A recent Federal Circuit decision, Bot M8 LLC v. Sony Corp. of America (Fed. Cir. 2021) clarified the standard needed to plead claims of patent infringement.  Its ruling also stands as a warning that too much detail can lead to the conclusion that there is no infringement as a matter of law, and thus preclude suit altogether.

The Bot M8 decision holds that while a plaintiff need not plead an element-by-element case of infringement, it must do more than recite the patent and identify the accused device. Rather, it must plead a “plausible” case of infringement (the general pleading standard in federal court), which may vary by the complexity of the case.

As to one of Bot M8’s patents, the plaintiff pleaded so much detail, that review of the pleadings indicated that they were inconsistent with a charge of infringement.  So the Federal Circuit affirmed dismissal of that patent.  But as to two other Bot M8’s patents, the Federal Circuit found that the district court had insisted on too much detail, and reversed the dismissal.

The Bot M8 Case
Bot M8 filed suit against Sony and others in the Southern District of New York, asserting six patents relating to gaming machines and casino, arcade, and video games. That case was transferred to the Northern District of California, where that court “directed” Bot M8 to file an amended complaint specifying “every element of every claim that you say is infringed and/or explain why it can’t be done,” and to purchase and reverse engineer the accused products, if possible. Bot M8 filed a 223-page first amended complaint, which Sony moved to dismiss.

The district court granted Sony’s motion to dismiss four of the asserted patents and denied Bot M8’s motion for leave to file a second amended complaint. (The district court also granted Sony’s summary judgment motion that one claim of a fifth patent was invalid under § 101, which the Federal Circuit affirmed).

On appeal, the Federal Circuit affirmed as to three patents, but reversed as to two.  The pleading standards was central to its decision as to four of the patents.

Pleading Standard For Patent Infringement Cases
How much detail is required in a patent complaint has been controversial for some time.  At one point, the federal rules contained a very terse model patent complaint, Form 18, which the Federal Circuit held controlled patent infringement pleading.  But after that was eliminated from the rules, courts have struggled with how much details is required.  Bot M8 has now brought some clarity.

The starting point is the Supreme Court’s decisions in Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) and Bell Atlantic Inc. v. Twombly, 550 U.S. 544, 570 (2007).  The Supreme Court held that a plaintiff must give enough factual allegations to make out a “plausible” claim under the applicable law.   That informs the pleading standard for patent infringement.
 
In the Bot M8 case, the Federal Circuit now further clarified the pleading requirements for patent infringement cases. It reiterated that “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” But it disagreed with the district court’s instruction that a complaint must “explain . . . every element of every claim that you say is infringed and/or explain why it can’t be done.” The Court explained that under Iqbal/Twombly a plaintiff need not “prove its case at the pleadings stage” and is not required to plead infringement on an element-by-element basis.

Rather, the court explained that it is enough “that a complaint place the alleged infringer on notice of what activity . . . is being accused of infringement.”  How much detail is required will depend on the case.  Among the factors a court should consider are (1) the complexity of the technology, (2) the materiality of an element to practicing the asserted claims, and (3) the nature of the allegedly infringing device.

Bot M8’s Mixed Results
As to two of the asserted patents, the Federal Circuit held that the district court had insisted upon too much detail, and reversed the dismissal.  The pleadings, though not as detailed as the district court had insisted, did provide enough detail to make out a plausible case for infringement.
As to another patent, however, the Amended Complaint merely made conclusory allegations that the accused device met all the claim elements, and the court affirmed the dismissal.

As to a fourth patent, the Federal Circuit reasoned that the Amended Complaint contained too much rather than too little, to the point that Bot M8 had essentially pleaded itself out of court.  Bot M8 took a “kitchen sink” approach that revealed pleadings that were inconsistent with the asserted patent claims, rendering infringement not even possible, much less plausible.

Lessons For Infringement Plaintiffs
Patent plaintiffs, like Goldilocks, now have to make sure their pleadings are “just right.”  Too little detail, and the claim can be dismissed as conclusory.  Too much detail, and the Plaintiff risks being inconsistent with the patent claims, in which case a court might conclude that there is no infringement.  The pleadings as to the two patents that were reversed on appeal in the Bot M8 decision are a good starting point as a model for the level of detail that passes muster. 

​In our last newsletter, we discussed the recent decision of the New York Court of Appeals in Freedom Mortgage Corp. v. Engel (2021), which contained two key holdings concerning the six-year statute of limitations as it applies to mortgage foreclosure cases.  The Engel court held (1) the filing of a foreclosure action accelerates all payments on a mortgage and starts the six-year clock for all payments and (2) the voluntary dismissal of the foreclosure action de-accelerates the mortgage, and stops the clock on future payments.

Since Engel, courts in New York have had to deal with new permutations of the statute of limitations in this context.  One open issue is whether termination of the foreclosure action other than through voluntary dismissal has the same effect of de-accelerating the payments.  The Second Department held it does not, while the Second Circuit, applying Engel, indicated in dictum that it would.
Another issue is what if the mortgagor files a foreclosure action, but never serves a summons and complaint on the owner.  The Second Department has held that this still accelerates the loan, and if six years pass, the claim would be time-barred.

Engel is considered a watershed case in the mortgage industry, and certainly has spawned much litigation.  As is the case with many watershed decisions, it resolved one set of issued but then spawned another.

What Kind Of Dismissal De-Accelerates The Loan?
Engel held that a voluntary dismissal of a foreclosure action ends the acceleration, and the statute of limitations clock begins anew on each payment.  What if the foreclosure action is dismissed involuntarily? 

In Everhome Mortgage Company v. Aber (2d Dept. 2021), the Appellate Division considered a foreclosure action where the mortgagor had brought a prior foreclosure action, but that had been dismissed by the court because counsel failed to appear at a court conference.  “[G]iven that the [first-action] acceleration of the mortgage debt was neither invalidated by the court nor revoked by the plaintiff, the Supreme Court properly determined that [the second] action is time-barred.”
In contrast, the Second Circuit in 53rd Street, LLC v. U.S. Bank National Association, (2d Cir. 2021) has indicated that such a dismissal could de-accelerate the mortgage.  There, the mortgagor brought a foreclosure action, and then assigned the note to another bank.  The court dismissed the action for non-appearance.  The new noteholder then sent several letters to the borrower “stating that the loan, which had been previously accelerated by [the] filing [of] a [foreclosure] lawsuit,” was “de-accelerated and re-instituted as an installment loan.”

The district court dismissed the suit as time-barred, but that was before the Engel decision, which was decided while the case was on appeal.  The Second Circuit vacated the dismissal and remanded for further consideration in light of Engel.

The borrower contended that under Engel, only a voluntary dismissal re-accelerates the loan.  The Second Circuit rejected that contention: 

"[T]he Engel opinion did not suggest that such a voluntary discontinuance is the only “affirmative act” that can successfully de-accelerate a mortgage. To the contrary, Engel expressly contemplated other “affirmative acts” that would suffice. See id. at 29, 146 N.Y.S.3d 542, 169 N.E.3d 912 (“For example, an express statement in a forbearance agreement that the noteholder is revoking its prior acceleration and reinstating the borrower’s right to pay in monthly installments has been deemed an ‘affirmative act’ of de-acceleration.”). If 53rd Street LLC’s interpretation of Engel were correct, a mortgagee whose foreclosure action was discontinued in any manner other than by voluntary withdrawal of its complaint—such as involuntary dismissal for some minor procedural issue—would have no way to de-accelerate the mortgage except to refile its foreclosure action for the sole purpose of then immediately withdrawing it. We see nothing in Engel that demands such wasteful formalism."

Given both the dismissal and the later letter to the borrower, there was an open question whether the second bank “clearly, unambiguously, and affirmatively communicated the de-acceleration of the loan within the limitations period.”  That was the issue the district court had to consider on remand.

Loan Accelerates Even If Summons Not Served
Suppose the mortgagor files a foreclosure action, but then never serves the summons and complaint or otherwise prosecute the action.  Does that accelerate the loan and start the statute-of-limitations clock running?

In Wilmington Savings Fund Society, FSB v. Rashed (2021), the Second Department held that it does.  There, the mortgagor brought three actions to foreclose.  The first was voluntarily dismissed.  In the second, it moved for default, but the Supreme Court denied that motion, because it failed to show the borrower had been properly served, a ruling affirmed by the Second Department. 

​In the third action, the Supreme Court dismissed the case as time-barred, which the Second Department affirmed.  Citing to Engel, it held that the mortgage had been accelerated, even though it has not been served on the borrower.   “[T]he subsequent commencement of the [second] action accelerated the loan anew regardless of whether the summons and complaint were served upon the defendants.”  Since the second action was never dismissed or withdrawn, the statute of limitations still ran, and the third case was time barred.

The lesson for lenders is clear:  don’t leave foreclosure actions pending.  If not proceeding with them, then formally dismiss them. 

A Los Angeles federal court issued a novel ruling about liability of social media influencers for trademark infringement. Petunia Products, Inc. v. Rodan & Fields (C.D.Cal. 2021) involved a standard trademark dispute between competitors in the cosmetics industry.   The trademark owner sued not only its competitor, but a social media influencer the competitor had hired to promote its product.  The district court denied the social media influencer’s motion to dismiss, holding that her actions constituted a “use in commerce” sufficient to hold her liable under trademark law.

Trademark owners should take note of another potential avenue to enforce their rights. Influencers and other social media promoters should also take note that in endorsing products, they may be exposing themselves to liability.

The Case
Petunia Products, Inc. owns the mark BROW BOOST for eyebrow conditioners, which it uses in connection with its “Billion Dollar Brows” eyebrow primer and conditioner product.  In mid-2020, Rodan & Fields, LLC (“R+F”), a competitor, began to sell a product called “Brow Defining Boost.”  Petunia Products had alleged that Rodan & Fields infringed its mark in various ways, including using its mark as an AdWord on Google’s service, and that it uses the hashtag #BROWBOOST to promote its competing product.

Molly Sims is a fashion model and media influencer who was hired by R+F to promote its allegedly infringing product.  She maintains her own website, where she promotes various fashion products. 
Sims authored a blog post in which she promoted the Allegedly Infringing Product and provided a link to R+F’s website, where the R+F product is available for sale. In the blog post, Sims opens by thanking R+F for sponsoring her post. She goes on to favorably review the Allegedly Infringing Product. At the end of the post, she includes a link to R+F’s website for those who want to “learn more about how to purchase Brow Defining Boost.” The end of the blog also includes an image of the Allegedly Infringing Product and its price.

The Court’s Ruling
A key issue on Sims’ motion to dismiss was whether she had made a “use in commerce” of the accused mark. The court held she did, and denied her motion, because commercial advertising falls within the scope of trademark law.  Her repeated use of images of R+F’s product, with its (allegedly) infringing mark, promotion and endorsement of the product, and links to R+F’s own site where the product could be ordered, all constituted use in commerce sufficient to bring her acts within the scope of the Lanham Act.   

This seems consistent with the Lanham Act, that subjects to liability any “use in commerce [of a confusing copy of a mark] in connection with the sale, offering for sale, distribution, or advertising of any goods or services . . .”  15 U.S.C. 1114(1).  Sims’ use appears to be a classic case of use of a mark in advertising.

The district court rejected Sims’ argument that such a ruling would stifle legitimate commentary, which would be protected by the First Amendment, because the case involved commercial promotion for pay, not merely independent review or product criticism. 

​The district court distinguished Bosley Med. Inst., Inc. v. Kremer, 403 F.3d 672, 676 (9th Cir. 2005), a case where someone used a company’s mark in the context of a website critical of the mark owners’ business.  There, the Ninth Circuit had emphasized that the accused website did not link to any commercial sites, did not offer any products or services, and did not contain any paid advertisement from any other commercial entity.  In the Molly Sims case, in contrast, her use of the accused mark was clearly part of a paid advertising campaign, and linked to a site that offered the accused product.

Implications
The use of social media influencers has exploded in the last several years, and many companies have exploited its marketing power.  Celebrities and other people with influence have likewise taken advantage of this new opportunity.  Both should be aware of the potential exposure to liability.  Influencers, for example, may wish to negotiate indemnification provisions in case of being accused of infringement.

​Trademark and other intellectual property owners should also be aware of another possible weapon in their enforcement arsenal.  

​The Supreme Court recently issued its long-awaited decision in Google LLC v. Oracle America, Inc. (2021), a copyright infringement case dealing with portions of Oracle’s highly successful Java programming software.  The Court assumed, without deciding, that the portion taken was copyrightable, but held that Google’s copying and use of it was a “fair use,” and hence not liable for infringement.

The Court’s fair-use analysis seems to break new ground in considering several of the four statutory fair-use factors.  But the opinion emphasized that it did not intend to “overturn or modify our earlier cases involving fair use” and that the unique nature of software in general, and the particular kind of software used by Google, led to the result, which could be very different in other copyright cases.
So, will the Google decision cause a sea-change in fair-use cases, or will it simply be ignored outside a narrow set of copyrighted works?  That remains to be seen.  In a recent Second Circuit case involving artwork by the late Andy Warhol, the plaintiff already petitioned for rehearing based on the Google decision. So we may soon learn the extent that the Google decision affects copyright law.

The Copying At Issue In Google

The case involves a type of software called an API, which stands for  Application Programming Interface.  It allows computer programmers to use pre-written code to build certain functions into their own, new programs.  This can be an enormous time saver, as a good API can call on a library of thousands of functions.

There are different parts of the API.  One part, termed the implementing code, tells the computer how to perform the function.  The programmer then uses “method calls” to call the particular desired function by name.  An intermediate part of the program, termed “declaring code,” connects the method calls to the implementing code, acting as a kind of address to inform the computer where the relevant implementing code can be found.

Google did not copy any implementing code.  It wrote most of its own declaring code as well, but copied a portion of Oracle’s copyright declaring code.  It used the declaring code to create the Android platform, an environment that allows programmers to create Apps that are used on smartphones utilizing the Android program. 

The Court’s Fair-Use Analysis

​As would be expected, the Court considered the four fair-use factors set out in the statute, 17 U.S.C. 107.  But the way it treated certain of the factors seems to deviate from prior opinions.

Uncharacteristically, the Court first considered the second factor, the “nature of the copyrighted work.”  It emphasized that not only was the portions of Java copied by Google highly functional, but they were “inherently bound together with uncopyrightable ideas (general task division and organization) and new creative expression (Android’s implementing code).”  Furthermore, much of the value of this part of the code lay not in its inherent creativity, but in the fact that Oracle encouraged programmers to become familiar with, and want to use, this particular set of commands.  All of this meant that the copyright owned by Oracle was “thin.”

On the first factor, the “purpose and character of the use,” the Court noted that this factor looks to whether the second user “adds something new, with a further purpose or different character, altering” the copyrighted work “with new expression, meaning or message.”  Google used Oracle’s declaring code to create “new products,” i.e., a programming medium for smartphones, an area of technology that Oracle had never entered.

On the third factor, “amount and substantiality of the portion used,” the court held this favored Google, because it only copied a very small percentage of the overall Java code.
Finally, turning to the fourth factor, “market effects,” the Court held (1) that Oracle’s own market was not affected, because it had never entered the market for programming of smart phones and (2) that there has to be a balancing of the public good from the use against the lost revenue.

A notable aspect of the decision is that the court emphasized that the fair use concept is “flexible, that courts must apply it in light of the sometimes conflicting aims of copyright law, and that its application may well vary depending upon context.”  The purpose of the Copyright Act is to foster and encourage creativity, and where copyright protection stifles that, courts should bend fair use so that copyright accomplishes its goal. 

Each of these seems to break new ground in fair-use law.  For example, one can discern a gestalt consideration that hovers above the four fair-use factors – will finding that the accused party’s use is “fair,” and hence not infringing,  inhibit or foster creativity?  If a court is convinced that denying fair use will stifle creativity, it should lean towards finding fair use.

Similarly, that Google used the very same type of expression (computer declaring code) simply to create a new product (smartphone programming platform), would until now generally not be thought of as transformative under the first factor. 

The Andy Warhol Case

Less than two weeks prior to Google, the Second Circuit decided The Andy Warhol Foundation for The Visual Arts, Inc. v. Goldsmith (2021), in which the Second Circuit rejected a fair-use defense in a case involving the late Andy Warhol’s use of a copyrighted photograph of Prince to create a piece of artwork.  After the Google decision came out, the Andy Warhol Foundation wasted little time in moving for rehearing, arguing that the Supreme Court decision required a different outcome.  Not surprisingly, the photographer opposed, arguing that the Google decision should be limited to software, as the Court seemed to hint.

So in short order, one federal appeals court may decide how much of an effect the Google decision will have on copyright law outside the context of software.

As e-commerce retailer behemoth Amazon continues to expand its share of the online market, so too do the legal issues created by its platform.  A recent New York trial court decision, State Farm Fire and Casualty Company v. Amazon.com Svcs. Inc., 70 Misc.3d 697 (2020) weighed in on one issue:  whether Amazon is liable under product liability law for defective products sold by third-party sellers on its platform.  Siding with the plaintiff, it ruled that because Amazon exercises significant control over products sold on its platform and distributed through its warehouses, it could be held liable under New York law for distributing the defective product.

This issue has divided courts throughout the country.  Many courts have held that because Amazon does not take title to the products sold on its platform by third party sellers, it is not a “seller” and thus cannot be held liable for the product if it turns out to be defective.  But other courts, including a Third Circuit opinion applying Pennsylvania law, and an intermediate California appellate court, have held that because Amazon exercises significant control over what is sold on its platform and distributed through its warehouses, it can be held liable under products liability law.

These decisions may also have implications for intellectual property cases, particularly counterfeits and other trademark infringements.

The State Farm Case

The case involved a thermostat purchased on Amazon, whose alleged defect caused a fire in a home.  State Farm, as subrogee of the home owner, brought a products liability claim against Amazon.  The thermostat was sold by a third-party seller on Amazon.  In such cases, Amazon does not take title to the product.  However, the seller has to register with Amazon, and the product must be approved for sale.   In addition, many third-party sellers use Amazon’s Fulfillment Services, whereby a quantity of product is sent to Amazon’s warehouse, which then fills the order after it is placed on the website.

Amazon moved for summary judgment, arguing that because it did not take title it cannot be held liable for distributing the defective product.  The trial court, however, rejected that argument.  It first noted that New York common law looks to hold the parties in the best position to maintain product safety.  As New York’s highest court held:

Where products are sold in the normal course of business, sellers, by reason of their continuing relationships with manufacturers, are most often in a position to exert pressure for the improved safety of products and can recover increased costs within their commercial dealings, or through contribution or indemnification in litigation; additionally, by marketing the products as a regular part of their business such sellers may be said to have assumed a special responsibility to the public, which has come to expect them to stand behind their goods.

Sukljian v. Charles Ross & Son Co., 69 N.Y.2d 89, 95, 503 N.E.2d 1358 (1986).

The State Farm court then noted that Amazon exercises tight control both over what may be sold on its website and what may be distributed through its Fulfillment Services warehouse network.  “Viewing these facts in the light most favorable to Plaintiff, Amazon exercises sufficient control over the product to be considered among ‘retailers and distributors’” who are strictly liable for defective products.

Other Courts

The State Farm court appears to be a more recent trend in product liability law.  For some time, many courts sided with Amazon and held that the fact that it does not take title means it is not a “seller” and hence had no liability.  But more recently, a few courts have ruled the other way.  In Oberdorf v. Amazon.com Inc., 930 F.3d 136 (3d Cir. 2019), the Third Circuit predicted that Pennsylvania would impose liability on Amazon.  That opinion was later withdrawn and the question certified to the Pennsylvania Supreme Court; the case was settled before that court could take up the issue.  Courts in Wisconsin and California have also ruled against Amazon.  State Farm Fire and Casualty Company v. Amazon.com, Inc., 390 F.Supp.3d 964 (W.D. Wisc. 2019); Bolger v. Amazon.com LLC, 53 Cal. App. 5th 431, 267 Cal. Rptr. 3d 601 (Cal. Ct. App. 2020), rev. denied, No. S264607 (Cal. 2020).

What these courts focus on is Amazon’s close involvement in and control of the third-party sellers’ market, including policies about what may be sold on the platform, customer service requirements, and pricing requirements.  For those third-party sellers who use Amazon’s Fulfillment Services, there are additional controls and restrictions.  And, Amazon takes a hefty percentage of the sales as a commission.

Implications For Intellectual Property Cases

Such decisions may also have an indirect impact on counterfeiting and other trademark cases.  Amazon has a very negative reputation among brand owners for having large numbers of counterfeits and other infringements.  While Amazon does have a counterfeiting takedown program, many brand owners consider the effort half-hearted at best.

Trademark law distinguishes between direct and secondary liability.  Someone who sells a counterfeit or infringing item is strictly liable for infringement.  A party that merely aids another in selling is only contributorily liable – and that requires a showing that the party knew that item was counterfeit and gave substantial assistance to the primary infringer.  That is a much more difficult showing.
Amazon has always insisted it cannot be held directly liable, for similar reasons as it has advanced in products liability cases. 

The Trademark Act holds liable any person who uses a trademark in commerce “in connection with the sale, offering for sale, distribution, or advertising of any [counterfeit or infringing] goods or services.”  Given the close control that Amazon exerts over products sold through its platform, it is likely that brand owners will argue that Amazon is using the trademarks contained in the offerings on its platforms in connection with “distribution or advertising.”  The decisions of courts like State Farm, though in a different legal context, give weight to such arguments.