pay royalties. The court found that Qualcomm was required to disclose to the members of JVT any patents it held covering technology that “reasonably might be necessary” to practice the standard. Qualcomm was held to have waived its rights to the two patents by not disclosing those patents to JVT.

The case provides some clarity in a previously murky area: The Wall Street Journal Law Blog notes that this case clarifies the court’s willingness to find a duty to disclose in the SSO context, while Zusha Ellinson of The Recorder observes that it also clarifies the penalties for failing to disclose. The case is also being held up as a demonstration of the disastrous results of withholding evidence.

In determining that Qualcomm had a duty to disclose, the court relied heavily on Rambus Inc. v. Infineon Technologies AG, 318 F.3d 1081 (Fed. Cir. 2003), which finds a duty to disclose either if the intellectual property policy of the SSO creates such a duty or if the participants of the SSO treat the policy as requiring disclosure. The Rambus standard limits the duty of disclosure in an SSO context to patents that reasonably might be necessary to practice the standard being created by the SSO.

Writing for the court, Judge Prost indicated that Qualcomm had at least a “best efforts” duty to disclose based on JVT’s written intellectual property policy, and had a clear duty based on the policy of the parent organization of JVT. The court also looked to the treatment of JVT’s policy by its participants, finding a duty to disclose based on that treatment. Relying in part on Qualcomm’s own attempt to assert its patents after the SSO had completed, the court found that the patents meet the “reasonably might be necessary” standard and therefore should have been disclosed.

The Federal Circuit vacated the lower court’s remedy that had made the patent unenforceable against the world. Instead the court examined the equitable remedy of waiver and the doctrine of patent misuse and remanded the case with an order to enter a judgment making the patents only unenforceable against products complaint with the H.264 standard created by JVT. In doing so, the court said that the equitably remedy should reflect Qualcomm’s misconduct in its participation with JVT.

Lastly, the court affirmed the determination that the case was exceptional under the meaning of 35 U.S.C. § 285 and that Broadcom was therefore entitled to recover more than $8.5 million in attorney’s fees. Although the court refused to consider Qualcomm’s misconduct with JVT as a basis, Qualcomm’s serious misconduct during litigation was found to be entirely sufficient. Qualcomm had made false representations to the effect that it had not been a participant in JVT, and had improperly withheld documents during discovery.

A federal jury convicted Lori Drew on November 26th on three of four misdemeanor counts of unauthorized computer access under the Computer Fraud and Abuse Act (”CFAA”), 18 U.S.C. § 1030, for violating the MySpace terms of service. Drew was acquitted of three felony counts of accessing computers without authorization to inflict emotional harm under the same act. The case has raised widespread objection to the use of criminal liability for violating website terms of service.

The case revolves around the 2006 suicide of 13-year-old Megan Meier following an argument she had on MySpace with “Josh Evans,” a fictional 16-year-old boy whose profile was created under the supervision of Lori Drew. During the 28 days that the account was active, “Josh” established an online relationship with Meier that ended with harsh words and the involvement of other MySpace users. Creation of the fictional account using false information was a violation of the MySpace terms of service, which served as the basis for the computer fraud charges. The prosecution argued, and the jury found, that Drew’s subsequent visits to the MySpace site, in violation of the terms of service, were “unauthorized access” under the terms of the CFAA. Critics point out that this is a very creative use of the CFAA, which is typically used to target hacking and trademark theft. This is the first time it has been used in this fashion.

The New York Times describes the trial outcome, building on an earlier piece from 2007 that gives more factual background on the events. Court documents for the case are hosted on Citizen Media Law Project.

Kim Zetter, at Wired: Threat Level, has covered the trial exhaustively, including the most recent revelation from Valentina Kunasz, the jury foreman that the jury would have convicted Drew on the felony charges if the prosecution had been able to introduce more evidence.

The jury found that Drew did not act with malicious intent; but it found that a violation of a website’s terms of service alone is a tortuous act, even if only done indirectly. Though she encouraged the creation and was present for 50% of the communications from “Josh Evans,” Drew did not create the fictional account. It was proposed and created by Ashley Grills, an 18-year-old former employee of Drew’s (who was granted immunity to testify for the prosecution), with Drew and her then 13-year-old daughter watching. Thus, many critics have pointed out, Drew was convicted of criminally violating a terms of service agreement that she never read or agreed to.

Previously, the violation of terms of service would have been entirely the realm of contract law. Groklaw has posted an amicus brief with extensive commentary on the potential ramifications of website authors having the power to “make criminal law” by writing terms of service that unwitting visitors may violate. Orin Kerr, a GW law professor and formal federal prosecutor, joined Drew’s defense team in order to combat what he considers a misuse of the CFAA. Kerr claims the verdict is “strikingly broad and can’t possibly be what Congress intended with the statute,” and has stated that it is unlikely to survive appellate review. Kerr, speaking on Volokh Conspiracy, illustrates the extent to which this ruling would expose almost all Internet users to criminal liability under the CFAA by changing the terms of service.

Drew’s defense attorney, H. Dean Steward, is waiting for presiding Judge George Wu to decide an outstanding motion for a directed acquittal before filing an appeal with the 9th U.S. Circuit Court. Drew must appear before the court again on December 29th, where she could face a maximum sentence of a year in jail and $100,000 for each of the three misdemeanor counts.

The Supreme Court reversed a decision by the U.S. Court of Appeals for the Ninth Circuit and vacated in part a preliminary injunction that had restricted sonar training operations by the US Navy. The training operations were alleged to damage marine life in violation of the National Environmental Policy Act of 1969 (“NEPA”). The Court applied an equitable balancing test, determining that the likelihood of irreparable injury to the environment was outweighed by the public interest and the Navy’s interest in “effective, realistic training of its sailors.”

Mainstream reporting on the Supreme Court decision can be found at New York Times and the Associated Press.  Further commentary following the case is available at Slashdot and ScotusBlog.

The District Court had issued a preliminary injunction restricting the U.S. Navy from conducting mid-frequency active (“MFA”) sonar training exercises that the plaintiffs assert cause serious injury to marine mammals. The MFA sonar is used by the Navy to locate nearly silent diesel-electric submarines.  The contested measures would have required the Navy to shut down its MFA sonar if a mammal was found within 2,200 yards of a vessel and to power its sonar down by 6 decibels in the case of particular weather conditions known as “surface ducting.” 

In response to the injunction, the Navy had sought relief from the Council on Environmental Quality (“CEQ”), an executive agency, which found “emergency circumstances” authorized the Navy to continue its training exercises without the restrictions imposed by the District Court. The district court, however, declined to vacate the injunction in response to the CEQ’s emergency authorization, and the Ninth Circuit affirmed.

Chief Justice Roberts delivered the majority opinion, joined by justices Scalia, Kennedy, Thomas, and Alito. The majority concluded that “the balance of equities and consideration of the overall public interest in this case tip strongly in favor of the Navy.”  While recognizing that military interests “do not always trump other considerations,” the opinion stated that great deference is to be given to military authorities in matters regarding critical military interests. 

The opinion also noted that the standard employed by the Ninth Circuit in issuing a preliminary injunction was too lenient and emphasized that a plaintiff seeking preliminary relief must demonstrate that irreparable injury is likely in the absence of an injunction.  The Court found it unnecessary to address the likelihood of irreparable harm, concluding that any possibility of harm was outweighed by the public interest in military training.

In evaluating the public interest, the Court relied on statements from senior Navy officials who emphasized that “realistic training” could not be accomplished under the restrictions imposed by the district court. The Court affirmed that such training was “clearly of the utmost importance to the Navy and the Nation,” without going into detail as to the nature of the military necessity.

Justice Ginsburg, joined by Justice Souter, dissented, stating that the CEQ lacked authority as an executive agency to “short circuit” the district court’s judgment. THe dissent pointed out that the Navy had other options, namely requesting congressional authorization to proceed without fulfilling NEPA’s environmental requirements. Justice Ginsburg characterized the course used by the Navy as a “rapid, self-serving resort to an office in the White House” that ran counter to Congressional intent in establishing NEPA. Examining the record, Justice Ginsburg would have held that the plaintiffs made the required showing of harm to warrant injunctive relief.

Justice Breyer, joined in part by Justice Stevens, concurred in part and dissented in part. While agreeing with the majority in vacating those portions of the preliminary injunction challenged by the Navy, Justice Breyer would have remanded to the district court for consideration of a new set of restrictions that would protect the marine wildlife while also enabling the Navy to carry out its exercises. 

E.S.S. Entertainment 2000, Inc., v. Rock Star Videos, Inc., November 5 2008, No. 06-56237
Slip Opinion

On November 5, 2008 the Ninth Circuit Court of Appeals upheld a Central California District Court summary judgment ruling to dismiss the case brought by the operators of a Los Angeles strip club (“E.S.S.”) against Rock Star Videos (“Rockstar”), the manufacturer of the Grand Theft Auto video games, for trademark infringement and unfair competition under the Lanham Act, California Business and Professions Code § 14320 and § 17200 and California common law.

E.E.S. had argued that Rockstar’s imitation of the strip club’s logo within the virtual world of Grand Theft Auto: San Andreas had no artistic relevance and would mislead consumers, confusing them as to whether EES had endorsed or associated itself with the digital rendition. In resolving this claim, the court applied a balancing test to weigh Trademark interests against First Amendment rights, stating that the Lanham Act applies to artistic works “only where the public interest in avoiding consumer confusion outweighs the public interest in free expression” Rogers v. Grimaldi, 875 F.2d 994, 999 (2d Cir. 1989) (emphasis in the original).

The ruling affirming summary judgment in favor of the popular game has drawn attention from a number of commentators. The authors at Techdirt.com applaud the decision. Coverage is also offered by Gamastura.com, Techdirt.com and Filewrapper.com summarize the case. RealDealDocs.com lists other legal challenges Grand Theft Auto has faced in the past six years.

Artists for Rockstar took pictures of Los Angeles locations to recreate realistic yet fictitious vistas for the notoriously explicit Grand Theft Auto video games. Photographs of E.S.S.’ “The Play Pen” strip club informed the appearance of the virtual “Pig Pen” strip club. The Pig Pen logo utilizes the same publically available font as the Play Pen signage, and both logos feature the silhouette of a nude woman within the stem of the initial “P.”

Under the Rogers balancing test, an artistic work may only be held to infringe if there is 1) “no artistic relevance to the underlying work whatsoever” or, if it has some artistic relevance, 2) the work is explicitly misleading as to the referent’s source or content. Under the first prong of the Rogers test, the court determined that the Play Pen logo had the requisite artistic relevance to the underlying work.

The court applied the Rogers test as it had done in Mattel, Inc. v. MCA Records, Inc., 296 F.3d 894, 902 (9th Cir. 2002) where it relieved the pop group Aqua from liability for using the Barbie trademark and imagery in its song “Barbie Girl.” Because the song’s content was “clearly relevant to the underlying work,” the court held that the defendant’s First Amendment defense was viable. Although Grand Theft Auto does not focus centrally on the Play Pen in the same way that “Barbie Girl” focused on the popular doll, the court determined that “the level of relevance merely must be above zero” to avoid the first prong.

The court also found that the imitation caused insufficient consumer confusion under the second prong of the Rogers test. The court observed inadequate evidence that consumers would misconstrue the relationship between the video game company and the entertainment venue as one of ownership, support, or endorsement. The strip-club, is a discrete feature in the context of the game, and a reasonable consumer is unlikely to assume that the same company that owns a single strip club could also be responsible for a “technologically sophisticated” video game. As Judge O’Scannlain noted in the opinion, “video games and strip clubs do not go together like a horse and carriage or, perish the thought, love and marriage.” If the simple evocation of a trademarked element were sufficient to satisfy the “association” element of the Rogers test, the court noted, “it would render Rogers a nullity.”

For further background on the unfolding legal debate over intellectual property and game design, take a look at the following recent articles in published in the Harvard Journal of Law and Technology:

Christina J. Hayes, Note, Changing the Rules of the Game: How Video Game Publishers Are Embracing User-Generated Derivative Works, 21 Harv. J.L. & Tech. 567 (2008).

Matthew G. Massari, Note, When Fantasy Meets Reality: The Clash Between On-Line Fantasy Sports Providers and Intellectual Property Rights, 19 Harv. J.L. & Tech. 443 (2006).

Action by the Federal Communications Commission, by Second Report and Order (FCC 08-260)

On November 4, the Federal Communications Commission unanimously approved the use of unlicensed wireless devices that operate in “white spaces,” the unused spectrum between licensed broadcast television channels that can be used to provide broadband connectivity and other services similar to Wi-fi. The Commission’s approval extends to all WSDs that include a geolocation capability and a spectrum-sensing technology that will allow the device to determine what spectrum may be accessed at the particular location.

The decision comes after four years of debate, pitting an alliance of technology companies against parts of the entertainment industry. Companies such as Microsoft, Google, and Motorola urged the Commission to open the channels for general usage. A coalition comprised of broadcasters, theaters, sports franchises and other cell phone operators opposed the decision, arguing that white space devices (WSDs) operating within the unlicensed spectrum will cause interference in the neighboring licensed channels.

The New York Times, the BBC and ars techinca provide a summary of the Commission’s order. Larry Page, co-founder of Google and proponent of opening up white spaces, comments on the Commission’s approval. Andrew Seybold of FierceWireless, the wireless industry’s daily monitor, warns that despite the precautions undertaken by the Commission, the new devices will likely cause interference with current services. TechCrunch suggests that Google’s push for open use of white spaces is part of its strategy to create more connection points for mobile devices, including those powered by Android, the Google mobile device platform.

In a statement, FCC Chairman Kevin J. Martin called the approval of the use of the white spaces spectrum “a significant victory for consumers,” and said that it had the potential to improve wireless broadband connectivity and to bring about new Internet-based products and services. Addressing the concerns voiced by a coalition of broadcasters, who argued that WSDs may disrupt existing services, Chairman Martin noted that the Commission had taken the unusual step of conducting interference testing prior to approval to ensure that these devices could be deployed safely.

He emphasized that prior to entering the market, WSDs will undergo a rigorous certification process, and will be required to use geo-location to demonstrate that they can operate in a particular location without causing interference.

Commissioner Michael J. Copps issued a separate statement. He observed that few other engineering analyses conducted by the FCC had been as lengthy or as open as the present one, and acknowledged that testing had shown that there was merit in the initial positions argued for by each of the two opposing sides in the debate. Conceding that there can “never be metaphysical certainty when it comes to interference issues,” Copps maintained that the geo-location requirement and the testing and certification process the new devices will adequately protect the licensed users of the television band.

In a separate statement, Commissioner Jonathan S. Adelstein emphasized the significant potential the approval had for fostering competition and bringing broadband access to rural areas, and said that it will give the United States the opportunity to reclaim its place as a world leader in broadband deployment.

Although Adelstein suggested that in this instance, the Commission may have “put[] expediency ahead of an open process,” resulting in “unnecessary resentment from parties that believe they were not given a fair hearing,” he said that the independent engineering staff justified the decision on the basis of their expert analysis.

Commissioner Deborah Taylor Tate also issued a separate statement approving in part and dissenting in part. She recognized that allowing unlicensed use of white spaces would enable the use of entirely new services and devices, but cautioned that it would also pose a real risk of interfering with existing services. She highlighted that the Commission will create a database of existing operations in particular channels and geographic areas that will remain unavailable to unlicensed operators. Requiring providers to verify that channels are available prior to accessing them will ensure that broadcast operations will receive complete protection from interference, according to Tate.

In re Bilski
CAFC, October 30, 2008, No. 08/833,892
En Banc In re Bilski opinion
Amicus Brief, En Banc Order, BPAI opinion  (hosted by Electronic Frontier Foundation)

On October 30, 2008, an en banc panel of the Federal Circuit upheld a ruling by the Board of Patent Appeals and Interferences that a business method developed by Bernard Bilski and Rand Warsaw for hedging risks in commodities trading is not patentable under the U.S. Patent Act, 35 U.S.C. § 101.

The decision comes only a decade after the Federal Circuit first allowed business method patents in State Street Bank v. Signature Financial Group, by granting patent protection to a system for managing mutual fund accounts.

In the majority opinion, Chief Judge Michel explicitly rejects the “useful, concrete and tangible result” test the Federal Circuit had set forth in State Street in 1998.  Relying on the Supreme Court opinions in Gottschalk v. Benson and Diamond v. Diehr, the court in Bilski states that in order to be eligible for a patent, a process must fulfill the “machine-or-transformation” test.   According to this test, a process is patentable under 35 U.S.C. § 101 if “(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.”

Patently-O explores the case with detailed commentary, including potential applications to biotechnology and life sciences, software claims, and tax strategies.
Daniel Crowe, a patent litigator at Bryan Cave, states that it remains uncertain what will happen to the business-method patents that have been approved since 1998 that might not hold up under the Bilski test.
Randy Lipsitz, a patent specialist at Kramer Levin in New York predicts that the number of patent applications from the financial and software industries will decrease as a result of the decision.
Steve Seidenberg of InsideCounsel believes that State Street’s many critics, who see business patents as opening the doors to patent trolls, low-quality patents, and excessive litigation costs will be pleased with the Bilski decision.

Applying the new test to Bilski’s claimed business method, the court found that a method for hedging risk is a fundamental principle, such as an abstract idea, law of nature, or mathematical relationship, which cannot receive patent protection.  The Bilski court determined that only the specific application of a fundamental principle that has ties to a particular machine or that transforms an article into another state or thing can receive protection, and held that Bilski’s risk-hedging strategy does neither.

The majority establishes that the machine-or-transformation test does not simply ask whether or not the process contains physical steps.  A process, for example, that only records bits on paper or a computer after every step or generates post-solution activity would be insufficient.  Likewise, a process with physical steps not reciting a machine or not transforming an article would also fail under the test.  Not all business methods are invalid per se as a result of Bilski, only those that cannot satisfy the test. 

Circuit Judge Dyk filed a concurring opinion, and Circuit Judges Newman, Mayer, and Rader filed dissenting opinions. Judge Rader’s dissent observes that Bilski’s claim would almost certainly have failed under existing case law because his invention is merely an abstract idea.  As discussed by Patently-O, the majority may have chosen to go further than Rader in order to avoid the preemption of fundamental principles.  In the Wall Street Journal, Bradley Wright of Banner & Witcoff suggests that the majority may have decided in this way to reduce the possibility of reversal by the Supreme Court.  

Judge Mayer in his dissent argues that the court did not go far enough in limiting business method patents, which he believes deter innovation and deprive people of what belongs more appropriately in the public domain. Mayer cites a JOLT article from 2007, noting “that both Japan and the Republic of Korea explicitly define an “invention” as the application of a law of nature, and argues that the United States should follow a similar approach to patentability. See Andrew A. Schwartz, The Patent Office Meets the Poison Pill: Why Legal Methods Cannot be Patented, 20 Harv. J. Law & Tech. 333, 357 (2007).”

The Federal Circuit acknowledges that the patentability of specific computer processes will require further elaboration in subsequent cases, suggesting that software will not be impacted in the same ways as business methods.