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Did the Federal Circuit Disregard the Jury System by Reversing the Jury Verdict of “Fair Use” in the Oracle v. Google Copyright Case?

The Federal Circuit’s recent decision in the long-running battle between Oracle and Google overturned a jury verdict of fair use and held as a matter of law that Google’s unauthorized copying and use in its Android platform of 37 of Oracle’s copyrighted Java application program interface (“API”) packages did not constitute “fair use.” Oracle Am., Inc. v. Google LLC, 2018 U.S. App. LEXIS 7794 (Fed. Cir., March 27, 2018). That decision drew immediate and pointed criticism. On the day after the decision came down, a Law 360 article entitled “5 Things To Know About The Oracle v. Google Ruling” led off with “Jury? We Don’t Need No Stinkin’ Jury.” See https://www.law360.com/ip/articles/1026915. The article characterized the decision as “a full-throated reconsideration of questions that had already been decided by jurors,” stating that “American courts are generally loath to overturn jury verdicts, but . . . the Federal Circuit spent pages explaining why it would do just that. The verdict was advisory only, the court said, and it would undertake a fully de novo review of ‘the ultimate question of fair use.’” However, the article does not discuss the court’s reasoning for doing so.

In this commentator’s view, the article’s criticism was misplaced, for a review of the court’s reasoning reveals that the standard of review the court used was soundly grounded in Supreme Court and Ninth Circuit law.

In deciding what standard of review to use, the Federal Circuit analyzed several subsidiary questions: what aspects of a fair use determination are legal or factual; is the ultimate question of fair use a legal inquiry subject to de novo review; what standard should be used for review of factual determinations; and “what, if any, aspects of the fair use determination are for the jury to decide.” Oracle, 2018 U.S. App. LEXIS 7794 at *23-24. Under established Supreme Court law, fair use is considered a “mixed question of law and fact.” Citing a recent Supreme Court case, U.S. Bank Nat’l Ass’n ex rel. CWCapital Asset Mgmt. LLC, 200 L. Ed. 2d 218 (2018) (review of a bankruptcy court decision), the Federal Circuit stated that “the [Supreme] Court made clear that an appellate court is to break mixed questions into their component parts and to review each under the appropriate standard of review.” Oracle, 2018 U.S. App. LEXIS 7794 at *24-25. This analysis involves three aspects: (1) “determining the legal standard governing the question posed and what types of historical facts are relevant to that standard” – “a purely legal question to be reviewed de novo on appeal;” (2) finding the relevant historical facts – which are “reviewable only for clear error;” and (3) “assessing whether the historical facts found satisfy the legal test governing the question to be answered,” which the Supreme Court said was a “mixed question.” Id. at*25. For a mixed question, and again relying on the U.S. Bank case, the court stated that “[w]here applying the law to the historical facts ‘involves developing auxiliary legal principles of use in other cases – appellate courts should typically review a decision de novo.’” Id. at *25-26. However, “where the mixed question requires immersion in case-specific issues that are so narrow as to ‘utterly resist generalization,’ the mixed question review is to be deferential.” Id. at *26.

The Federal Circuit went on to cite Supreme Court and Ninth Circuit cases holding that where the district court has found facts sufficient to evaluate each of the statutory fair use factors, an appellate court may reweigh the inferences to be drawn from the record and conclude as a matter of law that a challenged use does not qualify as a fair use. Id. at *27. The court stated that because “the historical facts in a fair use inquiry are generally few, generally similar from case to case, and rarely debated, resolution of what any set of facts means to the fair use determination definitely does not ‘resist generalization,’ [but rather] will help guide resolution of that question in all future cases.” Id. at *27-28 (citation omitted).

The Federal Circuit noted that the Supreme Court “has never clarified whether and to what extent the jury is to play a role in the fair use analysis.” Id. at *31. And although several circuits, including the Ninth Circuit, allow the question of fair use to go to a jury, the Ninth Circuit “has clarified . . . that the jury role in this context is limited to determining disputed ‘historical facts,’ not the inferences or conclusions to be drawn from those facts.” Id. at *31. Nonetheless, in the instant case “all aspects of Google’s fair use defense went to the jury with neither party arguing that it should not. Thus, the jury was asked not just what the historical facts were, but what the implications of those facts were for the fair use defense.” Id. at *33.

Because the verdict form did not ask the jury to provide detailed fact findings, the Federal Circuit assumed that the jury resolved all factual issues relating to the historical facts in favor of the verdict, and applied a “substantial evidence” test to its review of their implied findings of historical facts. Id. at *33-34. However, all other jury findings relating to fair use “must, under governing Supreme Court and Ninth Circuit case law, be viewed as advisory only.” Id. at *34. The court concluded, therefore, that “we must assess all inferences to be drawn from the historical facts found by the jury and the ultimate question of fair use de novo, because the Ninth Circuit has explicitly said we must do so.” Id. at *34.

In sum, the Federal Circuit’s de novo review in this case of the “ultimate question of fair use” was consistent with established principles of appellate review of jury verdicts.

Supreme Court Eliminates Laches Defense To Patent Damages

Vacating an en banc Federal Circuit decision reaffirming that court’s long-standing precedent, the Supreme Court has now held in a closely watched case that the equitable doctrine of laches (unreasonable delay in bringing suit resulting in prejudice to the defendant) can no longer be used to prevent a patent owner’s recovery of damages for patent infringement occurring within the (six-year) statutory limitations period. SCA Hygiene Products v. First Quality Baby Products, 580 U.S. __ (slip op. 15-927, March 21, 2017).

In Petrella v MGM, 572 U.S. __ (2014), the Supreme Court held that laches does not preclude a claim for copyright infringement damages incurred within the Copyright Act’s statutory limitations period. The present SCA case turned on the question whether Petrella’s reasoning also applied to patent infringement, which has a similar statute of limitations. The Court answered that question with a resounding “yes.”

Specifically, the Court ruled that where Congress has prescribed a statute of limitations, that represents a “hard and fast rule” as to the timeliness of claims that should not be overridden by a case-specific judicial application of the equitable doctrine of laches, which traditionally addressed timeliness of claims in the absence of a statute of limitations. The Court stated: “Laches is a gap-filling doctrine, and where there is a statute of limitations, there is no gap to fill.”

The Federal Circuit held that by enacting Section 282 of the Patent Act (which refers to defenses to infringement including “absence of liability for infringement” and “unenforceability”) Congress had codified laches as an infringement defense, including as to claims for damages incurred within the statutory limitations period of Section 286 of the Act. The Federal Circuit relied on lower court patent cases decided before enactment of the 1952 Patent Act to conclude that by 1952 there was a well-established practice of applying laches to damages claims. However, after reviewing those cases, the Supreme Court flatly disagreed, stating: “[t]he most prominent feature of the relevant legal landscape at the time of enactment of the Patent Act was the well-established general rule, often repeated by this Court, that laches cannot be invoked to bar a claim for damages incurred within a limitations period specified by Congress.” (emphasis added).

The high court also rejected the Federal Circuit’s dismissal of “the significance of this Court’s many iterations of the general rule because they were not made in patent cases,” stating “[p]atent law is governed by the same common law principles, methods of statutory interpretation, and procedural rules as other areas of civil litigation.” (quoting the Federal Circuit dissenting opinion). Thus, as predicted by this commentator (see Amici Weigh In On Patent Laches Supreme Court Case, posted September 28, 2016), and taking issue with a patent-specific rule, the Supreme Court has again reversed the Federal Circuit.

The “Dancing Baby” Asks for Supreme Court Review

On August 12, 2016, Stephanie Lenz filed a petition to the Supreme Court for a writ of certiorari to review the Ninth Circuit’s decision in the “Dancing Baby” case involving her uploading a 29-second clip of her baby dancing to Prince’s “Let’s Go Crazy” song playing in the background. Universal Music Corp. sent a takedown notification under the Digital Millennium Copyright Act (“DMCA”) to YouTube to remove the video, YouTube removed it, and Lenz submitted a counter-notice protesting the removal and sued Universal for misrepresenting that the activity was “infringing” because it did not consider whether her use of the Prince song was a fair use.

The Ninth Circuit held that the DMCA requires copyright owners to consider whether potentially infringing material hosted by an online service provider is a “fair use” under the copyright law before issuing a takedown notice. Also, the Ninth Circuit held that the DMCA’s requirement that the copyright owner have a “good faith belief” that the activity was infringing was satisfied by a good faith subjective belief, stating: “[i]f . . . a copyright holder forms a subjective good faith belief the allegedly infringing material does not constitute fair use, we are in no position to dispute the copyright holder’s belief even if we would have reached the opposite conclusion.”

The petition asks the Supreme Court to decide whether that “good faith belief” can be any belief that is subjectively held, even if unreasonable, or rather requires an objectively reasonable good faith belief.

Lenz, which is represented by the Electronic Frontier Foundation, argues that the Ninth Circuit’s decision “gives a free pass to the censorship of online speech, particularly fair uses” and would allow bizarre beliefs, such as “a belief that copyright has been infringed based on information provided by a fortune teller” to “pass muster, as long as that belief is sincerely held.” Lenz also argues that the Ninth Circuit decision undermines fair use protection for online speech and thereby conflicts with the First Amendment.

It is worth noting that the Ninth Circuit’s holding that a person must consider fair use before issuing a takedown notice raises difficult practical issues of implementation in the real world. Understanding and balancing the four statutory fair use factors is one of the most complex aspects of copyright law with which both lawyers and judges struggle. How are small business and individuals without access to copyright counsel, and who believe their content is being infringed, supposed to perform an adequate fair use analysis, even under the Ninth Circuit’s subjective good faith belief standard? If, on the other hand, Lenz’s objectively reasonable belief standard is to be used, this would seem to require copyright owners to get an opinion of counsel before issuing a takedown notice. And if copyright owners sued under the DMCA by the person who uploaded the video rely on opinions of counsel as evidence of the objective reasonableness of their takedown notice, that raises the potential of costly and intrusive satellite litigation concerning issues of waiver of attorney/client privilege between copyright owners and their opinion counsel.

The Supreme Court may well grant certiorari in this case, as it has broad consequences for future users of the DMCA notice and takedown procedures, and for judges who will have to adjudicate the resulting litigations that seem to be an inevitable consequence of the Ninth Circuit’s decision.

 

Amici Weigh In On Patent Laches Supreme Court Case

Amicus briefing recently completed in a closely watched patent case currently on appeal to the Supreme Court, where the high court will decide whether the equitable doctrine of laches is available to bar the recovery of damages within the six year statutorily prescribed damages limitation period for patent infringement lawsuits. SCA Hygiene Products v. First Quality Baby Products, 807 F.3d 1311 (Fed. Cir. 2015). Petitioner SCA appealed the en banc decision of the Federal Circuit rejecting SCA’s argument that the Supreme Court’s rationale in its decision in Petrella v. Metro-Goldwyn-Mayer, 1354 S.Ct. 1962 (2014), which held that laches could not bar damages for copyright infringement during the damages limitation period, should also apply to patent infringement. The Federal Circuit held that Petrella was not controlling in the patent context, and reaffirmed its prior ruling in A. C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020 (Fed. Cir. 1992) that laches could prevent the recovery of damages during the statutorily prescribed damages limitation period.

Only two of the eight amici (IPO Association and IP Law Association of Chicago) took the position that Petrella’s rationale did not apply to patent infringement. They argued that patent law was different from copyright law in that the patent statute did not have a “statute of limitations” like the copyright statute. The other six amici (ABA, AIPLA, Alliance of Inventor Groups, Professors in Support of SCA, Art+Com and Medinol) submitted briefs supporting the application of Petrella to patent infringement cases.

The ABA and AIPLA strongly urged that Petrella’s holding applied equally to patent infringement cases, since both the patent statute and the copyright statute had similar damages limitations periods. They also emphasized the policy considerations that allowing laches to bar patent damages would encourage the early filing of lawsuits and discourage attempts to settle. The ABA also argued that the Supreme Court should hold that its Petrella ruling that laches could in extraordinary circumstances bar injunctive relief for copyright infringement should apply as well to patent infringement cases.

The arguments in favor of applying Petrella to patent infringement cases are strong and likely to resonate with the Supreme Court. Of note, the Federal Circuit agreed with SCA that the patent statute’s damages limitations period was similar to the copyright statute of limitations, despite being called a “statute of limitations” in the copyright statute and a “limitation on damages” period in the patent statute. The Federal Circuit instead relied on the proposition that by including “unenforceability” as a possible defense to patent infringement in the patent statute Congress had “codified the laches defense”, making Petrella inapposite. As noted by the AIPLA, however, the Federal Circuit’s reliance was based on ambiguous post-enactment comments on the 1952 Patent Act by P. J. Federico, who although a principal draftsman of the Act was not a member of Congress, which is a questionable basis for distinguishing the patent and copyright statutes on this point.

In this commentator’s view, it is likely that the Supreme Court will once again reverse the Federal Circuit, a result that may well be motivated in part by its belief that the Federal Circuit has treated patent issues in ways inconsistent with generally applicable principles of federal law.