In re Bilski is Good Law Until the US Supreme Court Says Otherwise (Article –

Article – Subscription required after WSJ takes this article off the free space on its site.

In re Bilski is being applied as it waits for its hearing before the US Supreme Court in the fall as Bilski v. Doll. A Ninth Circuit district court judge ruled a business method patent invalid based on the Bilski standard of transformative use. The patent holder, DealerTrak Holdings, Inc., intends to appeal the holding.

This is a good chance for me to take a flying leap of logic and talk about how case law and the courts work in the USA.

We have two court systems: the federal system (which holds exclusive jurisdiction over matters involving federal statutes like patent and copyright) and the states’ systems (which holds jurisdiction over state-based matters like contracts and torts). These systems come in hierarchies. I’ll talk about the federal system only (state systems vary from state to state, but they follow this same basic model).

In the federal system, the lowest court is the district court. These are the trial courts; this is the only place where the parties actually have to show up. This is where juries are sworn, testimony is taken, and a record of the litigation is produced (through transcription and discovery). The record is very, very important. There is at least one district court in every state.

The district court judges, who are Article III judges with lifetime appointments just like their appellate brethren, can appoint, under Article I of the Constitution, so-called “magistrate” judges (I was lucky enough to take my law-school Trial Advocacy class with the New Hampshire magistrate, Hon. James Muirhead). Magistrates handle a lot of pre-trial work; they also sometimes handle the trial, if the parties agree. Magistrates report to the district judges. Magistrates’ appointments are for a term of years, not for life.

The district court judges and magistrates must follow the holdings of every appellate court that sits directly above them as they make their decisions. The Court of Appeals for the Federal Circuit (CAFC) sits above each and every district court in matters where the CAFC has exclusive jurisdiction — like patent matters. This means that the district court judges must know and apply CAFC law when deciding matters that fall under the exclusive jurisdiction of the CAFC, no matter which so-called “circuit” the district court sits in. If the matter does not fall within the exclusive jurisdiction of the CAFC, then the district court must apply the case law of its own individual circuit court of appeals, as well as its own case law. It must also, of course, follow US Supreme Court case law. The district court can overturn its own case law, but it must follow the case law from its own circuit court and the CAFC, and from the US Supreme Court.

The US has 13 circuits (numbered 1-12, and the federal circuit). Each circuit has one regional court of appeals; they hear the cases that come out of the district courts with a decision with which one of the parties is unhappy. They rule based solely on the record of the case (which is why the record is very, very important), the attorneys’ briefs, and sometimes oral arguments, and on existing law, including their own and US Supreme Court case law. It is free to overturn its own case law. It can follow the holdings of other circuits or it can branch out on its own and hold something entirely different.

When there is a split in the circuit courts of appeal on a question of law, the field is ripe for the US Supreme Court to step in to settle the matter (another ripening field for the US Supreme Court is when one of the lower courts rules in a way that they think needs to be examined). The US Supreme Court can pick and choose most of the cases it will hear (there are some that it must hear, specifically those with which original — trial — jurisdiction rests with them, such as disputes between the states), and it does not choose to hear most of the petitions for writs of certiorari (“cert”) that come before it. Denying cert says nothing about the case below; it simply says that the US Supreme Court chooses not to hear the matter.

The US Supreme Court sits above all other courts (both state and federal) in the country. The only case law it must apply (and it is free to overturn this) is its own.

Courts do not like to overturn their own case law. It tends to make something of a splash in the legal world when a court does that, and the higher the court is, the bigger the splash an overturned case makes.

Bilski has been decided by the CAFC. The holding — well, the parties disagree with it; hence the petition for cert to the US Supreme Court. The US Supreme Court granted cert on this one; they will hear and finally decide the questions presented by the case. Until the Nine Wise Ones (or at least a majority of them) say otherwise, the CAFC rule of “transformative use” stands, and by the CAFC ruling the district courts are bound.

Rescuecom v. Google keyword trademark case remanded – 2nd Circuit: Google Must Face Trademark Suit Involving Keyword Ads.

®          ™

Seems Google, Inc. will have to face the trademark-infringement lawsuit music after all.

In a unanimous decision, the Second Circuit’s three-judge panel (Judges Leval, Calabresi and Wesley sitting) reversed the US District Court for the Northern District of New York (NDNY), Mordue, Ch. J., overturning that court’s dismissal of this case for failure to state a claim on which relief can be granted (Fed. R. Civ. P. 12(b)(6)) telling the NDNY that it “misunderstood [the] holding of 1-800 Contacts, Inc. v., Inc., 414 F.3d 400 (2d Cir. 2005) (1-800)… , because [it dismissed the case on the grounds that] … Rescuecom failed to allege that Google’s use of its mark was a “use in commerce” within the meaning of § 45 of the Lanham Act, 15 USC 1127.”

Seems Google had been placing competitors’ sponsored ads in the Sponsored Link column when a search was made on Rescuecom’s registered trademark. Rescuecom had a problem with this and brought suit in the NDNY under the Lanham Act to enjoin Google from using Rescuecom’s registered mark to promote competitors’ businesses by listing the competitors in the Sponsored Links section of the search results page, possibly confusing consumers into believing that the competitors were somehow affiliated with Rescuecom. Google responded with the defense that its use of Rescuecom’s mark was internal and didn’t constitute a “use in commerce.” The NDNY bought that defense and dismissed the case under Fed. R. Civ. P. 12(b)(6), failure to state a claim on which relief can be granted. Rescuecom appealed the 12(b)(6) dismissal.

The Court distinguishes the 1-800 case clearly by recognizing that, among other factors, Google’s sponsored ads are on the same page as, and indeed look very similar to, the organic search results, while the ads in 1-800 were popup ads that displayed the competitor’s mark and were clearly advertisements. Given this distinction, the Court found that 1-800 and Rescuecom are based on materially different facts and therefore the analysis in 1-800 as to whether the ads based on trademarked keyword search terms was misunderstood.

The Court then provides a massive appendix to this case explaining “use in commerce” under the Lanham Act.

Up until now, the courts have held that trademark infringement occurs only when the infringed mark is displayed. Google does not display anyone’s trademark but its own; search terms are kept in a proprietary database, keywords are kept in a proprietary database, and the algorithms used in a GOOGLE® search are closely guarded trade secrets. Therefore, the public has no access to any trademarks lurking in Google’s databases. This, Google argued, does not constitute “use in commerce.”

The Second Circuit disagrees. In its appendix to Rescuecom, the Court notes that the phrase “use in commerce” has different nuances throughout the Lanham Act. § 1127, which defines the phrase states “…  that the terms listed shall have the given meanings “unless the contrary is plainly apparent from the context.” ” The Court goes on to note that § 1127 defines “use in commerce” as ““The term ‘use in commerce’ means the bona fide use of a mark in the ordinary course of trade, and not made merely to reserve a right in a mark.” This, the Second Circuit tells us, necessarily means that the full definition of “use in commerce” cannot apply to infringement sections of the Act; the requirement for bona fide use cannot be considered to be a limitation to conduct that might cause infringement liability. Take the case of the infringer who acts in bad faith; bad faith, by definition, does not constitute bona fide use. This lets the bad-faith infringer off the hook if we apply the full meaning of the definition of “use in commerce” to the infringement sections of the code. The infringer who acts in good faith, though, would feel the full weight of the trademark infringement law drop upon his head, since good faith, by its definition, is bona fide use.

This is not the result we want.

Therefore, to get the more reasonable result of holding bad-faith infringers’ feet to the fire, the Court construes the infringement sections of the Act — §§ 1114 and 1125 — as not to include the bona fide use langauge of the definition under the “…unless the contrary is plainly apparent from the context” language of the Act.

Under this construction, Google may need not have shown trademarks of competitors on its search results in order to have infringed trademark. The 2nd Circuit is not the factfinder in this matter and the facts have not yet been found (a 12(b)(6) dismissal is based on the pleadings, which occur at the start of the case), so takes no position on whether Rescuecom can prove that Google infringed its mark under the Lanham Act; this is now a question for the NDNY to decide.