The Truth About Digital Copyright Infringement’s Effect on the Film Industry

Those of us who remember the Recording Industry Association of America (RIAA) music piracy witch hunt of 2004-2007 and the colorful, if not flamboyant ranting of the late Jack Volenti of the Motion Picture Association of America (MPAA) may be predisposed to thinking that online file sharing has had a dreadful effect on the music and film industries.

A recent study, however, may dispel that myth, at least as it relates to the film industry. Researchers from the Ludwig-Maximilians-Universität Munich and Copenhagen Business School have found that far from hindering sales, online file sharing has even had a positive effect on some films’ bottom line. The study looked at a sizable data set- 10,272 movies released in 50 countries from week 31 of 2007 to week 5 of 2013.

On January 19, 2012, the globally popular file hosting site Megaupload.com was shut down and its founder Kim Dotcom arrested. The study found that the shutdown had little effect on the box office numbers for a majority of films. Some films, particular smaller and independent productions, saw a decrease in revenue. Only the top Hollywood films such as Ice Age and Harry Potter saw an increase in revenue after the Megaupload shutdown.

The study cites similar research dealing with the music industry (Bhattachar-jee et al. (2007)) which showed that while big-label titles spent on average less time on the sales charts, smaller labels and independent artists experienced a huge boost in revenue from file sharing.

While no study can correct for all possible variables, the researchers took care to put into place “robustness checks” for the purpose of ruling out alternative causes for the correlation they discovered. The researchers explain their results by highlighting the importance of word of mouth advertising facilitated through social networks. The study identifies two categories of consumers: those willing to pay for content and those unwilling to pay.

It appears that those consumers who are unwilling to pay for content still speak about and promote that content. Some of the people they speak to are those willing to pay for the content. These people then go and make purchases they would not have made but for the endorsement by the “pirate".

The effect of illicit file sharing on a film seems to relate to the film’s advertising budget and general exposure. The reason why big budget films released by major studios are aided by stemming online file sharing is that they have effective brand penetration. Paying customers are more likely to see an advertisement for a major film and therefore do not rely as heavily on social networks to discover these titles. On the other hand, for small and medium sized productions, the publicity accrued through social networks by way of exposure due to file sharing is palpable.

It would therefore seem that the statement that file sharing hurts the content industry may only be true for those who currently hold the biggest piece of the pie. If we assume that the greatest availability of the greatest variety and quantity of content is a worthy goal, perhaps the legislative frameworks surrounding copyright protection would benefit from an overhaul in light of this and similar studies. It’s worth mentioning, however, that the content industry groups that lobby governments for stricter copyright laws are likely influenced to a great extent by the biggest players in the industry; and for them, the study shows that file sharing is still bad for business. 

By James Plotkin LL.L, J.D.
Summer Student with MBM
jplotkin@mbm.com

Sergey Brin turns 40

Today is the birthday of Google co-founder Sergey Brin who turns 40 today. Russian born, his family immigrated to the United States when he was young. While attending university to work on his Ph.D in computer science, he developed a world-wide-web data-mining technique with new-found friend Larry Page in their dorm room at Stanford which developed the first steps to the massive search engine we all know today. As their dorm room got crammed with systems to support this popular software, they moved on to a rented garage and it all went uphill from there.

Brin is associated with a large number of patents not only in relevance to Google, but in other areas of computer science as well. Brin and Page use the patent system for its true purpose, protecting ideas. They even have the infamous Google-Doodle concept patented, although it took a little battle to get and criticism. 

In the current events of legal battles and “patent-trolls”, Sergey Brin is a refreshing type of innovator, running a company who resides on a pillar statement of “Don’t Be Evil”. This also includes Google's Open Patent Non-Assertion Pledge which was spoken about in a previous article on this blog. Again we tip our hat to Sergey Brin on his 40th, a true modern-day innovator who believes that knowledge is better than ignorance.

By Richard Loucks
rloucks@mbm.com

Promise of Utility in Canadian Patent Law

What is the Promise of Patent?

On July 24, 2013, the Federal Court of Appeal issued its judgment in relation to Sanofi’s Canadian Patent No. 1,336,777 (the ‘777 patent) directed to the blockbuster anti-coagulating drug Plavix®.

The ‘777 patent is a selection patent that claims a subset of compounds already encompassed by Canadian Patent No. 1,194,875 (the genus patent). The active ingredient in Plavix® is the dextro-rotary isomer of clopidogrel, which exhibits beneficial properties over both the racemate and the levo-rotatory isomer.

The case began in 2005 when Apotex filed a Notice of Allegations pursuant to the Patented Medicine Notice of Compliance Regulations (“PMNOC”) alleging that the ‘777 patent was invalid. This PMNOC case was ultimately heard by the Supreme Court of Canada in 2008. The Supreme Court found that Apotex’s invalidity allegations were without merit.

Apotex and Sanofi then commenced separate actions in the Federal Court. Apotex again alleged that the ‘777 patent was invalid, while Sanofi asserted that Apotex infringed its clopidogrel patent. The separate actions were consolidated in 2011 and went before the trial judge Justice Boivin who declared that the ‘777 patent was invalid because it lacked utility and was obvious to an ordinary person skilled in the art.

The decision of Justice Boivin was appealed. The Court of Appeal reversed Justice Boivin’s findings on both utility and obviousness. The Court of Appeal’s finding on obviousness is insightful, but the more substantive part of the ruling relates to the legal concept of “promise of utility.” In Canadian patent law, at the time of application filing, a patent must either demonstrate utility or soundly predict utility of the invention. The utility is also measured by the promise of the patent:

Where the specification does not promise a specific result, no particular level of utility is required; a "mere scintilla" of utility will suffice. However, where the specification sets out an explicit "promise", utility will be measured against that promise: The question is whether the invention does what the patent promises it will do.

The trial judge’s finding of inutility was based on his conclusion that the promise of the ‘777 patent was that clopidogrel could be used in humans. In addition to giving weight to Apotex’s expert evidence, which said that the ‘777 patent clearly referred to some human diseases and conditions, Justice Boivin arrived at his conclusion by making inferences; such as “the fact that clopidogrel is to be administered by oral, rectal or parenteral administration” and the usage of words like “patients” in the patent. Justice Pelletier and Gauthier at the Federal Court of Appeal, rejected the trial judge’s inference of a promise of utility to invalidate the ‘777 patent. Justice Pelletier cited the following remarks from AstraZenaca v. Mylan Pharmaceuticals:

I accept AstraZeneca's argument that not all statements of advantage in a patent rise to the level of a promise. A goal is not necessarily a promise. The third paragraph of the 420 Patent refers to a forward looking goal, a hoped-for advantage of the invention. 

Justice Gauthier augmented that “one must be careful not to treat each reference to a practical purpose as a promise of a specific result within the meaning of Consolboard".

The Court of Appeal held that the trial judge did not err in his finding that inferences were made which point to the prospect of clopidogrel being used in humans, but rather erred in his construction of the promise made in the patent. Most if not all pharmaceutical patents have the ultimate goal or aspiration of being applied to humans. However, as the Court of Appeal rightly ruled, these goals cannot be construed as specific promises to which the validity of the patent is measured against.

Going back to first principle, the Court of Appeal painted the context before they began analyzing the validity of the patent. This is congruent with the purposive approach to constructing patent claims laid down in Whirlpool Corp. v. Camco Inc. The trial judge erred when he failed to take into the context in which drug patents are drafted.

In my opinion, the Federal Court of Appeal has provided helpful guidance in delineating between a promise of utility and a goal when determining the utility standard that a patent is measured against.

By David Chen
Articling Student
dchen@mbm.com

Kirby Estate Denied Right to Terminate Copyright License for X-Men, Spiderman, Hulk and Ironman Comics

The US Court of Appeal for the 2nd Circuit ruled yesterday that the estate of famous comic book illustrator Jack Kirby could not terminate the copyright license held by Marvel Comics and Disney corp. (Marvel/Disney). Jack Kirby is known as one of the most prominent comic book illustrators of all time. He began his career as an illustrator in the 1930s when he created the now famous Captain America series. 

At issue in this case were drawings Kirby did between 1958 and 1963. Jack Kirby’s children sought to apply the complicated “termination provision” found in §304 17 USC. This provision allows the owner of a copyright protected work to terminate any assignment or license agreement after a defined period which depends on whether the work was created before 1978.

This provision came into force with the 1976 reforms to US copyright law. The goal of the provision was to balance the playing field between authors and non-author copyright owners. In desperation, authors would often sign onerous agreements that were drafted by, and slanted heavily in favour of publishers. §304 gives the original copyright holder the ability to, without fear of breaching contract, terminate any license or assignment of their copyright protected work. In other words, the author would get a second kick at the can to profit from his or her creations.

Marvel/Disney argued that Kirby’s drawings were works for hire, an express exception prescribed by the §304 termination right.  The 1976 Copyright Act defines work for hire as follows:

(1) a work prepared by an employee within the scope of his or her employment; or

(2) a work specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.

Kirby was not an employee of Marvel and did not receive benefits or fixed salary. Further, while much of the work Kirby did for Marvel was delegated directly by Stan Lee (the former chairman and president of Marvel Comics) and others, some of his artistic output that made it into Marvel comics were entirely fruits of his own mind. Marvel/Disney therefore argued that his works fell under (2).

the 2nd Circuit’s legal test to determine whether a work is a work for hire is whether the work is created “at the instance and expense” of the hiring party. The court must also look at the degree of control exercised by the hiring party over not only the final product, but the general manner in which the tasks are carried out. In this case, the US District Court for the Southern District of New York found that there was enough control over Kirby’s output to consider his drawings works for hire.

Kirby’s estate appealed the District Court’s decision in which Judge Colleen McMahon granted summary judgment in favour of Marvel/Disney, disallowing the Kirby Estate’s claim. The appeal court agreed with the Trial Judge and dismissed the Kirby Estate’s appeal of that ruling.

This is not the first time Marvel has litigated this issue. Just two months ago in June, the 2nd Circuit Court of Appeal vacated and remanded a trial judge’s ruling over the ownership of the copyright in the Marvel character “Ghost Rider”. Gary Friedrich, the artist that created the Ghost Rider character sued Marvel for copyright infringement after the 2011 release of a Ghost Rider movie starring Nicholas Cage. The Court found that the trial judge erred in granting summary judgment in favour of Marvel given the ambiguity of the terms of the latter’s agreement with Friedrich. That matter is yet unresolved.

By James Plotkin
LL.L, J.D.
Summer Student with MBM
jplotkin@mbm.com

Additions to Google's Open Patent Non-Assertion Pledge

Yesterday, on August 8th Google added another 79 patents to its Open Patent Non-Assertion Pledge. The OPN Pledge benefits open-source software and fosters innovation by making patents available for use by the public. This means that for areas covered in these patents, Google will not seek out litigation against the intellectual property described in these patents unless first attacked. Although these new patents being added to the list are mostly related to server side technologies, Google is making the effort in future additions to have more of a variety of areas of technologies.

With different companies taking different approaches, it is refreshing to see these movements after all the Apple versus Samsung discussion that is being played over and over again in the media. Making these patents publically available means that developers can push existing ideas further without the fear of infringing on what Google already owns. Some of these patents were originally from IBM and Computer Associates that were purchased by Google back in 2005 and covered areas of software used to manage data centers including alarm monitoring, distributed storage management, and distributed database management.

You can read more about Google’s Open Patent Non-Assertion Pledge at their dedicated page http://www.google.com/patents/opnpledge/.

By Richard Loucks
rloucks@mbm.com

Protecting Foreign Brands with Trademark Law in China

The increasingly serious pollution problem in China has directed the attention of Chinese government and Chinese consumers to electric cars. Tesla Motors, a successful American electric car manufacturer, also sensed that this is the opportune time to expand their market in China.

However, Tesla’s plan had to come to a halt because in China, the trademark “Tesla” was already registered by Zhan Baosheng, a Chinese business entrepreneur. Zhan registered the mark for twelve categories of land, air, and marine transportation vehicles, including Tesla Motors’ products, finished cars.

The Chinese trademark authority rejected Tesla Motor’s application for the trademark “Tesla” because trademark law in China is based on a “first to file” regime. The same issue arose for Apple. Inc. in 2011 when Apple introduced its tablet iPad to China. A Chinese company named Proview Technology had registered the trademark “IPAD” prior to Apple’s application to register the mark. In the course of a few months, Proview obtained injunctions from Chinese courts to seize infringing articles and prevented Apple from selling iPad in China. Ultimately, Apple had to pay a steep price to settle with Proview- 60 million dollars!

Now Tesla Motors finds itself in a similar situation to Apple in 2011. Tesla Motors reportedly offered Zhan $326,000 to buy his trademark registration, but Zhan rejected the offer and countered, demanding approximately 3 million dollars. Many observers have criticized Zhan as an opportunistic trademark troll if not an extortionist. 

However, in an interview with Cheyun, a popular online motor forum in China, Zhan retorted the criticisms stating that he registered “Tesla” because he admired Nikola Tesla, the famous electrical engineer who designed the modern alternating current electricity system. A nice tribute, but undercut by his registration of Tesla’s company logo.  Zhan also claimed that he has reached production agreements with two car manufacturers in China and he will soon be selling electric vehicles in China.

In a manner similar to Canada’s trade-mark expungement proceedings, a registered mark can be cancelled if the owner cannot show use within the last 3 years. If Zhan satisfies the Chinese court that he has “used” the mark in association with the registered wares, i.e., electric vehicles within the last three years, his right over the trademark may be upheld. Tesla Motors will then be forced into a very difficult position.

Tesla Motor’s trademark turmoil in China serves to reinforce the need for international companies looking to tap into the Chinese market to plan ahead and to protect their trademark rights in China appropriately.

On the other hand, if companies were careful to avoid the pitfall of the “first to file” system, the legal protection offered by Chinese trademark law seems to be strengthening.

In July 2012, Cartier, the international luxury jeweler, sued two Chinese jewelers and China’s largest online supermarket Yihaodian.com for unfair competition and trademark infringement in a Shanghai court. The Chinese jewelers sold products with advertisements that referred to the products as “Cartier classic style” and “Cartier collection”. The court ruled in favor of Cartier and awarded about 29,000 dollars to Cartier because the court found that the advertisements could have confused consumers about the quality of Cartier’s products.

Cartier’s success demonstrates China’s commitment to offer adequate trademark protection to foster an economic environment attractive to foreign companies.

While the consequences of failing to register one’s trademark in China in a timely manner can be dire, as China transforms into the largest consumer market on the planet, companies also cannot afford to not expand into the Chinese market. The good news is that once companies overcome the initial trademark registration hurdle, we are seeing indications that trademark rights can be enforced effectively in China.

By David Chen
Articling Student
dchen@mbm.com

Milestone anniversary of US Patent No. 1000000

Although there over a million patents that relate to the term “Vehicle Tire”, The US patent assigned to Francis Holton on August 8th, 1911 holds a special place at the USPTO. It was the millionth patent issued by the office.

It took the patent office 75 years to reach 1 million patents but after that the system was booming with intellectual property. It only took 24 years to get to patent 2 million which, ironically, was related to the safety and longevity of pneumatic tires. The trend continued its momentum to get to the over 8.5 million patents registered with the USPTO today.

Taken from a USPTO press release back in 2009 when they celebrated their milestone of 7 million patents, a summary of each millennial milestone.

• August 8th, 1911 – “Vehicle Tire”, a tubeless tire.
  http://www.google.com/patents/US1000000
• 24 years later, April 30th, 1935 – “Vehicle Wheel Construction”, the safety and longevity of pneumatic tires.
  http://www.google.com/patents/US2000000
• 26 years later, September 21st, 1961 – “Automatic Reading System”, an automated system that translated letters, numbers and symbols to data processing code.
  http://www.google.com/patents/US3000000
• 15 years later, December 28th, 1976 – “Process for recycling asphalt-aggregate compositions”
  http://www.google.com/patents/US4000000
• 15 years later, March 19th, 1991 – “Ethanol production by Escherichia coli strains co-expressing Zymomonas PDC and ADH genes”, issued to the University of Florida for a process to produce fuel ethanol.
  http://www.google.com/patents/US5000000
• 8 years later, December 7th, 1999 – “Extendible method and apparatus for synchronizing multiple files on two different computer systems “, 3Com Corporation’s Palm Computing for its HotSync® technology
  http://www.google.com/patents/US6000000
• 7 years later, February 14th, 2006 – “Polysaccharide fibers”, fibers that have “cotton-like” properties but can be produced as continuous filaments on a year-round basis. The fibers are useful in textile applications.
  http://www.google.com/patents/US7000000

Then finally 5 years later the USPTO hits the 8 million mark with a visual prosthesis apparatus patented by Second Sight Medical Products, Inc. If the USPTO is already at the 8.5 million mark, then it is possible we will see 9 million around 2015 and even hit 10 million before 2020. Looking beyond just these numbers we realize that there are vast amount of others patents being issued around the world. What this suggests is that the intellectual property process has its worth as ideas are protected around the world. 

By Richard Loucks
rloucks@mbm.com

USTR disapproves of ITC decision on Apple import ban

On June 4^th, 2013, the International Trade Commission (ITC) issued a ruling prohibiting Apple Inc. (Apple) from importing its iPhone 3G, iPhone 3Gs, iPhone 4, iPad and iPad 2 because they infringe a patent owned by Samsung Electronics Co. (Samsung). On August 3^rd, the United States Trade Representative (USTR), in a rare interventionist move, disapproved of the ITC’s ruling allowing Apple to continue its importation of the infringing products.

Under § 1337 of the Tariff Act, the ITC may issue an exclusion order (injunctive type relief) against an entity that imports a patent infringing product. In deciding whether to grant the exclusion order, the ITC must consider the effects of the order on US trade and commerce. If the ITC believes that the public interest would not be best served by the issuance of the exclusion order, it has the discretion to refuse it.

Samsung’s patent is what is known as a “standard-essential patent” (SEP). These patents cover inventions that must be incorporated into a given device if they are to meet some applicable technical standard. SEPs have the potential to give vertically integrated patent holders an advantage over their competitors whom, for all intents and purposes must license the technology from them.

To combat anti-competitive behavior while still allowing the best technology to form industry standards, standards-developing organization (SDOs) encourage patentees to establish “fair, reasonable, and non-discriminatory” (FRAND) licenses. FRAND licenses allow any player in a given market, incumbents and new entrants, to obtain a license to use the SEP technology on a fair and reasonable license thereby stimulating a more robust and competitive marketplace and eliminating a phenomenon known as “patent hold-up” whereby the holder of an SEP asserts its patent with the goal of frustrating a competitor’s entry into the market.

Far from trying to hold-up the process, Samsung alleges that it sought to negotiate a license in good faith with Apple over the technology.  Samsung further claims that it was Apple who refused to negotiate a FRAND license in good faith resulting in a “reverse hold-up” situation: where the patentee is faced with a recalcitrant would be licensee.

The Office of the President of the United States has a 60-day window in which it may exercise veto power over an ITC decision. This power was assigned by the President to the USTR in 2005. In deciding whether to honor the ITC’s initial decision, the USTR will consider the following factors:

1.       Public health and welfare;

2.       Competitive conditions in the U.S. economy; 

3.       Production of competitive articles in the United States;

4.       U.S. consumers; and

5.       U.S. foreign relations, economic and political.

In the present case, the USTR’s rejection of the ITC’s decision was bolstered in part by a policy document (http://www.justice.gov/atr/public/guidelines/290994.pdf) released jointly by the Department of Justice (DOJ) and the United States Patent and Trademark Office (USPTO). The document warns against the issuance of injunctions and exclusion orders in instances when the American economy would not be best served by the measure.

In the very same policy document, however, the DOJ and USPTO note that exclusion orders are still sometimes appropriate, even when the patent at issue is an SEP. One instance identified as appropriate is when “the putative licensee is unable or refuses to take a F/RAND license and is acting outside the scope of the patent holder’s commitment to license on F/RAND terms”. If Samsung’s statements about Apple’s reticence to negotiate are to be taken as true, it would seem that the present case was expressly contemplated by the DOJ and USPTO as an instance in which the imposition of an exclusion order is justified.

The USTR’s disapproval letter was clear that its ruling applied only to the present case and should not be taken as a blanket statement that exclusion orders should never be issued when the infringed patent is an SEP. The ITC (and the USTR on review) will examine the facts of each case in light of the policy considerations outlined above. It would seem that in this case, despite the undisputed violation of Samsung’s patent rights, the USTR found that in this case Apple was too big to fail; or perhaps more accurately, too big to enjoin.

By James Plotkin
LL.L, J.D.
Summer Student with MBM
jplotkin@mbm.com

Pinch to Zoom - Apple versus Samsung

The patent war between Samsung and Apple has from time to time captured brief attention of the public.

On July 28, 2013, Samsung’s counsel filed new evidence in the US court in efforts to invalidate Apple’s “pinch to zoom” patent (US. Patent No. 7,844, 915).

The United States Patent and Trademark Office (USPTO) has rejected “pinch to zoom” patent. The patent has already been rejected once by the USPTO and this is the “final objection” during the patent examination process. However, it is not so final. Apple will have two months to respond to the Examiner’s objections and even if that fails, further appeal venues will be available to Apple, including appealing to Patent Trial and Appeal Board, and if unsuccessful, judicial review. The entire process could take many years until final resolution.

The Examiner rejected all 21 claims of the patent on the grounds that the claims have been anticipated by a patent filed by W. Daniel Hillis and Fran Ferren back in 2005 for various gestures on touchscreens (US. Patent No. 7,724,242).

Although the ultimate determination of the validity of Apple’s “pinch to zoom” patent will not be available for years, the USPTO’s rejection may have an impact on the on-going patent litigation proceedings.

Back in August of 2012, Apple had its first patent litigation victory in US. Apple was awarded a hefty 1.05 billion US dollars in damages by the jury. The quantum however has since then been scaled down to approximately $598.9 million. It is predictable that Samsung will attempt to use USPTO’s rejection to bolster its appeal and to dissolve the damages claim.

The ramification however extends beyond United States. Apple and Samsung are going head to head in nine countries. Apple is now in a precarious position because it is fundamental and trite patent law everywhere that a patent must present novelty; something new. It is conceivable that Samsung is going to do everything they can in the other jurisdictions to use USPTO’s objection, convincing evidence from a credible regulator, to invalidate Apple’s corresponding “pinch to zoom” patents in these jurisdictions. Samsung may also seek to stay the proceedings in other jurisdictions, pending the outcome of the US battle.

In the end, what does this all mean to consumers? Not a lot.

Sure, if Apple’s patents were held to be valid, Samsung will incur higher production costs. But with the fierce competition in the mobile phone market, Samsung would not be able to pass the costs down to the consumers easily. When we “zoom” ahead, whatever the final outcome is, consumers are not likely to feel the “pinch” in their pockets.

By David Chen
Articling Student with MBM
dchen@mbm.com