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NewsletterThe Dispatch April 1997 In this issue:
US Supreme Court Okays Expansive Reading of Patents, Jury Role But Forces Closer Attention to Claim Language The Doctrine of Equivalents the legal principle by which patent claims can be read to extend beyond their literal terms is alive and in fairly good health, following a decision on March 3 by the U.S. Supreme Court in the case of Warner-Jenkinson Co. Inc. v. Hilton Davis Chemical Co. The Court of Appeals for the Federal Circuit had held in the decision below that the application of the Doctrine of Equivalents is a question for the jury, and the Supreme Court left this ruling undisturbed. On the other hand, in the case of Markman v. Westview Instruments, Inc., the Supreme Court last year affirmed the Federal Circuit in finding that the interpretation of the literal scope of patent claims is a question for the judge. The petitioner in Warner-Jenkinson argued that the Doctrine of Equivalents should be abolished or that, if it is not abolished, then at least it should be a question for the judge, and not for the jury. The Supreme Court ruled otherwise. It upheld the Doctrine of Equivalents, but prescribed a more restrictive view of the Doctrine, to address the concern that the Doctrine "has taken on a life of its own, unbounded by the patent claims." Accordingly, the Court held that the Doctrine of Equivalents can be applied only if each element of a patent claim has an equivalent in the item that is accused of infringement, and the Doctrine cannot simply be applied "to the invention as a whole." In addition, the Court said that the Doctrine of Equivalents could also be limited by the rule of "prosecution history estoppel" (sometimes called "file wrapper estoppel"). Under this rule, as defined by the Court, when the claims of a patent include wording that has been changed from the wording when the claims were first introduced in the application process, the change in the wording would be presumed to relate to patentability. Unless the patent owner can show that the wording change was for a different reason, the patent owner would be prevented from recapturing (via the Doctrine of Equivalents) subject matter given up as a result of the wording change. Although the principle of prosecution history estoppel has been invoked over many years to limit the Doctrine of Equivalents, the presumption in favor of applying it was newly introduced by the Court in Warner-Jenkinson. Who determines whether to apply the Doctrine of Equivalents the judge or the jury? The Court declined to rule explicitly on this question. It did say, however, that nothing in its previous Markman decision is inconsistent with the ruling below that the Doctrine of Equivalents is a question for the jury. The Court's decision in Warner-Jenkinson has important strategic implications. In patent litigation, the Doctrine of Equivalents will remain, for the present, a question for the jury under Federal Circuit authority. In addition, greater attention to the language in patent claims will be required as a result of the element-by-element equivalence requirement. Similarly, the prosecution history of a patent will be more frequently invoked and scrutinized in connection with the prosecution history estoppel defense. In patent prosecution, the skill of a patent attorney will be challenged in seeking to establish a record in the patent application file that any wording changes were made for reasons other than "patentability," so as to avoid the presumption of prosecution history estoppel articulated by the Court in case the patent becomes the subject of litigation.
Bruce Sunstein provides strategic advice for development and enforcement of intellectual property rights and for structure and implementation of technology-based business transactions. Tax Developments In-State Use Of Intellectual Property Can Subject An Out Of State Corporation To State Taxation The Massachusetts Department of Revenue has adopted a ruling (DOR Directive 96-2) which states that the use of a foreign corporation's intangible property within Massachusetts may subject the corporation to the Massachusetts corporate excise tax when the use generates gross receipts through a purposeful activity, and the corporation's presence within Massachusetts is more than de minimus. For the purpose of this ruling, intangible property includes copyrights, patents, trademarks, trade names, trade secrets, service marks and know-how, but excludes "canned" software. Thus, an out-of-state corporation licensing a trademark or technology to an in-state business may subject itself to Massachusetts corporate excise tax if payments (such as royalties) are made for the use of that intangible property. Approximately 10 other states have adopted similar policies, which may subject out-of-state corporations (including those based in Massachusetts) to taxation there. Federal "Check The Box" Regulations For Business Entities The IRS has adopted its proposed "check the box" regulation, which addresses the tax classification of non-corporate entities such as LLC's and limited partnerships. Under the regulation, which became effective on January 1, 1997, most newly formed entities having two or more members will automatically be deemed to be partnerships for federal income tax purposes. They may, however, elect to be treated as corporations by filing a form 8832 (Entity Classification Election). Single member entities will not be treated as separate tax payers unless an election is filed. Elections must be filed at the time of entity formation. Once made, an election may not be changed for five years. If a change is made, the entity and its owners must recognize any gain under the rules applicable to corporate liquidations. Special rules apply to entities formed under the laws of foreign countries and certain specialized entities such as REITS and insurance companies.
Tom Carey focuses his practice on advanced technology, media, and commercial real estate companies. Intensified Federal Health Care Regulation While the Congress has been unable to resolve universal health care issues or long term funding of the Medicare program, it has addressed significant health care issues during the last year. In part, this renewed attention to health care reflects election year concerns. It also reflects growing interest in the managed care initiatives of health maintenance organizations. Most notable is the bipartisan legislation sponsored by Senators Edward Kennedy and Nancy Kassebaum and now enacted. Their Health Insurance Portability and Accountability Act of 1996, PL 104- 191, provides important safeguards to workers who lose or change jobs. The Kennedy Kassebaum law amends ERISA and COBRA. It extends worker rights to continuing coverage after leaving work and protects workers upon joining new health care programs when they change jobs. Generally, the law prohibits a group health care program, whether insured or self-insured, from excluding coverage for preexisting health conditions. These "portability" provisions target commercial insurance programs and some self-insured programs which have routinely excluded health care coverage for employees and dependents with pre-existing health conditions. The Congress has also enacted significant changes in mental health care benefits. The Mental Health Parity Act of 1996, PL 104-204, addresses historic disparities in coverage for mental health care services. Beginning in 1998, group health care programs, insured or self-insured, will be required to move towards equalization of benefits for mental health care services with those for medical and surgical services. However, it is far from clear that the new law will have immediate impact because it contains a "bail-out" provision if the costs for equalization coverage exceed one percent of health care plan costs. This year, the Congress will continue its focus on health care issues. A comprehensive "Health Insurance Bill of Rights Act", S.373, has been filed in the Senate. This legislation addresses issues which have been the source of repeated dispute and criticism for managed care programs. If enacted, S.373 will establish federal standards and enforcement for access to emergency care and health care specialist, quality assurance and utilization review programs, protection of patient confidentiality, and resolution of patient grievances. The legislation applies only to insured programs and does not reach self insured plans. In most respects, S.373 codifies the best practices already followed by fully accredited health maintenance organizations. At the same time, it significantly expands patient access to emergency care and investigational treatments for life-threatening disease. Also, the legislation provides for greater patient control over choice of health care providers and mandates a progressive, three-step grievance process for resolution of disputes. Finally, S.373 mandates quality assurance, credentialing, data collection and reporting, and utilization review programs which meet national accreditation standards. Since health care remains a fundamental societal concern, S.373 will be a focal point for political debate and discussion. It is likely that key provisions of this legislation will be enacted in the current session of the Congress.
Ed Dailey's practice concentrates on legal and strategic business issues in the health care industry. Massachusetts Trade Secrets Legislation Introduced Representative Paul C. Casey recently introduced the Massachusetts Uniform Trade Secrets Act (the "Act"). The Act is based on the Uniform Trade Secret Act, which has been adopted in 40 states. If enacted, the Act will add Chapter 93G to the General Laws and eliminate Chapter 93A as a source of recovery for the misappropriation of trade secrets. The Act will not supplant criminal penalties for the misappropriation of trade secrets or civil remedies based on breach of contract. The Act makes it unlawful for a person to divulge or use a trade secret that is either wrongfully acquired or acquired under circumstances (such as an employment relationship) giving rise to a duty not to divulge. In addition, the Act prohibits a third party from acquiring a trade secret if he or she knows or has reason to know it is being wrongfully disclosed. The Act recognizes the growing importance of trade secrets and is intended to define and codify the common law of trade secrets. By providing specific remedies, damages, and attorney fee recoveries for trade secret violations, the Act encourages enforcement of trade secret rights. Judicial relief for misappropriation of a trade secret under the Act includes an injunction to prohibit future misappropriation, actual damages, and in the case of willful and malicious misappropriation, exemplary damages in an amount not exceeding twice the amount of any actual damages awarded and attorney fees. Damages consist of the actual loss caused by the misappropriation and, to the extent that the trade secret owner is not made whole, the misappropriator's unjust enrichment. Attorney fees may also be awarded to either party if the court finds that the other party brings or defends a trade secret misappropriation claim or seeks or resists a preliminary Injunction In bad faith.
Julia Huston concentrates her practice in litigation and prosecution of trademarks. The Dispatch is not legal advice. For legal assistance or further information, please call the lawyer with whom you regularly deal at our firm or the authors of these articles. |
