Eyes Wide Open: Lost Profits Are Available in the Absence of Acceptable Non-Infringing Substitutes
Lost profit damages are notoriously difficult to recover in patent infringement cases. Lost profits damages are recovered in only a small percentage of cases that go to trial. Among the challenges in recovering lost profits under the Panduit test are that the patent owner must prove the absence of acceptable non-infringing alternatives (Panduit factor 2) and proving a negative in life is never easy. But the law is sometimes more flexible than meets the naked eye.
In Bausch & Lomb vs. SBH Holdings LLC, over which U.S. District Judge Burke of Delaware presides, the accused infringer, SBH, learned this principle the hard way. SBH was accused of infringing B&L patents covering nutritional supplements for treating age-related macular degeneration, or AMD. B&L sought lost profits damages caused by SBH’s sale of the accused product that competed with B&L’s supplement. In pre-trial disclosures, B&L supported its claim for lost profits damages by relying on expert opinions of a damages expert and a technical expert. In his report, the damages expert relied in part on the technical expert in opining that there was an absence of acceptable non-infringing substitutes in the marketplace. In addition, the damages expert relied on an alternative theory of lost profits, namely that B&L should recover its share of the “eye vitamin” market.
In a Daubert motion, SBH challenged the bases for B&L’s lost profits damages opinions. SBH argued that the technical expert’s opinion that there was an absence of acceptable non-infringing alternatives lacked a sufficient basis because it was conclusory on this point and confined to a single paragraph in the technical expert’s report. Based on this alleged deficiency, SBH argued that its Daubert motion should be granted, and that B&L should be precluded from presenting any lost profits damages theory to the jury. But the court did not see it the same way and denied SBH’s motion.
First, the court found a sufficient basis in B&L’s technical expert’s report to support the damages expert’s lost damages theory based on the absence of non-infringing alternatives. The technical expert relied on clinical studies demonstrating that the patented formulation was the only safe and effective treatment of AMD to conclude that there were no acceptable non-infringing alternatives on the market, and the court found this to be ample if brief. In addition, the court found support for the absence of acceptable non-infringing alternatives in B&L’s damages expert report, including his analysis of corporate testimony of B&L and its marketing materials discussing the importance of the clinical studies to doctors in prescribing treatment for AMD patients.
Second, the court found a sufficient basis for B&L’s damages expert opinion that lost profits damages should be awarded based on market share theory even if there were acceptable non-infringing alternatives on the market to treat AMD. Relying on a string of cases going back to State Indus. v. Mor-Flo, a 1989 Federal Circuit case, the court held that a market share theory of lost damages is available when acceptable non-infringing alternatives are available in the market. In other words, a patent owner “may rely on proof of its established market share instead of proof of no acceptable non-infringing alternatives in order to satisfy Panduit factor two.” Because SBH did not challenge any aspect of the market share theory presented by B&L’s damages expert, the court green-lighted this theory of lost profits damages, too. The first takeaway from the court’s order is that Panduit factor two—the absence of acceptable non-infringing alternatives—can be overcome with a well-supported market share theory of lost profits. The second takeaway is that the admissibility of expert opinions regarding non-infringing alternatives does not depend on a word count in their expert reports but rather the substance undergirding the opinions. Where sufficient support exists for the absence of non-infringing substitutes for a jury to decide the fact question, then disagreements should be explored through a combination of cross examination and rebuttal testimony of the accused infringer’s experts.
The first takeaway from the court’s order is that Panduit factor two—the absence of acceptable non-infringing alternatives—can be overcome with a well-supported market share theory of lost profits. The second takeaway is that the admissibility of expert opinions regarding non-infringing alternatives does not depend on a word count in their expert reports but rather the substance undergirding the opinions. Where sufficient support exists for the absence of non-infringing substitutes for a jury to decide the fact question, then disagreements should be explored through a combination of cross examination and rebuttal testimony of the accused infringer’s experts.
Prove It or Lose It: How USPTO’s Audit Program Inspired Canada’s Trademark Oversight
If you own a U.S. trademark registration, you have likely encountered (or will encounter) an audit by the US Patent and Trademark Office (USPTO). The audit program, launched by the USPTO in November 2017, was enacted as a tool to promote the accuracy and integrity of the Federal Trademark Register. If audited, a trademark owner is required to submit additional proofs of use, else risk having those goods and services removed from the registration, or, in some cases, risking cancelation of the registration in its entirety. Additionally, trademark owners will incur penalty fees if an audit identifies goods or services on which the mark is no longer used. In simple terms, if you don’t use it, you lose it. While no one wants to be on the receiving end of an audit, the process does have its benefits. Specifically, inaccurate registrations may block future applications for similar marks and decrease the ability of the Register to provide notice of trademark rights to third parties. Clearing the Register of “deadwood” is in keeping with a fundamental goal of the trademark laws, namely, to enable potential trademark owners to enjoy rights in marks without being blocked by unused registrations. With the audit program in place, each of these scenarios is less likely to occur. Knowing that a registration may be audited is yet another reason for owners of U.S. trademarks to ensure that a mark only covers those goods and services still in use.
It seems the USPTO’s audit program has inspired the Canadian Trademark Office (CIPO) to launch its own pilot program requiring owners of Canadian trademarks to prove use of a registered mark on all goods and services covered therein. Accordingly, owners of Canadian trademarks may be receiving more requests to “prove it or lose it.” In January 2025, the CIPO issued 100 notices to random registrants requesting they submit evidence of use of the mark, or establish exceptional circumstances to support non-use, else risk cancellation of the registration. To date, no data has been provided to indicate whether any of the 100 registrations have been canceled. Another 50 notices will be issued in both February and March. Once a “statistically significant” number of audits have been completed, phase 1 of the pilot program will end. In phase 2, the CIPO will assess whether the program should continue, and if so, under what parameters. It is unclear whether the CIPO will allow a registrant to delete only those goods and/or services not in use, or whether the registration will be canceled in full. It is also possible the CIPO will allow the trademark owner to maintain all goods and services if they are able to prove excusable non-use – something that is not allowed in an audit by the USPTO.
The goal of the Canadian audit program is similar to that of the USPTO program, namely, to declutter the Register and ensure new filings are not being blocked unnecessarily. Because the CIPO program is still in its early stages, it remains to be seen whether it will be successful. That said, because the Canadian Trademark Act did away with all use requirements for trademark applications in 2019, it seems this is a much needed check on trademark owners and a way to curb the influx of trademark filings.
If you do business in Canada and own a Canadian trademark registration, it is becoming increasingly important to monitor your use under the mark in order to avoid losing rights and incurring penalty fees.
Fair Use Falls Short: Judge Bibas Rejects AI Training Data Defense in Thomson Reuters v. ROSS
Fair use — a critical defense in copyright law that allows limited use of copyrighted material without permission — has emerged as a key battleground in the wave of artificial intelligence (AI) copyright litigation. In a significant revision of his earlier position, Judge Stephanos Bibas in the United States District Court for the District of Delaware has dealt a blow to artificial intelligence companies by blocking their ability to rely on this defense in Thomson Reuters Enterprise Centre GmbH v. ROSS Intelligence Inc.
Fair use serves as a safety valve in copyright law, permitting uses of copyrighted works for purposes such as criticism, commentary, news reporting, teaching, scholarship, or research. Courts evaluate fair use through four factors, with particular emphasis on whether the use transforms the original work and how it affects the market for the copyrighted work.
The case originated when Thomson Reuters sued ROSS Intelligence for using content from Westlaw — the legal research platform’s headnotes and proprietary Key Number System — to train an AI-powered legal research competitor. ROSS had initially sought to license Westlaw content, but when Thomson Reuters refused, ROSS turned to a third-party company, LegalEase Solutions. LegalEase created approximately 25,000 legal question-and-answer pairs, allegedly derived from Westlaw’s copyrighted content, which ROSS then used to train its AI system.
In September 2023, Bibas denied Thomson Reuters’ motion for summary judgment on fair use, finding that the question was heavily fact-dependent and required jury determination. He particularly emphasized factual disputes about whether ROSS’s use was transformative and how it affected potential markets.
However, in August 2024, Bibas took the unusual step of continuing the scheduled trial and inviting renewed summary judgment briefing. His opinion represents a dramatic shift, explicitly acknowledging that his “prior opinion wrongly concluded that I had to send this factor to a jury.” While noting that fair use involves mixed questions of law and fact, Bibas recognized that the ultimate determination in this case “primarily involves legal work.”
Bibas’ unusual move to invite renewed briefing stemmed from his realization, upon deeper study of fair use doctrine, that his earlier ruling afforded too much weight to factual disputes and did not fully account for how courts should assess transformative use in AI-related cases. Rather than viewing transformation through the lens of whether ROSS created a novel product, Bibas recognized that the key question was whether ROSS’s use of Thomson Reuters’ content served substantially the same purpose as the original works.
He concluded that while fair use involves factual elements, the dispositive questions in the case were ultimately legal ones appropriate for resolution by the court. His key analytical shifts included rejecting the notion that ROSS’s use might be transformative merely because it created a “brand-new research platform.”
Critically, Bibas distinguished ROSS’s use from cases like Google v. Oracle where copying was necessary to access underlying functional elements. While Google needed to copy Java API code to enable interoperability between software programs, ROSS had no similar technical necessity to copy Westlaw’s headnotes and organizational system. ROSS could have developed its own legal summaries and classification scheme to train its AI — it simply found it more expedient to build upon Thomson Reuters’ existing work.
The concept of “transformative” use lies at the heart of the fair use analysis. This principle was recently examined by the Supreme Court in Andy Warhol Foundation for the Visual Arts, Inc. v. Goldsmith, where the Court significantly narrowed the scope of transformative use under the first fair use factor. The Court held that when two works serve “substantially the same purpose,” the fact that the second work may add “new expression, meaning, or message” is not enough to tip the first factor in favor of fair use.
This framework for analyzing transformative use provides important context for understanding how courts may evaluate AI companies’ fair use defenses. AI companies have consistently argued that their use of copyrighted materials for training data is transformative because the AI systems learn patterns and relationships from the works rather than reproducing their expressive content. They contend that this process fundamentally transforms the original works’ purpose and character. However, Bibas’ ruling suggests courts may be increasingly skeptical of such arguments, particularly when the resulting AI products compete in similar markets to the original works.
While this ruling represents a setback for one of the key defenses believed to be available to AI companies in copyright litigation, fair use is only one of several defenses these companies are raising in more than 30 pending lawsuits. Other defenses include arguments about copyrightability, substantial similarity, and whether training data uses constitute copying at all. A weakening of the fair use defense, while significant, does not necessarily predict the ultimate outcome of these cases.
Additionally, this case involved a particularly direct form of market competition — an AI system trained on legal content to compete with the original legal research platform. Other cases involving different types of training data or AI applications that don’t directly compete with the source materials might be distinguished. For instance, an AI trained on literary works to generate news articles might present a more compelling case for transformative use since the end product serves a fundamentally different purpose than the training data.
Nevertheless, Bibas’ ruling may alter how AI companies approach training data acquisition. If other courts follow his lead in viewing fair use primarily as a legal rather than factual determination, these companies may explore licensing agreements with copyright holders — a process that some have already undertaken.
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Clock is Ticking for Responses to UK Government Consultation on Copyright and Artificial Intelligence
Ever since the emergence of generative AI, a major concern for all participants has been the extent to which copyright works can and should be used in training AI models.
The application of UK copyright law for this purpose is disputed, leading to inevitable high-profile tension between, on one hand, rights holders keen to control and be paid for use of their work and, on the other, developers who argue that this legal uncertainty is undermining investment in, and the development of, AI in the UK.
Whilst cases are making their way through the courts in the UK and further afield (such as in Germany[1] and the US[2]) on this issue, there have been frequent calls for specific legislation (including by the UK government itself, which has publicly stated that the status quo cannot continue).
As a result, the UK government has launched a consultation[3] open until 25 February 2025 inviting interested parties to submit feedback on potential changes to UK copyright legislation in light of AI. The options set out in the consultation, and on which feedback is sought, range from doing nothing through to the introduction of broad data mining rights which would allow use of copyright works for AI training (including for commercial use), without rights holders’ permission and subject to few or no restrictions.
The Options
The consultation invites feedback on four potential options under consideration:
Do nothing and leave UK copyright and other related laws as they are – essentially this would defer the matter to the courts to resolve on a piecemeal and ad-hoc basis. Whilst feedback on this option is invited the consultation makes clear this is not an option looked upon favourably by the government, given that it would prolong the current legal uncertainty.
The opt-in model requiring licensing in all cases – this would strengthen copyright protection for rights holders by providing that AI models could only be trained on copyright works in the UK if an express licence to do so has been granted. This option is likely to be popular with rightsholders, but at odds with the government’s desire to turbocharge the AI economy in the UK.
A broad data mining exception – this would follow a similar approach already seen in Singapore[4] (and to some extent in the US under its “fair use” standards) and allow data mining on copyrighted works in the UK, including for AI training, without the rights holder’s permission. Under this approach, copyrighted material could be used for commercial purposes, and would be subject to few, if any, restrictions. Needless to say, this option is likely to be very popular with AI developers but is the least favoured by rights holders.
Allow data mining but copyright holders to reserve their rights along with increased transparency measures – this is the middle ground between options 2 and 3, and would allow AI developers to train AI models using material to which they have lawful access, but only to the extent that right holders have not expressly reserved their rights. Any such use would also be subject to robust transparency measures requiring developers to be transparent about what material their AI models have been trained on. For rights holders, this means an “opt-out” as opposed to “opt-in” model and pro-active monitoring to identify unauthorised use.
The Unanswered Questions
Option 4 broadly follows the approach which has already been seen in the EU under the not uncontroversial text and data mining exception in the EU Directive on the Digital Single Market,[5] which has been further enhanced by the EU AI Act[6] which declared these text and data mining exceptions to be applicable to general-purpose AI models. The government’s view expressed in the consultation is that option 4 is the option which would balance the rights of all participants, although the EU approach was rejected by the previous government as being a threat to rightsholders interests.
However, at this stage it does not represent a “silver bullet” as many issues would still need to be resolved, including those set out below:
It is unclear how a “rights reserved” model would work in practice and how exactly copyright owners would be able to reserve their rights. The EU equivalent provision requires opt-outs to be machine readable, but query how this works once multiple copies are available. There is also the question of what “machine-readable” means in the context of machines designed to read anything (including handwriting).
How would such a model apply to works that are already publicly available and how does it address works which have been previously used to train current AI models? It is uncommon for legislation to have retroactive effect. This would then leave it open to debate what will happen with works that have been mined prior to the effective date of the legislation, and would leave early entrants into the AI market with a huge advantage (or disadvantage) depending on what shape any future legislation and court cases take.
Does this apply to works in non-digital formats? The EU legislation on data mining specifically refers to “automated analytical technique aimed at analysing text and data in digital form.” But how does this apply to books which are scanned in (a process which Google went through many years ago)?
What happens to AI models if all or a significant volume of rights holders opt-out? An AI opt-out could soon become ubiquitous at which point developers could find themselves wading through a significant volume of claims making the UK an unpopular location for AI development.
How will rights holders know that their material has been used? The consultation states that robust measures will be put in place to ensure that developers are transparent about the works their models are trained on, but what will be the penalties for failing to be transparent and will there be robust enforcement against non-compliance?
To what extent can and should any new legislation have extraterritorial application? With many major AI players headquartered outside of the UK, any new legislation which is limited to those based in the UK may have limited impact and an increased legislative burden in the UK could make it a less attractive location for AI businesses.
Ultimately the outcome may be collective licensing deals between rights holders and AI developers as has already happened for a number of news outlets and websites. However, that will be reliant on collective will and action by rights holders and a willingness to embrace AI, which so far has not been forthcoming.
[1] Breaking News from Germany! Hamburg District Court breaks new ground with judgment on the use of copyrighted material as AI training data | Global IP & Technology Law Blog
[2] Copyright Office: Copyrighting AI-Generated Works Requires “Sufficient Human Control Over the Expressive Elements” – Prompts Are Not Enough | Global IP & Technology Law Blog
[3] Copyright and Artificial Intelligence – GOV.UK
[4] Artificial Intelligence and Intellectual Property Legal Frameworks in the Asia-Pacific Region | Global IP & Technology Law Blog
[5] EU Directive 2019/790.
[6] EU Regulation 24/1689.
Sumaiyah Razzaq contributed to this article
You ® Mine: Valentine’s Day Trademarks & Trade Dresses
Where I’m from in the Northeast U.S., February is a month full of snowy weather, winter blues, and hope that a groundhog will not see its shadow. But halfway through this month, there comes a day that has everyone spending hard earned dollars on chocolate, candy, flowers, and jewelry or they are spending time writing notes to friends and loved ones on heart-covered cards. Valentine’s Day is symbolic of love, friendship and, of course, capitalism. Naturally, businesses have tried to trademark names of various goods and services to market these items for sale on this popular holiday.
What better way to honor the day than to share some trademarks that protect the use of phrases and expressions of love that accompany Valentine’s Day.
Certain catchy jingles from commercials have trademark protection for jewelry or jewelry retail services. For example, Kay Jewelers’ “Every Kiss Begins with Kay”® is protected via TM Registration No. 2602439. Also, Jared the Galleria of Jewelry protects the slogan “That’s Why He Went to Jared” with TM Registration No. 4321228.
Popular Valentine’s Day treats are also protected such as “Sweethearts” by the Spangler Candy Company for conversation heart candy, with a U.S. trademark registration No.2172266. The product touts itself through the use of the slogan “the official candy of love.”
In addition to slogans, jingles, and product names, trademark protection extends to product shapes if they are distinctive enough and source identifying. A Valentine gift may include chocolate this year and a few stand outs have shapes that are protected as trademarks. These include the shape of a Hershey Kiss, U.S Registration No. 186828; the pyramid shape of the Toblerone bar, U.S Registration No. 2649833; and the shape of the Ferrero Rocher gold wrapped candy ball, U.S Registration No. 2839680. The distinctive shape of these products protects them under their trade dress and any dupes could face legal action for infringing on these products’ registration. This infringement is not limited to candy that can be enjoyed by all, either. I’ve previously written on the candy dupes for THC-edible dupes of Sour Patch Kids.
Of course, given the widespread use of some of catchy phrases of love like “be mine” or “ILY,” it can be a challenge to enforce rights to words and phrases for a particular product or service. However, with a distinctive design and strong consumer recognition, such as the Hershey kiss shape, these trademarks can be valuable and enforceable assets.
Thomson Reuters Wins Copyright Case Against Former AI Competitor
Thomson Reuters scored a major victory in one of the first cases dealing with the legality of using copyrighted data to train artificial intelligence (AI) models. In 2020, Thomson Reuters sued the now-defunct AI start-up Ross Intelligence for alleged improper use of Thomson Reuters materials, including case headnotes in its Westlaw search engine, to train its new AI model.
A key issue before the court was whether Ross Intelligence’s usage of headnotes constituted fair use, which permits a person to use portions of another’s work in limited circumstances without infringing on their copyright. Courts use four factors to determine whether a defendant can successfully use the fair use defense: (1) the purpose and character of the use; (2) the nature of the copyrighted work; (3) how much of the work was copied and was that a substantial part of the entire work; and (4) whether the defendant’s use of the work affected its value.
In this case, federal judge Stephanos Bibas determined that each side had two factors in their favor. But the fourth factor, which supported Thomson Reuters, weighed most heavily in his finding that the fair use defense was inapplicable because Ross Intelligence sought to develop a competitive product. Lawsuits against other companies, like OpenAI and Microsoft, are currently pending in courts throughout the country, and decisions in those cases may involve similar questions about the fair use defense. However, Judge Bibas noted that Ross Intelligence’s AI model was not generative and that his decision was based only on Ross’s non-generative AI model. The distinction between the training data and resulting outputs from generative and non-generative AI will likely be key to deciding future cases.
Supreme People’s Court: 82 Million RMB Verdict Against ByteDance for Copyright Infringement and Trade Secret Misappropriation
On February 12, 2025, Beijing Meishe Network Technology Co., Ltd. (北京美摄网络科技有限公司) announced that China’s Supreme People’s Court ruled against ByteDance for copyright infringement and trade secret misappropriation awarding Meishe 82.668 million RMB. Meishe alleged that ByteDance’s Douyin (Chinese version of TikTok) infringed the copyright of Meishe’s SDK software. Several other ByteDance products also allegedly infringed.
At the end of June 2023 and the end of May 2024, the Beijing Intellectual Property Court and the Beijing High People’s Court respectively made first-instance judgments, finding that ByteDance and its affiliated companies infringed the copyright of Meishe SDK software, and ordered them to apologize to Meishe and compensate for economic losses and reasonable expenses totaling approximately RMB 26.704 million. Both parties appealed to the Supreme People’s Court.
On appeal, the Supreme People’s Court made a final judgment, upholding the infringement determination of the first-instance judgment, and increased the first-instance damages. The second-instance judgment ordered ByteDance and its affiliated companies to immediately stop infringing on the copyright of Meishe SDK software, apologize to Meishe, and ordered ByteDance and an unnamed employee (believed to be Jing Xie) to immediately stop infringing on Meishe’s trade secrets. Compensation for the nine related cases totaled approximately 82.668 million RMB.
Per Meishe, ByteDance and its affiliates refused to submit the software source code. The court determined that the software code was plagiarized based on decompilation and comparison of the target code and the similarity of the software-specific content. Further, ByteDance and its affiliated companies accessed Meishe’s software code through a Meishe employee, and both ByteDance and the employee infringed Meishe’s trade secrets.
As of the time of writing, I was unable to locate a copy of the decision. A parallel litigation in the U.S. is still pending. The full text of the announcement is available here (Chinese only).
Judicial Bias and Erroneous Admission of Expert Testimony Prompt Case Reassignment
The US Court of Appeals for the Federal Circuit reversed a district court’s decision to admit expert testimony and remanded the case to a different judge, noting that “from the moment this case fell in his lap, the trial judge’s statements indicate that he did not intend to manage a fair trial with respect to the issues in this case.” Trudell Medical Intl., Inc. v. D R Burton Healthcare, LLC, Case Nos. 23-1777; -1779 (Fed. Cir. Feb. 7, 2025) (Moore, C.J.; Chen, Stoll, JJ.)
Trudell Medical sued D R Burton Healthcare for infringement of a patent directed to respiratory treatment devices. Leading up to trial, Trudell filed a motion in limine seeking to exclude testimony from Dr. John Collins on invalidity and noninfringement. At the pre-trial conference, the court denied the motion in limine. A few days later, however, on the first day of trial, the district court reversed itself and granted the motion in limine after Trudell filed a motion for reconsideration. Moments later, the district court indicated that it would reserve a ruling on the motion until the end of Trudell’s case.
On the third and final day of trial, the district court ruled that Collins was allowed to testify. After trial, the jury returned a verdict that the asserted claims were valid but not infringed. Trudell appealed.
Trudell argued that the district court erred in allowing Collins to testify. The Federal Circuit indicated that it reviews a district court’s decision to admit or exclude evidence under the law of the regional circuit – here, the Fourth Circuit, which applies an abuse of discretion standard. Trudell argued that because Collins did not timely serve an expert report on noninfringement and the failure to do so was neither substantially justified nor harmless, the district court abused its discretion in allowing the testimony. Although D R Burton had filed a seven-page declaration from Collins in support of its opposition to summary judgment of infringement, Trudell argued that it was afforded no opportunity to depose Collins regarding the declaration and was therefore prejudiced by the allowance of the testimony. Trudell argued that the admitted testimony also exceeded the scope of the declaration and was “untethered from the district court’s claim constructions.”
The Federal Circuit agreed, finding that the district court abused its discretion in allowing Collins’s noninfringement testimony because D R Burton did not disclose Collins’ noninfringement opinion in a timely expert report as required by Rule 26. Regarding the declaration, the Court found that it was submitted a month after the close of discovery and therefore was not timely served. The Court concluded that the proper remedy was exclusion of Collins’ noninfringement testimony absent a showing that the failure to disclose was either substantially justified or harmless.
The Federal Circuit affirmed the denial of Trudell’s post-trial motion seeking a finding of infringement. While the Court agreed that without Collins’ testimony there was minimal evidence to support noninfringement, the jury would still have been free to discredit the testimony of Trudell’s own expert and find that Trudell had not met its affirmative burden.
The Federal Circuit reversed the district court’s decision to deny a new trial, finding that the district court abused its discretion in admitting Collins’ testimony, and that the admission was harmful and prejudicial. The Court also noted that, on remand, it would be improper to reopen discovery and allow D R Burton to cure its failure to comply with disclosure requirement.
Trudell also sought reassignment of the case on remand. In support, Trudell pointed to statements by the judge, such as “I’m going to settle this case or resolve it or dismiss it by []” and “[h]ow about if I try the first case in early [] and forget about your mediation.” Further statements by the district court included, “The jury’s just being tolerant of this, and it’s painful. My gosh. I should have put time limits . . . I don’t think they understand they have to get through this case.”
The Federal Circuit agreed that these statements gave “sufficient reason to believe that the trial judge’s conviction to quickly terminate the case will be no different on remand” and therefore ordered that the trial be held before a different judge. The Federal Circuit cited a 2019 Fourth Circuit decision, Beach Mart. v. L&L Wings, which reassigned a case in front of the same judge after he made comments such as “I will find some way to terminate the case. I don’t know how, but I will find a way.” The Court noted similarities to the present case and concluded that the statements in both cases were so similar that they undermined the appearance of justice and fairness.
It’s Obvious: Erroneous Claim Construction Can Be Harmless
The US Court of Appeals for the Federal Circuit affirmed a Patent Trial & Appeal Board obviousness determination even though it found the Board had improperly construed a claim term, because the Court found the error harmless in the context of the prior art. HD Silicon Solutions LLC v. Microchip Technology Inc., Case No. 23-1397 (Fed. Cir. Feb. 6, 2025) (Lourie, Stoll, Cunningham, JJ.)
During a 2022 inter partes review (IPR), the Board determined that all but one of the 17 challenged patent claims were unpatentable as obvious in light of a prior patent (Trivedi) and other secondary prior art. The patent described methods of creating “a local interconnect layer in an integrated circuit” using two films. The independent claim recited a first film composed of titanium nitride and a second film as “comprising tungsten.” The Board construed “comprising tungsten” to include either elemental tungsten or tungsten-based compounds. The Board also found that the Trivedi patent disclosed films comprising either elemental tungsten or tungsten compounds. Thus, the Board held that all claims except one were obvious in light of Trivedi and that a person of ordinary skill in the art would have been motivated to combine Trivedi with other prior art. The patent owner appealed, arguing that the Board’s obviousness finding was dependent on the Board’s incorrect construction of the phrase “comprising tungsten.”
The Federal Circuit agreed that the Board’s claim construction was erroneous, because the term “comprising tungsten” required elemental tungsten. The Court explained that the claims explicitly used compound names when referring to compounds, such as “titanium nitride.” Thus, when the drafters wrote “comprising tungsten” without more, they clearly intended to exclude non-elemental tungsten options. The Court also noted that the patent specification used “tungsten” to reference only elemental tungsten and used the word “based” to encompass both elements and their compounds. For example, the patent discussed “chlorine-based” and “fluorine-based” components. Thus, the Court concluded that the claim drafters knew how to delineate when terms should include compounds, and that there was no such delineation in the term “comprising tungsten.”
The Board relied on a single sentence in the patent that stated: “the second film may comprise tungsten, for example,” to support its construction. The Federal Circuit rejected such a broad reading of this language, explaining that it only provided for impurities mixed among the elemental tungsten in the second film, rather than the film comprising a tungsten compound. The Board also cited a European Union (EU) patent in support of the construction that “comprising tungsten” explicitly included tungsten compounds. The Court stated that such extrinsic evidence was insufficient to overcome the asserted patent’s intrinsic teachings.
The Federal Circuit analyzed whether the Board’s obviousness holding could stand given its erroneous construction. The Court found that because the Board determined that Trivedi disclosed layers made of a tungsten compound and elemental tungsten, the patent claims were obvious when the disputed term was properly construed to be limited to elemental tungsten. Thus, the Board’s error was harmless.
Religious Texts, Copyrights, and Estate Law: A Case of Strange Bedfellows
The US Court of Appeals for the Ninth Circuit affirmed in part and reversed in part a case involving a deceased religious leader who owned the copyrights to works reflecting his teachings. The Court found that the copyrighted works were not works for hire under copyright law, that the leader therefore had the right to license his copyrights, and that the subsequent owner of the copyrights (not a statutory heir) also had the right to terminate licenses. Aquarian Foundation, Inc. v. Bruce Kimberley Lowndes, Case No. 22-35704 (9th Cir. Feb. 3, 2025) (Hawkins, McKeown, de Alba, JJ.)
Aquarian Foundation is a nonprofit religious organization founded by Keith Milton Rhinehart. During his time as the leader of Aquarian, Rhinehart copyrighted his spiritual teachings. An Aquarian member, Bruce Lowndes, claimed that he obtained a license from Rhinehart in 1985. Upon Rinehart’s death in 1999, he left his estate, including interests in copyrights, to Aquarian. In 2014, Aquarian discovered that Lowndes was uploading Rhinehart’s teachings online and sent Lowndes takedown requests pursuant to the Digital Millennium Copyright Act (DMCA). In 2021, Aquarian sent Lowndes a letter terminating Lowndes’ license and sued Lowndes for copyright infringement, trademark infringement, and false designation of origin.
After a bench trial, the district court concluded that Rhinehart’s works were not works for hire under either the 1909 or the 1976 Copyright Act, so Rhinehart had the authority to grant Lowndes an unrestricted license. The district court also found that Aquarian did not have the authority to terminate the license as a nonstatutory heir and should have given Lowndes two years notice. The district court denied attorneys’ fees. Both parties appealed the district court’s ruling on ownership and attorneys’ fees, and Aquarian appealed the ruling on its lack of authority to terminate the license.
The Ninth Circuit, finding no clear error, affirmed the district court’s holding that Rhinehart’s works were not works for hire under either the 1909 or the 1976 Copyright Act. Under the 1909 Act’s “instance and expense” test, the Court found that “the creation and maintenance of the works was Rhinehart’s purview, and not the church’s domain.” Under the 1976 Act, which applies agency law, the Court similarly found that Rhinehart’s creation of the works was outside the scope of his employment as Aquarian’s president and secretary. Therefore, under either act, Rhinehart’s works were not works for hire, making Rhinehart the copyright owner. The Ninth Circuit affirmed the district court’s finding that as owner, Rhinehart had authority to grant the license to Lowndes. The Court also found that Lowndes’ license to “use copyrighted materials ‘without restriction’” referenced “a coming World Wide Network,” so Lowndes did not breach the license by posting the works online.
The Ninth Circuit also affirmed that the testamentary transfer of copyrights to Aquarian was permitted by both the 1909 and 1976 Copyright Acts: “Both the 1909 and 1976 Copyright Acts allow for the transfer of a copyright by will. 17 U.S.C. § 42 (repealed) (providing that copyrights ‘may be bequeathed by will’); 17 U.S.C. § 201(d)(1) (providing that that they ‘may be bequeathed by will or pass as personal property by the applicable laws of intestate succession’).”
The Ninth Circuit reversed in part and remanded for further proceedings the issue of whether Lowndes’ license was properly terminated. The Ninth Circuit found that the district court erred in applying 17 U.S.C. § 203 to Aquarian, a nonstatutory heir. Section 203 allows authors or statutory heirs to “terminate a license agreement of unspecified duration thirty-five years from the date of execution, subject to certain ‘Conditions of Termination.’” The Ninth Circuit found that the district court misconstrued § 203 as preempting nonstatutory heir beneficiaries from terminating licenses. Because the Copyright Act is silent on the termination rights of a nonstatutory heir, the Ninth Circuit referred to Washington and Colorado contract law. Both states permit at-will termination of contracts of unspecified duration. Therefore, the Court found that Aquarian properly terminated Lowndes’ license in May 2021. The Ninth Circuit affirmed the district court’s determination that no copyright infringement occurred prior to the termination but reversed and remanded for findings on whether Lowndes infringed the copyrights after May 2021.
Finally, the Ninth Circuit found that the district court did not abuse its discretion in denying admission of impeachment evidence: a recorded phone call to impeach Lowndes. The Ninth Circuit noted the district court did not even credit Lowndes’ testimony making impeachment “superfluous.” The Ninth Circuit also determined that the district court did not abuse its discretion in denying attorneys’ fees, explaining that the Lanham Act provides a district court discretion to award attorneys’ fees in exceptional cases. The Court found that Lowndes provided no evidence that Aquarian was unreasonable in pursuing its trademark claims.
USCO Releases Part 2 of its Report on Copyright and Artificial Intelligence
On January 29, 2025, the Copyright Office (USCO) issued the second of its three-part report, Copyright and Artificial Intelligence, relating to its study of how copyright law and policy should respond to the development and use of artificial intelligence. The report grows out of the USCO’s Notice of Inquiry issued in August of 2023, which garnered over 10,000 responses from the public, including from businesses, trade associations, academics, non-profits, artists, and computer scientists. Part 2 deals with the copyrightability of AI-generated materials. Part 1, issued on December 16, 2024, discussed “digital replicas” (digital depictions of an individual) and proposed a new federal law to fill the gap in coverage of existing copyright law and other aligned areas such as rights of publicity. Part 3, expected in early 2025, will discuss the use of copyrighted works for training AI models.
In Part 2, the USCO concludes that existing law on copyrightability adequately accommodates AI-generated output and accordingly makes no recommendation for legislative action. The Copyright Act grants authors limited monopolies on their creations to assure that they have sufficient incentive to create and thereby to enrich culture (i.e., in the language of Article I, Section 8: “to promote the progress of the Arts and Sciences”). As interpreted, authors must be humans. Thaler v. Perlmutter, 687 F. Supp. 3d 140, 149–50 (D.D.C. 2023), Notice of Appeal, No. 23-5233 (D.C. Cir. October 18, 2023 (argued September 19, 2024).
Although the requirement of human authorship would appear, at present, to preclude AI-generated work from receiving copyright protection under the Copyright Act, the USCO considered the pros and cons of creating a new sui generis protection targeted at AI-generated works (perhaps a more limited protection). In support of such protection, it is worth noting that a robust repository of work, even if created by non-human actors, would arguably further the goal of promoting the Arts and Sciences (and therefore argue in favor of such protection). Such protection might also encourage many people (e.g., the non-professional) to participate in the excitement of creation and to express themselves, and even monetize those expressions, in ways they never dreamed.
The USCO was ultimately not persuaded by these arguments. Focusing initially on the AI technology itself, the USCO noted that unlike humans, machines, software, and algorithms need no incentive to create and therefore need no protection. The USCO was also cautious about increasing incentives to rely on AI-generated works and the concomitant creation of a synthetically diluted culture at the expense of a robust and perpetually renewing repository of human creativity. See Part 2, at 36-37. Citing as evidence the recent challenges faced by writers and musicians, the USCO was also sympathetic to concerns that such reliance might dampen the ability of human creators to monetize their works and thereby degrade the societal incentive to create. The USCO determined that the case of persons with disabilities did not require a different result. Noting its strong support for the empowerment of all creators, the USCO noted that AI is used as an assistive technology to facilitate human creation. Copyright protection remains available so long as it is used as a tool to recast, transform, or adapt an author’s expression and not to generate that expression. The USCO provided the example of singer Randy Travis who received a copyright registration for a song he created after suffering a stroke, under circumstances where he used AI to recreate his voice and help realize the musical sounds that he and his musical team desired. Part 2, at 37-38.
Acknowledging that a work must be “authored” by a human to receive protection, humans can play a variety of roles in creating AI-generated works. When does human activity rise to authorship? The USCO devoted a large part of its discussion, perhaps the most interesting part, to this question, the answer to which, as explained by the USCO, is rooted in copyright law’s distinction between ideas and expression. Only the latter is protected under copyright law (17 U.S.C. § 102(b)).
AI output is typically generated by user inputs (“prompts”), often in the form of text (e.g., “draw an image of dolphins at a birthday party”). Typical prompts, according to the USCO, contain merely unprotectible ideas that are then translated by AI into expression. These translation processes are largely random (“black box”) processes that are not predictable or understood by the user. The USCO noted that frequently the output includes many items that were not specified and excludes items that were, and the same prompt often can yield very different results. Viewed in this light, the AI process is akin to the novel writer who translates the high-level suggestions of his or her editor, or the scriptwriter who follows the general ideas and suggestions of a movie treatment. The suggestions of the editor do not make him or her an author of the novel, and the treatment does not make its creator an author of the script for the movie. Community for Creative Non-Violence v. Reid, 490 U.S. 730, 737 (1989) (“person who translates an idea into a fixed, tangible expression entitled to copyright protection”) (emphasis added), cited in Part 2 at 9; cf., Andrien v. Southern Ocean County Chamber of Commerce, 927 F.2d 132, 135 (3d Cir. 1991) cited in Part 2 at 9 (“[A] party can be considered an author when his or her expression of an idea is transposed by mechanical or rote transcription into tangible form under the authority of the party”) (emphasis added); Milano v. NBC Universal, Inc., 584 F. Supp. 2d 1288, 1294 (C.D. Cal. 2008), citing and quoting from Berkic v. Crichton, 761 F.2d 1289, 1293 (9th Cir.1985) (distinguishing a television treatment from “the actual concrete elements that make up the total sequence of events and the relationships between the major characters”).
Importantly, even a detailed string of prompts, involving a selection and adoption process leading iteratively to the final output, does not, according to the USCO, confer the requisite control for authorship. As stated in Part 2 (at 20):
“Repeatedly revising prompts does not change this analysis or provide a sufficient basis for claiming copyright in the output. . . . By revising and submitting prompts multiple times, the user is “re-rolling” the dice, causing the system to generate more outputs from which to select, but not altering the degree of control over the process. No matter how many times a prompt is revised and resubmitted the final output reflects the user’s acceptance of the AI system’s interpretation, rather than authorship of the expression it contains.”
This conclusion may be hard to swallow for some. The iterative process more or less reflects the way many artists work, adopting small random acts on the page or canvas into integral parts of their work. Action painting of Jackson Pollock (referenced in Part 2), involving the dripping of paint on a canvas, is only a more extreme example of this regular phenomenon. While acknowledging a certain randomness in both prompting and the artistic process, the USCO distinguished the latter by the control that the artist, unlike the AI user, exerts physically over a process that is transparent and understood. “Jackson Pollock’s process of creation,” said the USCO, “did not end with his vision of a work. He controlled the choice of colors, number of layers, depth of texture, placement of each addition to the overall composition – and used his own body movements to execute each of these choices.” Part 2 at 20.
The approach of the USCO differs markedly from a highly publicized case in China, cited by the USCO at 28-29, which accorded copyright protection to an Image created by using Stable Diffusion and recognized the person using the AI tool as the author. In addition to making subsequent adjustments and modifications, the “author” used over 150 prompts to refine the image. As distinguished from the USCO’s position on iterative prompts, the court in that case considered the use of prompts as evidence of the control and creativity exerted by the author. The spirit of the Chinese court’s ruling is in striking contrast to the USCO’s:
“Therefore, when people use an AI model to generate pictures, there is no question about who is the creator. In essence, it is a process of man using tools to create, that is, it is man who does intellectual investment throughout the creation process, [not the] AI model. The core purpose of the copyright system is to encourage creation. And creation and AI technology can only prosper by properly applying the copyright system and using the legal means to encourage more people to use the latest tools to create. Under such context, as long as the AI-generated images can reflect people’s original intellectual investment, they should be recognized as works and protected by the Copyright Law.”
Li v. Liu, Dispute over Copyright Infringement of the Right of Attribution and Right of Information Network Distribution of works (as translated), at 13 (Beijing Internet Ct. November 27, 2023).
Various statutes in UK, Hong Kong, New Zealand, and India, though created before the proliferation of AI over the last couple of years, allow for computer-generated works to be copyrightable in the name of the person causing the creation of the work. The USCO noted that it remains to be seen how foreign countries interpret and apply their laws, how they harmonize their laws among themselves, and how content creators and information technology developers respond to these emerging laws. Part 2, at 29. Finally, with respect to its own conclusions on prompts, the USCO left open the possibility that advances in technology giving humans more control over generated content might merit a reevaluation of the conclusions in the report. Part 2, at 21.
Less nuanced, and perhaps less debatable than its conclusions with respect to prompts, were some of the USCO’s other conclusions. For example, even if a particular output might not be protectible, the creativity embodied in a modification of an AI output (the derivative aspects) may well be protectible. Likewise, if certain AI-generated components are themselves not protectible, a human compilation of those components may well be (e.g., organizing/compiling the AI-generated frames of a graphic novel or comic book). Additionally, the USCO noted that creative prompts (e.g., a drawing combining flowers and a human head) may result in a protectible AI image to the extent that the image transcribes the prompt. Finally, the USCO saw no need to enhance protections for AI Technologies themselves and noted that first-mover incentives along with existing copyright, patent, and trade secret protections for such technologies are sufficient.
For entities in the U.S. wanting to assure ownership of their creative works, the USCO’s position on AI-generated content might induce a bit of caution in using AI in the creative process, and it may offer some relief, at least at the margins, for people whose livelihood depends on their human creativity. Of course, ultimately it will be Congress and the courts that decide the direction of U.S. law.
Court Definitively Rejects Fair Use Defense in AI Training Case
In one of the most closely-watched copyright cases this year, a Delaware court rejected defendant, ROSS Intelligence’s (“ROSS”), fair use and other defenses by vacating its previous stance and granting summary judgement in favor of plaintiff, Thomson Reuters (“Reuters”). The case stems from allegations that ROSS used copyrighted material from Reuters’ legal research platform, Westlaw, to train its artificial intelligence (“AI”)-driven legal research engine. While the decision will certainly be informative to the dozens of pending lawsuits against AI developers, it is important to note the scope of the opinion is limited to the specific facts of this case. Specifically, generative AI was not involved, and the court’s analysis of the fair use factors was heavily focused on the fact that the parties are direct competitors.
The fair use analysis considered the four statutory factors, with factors one and four weighing most heavily.
Factor One—Purpose and Character of the Use: The court easily determined that ROSS’s use was commercial, as ROSS sought to profit from the copyrighted material without paying the customary price. Significantly, the court also found that the use was not transformative—ROSS used the copyrighted material to build a competing legal research tool, which closely resembled Westlaw’s functionality. Finally, the court rejected ROSS’s attempts to align its actions with a string of cases involving so-called “intermediate copying” of computer code, explaining that although the final commercial product ROSS presented to consumers was not a direct copy (the copying was an intermediate step), ROSS’ use was not necessary. Accordingly, because the use lacked a different purpose or character, the court found this factor weighed against fair use.
Factor Two—Nature of the Copyrighted Work: While the court acknowledged that Reuters’ headnotes involved editorial judgment and the minimum amount of creativity required for copyright validity, they were not highly creative works. Rather, they were more akin to factual compilations, which receive less protection under copyright law. The court found that this factor weighed in favor of fair use, but noted that this factor rarely plays a significant role in fair-use determinations,
Factor Three—Amount and Substantiality of the Use: Although ROSS copied a significant number of Westlaw headnotes, its final product did not present them directly to users. Instead, ROSS used the headnotes to train its AI to help retrieve judicial opinions. Given that the public did not receive direct access to the copyrighted material, the court found that this factor weighed in favor of fair use.
Factor Four—Market Effect. The court explained that ROSS’ use created a market substitute for Reuters’ legal research platform, directly harming its core business. In addition, Reuters had a potential market for licensing its headnotes as AI training data, and ROSS’ use undermined that opportunity. The court emphasized that this “is undoubtedly the single most important element of fair use,” and found that it weighed decisively against ROSS and against a finding of fair use.
Putting it Into Practice: Some key takeaways from this decision and its potential impact on other AI cases:
this decision is fact-specific and does not address generative AI;
the decision signals the limits of fair use, particularly in cases where copyrighted material is used for a non-transformative purposes to develop a competing product; and
as AI litigation continues to evolve, companies developing or deploying AI should seek ongoing legal training and they should ensure they have (and update) effective policies to manage AI risks for training AI and using AI to generate content.
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