Important Federal and Ninth Circuit Rulings in Closely Watched Patent and Copyright Cases

I hope everybody had a great rest of the holiday season — happy 2011! Before the break, we started what was to be a short two-part 'holiday wrap-up' of year end happenings (see Part I here). We were, however, interrupted by a couple of important developments warranting a break in our series (the first patent lawsuits filed by Intellectual Ventures (see earlier posting here) and the U.S. Supreme Court's ruling in the closely watched Omega S.A. vs. Costco Wholesale copyright case (see earlier posting here)). While I had hoped to finish our update with this posting, two more noteworthy and important case have been handed down, justifying one more delay in the update: Uniloc USA vs. Microsoft (Fed. Cir. January 4, 2011): Today, the Federal Circuit issued its ruling in this closely watched patent litigation. Uniloc USA had previously sued Microsoft for patent infringement for digital media key-activation related technology, winning a jury verdict of $338M against the software giant. However, District Court Judge William Smith tossed the jury's verdict. Uniloc appealed the dismissal, while Microsoft sought invalidity of the Uniloc USA's patent, as well as appealing for a more appropriate methodology (in its opinion) in calculating patent damages that would limit overly large awards to plaintiffs. In short, the Federal Circuit ostensibly ended the long used "25% Rule of Thumb" for calculating patent damages, which the Court summarized as: "The 25 percent rule of thumb is a tool that has been used to approximate the reasonable royalty rate that the manufacturer of a patented product would be willing to offer to pay to the patentee during a hypothetical negotiation." While many expect the end result will be to reduce the award against Microsoft, others note it may not, as it is the methodology, not the finite percentage, that was called into question. Unfortunately, for the 100+ other companies currently being sued by Uniloc USA for patent infringement (the latest filing against 17 companies as recently as December 30, 2010 (read Complaint here)), one of the standard defenses (that of alleging invalidity of the alleged infringed patent) may be more difficult to successfully argue now, making the litigations and any potential settlement discussions more challenging for the defendants (which include many tech giants such as Adobe and Symantec, among others). The case is Uniloc USA v. Microsoft Corp., 10-1035, U.S. Court of Appeals for the Federal Circuit (Washington). The lower court case is Uniloc USA Inc. v. Microsoft Corp., 03cv440, U.S. District Court, District of Rhode Island (Providence). Read more at Bloomberg and Patently-O UMG vs. Augusto (9th Cir. January 4, 2011): In a very closely watched case, and coming on the heels of the recently decided Vernor vs. Autodesk decision by the Ninth Circuit (currently under appeal for en banc review – see earlier post here), where the Ninth Circuit there held that shrink-wrap licensed software was in fact licensed, and not sold, and therefore not subject to U.S. Copyright law's 'first sale doctrine' exception to the copyright holder's exclusive distribution right, the same Ninth Circuit panel that decided the Autodesk case ruled that UMG's 'promo CDs', given to radio stations and as other promotional efforts were not licensed, but rather properly classified as 'gifts' or 'sales', thereby entitling the recipient the benefit of the first sale doctrine and the right to further distribute the CDs without permission of the copyright holder. In so ruling, the Court concluded that "UMG's transfer of unlimited possession in the circumstances present here effected a gift or sale within the meaning of the first-sale doctrine, as the district court held." In short, under the particular facts of the case, the Court held that that no license agreement had been entered into: "UMG dispatched the CDs in a manner that permitted their receipt and retention by the recipients without the recipients accepting the terms of the promotional statements." When taken with the holding of the Vernor decision, distribution of digital (or even other) media should be closely considered to ensure the desired relationship between copyright holder and recipient are as intended. Read more at Courthouse News Two very important decisions that should be studied and kept close at hand. Hopefully we'll now be able to get back to Part II of our update…..

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