Management Chapter 11 Heads Content providing Industries Would Wise Propose Legislative

Chapter Eleven

Intellectual Property

A MANAGER’S DILEMMA: PUTTING IT INTO PRACTICE

A Patent For Your Thoughts

Issues Presented: (a) Was it legal, and was it ethical, for CTI and Metabolite to acquire the

CTI patent and seek to enforce it against LabCorp, even when LabCorp was not using the

tests described in the patent, on the basis that LabCorp induced its customers to infringe

Claim 13 of the patent? (b) Was it legal, and was it ethical, for LabCorp to encourage doctors

to order diagnostic tests for measuring homocysteine levels?

(a) In the U.S. District Court for the District of Colorado, a jury found that LabCorp

indirectly infringed Metabolite’s patent and that LabCorp partially breached its contract with

Metabolite. Based on this verdict, the district court assessed damages of $3.6 million for breach

The U.S. Supreme Court accepted certiorari to determine whether the patent claim was

invalid on the ground that it improperly sought to ficlaim a monopoly over a basic scientific

relationship.” Specifically, Question Three of the petition for certiorari asked fi[w]hether a

method patent . . . directing a party simply to ‘correlate’ test results can validly claim a

monopoly over a basic scientific relationship . . . such that any doctor necessarily infringes the

patent merely by thinking about the relationship after looking at a test result.” However, the

Justice Breyer concluded that the Federal Circuit’s decision in this case could discourage

research by impeding the free exchange of information by leaving the medical profession

subject to restrictions imposed by this individual patent and by similar patents:

Those restrictions may inhibit doctors from using their best medical judgment;

Laboratory Corp. of America Holdings v. Metabolite Laboratories, Inc., 548 U.S. 124

(2006). Even though CTI’s and Metabolite’s actions were upheld as a matter of law,

responsible managers should consider the issues raised by Justice Breyer in his dissent

as they consider the ethics of pursuing an action like the one filed by CTI and Metabolite

against LabCorp.

A 2012 decision by the U.S. Supreme Court suggests that the Metabolite case is no longer

good law. In a unanimous opinion written by Justice Breyer, the Court explained: fi‘Phenomena

The case involved patents concerning the use of thiopurine drugs in the treatment of

autoimmune diseases, such as ulcerative colitis, and embodied the findings that concentrations

fiA method of optimizing therapeutic efficacy for treatment of an immune–

mediated gastrointestinal disorder, comprising:

Prometheus Laboratories was the sole and exclusive licensee of the patents at issue.

Although Mayo initially used Prometheus’ diagnostic tests to determine toxicity, it announced

its intent to use and sell its own test. Prometheus then sued for patent infringement.

The Court found the patents invalid:

Beyond picking out the relevant audience, namely those who administer doses of

thiopurine drugs, the claim simply tells doctors to: (1) measure (somehow) the

(b) The district court and the court of appeals held that LabCorp’s action in selling the

Abbott test constituted indirect, infringement of Claim 13 of the Metabolite patent. It cited

Section 271(b) of Title 35, which provides: fiWhoever actively induces infringement of a patent

QUESTIONS AND CASE PROBLEMS

Question 1

Issue Presented: Which of the patent claims at issue involve patent-eligible subject matter?

The court in Association for Molecular Pathology v. U.S. Patent & Trademark Office, 653 F.3d

1329 (Fed. Cir. 2011), first determined that the DNA sequences were not patent-ineligible

products of nature under Section 101 of the Patent Act since the molecules as claimed did not

exist in nature. The court explained:

The distinction, therefore, between a product of nature and a human-made

. . .

Native DNA exists in the body as one of forty-six large, contiguous DNA

molecules.

. . .

Isolated DNA, in contrast, is a free-standing portion of the native DNA molecule,

frequently a single gene. Isolated DNA has been cleaved (i.e., had covalent bonds

The court next concluded that Myriad’s claims to comparing DNA sequences was too

abstract to patent:

The court determined, however, that the method for screening potential cancer

therapeutics includes transformative steps that are patentable subject matter under Section 101.

The court explained:

Starting with the machine-or-transformation test, we conclude that the claim

includes transformative steps, an fiimportant clue” that it is drawn to a patent–

eligible process. Specifically, the claim recites a method that comprises the steps

. . .

Furthermore, the claim is not so fimanifestly abstract” as to claim only a scientific

principle, and not a patent-eligible process. The claim does not cover all cells, all

compounds, or all methods of determining the therapeutic effect of a compound.

Rather, it is tied to specific host cells transformed with specific genes and grown

Question 2

Issues Presented: Under what circumstances is an Internet service provider required to

monitor and remove infringing content uploaded to its site? What ethical considerations

come into play?

YouTube’s ability to monitor its users for copyright infringement and remove infringing

material does not automatically equate to an obligation to do so. Instead, a fiservice provider”

need only identify an agent to receive complaints of infringement, and remove identified

material when he learns it infringes. This principle applies regardless of the amount of traffic

Although legally a service provider need not actively seek out infringement (absent the

above circumstances), it may be unethical to do so if the provider has general knowledge that

such infringement occurs on its site. YouTube has attempted to avoid this ethical dilemma by

implementing its fiClaim Your Content” system, which uses a fingerprinting tool to remove an

offending video automatically if it matches some portion of a reference video submitted by a

copyright owner. It also removes a video if the rights-holder manually requests the video to be

removed. Heads of content-providing industries would be wise to propose legislative changes

mandating (or heavily incentivizing) such active measures.

Question 3

Issue Presented: Does Section 514 of the Uruguay Round Agreements Act (URAA) violate the

Copyright Clause of the Constitution?

The U.S. Supreme Court held in Golan v. Holder, 132 S. Ct. 873 (2012), that Congress did

not violate the Copyright Clause by enacting Section 514 of the URAA. Petitioners were

orchestra conductors, musicians, publishers, and others who formerly enjoyed free access to

works that Section 514 removed from the public domain.

Petitioners first argued that the Clause’s confinement of a copyright’s lifespan to a

filimited Tim[e]” prevents the removal of works from the public domain. In rejecting this

Question 4

Issue Presented: What factors should a manager consider when selecting a trademark?

In choosing a trademark for a new product, the manager should be aware of the tension

between the desire to generate maximum immediate consumer recognition for the product

being marketed and trademark law, which awards greater protection to marks that are arbitrary

or suggestive than to those that are merely descriptive. The new tracking device could be

Question 5

Issue Presented: Can MGA establish that Mattel stole its trade secrets?

In 2011, the jury found that Mattel stole MGA’s trade secrets when Mattel employees

obtained entrance to MGA’s showrooms at toy fairs by using phony business cards. It awarded

MGA $172.5 million in damages and fees. Mattel appealed in 2012 to the U.S. Court of Appeals

for the Ninth Circuit, stating that it was not appealing the ruling that MGA did not infringe

Question 6

Issues Presented: (a) When does a private label/store brand infringe a national brand’s trade

dress? (b) What steps can a private/store brand label take to avoid a finding of trade dress

infringement?

(a) McNeil Nutritionals, LLC v. Heartland Sweeteners, LLC, 511 F.3d 350 (3d Cir. 2007),

provides some guidelines for when a private label/store brand will be found to infringe a

national brand’s trade dress. In this case, McNeill Nutritionals sued Heartland Sweeteners,

(b) The Third Circuit affirmed the district court’s finding that the Food Lion and

Safeway store-brand boxes were not infringing. The differences between these products and

the Ahold products provide some insight into what a private label/store brand manufacturer

can do in order to differentiate its products sufficiently from a national brand to avoid a finding

of trade dress infringement:

(1) The court found that the yellow color was not itself sufficient to establish similarity.

(4) The Food Lion product name is not surrounded by a cloud. Each letter in the

Safeway product name is surrounded by a white shadow, but not all together by a

cloud.

Question 7

Issue Presented: (a) What factors should a venture capitalist consider when deciding whether

to invest in a peer-to-peer technology firm? (b) What factors should a film company take into

account when deciding whether to give the technology firm a license to sell its films?

(a) When deciding whether to invest, the venture capitalist should consider (1) whether

BitTorrent can monetize its technology and (2) the risk that BitTorrent and its venture capitalist

might be liable for copyright infringement. To monetize its technology, BitTorrent will need to

persuade content providers and other users to authorize the use of its technology to transfer

(b) Although the BitTorrent technology can be used for infringing uses, it offers a

solution to the film industry’s challenge of finding a way fito compete with free” by making it

Question 8

Issue Presented: Will a fair use defense shield an organization engaged in criticism of

standardized tests from posting data owned by the testing authorities?

FairTest has a variety of responses available to meet the College Board’s challenge. First,

for expression that is primarily fact-based or has little creativity embedded in its creation. Here,

a court could view the SAT and ACT score data as mere facts, not eligible for copyright

protection under Feist Publications, Inc. v. Rural Tel. Serv. Co., 499 U.S. 450 (1991).

Here, the purpose of FairTest’s use of the score data is to criticize testing techniques and

methods; criticism is a favored purpose under copyright law, and this factor would cut in favor

of FairTest. Regarding the second factor, not all copyrighted works receive the same level of

protection. Here, the factual nature of the score data, with little creative or expressive elements,

suggests a court would grant it thin copyright protection, which would again cut in favor of

FairTest. The third factor starts with a determination of what the fiwork” at issue is: the larger