The House IP Subcommittee’s “Artificial Intelligence and Intellectual Property: Part I—Interoperability of AI and Copyright Law” hearing has two former General Counsels of the US Copyright Office squaring off over whether using copyrighted works to train artificial intelligence (AI) models would qualify as a fair use of those works under US copyright law. Sy Damle, (2016-2018 General Counsel) testified that “the training of AI models will generally fall within the established bounds of fair use.” (S. Damle introductory statement, Tr. pg. 6). This testimony prompted Jon Baumgarten (1976-1979 General Counsel) to issue a letter to the Subcommittee contesting Damle’s assertion, emphatically stating that “I could not disagree more regarding Mr. Damle’s categorical treatment of fair use.” (emphasis original). Baumgarten asserted that “the question of fair use is subject to detailed analysis of various factors in each case,” (emphasis mine) and cited as support SCOTUS’s recent decision in Warhol Foundation v Goldsmith.
Licensing vs. Franchising: Are You Accidentally Creating a Franchise?
A trademark license may seem straightforward. It is an arrangement that gives a licensee the right to use the licensor’s mark in some manner for some amount of time, with the licensor exercising quality control over the goods offered and services rendered under the mark. Since a license is like any other contract, the licensor can add any number of conditions to the agreement, right? Not necessarily. This could inadvertently create a franchise and subject you to civil and criminal penalties.
What is a franchise?
From a 5,000-foot view, a franchise involves one party allowing another to use its brand, which may include products and services, intellectual property, and sometimes more, in exchange for a fee. Under 16 CFR § 436.1(h) (the FTC Rule), “a franchise” means “any continuing commercial relationship or arrangement” where (1) the franchisee will obtain the right to operate a business that is associated with the franchisor’s trademark, (2) the franchisor may provide assistance with or has authority to exert control over the operation of the business, and (3) the franchisee is required to pay a fee to the franchisor. Some recognizable franchises are McDonald’s, KFC and Taco Bell. Note that some courts have found that provisions specifically disclaiming franchise status are not dispositive of the status of the parties’ relationship. Unlimited Prepaid, Inc. v. Air Voice Wireless LLC, 2018 WL 6303852 (C.D. Cal. Sept. 28, 2019). In other words, it matters what it is, not what you call it. Also note that each state may have its own franchise laws.
How does a license differ from a franchise?
The big differences include (1) what the grantor is bringing to the table, (2) control over the business, (3) the type of business and (4) legal regulations. For a franchise, the franchisor is typically providing more than just a trademark, such as a business model and support. However, as you might imagine, the business model typically runs hand in hand with the franchisor’s ability to control the business. In other words, the franchisee is required to operate the business in a certain manner in order to keep up their end of the bargain. As you might imagine, franchises usually involve the sale of a product rather than a service, but that’s not always the case. Finally, a franchise is subject to many more regulations than a license because it involves much more than a trademark.
What could happen if someone creates an accidental franchise?
Since the Federal Trade Commission is entrusted with enforcing the FTC Rule, it has the ability to seek injunctive relief and civil penalties of $11,000 per violation. 15 U.S.C. § 45(m)(1)(A). Under some state statutes, an accidental franchise could constitute a misdemeanor or even a felony. See, e.g., Alaska Stat. § 45.66.210(a) (2009); Fla. Stat., Ch. 559, § 559.815 (2006); and Ind. Code tit. 24, Art. 5, Ch. 8, § 19 (2006).
In terms of a civil action, among other causes of action, a licensor may be subject to claims for fraud or deceptive trade practices. Rodopoulos v. Sam Piki Enterprises, Inc., 570 So.2d 661 (Ala. 1990); KC Leisure, Inc. v. Haber, 972 So.2d 1069, 1074 (Fla. 5thDist. Ct. App. 2008).
How does someone find themself in an accidental franchise?
Typically, this issue comes to light during litigation between the parties to the agreement or during due diligence surrounding the purchase of a company. Litigation might arise because the arrangement falls short of the licensee’s expectations or the licensor terminates the license without cause as permitted by the agreement.
How can someone avoid an accidental franchise?
Generally, it is best to avoid requirements that allow a licensor to have influence or control over the licensee’s business. But it is best to take a look at the FTC Rule and any applicable state rules to see whether a proposed arrangement would violate any of them.
Will the Supreme Court Reevaluate the Subject Matter Eligibility of Diagnostic Claims?
Since the Supreme Court’s decisions in Mayo Collaborative Servs. v. Prometheus Lab’ys, Inc., 566 U.S. 66 (2012), and Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 573 U.S. 208 (2014), “diagnostic” patent claims have repeatedly been held to be directed to patent-ineligible subject matter by the U.S. Patent and Trademark Office (PTO) and courts. In a 2022 decision by the Federal Circuit, for example, the court affirmed a district court’s ruling that claims to noninvasive detection of graft rejection in transplant patients were ineligible under Section 101 because they were directed to the detection of a natural phenomenon/natural law using only conventional techniques. CareDx, Inc. v. Natera, Inc., 40 F.4th 1371, 1381 (Fed. Cir. 2022). And although the Supreme Court has on a number of occasions declined to reevaluate the contours of Section 101, including the subject matter eligibility of diagnostic claims, the CareDx, Inc. v. Natera, Inc. case may have piqued the Court’s interest.
Now What? The Supreme Court Addresses Enablement
What do telegraphic communications, incandescent lamps, wood veneering glues, and antibodies have in common? Nothing. That is of course, until May 18, 2023, when the Supreme Court ruled that Amgen’s antibody claims, like Morse’s telegraphic communication claims, Sawyer’s and Man’s incandescent lamp claims, and Perkins’ wood veneering glue claims, were invalid for lacking enablement. Although the Court did not have its own biologic or even life science-related precedent to rely upon, the Court found similarities in its previous decisions involving these disparate technologies. According to the Court, for example, “[m]uch as Morse sought to claim all telegraphic forms of communication, Sawyer and Man sought to claim all fibrous and textile materials for incandescence, and Perkins sought to claim all starch glues that work as well as animal glue for wood veneering, Amgen seeks to claim ‘sovereignty over [an] entire kingdom’ of antibodies.” Amgen Inc. v. Sanofi, No. 21-757, 2023 WL 3511533, at *10 (U.S. May 18, 2023) (quoting Consol. Elec. Light Co v. McKeesport Light Co, 159 U.S. 465 at 475). And according to the Court, “[i]f a patent claims an entire class of processes, machines, manufactures, or compositions of matter, the patent’s specification must enable a person skilled in the art to make and use the entire class.” Amgen Inc., 2023 WL 3511533, at *9. But what does it mean to enable an “entire class”?
Federal Circuit Inventorship Decision Literally Saves the Appellant’s Bacon – and Reiterates the Framework for Assigning and Analyzing Inventorship
In HIP, Inc. v. Hormel Foods Corporation (May 5, 2023), Judges Lourie, Clevenger and Taranto of the U.S. Court of Appeals for the Federal Circuit addressed a claim of joint ownership and – in a unanimous precedential decision – reaffirmed the framework for determining the degree of contribution that an individual must make in order to qualify as an inventor.
United States patent no. 9,980,498 (Hybrid Bacon Cooking System) is owned by Hormel and relates to methods of precooking bacon and other pieces of meat that improve the flavor and overall quality. Independent claim 5 of the ’498 patent provides the following:
The Judicial Response to Eligibility Post-Hantz
On March 20, the United States Court of Appeals for the Federal Circuit issued a short non-precedential opinion that, among other things, found that a motion to dismiss based on patent ineligibility under 35 U.S.C. § 101 extended only to claims explicitly addressed in the operative complaint. See Hantz Software, LLC v. Sage Intacct, Inc., No. 2022-1390, 2023 WL 2569956, at *1 (Fed. Cir. Mar. 20, 2023). My esteemed colleague already addressed this seemingly minor but practically important opinion. See Alaina J. Lakawicz, The Scope of Eligibility, IP Intelligence (Mar. 28, 2023).
But how have district courts responded to this opinion? And what, if any, strategies can parties use going forward?
World IP Day
We celebrate World IP Day this year on April 26, commemorating 53 years of the World Intellectual Property Organization (WIPO) Convention’s implementation. This year’s theme is “Women and IP: Accelerating Innovation and Creativity.” Women inventors and creators have shaped our world, developing new drugs, medical devices, industrial chemicals and technology. While women make up nearly half of the world’s population, WIPO estimates that in 2022, only 16 percent of international patent application inventors were women. That innovation gender gap is closing, and companies having at least one woman founder were involved in over 3,000 deals, valued at about $35 billion, last year.
On World IP Day this year, the U.S. Patent and Trademark Office (USPTO) is hosting “The Value of Her IP.” The program will feature women inventors, creators and business owners who will discuss the difficulties and rewards associated with creating, protecting and defending their intellectual property. ChIPs (Chiefs in Intellectual Property is hosting a webinar featuring Kathi Vidal, director of the USPTO. WIPO sponsors several programs, including mentoring programs and online courses, to assist women in successfully implementing an IP strategy.
BakerHostetler has the privilege of advising countless women inventors and entrepreneurs whose ingenuity continues to inspire us. We are proud to celebrate them on this year’s World IP Day.
 https://pitchbook.com/news/articles/2022-female-founders-year-in-review; https://pitchbook.com/news/articles/the-vc-female-founders-dashboard.
The Other ‘Maybe’ Authors: Copyright Ownership for AI Trainers
Discussions held over the past several months regarding authorship of AI-generated works have suffered from at least two things—1) an outsized focus on whether the users of commercially available generative AI (GAI) can own the content returned to them by the AI software, and 2) an outsized focus by the Copyright Office on a need to predict the results of AI and purposely control every detail of the output. This creates a major problem. There are other types of AI beside GAI, and corporations and other stakeholders throughout multiple industries have been using them for years.
Incorporated References Can Be Used in an Anticipation Rejection
A claim is said to be anticipated when a single prior art reference discloses, either expressly or inherently, each and every limitation of the claim. But what happens when a prior art reference discloses some aspects of the claimed invention and incorporates by reference additional prior art references that disclose other aspects of the claimed invention? According to the Federal Circuit, the prior art reference together with its incorporated references can anticipate the claims. Arbutus Biopharma Corp. v. ModernaTX, Inc., No. 2020-1183, 2023 WL 2876820 (Fed. Cir. Apr. 11, 2023).
Arbutus Biopharma Corporation (Arbutus) is the owner of U.S. Patent No. 9,404,127 (the ’127 patent), which is said to provide “novel, stable lipid particles having a non-lamellar structure and comprising one or more active agents or therapeutic agents.” ’127 patent at abstract. The ’127 patent states that “[t]he present invention is based, in part, upon the surprising discovery that by controlling the lipid composition of a [stable nucleic acid-lipid particles (SNALP)] formulation as well as the formation process used to prepare the SNALP formulation, a novel non-lamellar lipid nanoparticle (i.e., SNALP) can be produced.” Id. at col. 8, lines 51-55. Claim 1 of the ’127 patent is as follows:
No, the Federal Circuit Did Not Just Kill Off Software Copyrights – Knock It Off
Many people were disappointed when the most-watched copyright case of the past 10 years, Oracle’s lawsuit against Google over Google’s copying Java application programming interface (API) code, failed to yield better guidance on the scope of copyright protection for computer programs. The case was probably a bad test case anyway, as it involved some very functional aspects of some very functional code – the declaring code (which acts as a set of signposts pointing the software to where certain computing assets are located) for an API (which enables interoperability between different computer programs). This rather prosaic aspect of rather prosaic code lacked the dazzle of even, say, a bookkeeping program, where the arrangement of screens and user experience might involve some obvious and welcome creativity. So when the Federal Circuit found that the declaring code was protectable because there was more than one way to word the signposts (and revived interest in the notion of code protecting nonliteral elements like sequence, structure or organization), stakeholders throughout the software industry were waiting for a Supreme Court epiphany either endorsing this rather aggressive interpretation of expressiveness in code or reeling it in.