2018 Giles Sutherland Rich Moot Court Competition

To all UT/Austin law students: We are looking for participants for this year’s Giles Sutherland Rich IP Moot Court team. This is a unique opportunity; not only do you get to compete against teams from the best law schools around the nation, but the finals take place at the U.S. Court of Appeals for the Federal Circuit—across the street from the White House. Participating in this competition will allow you to meet and work with well- respected attorneys all over Austin, from virtually every large and boutique IP law firm in town. If your team makes it to the final round at the national competition, you will have the privilege of arguing before a panel of actual Federal Circuit Judges—an opportunity most attorneys won’t get in their entire professional careers.

Each year the American Intellectual Property Law Association releases a problem for the Giles Sutherland Rich IP Moot Court Competition containing very real and very important issues in IP. The issues raised in the problem are often addressed by the Federal Circuit or the Supreme Court within one year of the problem’s issuance. In fact, during one competition, the Supreme Court issued an opinion on one of the two primary issues in the problem two days before the briefs were due. If you participate in this competition, you will tackle real issues that will put you ahead of the pack with your summer associateships or in your first year as an attorney.

You will also learn advocacy skills at a rapid pace in situations you are not likely to encounter during your first five years as an attorney, again setting you apart from your peers. Our coaches this year, Peter McCabe, Jeff Mills, Meredith Fitzpatrick and Aashish Kapadia, have a combined 75 years’ experience as trial and appellate attorneys. We have bi-weekly practice rounds before local IP attorneys, professors, and even Judges. You will make contacts with partners in virtually every major firm in Austin during these practice rounds. You will receive coaching and hands-on advice from more ex-Federal Circuit clerks than you can shake a stick at!

We will choose one or two teams of two individuals each (you must be at least a 2L to compete). The competition requires each team to submit a brief for both appellant and appellee. The briefs are due on February 5, 2018. All team members will spend part of their winter break working with one another while drafting the briefs. The workload for brief writing usually requires an average of 25 hours per week for 4 weeks. After briefs are filed, the time requirements drop to about 10 hours per week. We know that’s a substantial time commitment, but we promise you it will be well worth it.

We begin oral argument mock rounds around the third week of January. We will continue these rounds through the regionals and then nationals on a bi-weekly basis. The rounds usually occur in the evenings at a local Austin law firm, or on campus.

The regional competition will be in Houston at the Federal Courthouse from Friday, March 23 until Sunday morning, March 25. (Spring break is the week of March 12, so there’s no conflict there.) The judges at the regionals are members of the Houston Intellectual Property Law Association (IPLA), a very prestigious group of patent lawyers from the greater Houston area. The top two teams from this competition move on to the nationals in Washington.

In the many years we have been involved with this competition, we can only remember three times UT did not advance to nationals. Last year’s team made it to the semi-finals.

The national competition will occur from Wednesday, April 18 to Friday, April 20. This usually gives you time to get home and finish any seminar papers or study for finals with time to spare. Again, the teams which make it to the final round at nationals get to argue before a panel of actual Federal Circuit Judges. After the competition, and regardless of a team’s placement in the national competition, all competitors get to meet and mingle with the Federal Circuit panel judges and their clerks. In past years, more than one clerkship has sprung from this party. In addition to receiving a prize of $2,000, the winning UT team (and we have every intention of winning) is honored by the University by having their photograph taken in front of the Tower—which is lit burnt orange with the number one on it! This picture will be displayed for posterity on the third floor of CCJ. Since 2000, UT has won the national competition at least a half a dozen times, with our most recent win being in 2013.

If you’re interested in participating, please contact Peter McCabe at pmccabe0922@gmail.com or at 312-909-0958. In order to qualify for the team, you will need to complete the application in this packet, provide a writing sample of at least five pages, and participate in a tryout (a mock oral argument) during the first week of November. For the mock oral tryout, we will provide you with briefs from both sides of an argument from a past competition. Your argument will only last seven minutes, and it will not require a great deal of preparation.

APPLICATIONS ARE DUE BY 5:00 P.M. ON FRIDAY, OCTOBER 20, 2017.

MOCK ORAL ARGUMENT TRYOUTS WILL OCCUR ON NOVEMBER 2, 6, AND 7, 2017.

If you are at all interested in appellate advocacy, this is the premier competition. If appellate advocacy isn’t your thing, please feel free to share this information with any student who likes to argue! I understand that there are several students who fall into this category. We hope you will apply for this competition so you can showcase your advocacy skills to the very best students and practitioners from around the country. Have a great semester. Hook ‘em! Peter McCabe Jeff Mills Meredith Fitzpatrick Aashish Kapadia

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Application and Tryout Process for the 2018 Giles Sutherland Rich

IP Moot Court Competition

DEADLINES: Applications are due by 5:00 PM on Friday, October 20, 2017, either via email to jwhite@law.utexas.edu, or to the lockbox under the bulletin board outside of TNH 4.112. Please review the application form carefully.

For additional questions or information about this competition, contact the following team coaches:

— Peter McCabe at pmccabe0922@gmail.com or 312-909-0958

— Jeffrey Mills at jmills@kslaw.com or 512-457-2027

— Meredith Fitzpatrick at mfitzpatrick@fitzpatrickiplaw.com or 512–826–2279

— Aashish Kapadia at aashish.kapadia@bakerbotts.com or 512-322-2554

Tryouts for this Competition:

Tryouts will be held on November 2, 2:00—5:00 pm, . and November 6 & 7, 2:00–4:30 pm (each day), in one of the law school’s practice court rooms or seminar rooms (final locations will be circulated closer to the date). All tryouts will be recorded and distributed to the coaches. Signup sheets for tryout slots will be posted on the bulletin board outside of TNH 4.112. If you cannot make it on November 2, 6, or 7, contact Peter McCabe at pmccabe0922@gmail.com to schedule a makeup date.

The material for the tryouts is the problem from last year’s GSR Competition. The briefs for both appellant and appellee from last year’s competition are also attached to this application. In preparation for the tryout, you should address only the prior user defense from last year’s problem. You may argue for either the appellant or appellee. You should act as if a three-Judge panel of the Federal Circuit is reviewing the case. You do not need to do any further research outside of the attached briefs in preparation for the tryout.

For the tryouts, choose one side and prepare an argument of approximately 5-7 minutes in length. The point of this exercise is simply to demonstrate your advocacy skills. You should not do any outside research or spend significant time on the question.

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University of Texas 2018 Giles Sutherland Rich Intellectual Property Moot Court Student Application

Name

Telephone Number(s) Graduation Year

E-mail

EXPERIENCE

COMPETITIONS (Please list the names of any advocacy competitions in which you have participated, the dates of the competitions, and your results, if any.)

COURSES/EXPERIENCE (Please list any advocacy/appellate/brief-writing courses you have taken or are currently taking, and any other academic, employment or other experience you have that may be relevant to the team(s) you would like to join.)

JOURNALS (Please list any experience you have with law journals or other high-level written work.)

OTHER (Please list any other information or experience you would like considered.)

Response:

Response:

Response:

Response:

3

ADDITIONAL REQUIREMENTS

WRITING SAMPLE (Submit a writing sample with your application. Your writing sample can be a memo or brief or any other writing you have substantially prepared. If you have taken a brief-writing course, please submit a brief you wrote for the course as your writing sample; if you have not taken a brief-writing course, you are welcome to submit any other recent writing sample. Do not include any samples written during a judicial internship if your Judge edited the writing sample in any way.)

RESUME (Submit a résumé with your application.)

OTHER TIME COMMITMENTS (Please list all major time commitments or travel commitments that might affect your ability to prepare a brief or participate as an oral advocate on a team.)

ACKNOWLEGDEMENT

If I am selected to compete on an interscholastic team, I understand and agree to the following: 1. I may not be a member of any other intramural or interscholastic advocacy team with conflicting practice or

competition dates/times. 2. I understand that I may be required at times to practice as much as three or more nights a week and on some

weekends. I understand that failure to attend practice, chronic tardiness, or chronic lack of preparation for practice may result in my disqualification from the team, which could subject me to sanctions by the Board of Advocates. I understand that voluntary withdrawal from the team will subject me to sanctions by the Board of Advocates, unless the coach releases me from the commitment in writing.

3. I understand that each team’s coach has the discretion to select the members of the team and assign roles

within the team, and I agree to accept the coach’s decision. 4. I understand that my role on the team may be that of an alternate and not an advocate, and I am willing to

participate fully on the team in that role. I understand that failure to participate fully on the team in the role to which I am assigned will result in my disqualification from the team and may subject me to sanctions by the Board of Advocates.

5. I agree to complete all forms required by UT Law for travel, including an acknowledgement of travel policies, a

release and indemnification agreement, proof of health insurance, and a travel release form.

Signature: Date:

Response:

1

2017 Giles S. Rich Memorial Moot Court Problem

This case involves an appeal in a patent infringement and breach of contract case

captioned Syrus Associates LLP v. SQUARE.

Syrus Associates LLP sued a community research group called SQUARE in the US 5

District Court for the District of Cascadia for infringement of US Design Patent D736,836

by SQUARE’s graphical user interface for cannabinoid identification software. SQUARE

counterclaimed for breach of contract under the laws of the state of Cascadia, a state in

the 10th Circuit, for Syrus’s unauthorized publication of SQUARE’s trade secrets in a

mobile application. SQUARE alleged a prior user defense under 35 U.S.C. § 273, and 10

Syrus sought to have the state counterclaim dismissed for lack of supplemental

jurisdiction and on the merits. The district court exercised jurisdiction over all claims,

ultimately granting a motion for summary judgment that SQUARE infringed the ‘836

patent and was not entitled to a prior user defense and granting a cross-motion that

Syrus was in breach of contract. 15

Pursuant to 28 U.S.C. § 1295(a)(1), Syrus filed this appeal in the United States Court of

Appeals for the Federal Circuit, seeking to reverse the lower court’s ruling that Syrus

had breached the contract while SQUARE cross-appealed the ruling on the prior user

defense and infringement. The appeal was docketed as Appeal No. 16-9999. On appeal

the parties stipulated to arguing only the following issues: 1) whether a prior user 20

defense under 35 U.S.C. § 273 is available; 2a) whether the District Court properly

exercised supplemental jurisdiction over the breach of contract counterclaim; and 2b)

whether Syrus had breached the contract, with Syrus acting as appellant and SQUARE

as appellee for all aspects of appeal.

25

Record Facts

The record on appeal is generally confined to the facts presented herein. Any fact not

recited is without support, except that clearly established, general facts consistent with

this record may be judicially noticed.

2

Technological Background and SQUARE

Plants of the genus Cannabis have long been used for industrial and entheogenic

purposes. While some uses of marijuana have been illegal in parts of the world, medical

and pharmaceutical industries have recently taken greater interest in the clinical effects

of these plants for treating certain disease states and mitigating the impact of its 5

recreational use. At the same time, several jurisdictions have legalized possession and

use of cannabis products under particular conditions, such as for medical use. As

clinical applications become more prevalent, these actors are increasingly sensitive to

studying and policing production, use, and chemical characteristics of these products to

maximize public safety and health. 10

Researchers and enforcement agencies both face a problem: how to identify and

characterize cannabis plants and products by their content of cannabinoids – a class of

chemical compounds that act on human cannabinoid receptors. Tetrahydrocannabinol

(THC) is probably the best known of the cannabinoids owing to its psychoactive effects,

but dozens of other cannabinoids are of 15

interest for their impact on human health.

There is a growing need for identification

of cannabinoid content in field

environments such as during growing and

harvesting of the plant to identify legal or 20

prohibited plants by cannabinoid profile,

ensure minimal levels of THC, and/or

identify levels of other cannabinoids of

interest.

Although cannabinoids have known light-25

absorption properties that can be used in

their identification1, determination of exact

cannabinoid profile conventionally

1 See, e.g., US Pat. 8,097,467 to Henderson (filed Dec. 24, 2008)

3

requires isolation of the cannabinoids in a laboratory setting, followed by

chromatography or spectrometry.2 This does not lend itself well to spot-check or field

verification of plants of interest, where cannabinoids exist in botanical systems matrixed

among thousands of other compounds in foliage, in varying environmental conditions.

Remarkably, a small research group solved this problem. SQUARE, an organization of 5

chemists and community leaders founded in the 1970s at a technical community college

in what is now the state of Cascadia, a state in the 10th Circuit, to promote healthy living

through science (SQUARE’s name was originally “Society for Quashing Unhealthy and

Addictive Recreation or Entertainment,” which has been since abandoned for just the

acronym), discovered in 2011 that nearly all cannabinoids uniquely polarize incident 10

electromagnetic radiation. That is, light reflected by a cannabinoid tends to be oriented

in a single plane that is distinct to that cannabinoid. SQUARE recognized that this

polarization can be used as a filter. A specific cannabinoid can be detected from

reflected light intensity and spectrum in a polarization plane unique to that cannabinoid.

Dina Tinhail, the director of SQUARE, was eager to implement this cannabinoid-15

screening discovery to identify, track, and ultimately remove cannabis plants and

products yielding THC. But SQUARE was a small, mission-oriented research group with

a handful of botanists and chemists and no other engineers or computer programmers.

While SQUARE had discovered the natural correlation between cannabinoids and light

polarity - and had developed a significant database identifying various cannabinoids by 20

this property by hand - it lacked the monetary and technological resources to implement

the same in software. SQUARE did not have the computer development know-how to

create real-world identification devices running such software or support large-scale

cannabinoid reconnaissance.

25

2 See, e.g., Hazekamp, Arno, “Chromatographic and Spectroscopic Data of Cannabinoids from Cannabis sativa L” Sept. 2005, J. of Liquid Chromatography & Related Techs.

4

The Joint Research Agreement

Like many small researchers and inventors, SQUARE sought out a larger party to

develop, protect, and commercialize its discovery. SQUARE chose to partner with Syrus

Associates LLP (hereinafter “Syrus”), a large computer software development and IP

asset holding firm headed by Mary Syrus out of Good Earth City, Cascadia. Syrus 5

Associates was known for its work in developing software-based research and analysis

tools and often worked with smaller players to develop and commercialize their software

IP. Because of SQUARE’s impecunious operation, they agreed to give Syrus exclusive

commercialization rights in software developed by Syrus. The commercialization rights

were the lynchpin of negotiations between the parties, with Syrus insisting that it be 10

given sole rights to retail the software to third parties and patent the same, because this

was the only way to recoup its investment in the contract obligations. SQUARE agreed

but reserved all other rights in their discoveries, and required Syrus to keep confidential

SQUARE’s removal actions that used the technology. These agreements were reflected

in a Joint Research Agreement (“Agreement”) between SQUARE and Syrus executed 15

on October 12, 2011, which read in pertinent part:

Syrus Associates, LLP, a partnership organized under the laws of the state

of Cascadia, and SQUARE, a not-for-profit organization under the laws of

the state of Cascadia, desire to develop proprietary, large-scale

cannabinoid identification software and systems for the parties’ mutual 20

benefit. Based on mutual assent and negotiated-for consideration

discussed below, the parties hereby enter into a joint research, ownership,

and commercialization agreement (“Agreement”) with the following terms:

. . .

3.2 Non-transfer and Safeguarding of Trade Secrets and Confidential 25

Information

The parties agree that no ownership or other interest in existing technology,

information, know-how or other trade secret material is transferred,

licensed, or otherwise granted by the terms of this Agreement . . . All

information, discoveries, data, concepts, inventions, and technical know-30

how created under this Agreement, including any of the preceding regarding

cannabinoid electromagnetic polarization, cannabinoid types and

distribution among differing cannabis species, identification of cannabis

5

species based on the same, and any removal actions taken against plants

of the same, is and will remain a trade secret of SQUARE . . . Where the

parties access or otherwise possess trade secret or other confidential

information of another, the parties agree to use commercially-reasonable

safeguards to keep the same confidential, which, at a minimum shall be the 5

most protective measures taken by either party in connection with their own

trade secrets and other confidential information. The non-transfer and

safeguarding of trade secret or confidential material shall survive this

Agreement, and any physical manifestations of the same shall be delivered

to the owning party at the termination of this Agreement. 10

. . .

5.1 Patenting and Commercialization

As an exception to paragraph 3.2 above, Syrus may, at its option, pursue

patent rights on commercialize-able and patentable subject matter

developed by Syrus under this Agreement. Syrus shall be responsible for 15

all patent or other procurement and enforcement costs on this subject

matter, with SQUARE being notified of any such procurement and

enforcement. Resulting patents and other rights on the commercialize-able

and patentable subject matter developed by Syrus under this Agreement

shall be equally owned by the parties but allowed to be openly 20

commercialized and/or licensed to third-parties only by Syrus. Syrus shall

deliver to SQUARE any software embodying this subject matter developed

under this Agreement, regardless of commercialization, for SQUARE’s

internal use.

. . . the parties agree that all prior-existing subject matter and other subject 25

matter developed under this Agreement outside of the commercialize-able

and patentable subject matter developed by Syrus set out above shall

remain secret and confidential under the terms of Section 3.2, including, but

not limited to, SQUARE’s plant location database and any

enforcement/removal activities against cannabinoid-bearing plants. 30

The remainder of the Agreement was directed to the research and development

process and contract formalities, including severability, exclusivity/non-delegation, and

an operation of laws provision stating that the Agreement in all respects was governed

by the laws of the state of Cascadia. The Agreement did not include an integration

clause. Dina Tinhail and Mary Syrus, the parties’ principals, executed the Agreement on 35

October 12, 2011.

6

The ‘777 Patent Application

After 2 months of development, Syrus had implemented SQUARE’s cannabinoid

discovery in software that could identify, categorize, and record cannabinoid-yielding

plants and plant materials in the real world by cannabinoid content. Particularly, Syrus

programmed an algorithm that, based on received reflected light information, 5

determined fairly accurate cannabinoid content of the reflected subject matter. This

allowed identification of plants in the wild or after harvest, as well as determining

presence of THC and/or other cannabinoids of interest. The software could be

implemented in any computer receiving the light signals. Syrus delivered to SQUARE in

confidence several versions of this basic software for various platforms with light signal 10

input / cannabinoid detection output, and efforts turned to developing an enterprise-level

application with full graphical user interface (“GUI”) for commercialization.

On January 3, 2012, Syrus filed a patent application on the developed software, and

notified SQUARE of the same. Syrus also filed a non-publication request under 37

C.F.R. § 1.213 with the application, because only US patent rights were being pursued. 15

The USPTO assigned the application number 13/400,777, which it never published. The

“Detailed Description” section and FIGS. 1 & 2 of the ‘777 application provided in

relevant part:

[0016] The present invention is software-driven systems, methods, and

storage media for identifying cannabinoids in situ. The present invention is 20

not, and the inventors explicitly disclaim any scope over, bare transitory

signals, abstract ideas, or natural phenomena per se. Although such

concepts are useable with the present invention, the present invention is

limited to particular implementations of the same to improve specific

botanical and/or chemical technology, including specifically-configured 25

cannabinoid-identifying devices and software. In contrast to the present

invention, the few example embodiments and example methods discussed

below illustrate just a subset of the variety of different configurations that

can be used as and/or in connection with the present invention. . .

7

[0030] FIG. 1 [excerpted at

right] is an illustration of an

example embodiment system

100 for identifying

cannabinoids in situ. As seen 5

in FIG. 1, reflected light 20 is

collected. Reflected light 20 is

light reflected from a subject

50 whose cannabinoid content

is of interest. . . The reflected 10

light 20 is passed through a

polarizer 105 with a known

polarizing angle, such that the

resultant polarized light 120 is

of a known polarized angle. . . 15

. Reflected light 20 may be

gathered by any light-

detecting device including, for

example, photo sensors like

CCDs, photodiodes, LEDs, photovoltaic cells, or visual inspection can be 20

used to collect reflected light 20, coupled with a polarizer 105 to create

polarized light 120 of a known polarization angle.

[0031] . . . The processing device 101, using example methods discussed

below, determines the cannabinoid content of the subject 50. . . . The

processor 101 may also correlate the determination with a geographic 25

location, date/time, or other related information in a database. . .

[0034] The processor 101 may be any known computer processor with

associated transient and/or permanent memory that is programmable with

example methods. As such, example system 100 can be implemented in

any computerized device receiving light data 120. For example, hand-held 30

communications or mobile devices like cell phones and digital cameras, or

laptops, GPS devices, etc. may be configured as system 100. Similarly, a

drone or satellite may be configured as system 100, for example. . .

8

[0040] FIG. 2 [at left] is a flow chart of

an example method for identifying

cannabinoid content. As seen in FIG.

2, in 201, light reflected from the target

of interest, such as foliage or 5

harvested plant products, is collected

and polarized at a determinable angle

of polarization. For example,

polarizing filters known in the art, such

as polarizing PVA doped with iodine, 10

wire-grid polarizers, birefringent

polarizers, etc. may be used, as long

as the resultant light is of a known

angle with respect to the polarizer.

That is, any well-known mechanical or electronic methods for polarizing 15

incoming light, such as those used in film and photography, may be used to

collect and polarize the reflected light in 201.

[0042] . . .Several collections 201 may be performed serially or

simultaneously, such as by separate photo sensors, at distinct angles of

polarization . . . Collections in 201 may be performed by any light sensor. . 20

., including photosensitive circuits or the human eye coupled with a

polarizing plastic card. . . The collections in 201 may be transformed by the

electronics or reported as values of their spectrum or other optical

properties of interest, such as intensity and wavelengths.

[0043] In 202, the light collected in 201 is spectrally compared against a 25

cannabinoid spectrum to determine presence of cannabinoids associated

with each angle of polarization. For example, in 202, a computer processor

may determine particular wavelengths of light particularly absorbed – i.e.,

missing – from the reflected light at only particular angles of polarization . .

. [Citation to Hazekamp, see note 2, supra] Because a cannabinoid 30

spectrum typically shows strong absorption of light in the 650nm range (i.e.,

absorption of reds) but reflection of ultraviolet light, the presence or absence

of specific cannabinoids for each angle of polarization may be easily

determined by comparing the collected light against the cannabinoid

spectrum at each angle of polarization. . . . For example, [THC] polarizes at 35

6.11 degrees azimuthal, so particularly absent reds and well-reflected

greens and ultraviolet in light from this angle of polarization relative to light

from other angles correlates with strong presence of [THC] . . . Other angles

of polarization for cannabinoids of interest may be determined by testing a

reference sample. 40

9

[0045] In 203 the processor reports the results of the determination to a

user. The results may include specific cannabinoids associated with the

angle of polarization as well as specific varieties or species of plant

corresponding to the detected cannabinoids. . .

[0046] . . . Table 1 lists known cannabinoids with their angle of polarization. 5

Cannabinoid Specific Polarization Angle

(degrees azimuthal)

Tetrahydrocannabinol [THC] 6.11

Cannabidiol 8.5

Cannabicyclol 8.7

. . . . . .

Cannabichromene 10.0

[0049] The processor may thus determine if any number of distinct

cannabinoids are present or absent in a subject based on polarizing light

reflected by the subject. By using the previously-unknown property of

cannabinoids to polarize reflected light at particularly-distinct angles,

example methods can readily identify presence of many different 10

cannabinoids in cannabis plant foliage and products . . .

[0050] . . . For example, upon detection of [THC] with example methods,

the reflecting subject may be destroyed or reported to authorities. Prior to

the example method and embodiments disclosed herein, a more involved,

and potentially destructive, chemical test would need to be carried out on 15

the subject to determine cannabinoid profile. . .

After minimal prosecution, the ‘777 application was allowed on April 24, 2013 with the

following representative method claims:

1. A method of identifying cannabinoid presence and/or type in an article, the

method comprising: 20

polarizing, at a known angle of polarization, light reflected from the

article; and

determining the spectrum of the polarized, reflected light, wherein a

cannabinoid spectrum indicates presence of a specific cannabinoid

associated with the known angle. 25

10

2. The method of claim 1, further comprising:

repeating the polarizing and determining each for a plurality of known

angles of polarization so as to generate a cannabinoid profile for the article.

The Examiner stated in Reasons for Allowance that identification of a specific

cannabinoid associated with a known polarization angle was unknown in the prior art, 5

rendering the claims patentable.

Prosecution Difficulties and Relationship Breakdown

On July 17, 2013, however, the Examiner withdrew the Notice of Allowance, citing

developing Supreme Court § 101 caselaw. The Examiner newly rejected the claims as

reciting only a preemptive application of the “natural phenomenon” of cannabinoids 10

polarizing light. Additional rounds of prosecution ensued over the next several months

with amendments to the claims. The Examiner would not withdraw the § 101 rejections.

Relations soured between SQUARE and Syrus as prosecution of the ‘777 application

drew out. Syrus became increasingly skeptical of potential profits if it could not get a

patent. As expenses mounted, Syrus dramatically slowed development and delivery of 15

new systems or software packages. At the same time, SQUARE was frustrated by the

lack of large-scale delivery of cannabinoid-identifying technology or any GUI from

Syrus. While an appeal in the ‘777 application was pending, SQUARE and Syrus

terminated the Agreement in the following email on April 16, 2014:

Mary, 20

I know the appeal was expensive and the changing legal landscape has

thrown up more barriers than anticipated. But we both know there’s a solid

opportunity of securing a patent if we wait this out or pursue rights in Europe.

It’s too bad Syrus Associates lacks the vision to take on further prosecution

and deployment. 25

In light of these difficulties and Syrus’s dropping the ball on further delivery

(for example, we’ve had to design our own GUI for the delivered software),

it’s fair to terminate our relationship as you suggested. Consider this email

SQUARE’s Notice of Termination as provided in Section 7 of the

Agreement. 30

11

It’s unfortunate for all our interests (and the state of tech in general) that

things went wrong here. If anything comes of the appeal in the ‘777

application, which we still both own, we would like to revisit a future, more

productive relationship. We expect all other terms of the Agreement as to

reserved rights to be respected. 5

Regards,

Dina Tinhail

Mary Syrus acknowledged the termination in a one-word reply (“Cool.”) and Syrus

returned physical materials provided during development of the software to SQUARE.

Activities between the parties ceased. 10

On June 17, 2015, the Patent Trial and Appeal Board issued an opinion affirming the §

101 rejections in the ‘777 application. Syrus made no response, and the ‘777 application

became abandoned on August 17, 2015 without ever being published and without any

children or other related applications being filed. The relevant claims, having been

amended several times, were presented on appeal in the following form: 15

1. A method of determining a cannabinoid profile in a cannabis plant or

product, the method comprising:

receiving light reflected from the cannabis plant or product;

polarizing, at a first angle of polarization associated with a first

cannabinoid, the received light to create a first polarized light; 20

electronically converting the first polarized light to signals containing

spectrum information of the first polarized light;

comparing, with a computer processor, the spectrum information of

the first polarized light against a cannabinoid spectrum;

determining, with the computer processor, whether the plant or 25

product contains the first cannabinoid if the comparing shows the

cannabinoid spectrum in the first polarized light; and

reporting the results of the determining.

2. The method of claim 1, further comprising: 30

polarizing, at a second angle of polarization associated with a second

cannabinoid, the received light to create second polarized light;

repeating the comparing and the determining for the second

polarized light to create the cannabinoid profile for the cannabis plant or

product; and 35

12

associating the cannabinoid profile with a cannabis variety reported

in the reporting.

6. The method of claim 1, wherein the first cannabinoid is [THC] and wherein

the first angle of polarization is 6.11 degrees measured from an azimuthal. 5

11. The method of claim 1, wherein the receiving light reflected is achieved by

a photosensor on an aerial vehicle flying over the cannabis plant or product.

The Board opinion sustaining the § 101 rejections is excerpted in part below:

Appellant does not contest the Examiner’s finding that the claims are 10

directed to the natural phenomenon of cannabinoids inherently polarizing

reflected light at specific angles of polarization unique to the cannabinoid.

Indeed, we find the claims clearly recite this natural phenomenon by

receiving reflected light and then determining the light’s polarization to

determine associated cannabinoid content. . . nor does Appellant contest 15

the claims use the recited cannabinoid property to compare new and stored

information and categorize the new information, an abstract idea. . .

The specification confirms the invention is primarily based on the abstract

use of a natural phenomenon; . . . the polarization of light by cannabinoids

is a natural phenomenon, and various polarizations of associated 20

cannabinoids can even be observed by the naked eye. See Specification, ¶

[0030] (“visual inspection”). Because the claims are dominated by recitation

of a natural phenomenon and the abstract idea of organizing information

about the same, we turn to the next step of the Mayo/Alice test, determining

if the claims are confined to a specific application of this phenomenon. See 25

Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S.Ct. 1289, 1294,

1298 (2012).

. . . the second step determines whether the claims further recite a specific

application of the identified natural phenomenon or abstract idea [and do

not] preempt the same by covering all applications of the judicial exceptions. 30

. . . In determining whether there is specific application, bare recitations of

generic computer components, purely conventional actions, audience-

identifying or field-of-use limitations, and insignificant post-solution activity

are of little weight. . . Mayo, 132 S.Ct. at 1294; Alice Corp. Pty. Ltd., v. BLS

Bank Intern., 134 S.Ct. 2347, 2354 (2014). 35

None of the claims at issue recite a specific application of the natural

phenomenon of cannabinoid-specific light polarization. As for claim 1, the

“receiving” and “polarizing” steps are simply observational actions of the

13

natural phenomenon itself that rely on conventional polarization techniques.

See Specification, ¶ [0040]. Similar to the “administering” and “determining”

steps of [Mayo], actions that merely provoke a natural phenomenon in

general terms do not amount to a specific application. . . Mayo, 132 S.Ct. at

1294; see also Ariosa Diagnostics, Inc. v. Sequenom, Inc., 2014-1139 5

slip.op. at 10-12 (Fed. Cir. June 12, 2015). The “electronically converting,”

“comparing,” and “determining” steps are little more than translating the

results of the natural phenomenon into general computer terms with clear,

mental-only analogs. . . . See Cybersource Corp. v. Retail Decisions, Inc.,

654 F.3d 1366, 1372 (Fed. Cir. 2011). The final ”reporting” step is 10

insignificant post-solution activity; the reporting does not limit or even affect

the preceding steps. Parker v. Flook, 437 U.S. 584, 590‐91 (1978). Similar

to the reporting the results of the mathematical formula in Flook, “reporting”

the results of any deterministic or assaying method, like those claimed here,

is inherent in the utility of such methods and does not limit the claims from 15

whole preemption here. . . .

. . . Appellant’s arguments about disclaimer or disavowal in the specification

are not persuasive. See Spec, ¶ [0016]. The caselaw makes clear that

patentable subject matter does not depend upon the “draftman’s art” but on

a specific, novel application being recited in and meaningfully limiting the 20

claims. Alice, 134 S.Ct. at 2359. . . In sum, the claims recite nothing

substantively beyond the use of cannabinoid-identifying light polarization to,

well, identify cannabinoids. Because claim 1 does not recite a specific

application of the natural phenomenon of cannabinoid-specific light

polarization but instead preempts all basic uses of merely identifying 25

cannabinoids by an inherent property of the same, claim 1 does not recite

patent-eligible subject matter.

. . . the “polarizing” and “repeating” of claim 2 do nothing but repeat the

patent ineligible steps of claim 1 for other cannabinoids and thus do not

confer patent eligibility. The “associating” step that builds a cannabinoid 30

profile of the plant is a basic use of organizing information . . ., particularly,

comparing new and old information – the built cannabinoid profile with a

known cannabis plant’s profile to identify a specific plant. . . . The use of an

abstract idea, a conventional comparison of new and old information,

cannot render [claim 2] non pre-emptive. See Classen Immunotherapies, 35

Inc. v. Biogen Idec., 659 F.3d 1057, 1067-68 (Fed. Cir. 2011).

. . . claims [6 and 11] are [either] mere field-of-use limitations [or] audience

identifiers. . . . The recitation of [THC] in claim 6 simply refers to the relevant

audience, namely, pre-existing growers who have been interested in [crop

THC content] long before anyone presented these claims. . . Limiting the 40

14

claims to an aircraft as claim 11 does is nothing more than a field-of use

limitation. . . Bilski v. Kappos, 130 S.Ct. 3218, 3231 (2010).

The Examiner’s rejection . . . under 35 U.S.C. § 101, is affirmed.

Post-Agreement GUI Development

SQUARE undertook its own efforts with the developed software from Syrus. Beginning 5

in late 2013, as relations with Syrus were deteriorating and further work product from

Syrus was not forthcoming, SQUARE’s members collectively worked on a GUI for the

cannabis plant tracking and elimination

program. Part of these efforts were led by a

SQUARE assistant director named Luce 10

Morales, who on November 20, 2013 drew a

map overlay for SQUARE’s identification

software. Morales, lacking computer

implementation skills, handed the GUI project

over to a SQUARE recent hire for 15

programming, Ernest Temperance.

Temperance re-formatted Morales’ map

overlay to fit relevant information from their

tracking and elimination system. Temperance

then implemented the GUI with appropriate 20

programming, shown at left as it would appear

on a computer or mobile device executing the

software and with which a user could interact.

On December 4, 2013 SQUARE began using

its system and GUI to internally track and remove plants it identified in the wild, as well 25

as report illegal cannabinoid-bearing plants on private land to relevant authorities, often

for bounties in exchange for their reporting. SQUARE continually used this system with

the same GUI to this day. SQUARE did not disclose its internal cannabis identification

and tracking system publicly or to Syrus, and none of Morales, Temperance, or anyone

at SQUARE ever worked with anyone at Syrus on any GUI or knew of Syrus’s later GUI. 30

15

Meanwhile, Syrus presumed it was free to continue developing its own commercial

cannabinoid-identifying technology following dissolution of the Agreement in April 2014.

Syrus decided to pursue a mobile application and polarizing camera add-on for

identifying and geotagging identified plants. The app ran on the same software as the

software delivered to SQUARE but with a new mobile application backend and a new 5

geographic GUI added on. Syrus called the app Tokémon Go and billed it as “a fun new

way to search out, tag, and catch different types of cannabis plants out there!” Syrus

published the app through relevant outlets including the Apple Store and Google Play

stores on August 26, 2015.

Prior to the app’s public release, on December 10, 2014, Syrus filed a design patent 10

application for the Tokémon Go GUI. The application issued as US design patent

D736,836 on September 29, 2015. The ‘836 patent included a single claim and drawing

for the covered GUI:

CLAIM

The ornamental design for a display 15

screen with graphical user interface, as

shown and described.

DESCRIPTION

The FIGURE is a front view of a display

screen with graphical user interface 20

showing a new design. The broken lines

on the exterior of the figure represent the

display screen and bounds of the

claimed design, forming no part thereof.

Similarly, the broken lines shown inside 25

the figure are for environmental

purposes only and form no part of the

claimed design.

Litigation

Shortly after the release of Tokémon Go, SQUARE became aware of Syrus’s continued 30

use of what it regarded as its trade secret of identifying cannabinoids by their polarizing

16

effects in the app. Combined with the striking similarity between the app’s GUI and

SQUARE’s developed GUI, Dina Tinhail was convinced Syrus had ripped SQUARE off

and sent an angry email to Mary Syrus on September 2, 2015 about the breach of

contract and screenshots of SQUARE’s GUI, suggesting Syrus had stolen that too.

Syrus replied on September 9, 2015, arguing that it was SQUARE who was actually 5

infringing their patent-pending designs in the Tokémon Go GUI.

Relations did not improve from there but became increasingly adversarial. On October

7, 2015, Syrus sued SQUARE in the US District Court for the District of Cascadia for

infringement of Syrus’s design patent D736,836. SQUARE answered with a prior user

defense under 35 U.S.C. § 273 and counterclaimed for breach of the Agreement by 10

Syrus’s use and disclosure of the previously-delivered cannabinoid-identification

software in the Tokémon Go app, alleging the District Court had supplemental

jurisdiction over the state law breach claim under 28 U.S.C. § 1367. Cascadia is within

the 10th Circuit’s jurisdiction and has adopted the Restatement (Second) of Contracts for

its state contract laws. The state has no court-developed common law to, and it looks to 15

other states’ treatment of contracts under the Restatement as persuasive.

Before discovery, Syrus sought to have SQUARE’s breach of contract counterclaim

dismissed. Syrus argued that § 1367 conveyed jurisdiction only over compulsory

counterclaims. The patent infringement claim dealt with similarities in design between

SQUARE’s internal program and Syrus’s design patent, but the breach of contract claim 20

was based on state law and dealt with the contents of the Syrus’s Tokémon Go

application. Thus, Syrus argued that the breach of contract claim was merely a

permissive counterclaim lacking an independent basis of federal jurisdiction that could

not be joined by § 1367.

SQUARE responded that several circuits had agreed that § 1367 extended jurisdiction 25

over permissive counterclaims too, as long as they were “related to claims in the action”

so as to “form a part of the same case or controversy.” Because SQUARE’s internal

program and Syrus’s Tokémon Go application used the same software, dealt with the

same piece of technology, and had a shared genesis in the parties’ Agreement,

17

SQUARE argued the breach of contract counterclaim was proper under 28 U.S.C. §

1367. SQUARE also argued that, even if the claims were not sufficiently related, the

breach of contract claim had independent federal question jurisdiction because the

issue of “patent eligible subject matter” was federal in nature, dominated the dispute,

and was important to the federal system under Gunn v. Minton, 133 S.Ct. 1059 (2013). 5

The District Court denied Syrus’s motion in the following excerpted memorandum and

order:

. . . 10th Circuit Court of Appeals law applies to federal jurisdictional issues

of this District Court, as Cascadia is within the 10th Circuit. . . . State law

claims, such as breach of contract, are governed by the laws of the state of 10

Cascadia, which has adopted the Restatement (Second) of Contracts . . .

. . .Syrus is correct that the breach of contract counterclaim does not arise

under federal patent law. Syrus is further correct that the counterclaim is a

permissive, rather than compulsory, counterclaim. See FDIC v. Hulsey, 22 15

F.3d 1472, 1487 (10th Cir.1994) . . .. Syrus is lastly correct that prior to

1990, federal courts would not hear permissive counterclaims under the

existing ancillary jurisdiction doctrine, and the 10th Circuit has never reached

the question of whether the 1990 enactment of § 1367 changed this rule.

See Walker v. THI of New Mexico at Hobbs Ctr., 803 F. Supp. 2d 1287, 20

1299-1300 (D.N.M. 2011). Syrus’s correctness ends there.

As the First, Second, and Seventh Circuits (as well as several district courts

within our circuit) have properly recognized, 28 U.S.C. § 1367 extends

supplemental jurisdiction to permissive counterclaims that are sufficiently 25

related to the original claim and within the Constitutional case or controversy

limits. See Global NAPs, Inc. v. Verizon New England Inc., 603 F.3d 71, 76

(1st Cir. 2010); Jones v. Ford Motor Credit Co., 358 F.3d at 210-14;

Channell v. Citicorp Nat'l Servs., Inc., 89 F.3d 379, 384-87 (7th Cir. 1996) .

. .. Thus, this court has jurisdiction if the counterclaim, though permissive, 30

is nonetheless sufficiently related to the plead claims so as to “form a part

of the same case or controversy” under 28 U.S.C. § 1367(a). That “case or

controversy” test merely requires that the claims all “derive from a common

nucleus of operative fact.” Price v. Wolford, 608 F.3d 698, 702-703 (10th Cir.

2010) . . . 35

. . . Both the design patent infringement claims and breach of contract

counterclaim derive from the same operative facts – the research

18

relationship between Syrus and SQUARE as governed by the same

[Agreement]. . . All of Square’s internal tracking software with GUI, the

Tokémon Go application, the Design Patent D736,836, and question of

breach by disclosure of SQUARE’s trade secrets all directly spring from the

mutual actions of the parties taken further to the Agreement. . . 5

Because both the patent claim and the breach of contract counterclaim here

derive from a same set of operative facts, the court will exercise jurisdiction

over all claims [without regard for] the permissive bases to decline

jurisdiction in § 1367(c). 10

Following discovery, the parties filed cross motions for summary judgment under

stipulations. The parties stipulated to the record as recited herein; SQUARE stipulated

to infringement of the ‘836 design patent if the prior user defense under 35 U.S.C. § 273

was inapplicable; and Syrus stipulated to breaching the Agreement if the Tokémon Go 15

application did not fall within paragraph 5.1 of the Agreement.

Syrus argued in its motion for summary judgment that § 273 prior user rights were

inapplicable because SQUARE’s internal GUI is merely a “design” not listed in § 273(a).

Syrus further argued that, because Syrus and SQUARE were subject to a joint research

agreement at the time SQUARE developed its GUI, the privity exception of § 273(e)(2) 20

applied, as the developer Morales was in privity with SQUARE by virtue of the

Agreement. Syrus did not seek attorney’s fees under § 273(f) for assertion of the

defense. For its part, SQUARE responded that a GUI on a screen, like its internal

tracking system, is a “machine” under § 273(a), which operated on only the allegedly

infringing subject matter and not the form of the asserted patent. SQUARE further 25

argued that the “privity” exception of § 273(e)(2) could not apply to activities undertaken

unilaterally and without agency, such as SQUARE’s GUI work.

SQUARE argued in its motion for summary judgment that Syrus had violated the

Agreement with the Tokémon Go application. That application contained the

cannabinoid-identifying relationship and cannabinoid database in its software that Syrus 30

was not permitted to disclose, because it was not “patentable subject matter” as

evidenced by the ‘777 application’s rejection. For its part, Syrus responded that the

cannabinoid-identifying functionality of the Tokémon Go application was clearly “patent

19

eligible subject matter” at the time of the Agreement or if properly claimed. As such, the

application was excepted by section 5.1 of the Agreement.

On October 10, 2016, the District Court granted both motions for summary judgment,

finding both parties liable to each other for varying damages. The memorandum

granting the cross motions is excerpted in relevant part below: 5

. . . 10th Circuit Court of Appeals law applies to federal jurisdictional issues

of this District Court, as Cascadia is within the 10th Circuit. . . . State law

claims, such as breach of contract, are governed by the laws of the state of

Cascadia, which has adopted the Restatement (Second) of Contracts . . .

Summary judgment is appropriate under Rule 56 if there is no genuine 10

dispute of material fact. . . . The parties have stipulated to a record without

contested facts, but with much dispute as to the meaning of words in a

contract and in 35 U.S.C. § 273. Such disputes are well-suited to summary

judgment, as these are not factual questions. Where a contract is clear on

its face, as this court finds the [Agreement] is, its interpretation is a matter 15

of law dependent only on the content of the Agreement and irrespective of

external events. Restatement (Second) of Contracts § 209; see, e.g.,

Peterson v. The Sunrider Corp., 48 P.3d 918, 925 (Utah 2002). Of course,

interpretation of the patent statutes is also a question of law. Belkin Intern.,

Inc. v. Kappos, 696 F.3d 1379, 1382 (Fed. Cir. 2012). 20

The Federal Circuit has not yet had the opportunity to construe 35 U.S.C. §

273 as it was passed in the 2011 America Invents Act . . . This Court holds

the prior user defense of § 273 does not apply to a mere design. . .

. . .to be sure, the alleged infringing subject matter of the ‘836 patent is only

a design – the ornamental elements of the GUI of SQUARE’s internal 25

tracking system – and not the underlying pixels, screen, or hardware of that

system. Section 273 clearly applies only to “subject matter consisting of a

process, or consisting of a machine, manufacture, or composition of matter.”

This language closely tracks the subject matter for utility patents in §§ 100

& 101 . . . (“process, machine, manufacture, or composition of matter”). 30

Notably, § 273 says nothing of “ornamental designs” – the term used in §

171 for design patents. . . . Thus, the statute is clear on its face; the prior

user defense can only apply to subject matter accused of infringing a utility

patent.

Because the statute is clear, legislative history is of minimal value. 35

Nonetheless, SQUARE’s argument falls short here too. As SQUARE would

20

have it, some statements over the past decades of legislative wrangling

over the [AIA] suggest that a prior user defense should apply broadly. See,

e.g., 112 H Rep. No. 98, at 44 (2011) (“The prior-use defense may be

asserted against any patent (not just methods)”) This says nothing

specifically about design patents. . . . If anything, by scouring the legislative 5

history, one can equally find statements suggesting designs were

specifically not meant to be included by Congress. See, e.g., Matal, A Guide

to the Legislative History of the America Invents Act: Part II of II, 21 Fed.

Cir. B. J. 435 (2012), pp. 561-565 (showing prior user defense motivated

primarily for manufacturers, not graphical designers), 623 (suggesting 10

USPTO Director Kappos recognized § 273 did not extend beyond

processes and products).

. . . In sum, SQUARE’s prior user defense is inapplicable as a matter of law,

and given the stipulation, summary judgment of infringement of the ‘836

patent is granted to Syrus. . . 15

The issue raised by SQUARE in its cross-motion, whether Syrus breached

the [Agreement] by disclosing and commercializing the cannabinoid-

identifying software embedded in its Tokémon Go application turns on the

phrase “patentable subject matter” [in the Agreement] . . . 20

The [Agreement] Section 3.2 sets out that SQUARE has ownership of all

invented subject matter, which must be kept confidential. The only

exception to SQUARE’s exclusive ownership and control is in Section 5.1,

where “Syrus may, at its option, pursue patent rights on commercialize-able

and patentable subject matter developed by Syrus under this Agreement.” 25

That Section also provides that Syrus can actually commercialize/disclose

the same. . . . The use of the term “patentable subject matter” in a contract

defining intellectual property rights could not be clearer – the term refers to

the “Inventions patentable” in 35 U.S.C. § 101. Restatement (Second) of

Contracts § 222 (usage common in a field will be observed in a contract in 30

that field, “even though particular rules are changed from time to time.”)

Indeed, the Supreme Court has recently reemphasized that “patentable

subject matter” is explicitly defined by § 101. E.g., Mayo Collaborative

Servs. v. Prometheus Labs., Inc., 132 S.Ct. 1289, 1293 (2012) (“Section

101 of the Patent Act defines patentable subject matter”) (emphasis added). 35

. . . Thus, Section 5.1 only grants disclosure and commercialization rights

to Syrus in what Syrus produced under the Agreement and fell under 35

U.S.C. § 101 as the Supreme Court as interpreted that statute.

21

. . . the cannabinoid-identification software developed by Syrus under the

Agreement was not “patentable subject matter.” This is amply shown by the

fate of the ‘777 patent, whose claims fully embraced the full scope of the

subject matter developed by Syrus under the [Agreement]. The USPTO,

through both its Examiner and its independent PTAB, found in explicit detail 5

that no claim in the ‘777 patent complied with § 101. [cite to PTAB opinion

of Jun 17, 2015]

This Court agrees with the USPTO’s decision. Moreover, although Syrus

would have this Court re-conduct the § 101 analysis anew to potentially find

some patentable subject matter to excuse its disclosure and breach, the 10

fully-developed administrative record, which Syrus did not appeal, amply

supplies this analysis. . . see also, B & B Hardware, Inc. v. Hargis Industries,

inc., 135 S.Ct. 1293 (2015) (USPTO administrative determination precluded

re-analysis of same issue in litigation).

. . .Nor are Syrus’s arguments about the software representing patentable 15

subject matter in 2011 versus 2015 meritorious. The Supreme Court has

made clear in its recent Mayo and Alice decisions – and even in its pre-2011

Bilski decision – that the contours of “patentable subject matter” have not

changed from the precedents set decades ago in Benson, Flook, and Diehr.

Mayo, 132 S.Ct. at 1293 (reaffirming applicability of § 101 precedents over 20

the past century); Flook, 437 U.S. at 590 (“patentable subject matter under

§ 101 is not like a nose of wax which may be turned and twisted in any

direction”). . . That the USPTO may have at some time in the past granted

claims like those in the ‘777 application is irrelevant. The USPTO may have

equally granted claims on an invention that was anticipated by a journal 25

article the agency overlooked, but that mistake would not make the

invention “novel” as that term would be interpreted in an IP contract.

The ‘777 patent application represents the full subject matter developed by

Syrus during the term of the [A]greement. Because it does not represent

“patentable subject matter” as that term is used in the exception of Section 30

5.1, its contents are reserved to SQUARE. Syrus breached this reservation

by using and publishing the same subject matter in its Tokémon Go

application.

[Discussion of remedies omitted]

Syrus filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit on 35

November 4, 2016, docketed as Appeal No. 16-9999, and SQUARE took a cross-

appeal on the infringement issue.

22

On appeal, the parties stipulated to arguing only the applicability of the prior user rights

defense, jurisdiction, and breach of contract. The parties further stipulated to proceeding

under standard, unilateral appeal rules and forgoing cross-appeal procedures of Fed.

Cir. Rule 28.1, with Syrus proceeding in all respects as the appellant and SQUARE as

appellee. The Federal Circuit Clerk captioned the appeal “Syrus Associates, LLP v. 5

SQUARE.” Briefing will begin in 2017, to be followed by oral argument.

Proceedings Timeline

October 12, 2011 SQUARE and Syrus Enter Agreement

January 3, 2012 ‘777 Application Filed

April 24, 2013 ‘777 Application Initially Allowed

July 17, 2013 ‘777 Application Allowance Withdrawn

November 20, 2013 SQUARE Initially Designs Internal GUI

December 4, 2013 SQUARE Implements Internal GUI

April 16, 2014 SQUARE and Syrus Terminate Agreement

December 10, 2014 Syrus Files Application for ‘836 Design Patent

June 17, 2015 PTAB Affirms All § 101 Rejections in ‘777 Application

August 17, 2015 ‘777 Application Abandoned

August 26, 2015 Tokémon Go Application Publicly Released

September 2-9, 2015 SQUARE and Syrus Correspond on Settlement

September 29, 2015 ‘836 Design Patent Issues

October 7, 2015 Syrus Files Complaint Against SQUARE

October 10, 2016 District Court Issues Summary Judgment

November 4, 2016 Notice of Appeal to CAFC Filed

No. 16-9999

___________________________

UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT __________________________

SYRUS ASSOCIATES, LLP,

Plaintiff-Appellant,

v.

SQUARE, Defendant-Cross-Appellant.

______________________________________________________________

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CASCADIA

______________________________________________________________

BRIEF OF PLAINTIFF-APPELLANT SYRUS ASSOCIATES, LLP ______________________________________________________________

THOMAS LEMENS MATTHEW MELANÇON

Attorneys for Plaintiff-Appellant

______________________________________________________________

February 6, 2017

CERTIFICATE OF INTEREST

Counsel for Plaintiff–Appellant, SYRUS ASSOCIATES, LLP, certifies the

following:

1. The full name of every party or amicus represented by me is:

Syrus Associates, LLP

2. The name of the real party in interest represented by me is:

Syrus Associates, LLP

3. All parent corporations and any publicly held companies that own 10 percent

or more of the stock of the party or amicus curiae represented by me are:

None.

4. The names of all law firms and the partners or associates that appeared for

the party or amicus now represented by me in the trial court or agency or are

expected to appear in this court are:

N/A.

i

TABLE OF CONTENTS

TABLE OF CONTENTS .................................................................................. I

TABLE OF AUTHORITIES ...........................................................................II

STATEMENT OF RELATED CASES ......................................................... VII

JURISDICTIONAL STATEMENT................................................................. 1

STATEMENT OF THE ISSUES ..................................................................... 1

STATEMENT OF THE CASE ........................................................................ 2

STATEMENT OF THE FACTS ...................................................................... 3

SUMMARY OF THE ARGUMENT ............................................................... 7

ARGUMENT ................................................................................................... 9

I. THE DISTRICT COURT IMPROPERLY EXERCISED JURISDICTION OVER

SQUARE‟S COUNTERCLAIM. ..........................................................................9

A. Under Tenth Circuit law, § 1367 does not grant jurisdiction over

permissive counterclaims. ........................................................................ 10

B. The court incorrectly found a “common nucleus of operative fact.” ..... 12

C. SQUARE‟s counterclaim lacks independent jurisdiction. .................... 14

II. THE DISTRICT COURT INCORRECTLY GRANTED SUMMARY JUDGMENT

HOLDING SYRUS LIABLE FOR BREACH. .......................................................... 15

A. The parties intended Syrus‟ ‟777 application to be “patentable subject

matter” at the time of the Agreement. ....................................................... 16

B. Tokémon Go was “patentable subject matter” under 35 U.S.C. § 101 at

the time of the Agreement........................................................................ 18

C. Tokémon Go was “patentable subject matter” under 35 U.S.C. § 101 if

properly claimed. .................................................................................... 21

III. THE DISTRICT COURT CORRECTLY DENIED SQUARE‟S PRIOR USER DEFENSE

FOR ITS INFRINGING GUI............................................................................... 23

ii

A. SQUARE‟s GUI is an “ornamental design,” which falls outside the

categories protected by § 273. .................................................................. 23

B. SQUARE‟s GUI is not a “machine.”.................................................. 25

C. SQUARE developed its GUI while in privity with Syrus. ................... 28

CONCLUSION .............................................................................................. 31

CERTIFICATE OF SERVICE ...................................................................... 32

CERTIFICATE OF COMPLIANCE ............................................................ 32

TABLE OF AUTHORITIES

CASE PAGE(S) Alice Corp. Pty v. CLS Bank Int'l.,

134 S. Ct. 2347 (2014)............................................................................ 21 Alpine County v. United States,

417 F.3d 1366 (Fed. Cir. 2005) ............................................................... 29

Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) ............................................................................... 16

Angioscore v. Trireme Med., LLC,

2016-1126, -1129, 2016 WL 6595984, *3 (Fed. Cir. 2016). ..................... 13 B & B Hardware, Inc. v. Hargis Industries, Inc. ,

135 S. Ct. 1293 (2015)............................................................................ 19

BASCOM Global Internet Servs. v. AT&T Mobility LLC, 827 F.3d 1341 (Fed. Cir. 2016) ............................................................... 21

Bilski v. Kappos, 561 U.S. 593 (2010) ............................................................................... 20

Burlington Indus. v. Ellerth, 524 U.S. 742 (1998) ............................................................................... 28

Burr v. Duryee, 68 U.S. 570 (1863) ................................................................................. 26

iii

California Fed. Bank v. United States, 245 F.3d 1342 (Fed. Cir. 2001) ............................................................... 16

Cellport Sys. v. Peiker Acustic GbmH, 762 F.3d 1016 (10th Cir. 2014) ............................................................... 14

Celotex Corp. v. Catrett, 477 U.S. 317 (1986) ............................................................................... 16

Channell v. Citicorp Nat’l Servs., 89 F.3d 379 (7th Cir. 1996)..................................................................... 12

Christianson v. Colt Indus. Operating Corp., 486 U.S. 800 (Fed. Cir. 1988) ................................................................. 14

CLS Bank Int'l v. Alice Corp. Pty, 717 F.3d 1269 (Fed. Cir. 2013), aff’d, 134 S. Ct. 2347 (2014)............................................................................ 26

ContentGuard Holdings, Inc. v. Amazon.com, Inc., 2015 U.S. Dist. LEXIS 139947 ............................................................... 19

DDR Holdings, LLC v. Hotels.com, LP, 773 F.3d 1245 (Fed. Cir. 2014) ............................................................... 21

Diamond v. Diehr, 450 U.S. 175 (1981) ............................................................................... 20

Digitech Image Techs., LLC v. Electronics for Imaging, Inc., 758 F.3d 1344 (Fed. Cir. 2014) ............................................................... 26

Egyptian Goddess, Inc. v. Swisa, Inc., 543 F.3d 665 (Fed. Cir. 2008) ................................................................. 13

Empire HealthChoice Assur., Inc. v. McVeigh, 547 U.S. 677 (2006) ............................................................................... 15

Enfish, LLC v. Microsoft Corp., 822 F.3d 1327 (Fed. Cir. 2016) ............................................................... 22

Executive Software N. Am. v. United States Dist. Court, 24 F.3d 1545 (9th Cir. 1994). .................................................................. 11

iv

FDIC v. Hulsey,

22 F.3d 1472 (10th Cir. 1994) ...................................................................9

Finley v. United States, 490 U.S. 545, 556 (1989) ........................................................................ 10

Flexfab, L.L.C., v. United States, 424 F.3d 1254 (Fed. Cir. 2005) ............................................................... 29

Florida v. Jardines, 133 S. Ct. 1409 (2013)............................................................................ 23

Gilmore v. Weatherford, 694 F.3d 1160 (10th Cir. 2012) ............................................................... 15

Global Naps, Inc. v. Verizon New Eng., Inc., 603 F.3d 71 (1st Cir. 2010) ..................................................................... 12

Gunn v. Minton, 133 S. Ct. 1059 (2013)............................................................................ 14

In re Freeman, 30 F.3d 1459 (Fed. Cir. 1994) ................................................................. 19

In re Nuijten, 500 F.3d 1346 (Fed. Cir. 2013) ......................................................... 26, 27

Jones v. Ford Motor Credit Co., 358 F.3d 205 (2d Cir. 2004) .................................................................... 12

King Fisher Marine Serv. v. 21st Phoenix Corp., 893 F.2d 1155 (10th Cir. 1990) ............................................................... 13

LaAsmar v. Phelps Dodge Corp. Life, 605 F.3d 789 (10th Cir. 2010) ................................................................. 16

Lab. Corp. of Am. Holdings v. Chiron Corp., 384 F.3d 1326 (Fed. Cir. 2004) ............................................................... 23

Lee v. Dayton–Hudson Corp., 838 F.2d 1186 (Fed. Cir. 1988) ............................................................... 26

v

Litecubes L.L.C. v. N. Light Prods., 523 F.3d 1353 (Fed. Cir. 2008) .................................................................9

Madstad Eng’g, Inc., v. United States PTO, 756 F.3d 1366 (Fed. Cir. 2014) ............................................................... 15

Mayo Collaborative Servs. v. Prometheus Labs, Inc., 132 S. Ct. 1289 (2012)............................................................................ 22

McRo, Inc. v. Bandai Namco Games Am., Inc., et al, 837 F.3d 1299 (Fed. Cir. 2016) ............................................................... 22

Moore v. New York Cotton Exchange, 270 U.S. 593 (1926) ............................................................................... 10

Mudge v. United States, 308 F.3d 1220 (Fed. Cir. 2002) ............................................................... 23

Nat’l R.R. Pass. Corp. v. Nat’l Ass’n of R.R. Pass., 414 U.S. 453 (1974) ............................................................................... 24

New Hampshire v. Maine, 532 U.S. 742 (2001) ............................................................................... 25

NLRB ex rel. Int’l Union of Elec., Radio, and Mach. Workers etc. v. Dutch Boy, Inc.,

606 F.2d 929 (10th Cir. 1979) ................................................................. 10

Novell, Inc. v. Microsoft Corp., 731 F.3d 1064 (10th Cir. 2013) ............................................................... 26

Owen Equipment v. Kroger, 437 U.S. 365 (1978) ............................................................................... 12

Peacock v. Thomas, 516 U.S. 349 (1996) ............................................................................... 11

Price v. Wolford, 608 F.3d 698 (10th Cir. 2010) ................................................................. 10

Shamrock Technologies, Inc. v. Medical Sterilization, Inc., 903 F.2d 789 (Fed. Cir. 1990) ................................................................. 28

vi

Shaw v. AAA Eng’g & Drafting Inc., 138 Fed. Appx. 62 (10th Cir. 2005) ......................................................... 11

Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010) ............................................................................... 17

Teva Pharms. USA, Inc. v. Sandoz, Inc., 135 S. Ct. 831 (2015) ............................................................................. 15

United Mine Workers v. Gibbs, 383 U.S. 715 (1966) ............................................................................... 12

United States v. Johnson Controls, 713 F.2d 1541 (Fed. Cir. 1983) ............................................................... 29

Versata Software, Inc. v. Callidus Software, Inc., 780 F.3d 1134 (Fed Cir. 2015) ..................................................................9

Weber v. Fujifilm Med. Sys. U.S.A., 2011 U.S. Dist. LEXIS 19119 (Dist. Conn. 2011) .................................... 12

STATUTES PAGE(S) 28 U.S.C. §  1295(a)(1) ......................................................................................1

28 U.S.C. §  2107 ...............................................................................................1

28 U.S.C. § 1331 ...............................................................................................1

28 U.S.C. § 1367 ...................................................................................... passim

35 U.S.C. § 101 .................................................................................. 3, 8, 24, 26

35 U.S.C. § 161 ............................................................................................... 24

35 U.S.C. § 171 ............................................................................................... 24

35 U.S.C. § 271 ............................................................................................... 13

35 U.S.C. § 273 ........................................................................................ passim

vii

RULES PAGE(S) Fed. Cir. R. 47.5 .............................................................................................. vii

Fed. R. App. P. 25(b) ....................................................................................... 31

Fed. R. App. P. 32(a)(7) ................................................................................... 31

Fed. R. App. P. 32(f) ........................................................................................ 31

Fed. R. App. P. 4(a) ...........................................................................................1

OTHER AUTHORITIES PAGE(S) H.R. REP. NO. 101–734, at n.15 (1990), reprinted in 1990 U.S.C.C.A.N. 6860,

6874. ..................................................................................................... 10

ROBERT W. BAHR, USPTO, INTERIM GUIDANCE FOR DETERMINING SUBJECT

MATTER ELIGIBILITY FOR PROCESS CLAIMS IN VIEW OF BILSKI V. KAPPOS 3 (2010) .................................................................................... 18

Restatement of Contracts (Second) § 201(3) (Am. Law. Inst. 1981) ................... 18

Restatement of Contracts (Second) § 203 (Am. Law. Inst. 1981)........................ 16

Restatement of Contracts (Second) § 205 (Am. Law. Inst. 1981)........................ 29

Restatement of Contracts (Second) § 220 (Am. Law. Inst. 1981)........................ 13

Joe Matal, A Legislative History of the American Invents Act: Part II of II ......... 24

Thomas D. Rowe et al., Compounding or Creating Confusion About Supplementing Jurisdiction?, 40 EMORY L. J. 943 .................................... 10

Rachel Stigler, Ooey GUI: The Messy Protection of Graphical User Interfaces, 12 NW. J. TECH. & INTELL. PROP. 215 (Aug. 2014) ................. 25

STATEMENT OF RELATED CASES

Pursuant to Fed. Cir. R. 47.5, appellants provide as follows:

(a) There have been no previous appeals in this case.

(b) They are aware of no other case that will be directly affected by the Court‟s

decision in this case.

1

JURISDICTIONAL STATEMENT

The trial court had jurisdiction over Syrus‟ design patent infringement suit

under 28 U.S.C. §§ 1331 and 1338(a). The trial court also exercised jurisdiction

over SQUARE‟s breach of contract counterclaim under 28 U.S.C. § 1367, which

Syrus contests. The statutory basis for jurisdiction of this Court to hear Syrus‟

appeal is 28 U.S.C. §  1295(a)(1) and 28 U.S.C. § 1367. This appeal was timely

filed in accordance with 28 U.S.C. §  2107 and Fed. R. App. P. 4(a) on November

4, 2016, within 30 days of the District Court‟s order on October 10, 2016. This is

an appeal from a summary judgment holding Syrus liable for breach of contract.

STATEMENT OF THE ISSUES

1. Did the District Court improperly exercise supplemental jurisdiction

over SQUARE‟s permissive counterclaim when that claim lacked a “common

nucleus of operative fact” with Syrus‟ patent infringement claim?

2. Did the District Court improperly grant summary judgment that Syrus

breached its Agreement with SQUARE when Syrus‟ Tokémon Go application

satisfies Section 5.1 of the Agreement?

3. Did the District Court properly deny SQUARE‟s prior user defense to

Syrus‟ design patent infringement claim by holding that SQUARE‟s GUI is an

“ornamental design” that is ineligible for the defense?

2

STATEMENT OF THE CASE

On October 7, 2015, Syrus sued SQUARE for infringing its design patent

D736,836 [hereinafter ‟836 patent] in the U.S. District Court for the District of

Cascadia. (R. 16:7–9). SQUARE answered this suit with a prior user defense under

35 U.S.C. § 273. (R. 16:9–10). SQUARE counterclaimed against Syrus for breach

of contract under Cascadian state law. (R. 16:10). In this counterclaim, SQUARE

alleged that Syrus breached the Agreement by using and disclosing cannabinoid

identification software in Syrus‟ Tokémon Go application. (R. 16:11–12).

SQUARE claimed that the District Court had supplemental jurisdiction over its

state law breach of contract claim under 28 U.S.C. § 1367. (R. 16:12–13).

Syrus moved to dismiss SQUARE‟s breach of contract counterclaim for lack

of jurisdiction, but the District Court denied this motion. (R. 16:17–19). In

exercising jurisdiction, the Court found that Syrus‟ patent infringement claim and

SQUARE‟s breach of contract counterclaim shared a common nucleus of operative

fact. (R. 18:7–10). After discovery, both parties moved for summary judgment

under stipulations. (R. 18:12–13). SQUARE stipulated to infringing Syrus‟ ‟836

design patent if its prior user defense under 35 U.S.C. § 273 was inapplicable.

Syrus stipulated to breaching the Agreement if Tokémon Go fell outside section

5.1 of the Agreement. (R. 18:13–16).

3

On October 10, 2016, the District Court granted both motions for summary

judgment. (R. 19:3–4). The court held SQUARE‟s prior user defense inapplicable

as a matter of law, rendering SQUARE liable for infringement. (R. 20:13–15). The

Court also held that Syrus could only commercialize or disclose inventions within

Agreement section 5.1, since Agreement section 3.2 reserved all other inventions

to SQUARE. (R. 20:21–25). The court then found that 35 U.S.C. § 101 defined the

“patentable subject matter” that fell within Agreement section 5.1. (R. 20:27–38).

Agreeing with the USPTO that “no claim in the ‟777 patent complied with § 101,”

the court found that Tokémon Go was not “patentable subject matter.” (R. 21:1–8).

Thus, the court held that Tokémon Go fell outside Agreement section 5.1, and

Syrus breached the Agreement by publishing it. (R. 21:28–33). Syrus timely

appealed the court‟s judgment of breach on November 4, 2016; SQUARE cross-

appealed on the court‟s infringement judgment. (R. 21:35–36).

STATEMENT OF THE FACTS

In 2011, SQUARE realized that it could leverage cannabinoid light

polarization to enable easy identification of cannabinoids in the field. (R. 3:10–14).

As it lacked the resources to develop software independently, SQUARE partnered

with Syrus Associates, LLP, a well-known software development firm, to

implement its invention into software. (R. 3:19–4:8). During negotiations,

SQUARE granted Syrus exclusive rights to commercialize the software that Syrus

4

developed. (R. 4:8–9). To cover its development costs, Syrus required the rights to

pursue patents and to retail software to third parties; these rights were the lynchpin

of negotiations. (R. 4:10–12). SQUARE agreed, but reserved all other rights in its

original discovery. (R. 4:12–14). Based on this understanding, Syrus and SQUARE

entered an Agreement on October 12, 2011. (R. 4:14–16).

Agreement section 3.2 stated that any “existing technology, information, or

other know-how . . . is and will remain a trade secret of SQUARE.” (R. 4:29–5:2).

However, “as an exception to [section] 3.2,” Agreement section 5.1 allowed Syrus

to pursue patent rights on “commercialize-able and patentable subject matter

developed by Syrus.” (R. 5:13–15). The parties jointly owned this subject matter,

but only Syrus could “openly commercialize and/or license” it to third parties. (R.

5:18–22). Any “subject matter developed under this Agreement outside of [the 5.1

subject matter]” had to remain “secret and confidential under the terms of section

3.2.” (R. 5:25–30). This Agreement had no integration clause. (R. 5:34–35).

After just two months of development, Syrus successfully created

cannabinoid identification software based on SQUARE‟s database and delivered it

to SQUARE for internal use. (R. 6:1–2, 9–11). Syrus then began developing an

enterprise-level application with a full GUI suitable for commercialization. (R.

6:11–12). On January 3, 2012, Syrus filed Patent Application 13/400,777

[hereinafter ‟777 application] on its developed software, describing a cannabinoid

5

field identification system that used reflected polarized light. (R. 6:13–16; 7:1–15).

The system included three devices: a polarizer (105), a computer processor (101),

and an unspecified display device (190). (R. 7:23–30). The method claims

collected reflected light and sent its data to the processor, which compared that

data against a list of cannabinoids. (R. 8:23–27). The processor determined which

cannabinoids‟ spectra matched the light data, and sent matching cannabinoids‟

profiles to a display with relevant information. (R. 9:1–4). The application

“explicitly disclaim[ed] any scope over . . . abstract ideas, or natural phenomena,”

limiting its scope to specific botanical and chemical improvements. (R. 6:21–26).

On April 24, 2013, the Examiner allowed the ‟777 application, as field

identification of specific cannabino ids using polarized light was unknown in the

prior art. (R. 9:17–18; 10:4–6). However, the Examiner withdrew this allowance

on July 17, 2013, stating that § 101 case law rendered the ‟777 application a

“preemptive application” of the “natural phenomenon” of cannabinoid light

polarization. (R. 10:8–12). Though Syrus amended the ‟777 application to comply

with the Examiner‟s recommendations, the Examiner did not withdraw this

rejection. (R. 10:11–12). On June 17, 2015, the Patent Trial and Appeal Board

[hereinafter PTAB] affirmed this § 101 rejection, finding the ‟777 application was

directed to the abstract idea of cannabinoid light polarization. (R. 12:10–22). Syrus

later abandoned the ‟777 application. (R. 11:12–14).

6

Because the Examiner refused to approve the ‟777 application, Syrus feared

it could not recoup its investment and slowed development of the Tokémon Go

software. (R. 10:15–18). As a result, SQUARE became frustrated with Syrus; in

late 2013, it secretly began work on its own GUI. (R. 14:5–9). SQUARE

implemented that GUI into its internal tracking system on December 4, 2013. (R.

14:9–13, 24–27). SQUARE then used its secretly-developed GUI to report illegal

cannabinoids in exchange for bounties. (R. 14:24–28). This clandestine use began

while Syrus appealed the Examiner‟s rejection of the ‟777 application. Id.; (R.

11:12–13). On April 16, 2014, shortly after completing its GUI, SQUARE

terminated its Agreement with Syrus. (R. 10:18–28).

Syrus acknowledged this termination on the same day and returned all

physical materials that it received from SQUARE. (R. 11:8–10). This termination

forced Syrus to find other ways to cover its costs. (R. 4:9–12). Thus, Syrus began

developing its own mobile application and GUI to identify cannabinoids. (R. 15:1–

4). Syrus filed for a design patent on its GUI on December 10, 2014; this

application issued as design patent D736,836 on September 29, 2015. (R. 15:10–

12). Syrus released its application, called “Tokémon Go,” through relevant outlets

such as Apple‟s App Store and Google‟s Play Store on August 26, 2015. (R. 15:7–

9). Tokémon Go repurposed the software that Syrus developed for SQUARE, but

added a new mobile application backend and the ‟836-patented GUI. (R. 15:4–6).

7

On September 2, 2015, SQUARE accused Syrus of using SQUARE‟s trade

secret of cannabinoid light polarization in violation of the Agreement. (R. 15:30–

16:1). SQUARE also insinuated that Syrus stole SQUARE‟s GUI, including

pictures of SQUARE‟s GUI that showed it was strikingly similar to Syrus‟ GUI.

(R. 16:1–4). Syrus replied that SQUARE‟s strikingly similar, secretly-developed

GUI infringed Syrus‟ patent-pending GUI. (R. 16:5–6). Relations between Syrus

and SQUARE became “increasingly adversarial,” prompting this suit. (R. 16:7–9).

SUMMARY OF THE ARGUMENT

The District Court improperly exercised supplemental jurisdiction over

SQUARE‟s breach of contract counterclaim. First, the District Court held that 28

U.S.C. § 1367 grants jurisdiction over all permissive counterclaims that satisfy the

Gibbs test. This holding misreads § 1367, which enabled jurisdiction over

compulsory claims against third parties. Second, the District Court found a

“common nucleus of operative fact” between SQUARE and Syrus‟ claims based

on a “loose factual connection” rather than the “logical dependence” that Gibbs

requires. Syrus‟ and SQUARE‟s claims are logically independent because they

depend on different witnesses, evidence, and factual determinations. Finally,

SQUARE‟s counterclaim lacks independent federal–question jurisdiction under

Gunn v. Minton. Consequently, the District Court erred in exercising jurisdiction

over SQUARE‟s permissive breach of contract counterclaim.

8

The District Court improperly granted summary judgment holding Syrus

liable for breach of contract, finding that Tokémon Go was not “patentable subject

matter” under 35 U.S.C. § 101. However, Tokémon Go was “patentable subject

matter” at the time of the Agreement: both parties interpreted that term as “Syrus‟

patent applications,” not “patent claims satisfying § 101.” Tokémon Go was also

patentable under 35 U.S.C. § 101 under the Bilski “useful application” standard

that governed patentability when the parties signed the Agreement. Furthermore, in

light of this Court‟s recent § 101 decisions, Tokémon Go was patentable if

properly claimed. Since Syrus and the PTO could not litigate these precedents

when Syrus applied for patent, B & B Hardware does not bar examining them.

Consequently, this Court should reverse the District Court‟s decision that Tokémon

Go was not “patentable subject matter,” and dismiss SQUARE‟s breach claim.

On the other hand, the District Court properly denied SQUARE‟s prior user

defense. Contrary to SQUARE‟s argument, its GUI is not a “machine” under 35

U.S.C. § 101: it lacks “concrete structure” and does not consist of “parts of devices

in any mechanical sense.” SQUARE‟s GUI, like Syrus‟ GUI, is an “ornamental

design” rather than a “machine.” Therefore, it falls outside the scope of 35 U.S.C.

§ 273. Both the language of § 273 and the legislative history of the AIA indicate

that § 273 does not extend to ornamental designs such as SQUARE‟s GUI.

Additionally, any prior user defense would be barred by the privity exception in §

9

273(e)(2), since SQUARE developed its GUI while in an Agreement with Syrus

that governed Syrus‟ GUI development. Thus, this Court should affirm the District

Court‟s summary judgment and hold SQUARE liable for its infringement.

ARGUMENT

I. THE DISTRICT COURT IMPROPERLY EXERCISED JURISDICTION OVER SQUARE’S COUNTERCLAIM.

The District Court erred by holding that 28 U.S.C. § 1367 granted district

courts supplemental jurisdiction over permissive counterclaims like SQUARE‟s.

Since § 1367 neither “relates to this Court‟s jurisdiction” nor raises “a procedural

issue unique to patent law,” this Court applies the governing circuit‟s law. Versata

Software, Inc. v. Callidus Software, Inc., 780 F.3d 1134, 1136 (Fed. Cir. 2015); see

also Litecubes L.L.C. v. N. Light Prods., 523 F.3d 1353, 1366 (Fed. Cir. 2008). As

Cascadia lies within the Tenth Circuit, that circuit‟s law governs. (R. 1:7–9). The

Tenth Circuit reviews a District Court‟s exercise of jurisdiction de novo. FDIC v.

Hulsey, 22 F.3d 1472, 1479 (10th Cir. 1994). The District Court erroneously ruled

that § 1367 granted it jurisdiction over permissive counterclaims, and that

SQUARE‟s and Syrus‟ claims share a “common nucleus of operative fact.” (R.

17:30–18:9). If either of these rulings is incorrect under Tenth Circuit law, the

District Court lacked valid jurisdiction over SQUARE‟s counterclaim.

10

A. Under Tenth Circuit law, § 1367 does not grant jurisdiction over permissive counterclaims.

Before Congress enacted § 1367, the Tenth Circuit barred the exercise of

supplemental jurisdiction over permissive counterclaims like SQUARE‟s; § 1367

did not change this conclusion. NLRB ex rel. Int’l Union of Elec., Radio, and

Mach. Workers etc. v. Dutch Boy, Inc., 606 F.2d 929, 932 (10th Cir. 1979) (citing

Moore v. New York Cotton Exchange, 270 U.S. 593, 608–09 (1926)). Section 1367

states that “the district courts shall have supplemental jurisdiction over all other

claims . . . that [] form part of the same case or controversy.” 28 U.S.C. § 1367(a).

The Tenth Circuit interprets this clause as overruling Finley and granting

jurisdiction over third-party claims, not over permissive counterclaims. See Price

v. Wolford, 608 F.3d 698, 702–03 (10th Cir. 2010) (stating that § 1367 grants

jurisdiction over new third-party plaintiffs‟ claims, but not mentioning permissive

counterclaims); see also Finley v. United States, 490 U.S. 545, 556 (1989) (barring

jurisdiction over third parties‟ pendent claims). In drafting § 1367, Congress also

noted that § 1367(a) “codifies the scope of supplemental jurisdiction first

articulated by the Supreme Court in United Mine Workers v. Gibbs.” H.R. REP. NO.

101–734, at n.15 (1990), reprinted in 1990 U.S.C.C.A.N. 6860, 6874.

Furthermore, § 1367‟s advisory committee sought to “codify most of the pre-

Finley status quo,” hoping to avoid a major politically-charged battle over

amending jurisdiction. Thomas D. Rowe et al., Compounding or Creating

11

Confusion About Supplementing Jurisdiction?, 40 EMORY L. J. 943, 948–50. Since

Congress only meant § 1367 to overrule Finley, the District Court erred by holding

that § 1367 extends supplemental jurisdiction over permissive counterclaims.

In addition to the Tenth Circuit, the Supreme Court and Ninth Circuit have

both suggested that § 1367 only grants jurisdiction over compulsory counterclaims.

Peacock v. Thomas, 516 U.S. 349, 358–59 (1996); Executive Software N. Am. v.

United States Dist. Court, 24 F.3d 1545, 1548–49 (9th Cir. 1994). The Supreme

Court has cautioned “against the exercise of jurisdiction over proceedings that are

„entirely new and original.‟” Peacock, 516 U.S. at 358–59. Proceedings that

require relief “of a different kind or on a different principle,” such as using

“entirely new theories of liability,” are “entirely new and original.” Id.; see also

Shaw v. AAA Eng’g & Drafting Inc., 138 Fed. Appx. 62, 68–71 (10th Cir. 2005)

(analyzing Peacock). Here, SQUARE‟s counterclaim introduces an “entirely new

theory of liability” by bringing a contract claim into a patent dispute, matching the

standard provided in Peacock. (R. 16:7–12). Like the Tenth Circuit, the Ninth

Circuit “interprets § 1367 as merely allowing this Court, at its discretion, to

exercise jurisdiction over supplemental parties,” and thus overriding Finley.

Executive Software, 24 F.3d at 1548–49. Based on these authorities, 28 U.S.C. §

1367 does not extend jurisdiction over SQUARE‟s permissive counterclaim, so the

District Court improperly exercised jurisdiction.

12

B. The court incorrectly found a “common nucleus of operative fact.”

The District Court erroneously found a “common nucleus of operative fact”

based on a “mere factual similarity,” rather than the “logical dependence” that

Gibbs requires. Under Gibbs, two claims “[must] ordinarily be expected to [be

tried] in one judicial proceeding” and have “not mere factual similarity but logical

dependence” to share a “common nucleus.” United Mine Workers v. Gibbs, 383

U.S. 715, 725 (1966); Owen Equipment v. Kroger, 437 U.S. 365, 375–76 (1978).

First, the District Court relied on the Seventh Circuit, which improperly substituted

a “loose factual connection” for the “logical dependence” required by Gibbs.

Channell v. Citicorp Nat’l Servs., 89 F.3d 379, 385 (7th Cir. 1996). Second, the

District Court cited the First Circuit, which merely added an alter ego to an

existing counterclaim and did not permit new counterclaims like SQUARE‟s.

Global Naps, Inc. v. Verizon New Eng., Inc., 603 F.3d 71, 76, 80–81 (1st Cir.

2010). Finally, the District Court‟s citation to the Second Circuit relies on a

holding from which the Second Circuit retreated. See Weber v. Fujifilm Med. Sys.

U.S.A., 2011 U.S. Dist. LEXIS 19119 (Dist. Conn. 2011), *15–16 (discussing the

Second Circuit‟s retreat from Jones v. Ford Motor Credit Co., 358 F.3d 205, 213–

14 (2d Cir. 2004)). Thus, the District Court‟s cited cases do not establish that

Gibbs allows a “common nucleus” between claims based on a “mere factual

similarity.”

13

Gibbs‟ “logical dependence” requires the claims to share witnesses,

evidence, and factual determinations; SQUARE‟s counterclaim lacks these

overlaps with Syrus‟ claim. King Fisher Marine Serv. v. 21st Phoenix Corp., 893

F.2d 1155, 1162–63 (10th Cir. 1990); see also Angioscore v. Trireme Med., LLC,

2016-1126, -1129, 2016 WL 6595984, *3 (Fed. Cir. 2016. SQUARE‟s

counterclaim and Syrus‟ claim involve different witnesses, as neither Morales‟ nor

Temperance‟s testimony is relevant to analyzing “substantial similarity” between

the two GUIs under Syrus‟ claim. See Egyptian Goddess, Inc. v. Swisa, Inc., 543

F.3d 665, 670–72 (Fed. Cir. 2008) (holding that “ordinary observer” test for design

patent infringement needs no expert analysis). Likewise, the two claims involve

different evidence: SQUARE‟s claim, unlike Syrus‟ claim, requires examining the

parties‟ manifested intentions in their communications. Compare Restatement of

Contracts (Second) § 220 (parties‟ intentions control contract interpretation), with

35 U.S.C. § 271 (intent irrelevant to patent infringement). Finally, the two claims

involve different factual determinations : Syrus‟ claim only compares its GUI with

SQUARE‟s, while SQUARE‟s claim analyzes Tokémon Go and the Agreement.

Compare (R. 20:36–21:2) (SQUARE‟s determinations), with (R. 19:27–33)

(Syrus‟ determinations). Since SQUARE and Syrus‟ claims do not share witnesses,

evidence, or factual determinations, they are logically independent, and lack a

“common nucleus” justifying the District Court‟s jurisdiction.

14

C. SQUARE’s counterclaim lacks independent jurisdiction.

Despite SQUARE‟s argument to the contrary, SQUARE‟s breach of contract

claim also fails the federal question jurisdiction test under Gunn v. Minton. (R.

17:2–5). Gunn held that a state claim has independent federal jurisdiction if “a

federal issue is necessarily raised, actually disputed, substantial, and capable of

resolution . . . without disrupting [federalism].” Gunn v. Minton, 133 S. Ct. 1059,

1065 (2013) (internal numbering omitted). These issues are only “necessarily

raised” if the “plaintiff's right to relief necessarily depends on resolution of a

substantial question of federal patent law.” Christianson v. Colt Indus. Operating

Corp., 486 U.S. 800, 809–10 (Fed. Cir. 1988) (emphasis added). The Tenth Circuit

only finds that a contractual term “necessarily raises” patent law issues if it must

refer to patent law. See Cellport Sys. v. Peiker Acustic GbmH, 762 F.3d 1016,

1022–23 (10th Cir. 2014) (licensing agreement did not “necessarily raise” patent

law issue because royalty term allowed royalties on non-infringing products).

Since the Agreement‟s definition of “patentable subject matter” could refer to

either § 101 or Syrus‟ ‟777 application, that issue does not “necessarily depend” on

patent law. Infra, Part II.A.

SQUARE‟s claim regarding the definition of “patentable subject matter”

also raises no “substantial” federal issues that are important “to the federal system

as a whole.” Gunn, 133 S. Ct. at 1066. An issue is “substantial” if it is “a nearly

15

pure issue of law that would govern numerous cases,” and is not “fact-bound and

situation-specific.” Gilmore v. Weatherford, 694 F.3d 1160, 1174 (10th Cir. 2012)

(citing Empire HealthChoice Assur., Inc. v. McVeigh, 547 U.S. 677, 700–701

(2006)). Unlike the issues of statutory constitutionality previously held

“substantial,” the Agreement at issue in this case will not “govern numerous

cases,” but will only decide this case. Compare Madstad Eng’g, Inc., v. United

States PTO, 756 F.3d 1366, 1370–71 (Fed. Cir. 2014), with (R. 10:8–10, 11:11–13,

20:28–33) (three prior rejections show scope of § 101 not substantial issue here).

Additionally, SQUARE‟s issue is highly “fact-bound”: determining whether Syrus

breached the Agreement will require weighing extrinsic, factual evidence

regarding the parties‟ intentions. See Teva Pharms. USA, Inc. v. Sandoz, Inc., 135

S. Ct. 831, 832 (2015). Because SQUARE‟s counterclaim is neither “necessarily

raised” nor “substantial,” it fails the Gunn test. Therefore, the District Court

improperly granted summary judgment on SQUARE‟s breach of contract claim,

and this Court should reverse and remand that counterclaim for dismissal.

II. THE DISTRICT COURT INCORRECTLY GRANTED SQUARE’S MOTION FOR SUMMARY JUDGMENT HOLDING SYRUS LIABLE FOR BREACH.

The parties agree that Tokémon Go‟s status within Agreement section 5.1

and SQUARE‟s counterclaim both depend on 5.1‟s definition of “patentable

subject matter.” (R. 18:15–16). The District Court incorrectly interpreted

16

“patentable subject matter” in Agreement section 5.1 to refer to 35 U.S.C. § 101,

and therefore granted summary judgment against Syrus. (R. 20:36–38, 21:29–33).

This Court reviews a District Court‟s grant of summary judgment de novo,

applying the same standard as the District Court and drawing all reasonable

inferences in favor of the nonmovant. Anderson v. Liberty Lobby, Inc., 477 U.S.

242, 255 (1986). Summary judgment is improper if the evidence shows that a

genuine issue exists regarding any material fact or that the moving party is not

entitled to a judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317,

322 (1986). Contract interpretation is a question of law, reviewed de novo.

California Fed. Bank v. United States, 245 F.3d 1342, 1346 (Fed. Cir. 2001).

A. The parties intended Syrus’ ’777 application to be “patentable subject matter” at the time of the Agreement.

The District Court erroneously concluded that the Agreement‟s “patentable

subject matter” must refer to 35 U.S.C. § 101, as that conclusion contradicts the

parties‟ intent at the time of the Agreement. (R. 20:27–31). “A term is ambiguous

if it is reasonably susceptible to more than one meaning, or where there is

uncertainty as to the meaning of the term.” LaAsmar v. Phelps Dodge Corp. Life,

605 F.3d 789, 804 (10th Cir. 2010). In examining ambiguities, Cascadian courts

interpret terms to operate reasonably and effectively, prioritize explicit terms above

trade usage, and favorably weigh separately negotiated terms. Restatement of

Contracts (Second) § 203 (Am. Law. Inst. 1981). Since a patent application‟s

17

disclosures are frequently broader than its patentable claims, even a successful

application could breach the Agreement if “patentable subject matter” does not

encompass all its contents. See (R. 9:5 (Table 1)) (disclosure of SQUARE‟s trade

secret cannabinoid polarization table necessary for patent application). Thus,

unless “patentable subject matter” refers to “the ‟777 application‟s entire contents,”

Syrus would inevitably breach the Agreement by exercising its “commercialization

rights.” (R. 4:10–11; 5:13–15); see also (R. 8:30–35) (‟777 application products

would necessarily use SQUARE‟s data to compare cannabinoids). By contrast, as

the ‟777 application “embraced [everything] developed by Syrus under the

[Agreement],” both parties would receive all intended rights if “patentable subject

matter” means “Syrus‟ ‟777 application.” (R. 21:3–4). Since both parties could

reasonably define “patentable subject matter” as “the ‟777 application‟s subject

matter,” that term is ambiguous.

Extrinsic evidence reflecting the parties‟ intentions indicates that Agreement

section 5.1‟s “patentable subject matter” did not refer to 35 U.S.C. § 101. In

contract cases, courts must “give effect to the contractual rights and expectations of

the parties,” and “the parties‟ intentions control” interpretation of ambiguous

terms. Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 682 (2010).

SQUARE noted that the rejected ‟777 application might be viable if “[we] pursue

rights in Europe,” indicating SQUARE did not equate “patentable subject matter”

18

with § 101. (R. 10:22–23). Since Syrus lacked rights if “patentable subject matter”

meant § 101, SQUARE‟s statement that “we still both own [the ‟777 application]”

shows SQUARE did not equate those terms. (R. 11:1–5). By publishing Tokémon

Go, Syrus likewise showed it read “patentable subject matter” to mean the ‟777

application rather than § 101. (R. 15:4–9). Since the parties did not intend

“patentable subject matter” to reference § 101, the District Court improperly

resolved factual issues by misinterpreting that term to grant summary judgment.

B. Tokémon Go was “patentable subject matter” under 35 U.S.C. § 101 at the time of the Agreement.

When SQUARE and Syrus signed their Agreement, they believed that the

‟777 application was “patentable subject matter” under the Bilski § 101 standard.

(R. 4:14–16). Since the parties determine the meaning of a contract when they

mutually assent, events after that agreement cannot change the contract‟s meaning.

See Restatement of Contracts (Second) § 201(3) (explaining that absent such

mutual meaning, no contract exists). At the time of the Agreement, the USPTO

allowed process claims that practically applied a natural law or recited a specific

machine to perform methods. See ROBERT W. BAHR, USPTO, INTERIM GUIDANCE

FOR DETERMINING SUBJECT MATTER ELIGIBILITY FOR PROCESS CLAIMS IN VIEW OF

BILSKI V. KAPPOS 3 (2010). Following this standard, the Examiner initially allowed

the ‟777 application, since it enabled “identification of a specific cannabinoid”

without requiring destructive chemical tests. (R. 9:13–10:6). Though the Examiner

19

later withdrew this acceptance based on “developing § 101 case law,” those cases

occurred after the Agreement entered force in 2011. (R. 4:14–16; 10:8–9). Since

Syrus‟ ‟777 application was “patentable subject matter” at the time of the

Agreement, the District Court erred by applying the later Alice/Mayo standard. (R.

21:15–19).

While the District Court relied on the USPTO‟s findings “that no claim in

the ‟777 patent complied with § 101,” those findings do not preclude issue re-

examination here. (R. 21:8–14) (citing B & B Hardware, Inc. v. Hargis Industries,

Inc., 135 S. Ct. 1293 (2015)). B & B Hardware held that “the determination [of an

issue] is conclusive in a subsequent action between the parties,” not between

unrelated parties. B & B Hardware, 135 S. Ct., at 1303 (emphasis added). Since

the ‟777 prosecution involved the USPTO and Syrus, but this case involves Syrus

and SQUARE, the USPTO‟s issue determinations are not preclusive on that basis.

See also ContentGuard Holdings, Inc. v. Amazon.com, Inc., 2015 U.S. Dist. LEXIS

139947, *5–6 (holding no issue preclusion in patent validity dispute because

PTAB and District Court construct claims differently). Issue preclusion requires a

party to have “a full and fair opportunity to litigate [that issue] in the prior court

proceeding.” In re Freeman, 30 F.3d 1459, 1467 (Fed. Cir. 1994). However, the

PTAB‟s rejection of the ‟777 application applied the preemption test of Mayo and

Alice, not the Bilski standard. (R. 12:24–37). Indeed, the PTO‟s Examiner initially

20

admitted the ‟777 application under the Bilski standard, before later rejecting it

based on “developing § 101 case law.” (R. 10:4–9). Since Syrus never had a “full

and fair opportunity” to litigate the issue of Tokémon Go‟s patentability under the

Bilski standard, it can argue that test here.

Under the Bilski standard governing § 101 at the time of the Agreement, an

issue of material fact exists regarding the ‟777 subject matter‟s eligibility. Bilski

held that “an application of [patent-ineligible subject matter] to a known structure

or process may well be deserving of patent protection.” Bilski v. Kappos, 561 U.S.

593, 611 (2010). The ‟777 application applied “polarizing . . . light reflected from

[an] article” to “indicate presence of a specific cannabinoid.” (R. 9:19–25). This

application improved the known process of cannabinoid identification by

eliminating its need for “more involved, and potentially destructive, chemical

test[s].” (R. 9:14–17). Like the valid process in Diehr, the ‟777 application under

Bilski should not have been “nonstatutory simply because it use[d] a . . . digital

computer.” Diamond v. Diehr, 450 U.S. 175, 186–88 (1981). Since the ‟777

application could have been patentable under Bilski, and thus “patentable subject

matter” within section 5.1, the District Court improperly granted summary

judgment against Syrus.

21

C. Tokémon Go was “patentable subject matter” under 35 U.S.C. § 101 if properly claimed.

In holding that Tokémon Go was not “patentable subject matter,” the

District Court relied on the PTAB‟s rejection, which did not discuss the ‟777

application‟s claims “as an ordered combination.” (R. 21:4–12); see (R. 13:21–38)

(discussing each ‟777 claim individually). Subject matter is patentable if it is not

directed to an ineligible concept, or if it “transforms” an application into a patent–

eligible invention. CLS Bank Int'l v. Alice Corp. Pty, 134 S. Ct. 2347, 2355 (2014).

This Court has found claims patentable “when taken together as an ordered

combination” if they achieve “specific improvements in [a] recited [] technology.”

DDR Holdings, LLC v. Hotels.com, LP, 773 F.3d 1245, 1258–59 (Fed. Cir. 2014);

BASCOM Global Internet Servs. v. AT&T Mobility LLC, 827 F.3d 1341, 1348–51

(Fed. Cir. 2016). In this case, the prior art for cannabinoid identification required

“isolation of the cannabinoids in a laboratory setting, followed by chromatography

or spectrometry.” (R. 3:1–2). The ‟777 application removed this costly necessity

by allowing cannabinoid identification from “a photosensor on an aerial vehicle”

rather than a laboratory. (R. 12:6–7). Furthermore, the ‟777 application applied

cannabinoid light polarization to enable cannabinoid identification “in cannabis

plant foliage and products,” where the prior art could only identify isolated

cannabinoids. (R. 9:8–11). Therefore, the “ordered combination” of the ‟777

22

application‟s claims enable “specific improvements in [cannabinoid identification]

technology,” and is eligible for patent under § 101.

The ‟777 application also contains an “inventive concept” that satisfies §

101‟s patentability requirements. Claims directed to unpatentable subject matter

are patentable if they contain “an „inventive concept‟” that makes them “more than

a patent upon the natural law itself.” Mayo Collaborative Servs. v. Prometheus

Labs, Inc., 132 S. Ct. 1289, 1294 (2012). This Court has found that applications of

specific rule sets are patentable if they leverage these rules to produce

technological improvements and do not preempt all similar ideas. McRO, Inc. v.

Bandai Namco Games Am., Inc., et al, 837 F.3d 1299, 1314–16 (Fed. Cir. 2016);

see also Enfish, LLC v. Microsoft Corp., 822 F.3d 1327, 1336 (Fed. Cir. 2016).

The ‟777 application leveraged the rule set of “light matching cannabinoid

polarization angles” to remove the need for laboratory identification of

cannabinoids. (R. 8:25–27; R. 9:13–16). Since this application improves field

cannabinoid identification, it does not preempt using cannabinoid light polarization

in other contexts such as laboratory cannabinoid identification. (R. 6:20–26). Thus,

if properly claimed, the ‟777 application meets the McRO requirements for

“patentable subject matter” under 35 U.S.C. § 101 and falls within Agreement

section 5.1. Consequently, this Court should reverse the District Court‟s erroneous

23

summary judgment against Syrus and dismiss SQUARE‟s breach of contract claim

on its merits.

III. THE DISTRICT COURT CORRECTLY DENIED SQUARE’S PRIOR USER DEFENSE.

Since SQUARE‟s eligibility for the prior user defense rests on the legal

question of statutory interpretation, this Court reviews the District Court‟s

judgment de novo. Mudge v. United States, 308 F.3d 1220, 1224 (Fed. Cir. 2002).

SQUARE must prove that its GUI falls within a category eligible for the defense

by “clear and convincing evidence.” 35 U.S.C. § 273(b). A procedural issue that

raises substantive patent law issues, such as the applicability of § 273 to

ornamental designs, follows Federal Circuit law. Lab. Corp. of Am. Holdings v.

Chiron Corp., 384 F.3d 1326, 1330 (Fed. Cir. 2004). Under Federal Circuit law,

neither § 273‟s language nor its history supports extending it to cover ornamental

designs.

A. SQUARE’s GUI is an “ornamental design,” which falls outside the categories protected by § 273.

The District Court correctly found that § 273 excludes ornamental designs,

since it “says nothing of ornamental designs – the term used in § 171 for design

patents.” (R. 19:31–34). Courts interpret statutes under the expressio unius est

exclusio alterius canon, where the expression of one item excludes other unstated,

similar items. See, e.g., Florida v. Jardines, 133 S. Ct. 1409 (2013) (deriving a bar

24

on all physical intrusions from a separate bar on searches “[where] the Government

. . . explore[s] details of the home . . . unknowable without physical intrusion”)

(emphasis added). Like plant patents, “ornamental designs” are sufficiently similar

to the categories of § 273 that the expressio canon applies. Section 273 states that

“a process . . . machine, manufacture, or composition of matter” can employ the

defense, but does not mention “ornamental designs.” 35 U.S.C. § 273. This

statute‟s language imitates the definition of eligible subject matter for utility

patents; by contrast, design patents and plant patents are explicitly defined in

separate sections. Compare 35 U.S.C. §§ 101 & 273, with 35 U.S.C. § 161 & 35

U.S.C. § 171(a). As other requirements of patentability use the term “any

invention,” § 273‟s specification of categories is deliberate. See 35 U.S.C. §§ 102,

103, 112.

The expressio canon requires “clear contrary evidence of legislative intent”

to overcome, but the District Court correctly found no such evidence in § 273‟s

legislative history. Nat’l R.R. Pass. Corp. v. Nat’l Ass’n of R.R. Pass., 414 U.S.

453, 458 (1974); (R. 19:35–36; 20:5–7). Prior to the passage of the Leahy-Smith

America Invents Act, the prior user defense only protected “method[s] of doing or

conducting business.” Joe Matal, A Legislative History of the American Invents

Act: Part II of II, 551–52 (citing 35 U.S.C. § 273(a)(3) (2006)). Congress rejected

multiple efforts to expand the prior user defense to all patentable subject matter,

25

demonstrating a consistent Congressional directive against extension of § 273

coverage. Id. at 557–58. SQUARE may argue that § 273 implicitly includes

ornamental designs because “the provisions of [Title 35] relating to [utility] patents

shall apply to [design] patents, except as otherwise provided.” 35 U.S.C. § 171(b)

(emphasis added). Under the expressio canon, the exclusion of “ornamental

designs” from § 273‟s text “otherwise provides” their exclusion under § 171(b)

unless Congress‟ intent signals otherwise. Since § 273‟s legislative history does

not support extending that statute to cover SQUARE‟s GUI, the District Court

properly denied SQUARE‟s prior user defense.

B. SQUARE’s GUI is not a “machine.”

SQUARE also asserts that its GUI is a “machine,” and falls within § 273‟s

explicit language. (R. 18:23–25). Patent infringers can claim a prior user defense

on a process, machine, manufacture, or composition of matter used in a

manufacturing or other commercial process. 35 U.S.C. § 273. Since SQUARE did

not argue below that its GUI falls within § 273‟s other explicit categories, it is

estopped from claiming them here. (R. 18:23–25); New Hampshire v. Maine, 532

U.S. 742, 750–51 (2001). Thus, if SQUARE cannot prove by “clear and

convincing evidence” that its GUI is a “machine,” that GUI will fall outside § 273.

The District Court correctly found that “the alleged infringing subject matter

of the ‟836 patent is only a design.” (R. 19:24–27). A “graphical user interface” is

26

“a „computer environment‟ that allows a user to interact with the computer through

visual elements” using specially-configured computer code. Rachel Stigler, Ooey

GUI: The Messy Protection of Graphical User Interfaces, 12 NW. J. TECH. &

INTELL. PROP. 215, 216–17 (Aug. 2014). GUIs typically receive electrical signals

from a mouse, transmit those input signals to software, and send output s ignals to a

screen. See Novell, Inc. v. Microsoft Corp., 731 F.3d 1064, 1067 (10th Cir. 2013)

(describing a typical GUI). As Syrus obtained a design patent on its GUI,

SQUARE‟s GUI must also be an “ornamental design.” (R. 15:12–17). However,

“ornamental designs” cannot be “machines”: functional elements of designs cannot

be protected, while “machines” must be functional to qualify for a patent. Lee v.

Dayton–Hudson Corp., 838 F.2d 1186, 1188 (Fed. Cir. 1988); see also 35 U.S.C. §

101 (a “machine” must be “useful” to qualify for patent). Thus, the District Court

properly denied SQUARE‟s prior user defense.

SQUARE‟s GUI is also not a machine because it is purely data, not a

“concrete thing.” A “machine” under 35 U.S.C. § 101 is “a concrete thing,

consisting of parts, or of certain devices and combinations of devices.” CLS Bank

Int'l v. Alice Corp. Pty, 717 F.3d 1269, 1316 (Fed. Cir. 2013), aff’d, 134 S. Ct.

2347 (2014) (citing Burr v. Duryee, 68 U.S. 570 (1863)). However, “data in its

purely ethereal, nonphysical form” falls outside all of § 101‟s subject matter

categories. Digitech Image Techs., LLC v. Electronics for Imaging, Inc., 758 F.3d

27

1344, 1349–50 (Fed. Cir. 2014). Syrus‟ ‟777 software sent computer data to a

processor, compared that data against a cannabinoid list, and sent that data to a

display. (R. 7:23–30; 8:25–27; 9:1–4). SQUARE‟s GUI merely re-organized that

data into Morales‟ map overlay; thus, like the invention in Nuijten, SQUARE‟s

GUI merely changes the forms of electrical signals. In re Nuijten, 500 F.3d 1346,

1349–50 (Fed. Cir. 2013); (R. 14:11–21). Both Nuijten‟s invention and SQUARE‟s

GUI merely change “purely ethereal, nonphysical” data between equally intangible

forms. In re Nuijten, 500 F.3d at 1355–56; (R. 14:19–24). Thus, SQUARE‟s GUI

is not a “concrete thing,” and cannot be a “machine,” so the District Court properly

denied SQUARE‟s § 273 defense.

Additionally, the District Court could have correctly found that SQUARE‟s

GUI is not a “machine” because that GUI lacks “parts [or] devices” as § 101

requires. This Court requires a “machine” under 35 U.S.C. § 101 to be “made of

„parts‟ or „devices‟ in [some] mechanical sense.” In re Nuijten, 500 F.3d at 1355–

56 (emphasis added). The structure of both SQUARE‟s tracking system and Syrus‟

Tokémon Go software is fully disclosed by the ‟777 application. (R. 13:5; 21:2–4).

Both of these systems require “devices” including a “polarizer,” a “processor,” and

a display unit to function. (R. 7:16–18, 23–24). Conversely, Syrus‟ GUI is merely

implemented on an external display screen, as the phrase “ornamental design for a

display screen with graphical user interface” indicates. (R. 15:15–17, 21–24). As it

28

is a computer program, SQUARE‟s GUI contains no device; the alleged devices of

SQUARE‟s GUI are actually the parts of the tracking system where it operates. (R.

14:11–19). Thus, SQUARE‟s GUI is not a “machine” under § 101 because it is not

“made of parts, devices, or combinations of devices.”

C. SQUARE developed its GUI while in privity with Syrus.

As the District Court held SQUARE‟s GUI ineligible for a prior use defense

under § 273‟s language, it never reached the issue of privity. (R. 20:13–15).

SQUARE is also ineligible for a prior user defense because “the [infringing]

subject matter . . . was derived from . . . persons in privity with the patentee.” 35

U.S.C. § 273(e)(2). Privity “is determined upon a balance of the equities,” where

“the closer [the] relationship [between two parties], the more the equities will favor

[finding privity].” Shamrock Technologies, Inc. v. Medical Sterilization, Inc., 903

F.2d 789, 793–94 (Fed. Cir. 1990). Employment relationships are sufficiently close

to establish privity and liability between an employer and its employee. Burlington

Indus. v. Ellerth, 524 U.S. 742, 755–59 (1998); see also Shamrock Techs., 903

F.2d at 794 (reviewing cases holding that employee‟s involvement in infringement

on employer‟s behalf creates privity between them). Here, SQUARE employed

Morales and directed her to create a map overlay for the infringing GUI design,

establishing direct privity between SQUARE and Morales. (R. 14:9–13).

29

Likewise, the Agreement between Syrus and SQUARE created privity

between Syrus and SQUARE. This Court has found privity where one party acts as

another‟s agent, where their relationship is contractually established, and where

that contract holds the principal liable for the agent‟s acts. United States v. Johnson

Controls, 713 F.2d 1541, 1551 (Fed. Cir. 1983). Syrus became SQUARE‟s agent

in GUI development when Syrus began “developing an enterprise-level application

with full graphical user interface.” (R. 6:9–12) (emphasis added). As this agency

relationship was codified in the Agreement, and the Agreement was effective when

SQUARE developed its GUI, a contractual relationship existed between Syrus and

SQUARE. (R. 14:5–9). Finally, this Agreement held SQUARE liable as a co–

owner for Syrus‟ acts in developing the software that SQUARE used to support its

infringing GUI. (R. 5:2–5, 18–20). Thus, as SQUARE was in privity with Syrus,

and SQUARE was also in privity with Morales, Morales is in privity with Syrus.

Morales is also directly in privity with Syrus because Syrus is a third-party

beneficiary of Morales‟ contract with Temperance. Privity can be satisfied either

directly or indirectly, where a third-party is a beneficiary of the contract between

two parties. See Alpine County v. United States, 417 F.3d 1366, 1368 (Fed. Cir.

2005) (“In order to sue for damages on a contract claim, a plaintiff must have

either direct privity or third-party beneficiary status.”). “[T]o prove third-party

beneficiary status, a party must demonstrate that the contract . . . reflects an

30

intention to benefit the party directly.” Flexfab, L.L.C., v. United States, 424 F.3d

1254, 1259 (Fed. Cir. 2005). Morales, as SQUARE‟s agent, employed Temperance

to program a GUI compatible with Syrus‟ software. (R. 14:9–13). Since Syrus and

SQUARE would equally own any profits on Syrus‟ developed software under the

Agreement, Syrus would have benefitted from the installation of SQUARE‟s GUI.

(R. 5:18–22). Since Morales intended SQUARE‟s GUI to be compatible with

Syrus‟ software, Morales intended Syrus to benefit from that GUI. See Restatement

of Contracts (Second) § 205. Thus, Syrus was a third-party beneficiary of

Temperance‟s employment under Morales, and Morales developed SQUARE‟s

GUI while in direct privity with Syrus. Since SQUARE developed its GUI in

privity with Syrus, the District Court properly granted summary judgment against

SQUARE; this Court should affirm its decision.

31

CONCLUSION

Since SQUARE‟s counterclaim lacked a “common nucleus of operative

fact” with Syrus‟ claim, the District Court lacked jurisdiction over that

counterclaim. Accordingly, this Court should reverse SQUARE‟s breach of

contract claim with instructions to dismiss for lack of jurisdiction. Alternatively,

this Court should dismiss SQUARE‟s breach of contract claim on its merits, since

Tokémon Go was “patentable subject matter” that Syrus could publish under

section 5.1 of the Agreement. Additionally, this Court should affirm the District

Court‟s grant of summary judgment that SQUARE‟s GUI is ineligible for 35

U.S.C. § 273‟s prior user defense.

Dated: February 6, 2017 Respectfully submitted,

THOMAS LEMENS Matthew Melançon_____ MATTHEW MELANÇON

Attorneys for Plaintiff-Appellant

32

CERTIFICATE OF SERVICE

We certify that on the 6th day of February, 2017, a true and correct copy of this

document was served on counsel of record for all parties in compliance with Fed.

R. App. P. 25(b).

THOMAS LEMENS Matthew Melançon_____ MATTHEW MELANÇON

Attorneys for Plaintiff-Appellant

CERTIFICATE OF COMPLIANCE

We certify that the foregoing brief meets the technical rules promulgated by the

Federal Circuit Court of Appeals. This brief is in double-spaced 14-point font with

a one-inch margin on all sides. This 31-page, 7,037-word brief complies with the

limitations set by this Court in Fed. R. App. P. 32(a)(7), given the exemptions in

Fed. R. App. P. 32(f).

THOMAS LEMENS Matthew Melançon_____ MATTHEW MELANÇON

Attorneys for Plaintiff-Appellant

i

No. 16-9999

___________________________

UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT __________________________

SYRUS ASSOCIATES, LLP,

Plaintiff-Appellant,

v.

SQUARE,

Defendant-Cross-Appellant.

______________________________________________________________

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CASCADIA

______________________________________________________________

BRIEF OF DEFENDANT-CROSS-APPELLANT SQUARE ______________________________________________________________

THOMAS LEMENS MATTHEW MELANÇON

Attorneys for Defendant-Cross-Appellant

______________________________________________________________

February 6, 2017

i

CERTIFICATE OF INTEREST

Counsel for Defendant–Cross-Appellant, SQUARE, certifies the following:

1. The full name of every party or amicus represented by me is:

Society for Quashing Unhealthy and Addictive Recreation or Entertainment

[hereinafter ―SQUARE‖]

2. The name of the real party in interest represented by me is:

SQUARE

3. All parent corporations and any publicly held companies that own 10 percent

or more of the stock of the party or amicus curiae represented by me are:

None.

4. The names of all law firms and the partners or associates that appeared for

the party or amicus now represented by me in the trial court or agency or are

expected to appear in this court are:

N/A.

i

TABLE OF CONTENTS

TABLE OF CONTENTS .................................................................................. I

TABLE OF AUTHORITIES ...........................................................................II

STATEMENT OF RELATED CASES ......................................................... VII

JURISDICTIONAL STATEMENT................................................................. 1

STATEMENT OF THE ISSUES ..................................................................... 2

STATEMENT OF THE CASE ........................................................................ 3

STATEMENT OF THE FACTS ...................................................................... 5

SUMMARY OF THE ARGUMENT ............................................................. 10

ARGUMENT ................................................................................................. 12

I. The District Court Improperly Denied SQUARE‘s Prior User Defense. ..... 12

A. 35 U.S.C. § 273 implicitly includes ornamental designs. ...................... 12

B. SQUARE‘s GUI is a ―machine‖ under § 273(a) because a user interacts with it. ………………………………………………………………….15

C. § 273(e)(2) does not apply because SQUARE developed its GUI unilaterally and without agency. .......................................................... 17

II. The District Court Properly Exercised Jurisdiction Over The Breach Of Contract Claim. ....................................................................................... 18

A. Section 1367 extends supplemental jurisdiction over all permissive counterclaims that satisfy Gibbs. ......................................................... 18

B. SQUARE‘s counterclaim has a ―common nucleus‖ with Syrus‘ claim that

satisfies Gibbs. ................................................................................... 20

C. The District Court erred by not exercising independent federal question jurisdiction over SQUARE‘s counterclaim. ......................................... 22

III. The District Court Correctly Held That Syrus Breached Its Agreement With SQUARE. ............................................................................................... 24

A. The District Court correctly held that ―patentable subject matter‖ in the

Agreement refers to 35 U.S.C. § 101. .................................................. 24

B. Syrus cannot re-litigate whether the Tokémon Go application is ―patentable subject matter.‖ ................................................................ 27

C. The District Court correctly held that Tokémon Go was not ―patentable subject matter.‖ .................................................................................. 29

CONCLUSION .............................................................................................. 32

CERTIFICATE OF SERVICE ...................................................................... 33

CERTIFICATE OF COMPLIANCE ............................................................ 33

ii

TABLE OF AUTHORITIES

CASE PAGE(S) Alice Corporation Pty. Ltd. v. CLS Bank International,

134 S. Ct. 2347 (2014).................................................................16, 28, 30 Affinity Labs of Texas, LLC v. DIRECTV, LLC,

838 F.3d 1253, 1257 (Fed. Cir. 2016) ...................................................... 30 Amdocs (Isr.) Ltd. v. Openet Telecom, Inc.,

841 F.3d 1288, 1317 (Fed. Cir. 2016) ...................................................... 15 Anderson v. Liberty Lobby, Inc.,

477 U.S. 242 (1986) ............................................................................... 12 Angioscore v. Trireme Med., LLC,

2016-1126, -1129, 2016 WL 6595984, *3 (Fed. Cir. 2016). ............... 21, 22 Apple v. Samsung,

No. 15–777, 2016 WL 7338398, at *6–7 (2016) ...................................... 14 Ariosa Diagnostics, Inc. v. Sequenom, Inc.,

788 F.3d 1371, 1376 (Fed. Cir. 2015), cert. denied, 136 S. Ct. 2511 (2016)............................................................................ 30

B & B Hardware, Inc. v. Hargis Industries, Inc.,

135 S. Ct. 1293 (2015)............................................................................ 27 Baer v. First Options,

72 F.3d 1294, 1298–99 (7th Cir. 1995) .................................................... 19 Bergstrom v. Sears, Roebuck & Co.,

496 F. Supp. 476, 493 (D. Minn. 1980) ................................................... 13 Bilski v. Kappos,

130 S. Ct. 3218, 3231 (2010) .................................................................. 30 Bledsoe Land Co. LLLP v. Forest Oil Corp.,

277 P.3d 838, 845 (Colo. App. 2011) ................................................ 26, 27

iii

Blonder-Tongue Labs. v. University of Illinois Found., 402 U.S. 313, 323–324 (1971) ................................................................ 28

Borough of W. Mifflin v. Lancaster,

45 F.3d 780, 789–90 (3rd Cir. 1995) ....................................................... 21 Burr v. Duryee,

68 U.S. 570 (1863) ................................................................................. 15 Celotex Corp. v. Catrett,

477 U.S. 317 (1986) ............................................................................... 12 Channell v. Citicorp Nat’l Servs.,

89 F.3d 379 (7th Cir. 1996)..................................................................... 19 Classen Immunotherapies Inc. v. Biogen Idec.,

659 F.3d 1057, 1067–68 (Fed. Cir. 2011) ................................................ 31 CLS Bank Int'l v. Alice Corp. Pty,

717 F.3d 1269 (Fed. Cir. 2013), aff’d, 134 S. Ct. 2347 (2014)...................................................................... 15, 29

Conyers v. MSPB,

388 F.3d 1380, 1382 (Fed. Cir. 2004) ...................................................... 13 Cybersource Corp. v. Retail Decisions, Inc.,

654 F.3d 1366, 1372 (Fed. Cir. 2011) ...................................................... 30 Diamond v. Chakrabarty,

447 U.S. 303, 315 (1980) ........................................................................ 25 Diamond v. Diehr,

450 U.S. 175 (1981) ............................................................................... 16 Enfish, LLC v. Microsoft Corp.,

822 F.3d 1327, 1334 (Fed. Cir. 2016) ...................................................... 16 Erie R.R. v. Tompkins,

304 U.S. 64, 78 (1938) ........................................................................... 24

iv

FDIC v. Hulsey, 22 F.3d 1472, 1479 (10th Cir. 1994)........................................................ 18

Global Naps, Inc. v. Verizon New Eng., Inc.,

603 F.3d 71 (1st Cir. 2010) ..................................................................... 20 Gunn v. Minton,

133 S. Ct. 1059 (2013)...................................................................... 11, 23 In re Chung,

243 F.3d 561 (Fed. Cir. 2000) ................................................................. 26 Intel Corp. v. U.S. Int'l Trade Comm'n,

946 F.2d 821, 838 (Fed. Cir. 1991).......................................................... 17 Jang v. Boston Sci. Corp.,

767 F.3d 1334, 1337–38 (Fed. Cir. 2014) .......................................... 23, 24 Jones v. Ford Motor Credit Co.,

358 F.3d 205 (2d Cir. 2004) .............................................................. 19, 20 Jones v. Intermountain Power Project,

794 F.2d 546, 549–53 (10th Cir. 1986) .................................................... 20 MAG Aerospace Industries, Inc. v. B/E Aerospace, Inc.,

816 F.3d 1374, 1380 (Fed. Cir. 2016) ...................................................... 15 Mayo Collaborative Servs. v Prometheus Labs., Inc.

566 U.S. 66 (2012) ................................................................................. 25 McRO, Inc. v. Bandai Namco Games America Inc.,

837 F.3d 1299, 1315 (Fed. Cir. 2016) ...................................................... 16 Microsoft Corp. v. GeoTag, Inc.,

817 F.3d 1305, 1311 (Fed. Circ. 2016) .................................................... 18 Panduit Corp. v. All States Plastic Mfg. Co., Inc.,

744 F.2d 1564 (Fed. Cir. 1984) ............................................................... 18

v

Parker v. Flook, 437 U.S. 584, 593 (1978) ....................................................... 28, 29, 30, 31

Price v. Wolford,

608 F.3d 698 (10th Cir. 2010) ................................................................. 20 Rains v. Niaqua, Inc.,

406 F.2d 275, 276 (2nd Cir. 1969) .......................................................... 12 Shamrock Technologies, Inc. v. Medical Sterilization, Inc.,

903 F.2d 789 (Fed. Cir. 1990) ................................................................. 17 SkyHawke Techs., LLC v. DECA Int'l Corp.,

828 F.3d 1373, 1376 (Fed. Cir. 2016) ...................................................... 27 Steel Co. v. Citizens for a Better Env't,

523 U.S. 83, 104 (1998).......................................................................... 18 Trading Technologies,

No. 2016-1616, 2017 WL 192716 (Fed. Cir. 2017) (slip op.).................... 15 United Mine Workers v. Gibbs,

383 U.S. 715, 725 (1966) .................................................................. 20, 21 United States v. Welden,

377 U.S. 95, 98 n.4 (1964) ...................................................................... 14 Voda v. Cordis Corp.,

476 F.3d 887, 894 (Fed. Cir. 2007).......................................................... 19 Wahlenmaier v. American Quasar Petroleum Co.,

517 S.W. 2d 390, 393 (Tex. Civ. App. 1974) ........................................... 24 Walker v. THI of N.M. at Hobbs Ctr.,

803 F.Supp.2d 1287 (D.N.M. 2011) ........................................................ 19

vi

STATUTE PAGE 28 U.S.C. § 1295(a)(1) .......................................................................................1

28 U.S.C. § 1331 ........................................................................................... 1, 3

28 U.S.C. § 1338(a) ...................................................................... 1, 3, 11, 22, 23

28 U.S.C. § 1367 ...................................................................................... passim

28 U.S.C. § 2107 ...............................................................................................1

35 U.S.C. § 41 ........................................................................................... 13, 14

35 U.S.C. § 100 .................................................................................................2

35 U.S.C. § 101 ........................................................................................ passim

35 U.S.C. § 141 ............................................................................................... 26

35 U.S.C. § 171(b) .......................................................................... 10, 11, 12, 25

35 U.S.C. § 271(c) ........................................................................................... 11

35 U.S.C. § 273 ........................................................................................ passim

37 C.F.R. 90.3 ................................................................................................. 28

Fed. R. App. P. 4(a) ...........................................................................................1

Fed. R. App. P. 25(b) ........................................................................................ 33

Fed. R. App. P. 32(a)(7) .................................................................................... 33

Fed. R. App. P. 32(f) ......................................................................................... 33

The Leahy-Smith America Invents Act, Pub. L. No. 112-29, 125 Stat. 284, at § 5(c) (2011) .................................. 13

OTHER AUTHORITIES PAGE Restatement (Second) of Contracts § 202(b)(3) (Am. Law Inst. 1981) .......... 24, 25

Restatement (Second) of Contracts § 206 (Am. Law Inst. 1981) ........................ 26

Restatement (Second) of Judgments § 27 (Am. Law. Inst. 1980) ........................ 27

USPTO, JULY 2015 UPDATE: SUBJECT MATTER ELIGIBILITY, app. 1 at 7 ............. 15

vii

STATEMENT OF RELATED CASES

Pursuant to Federal Circuit Rule 47.5, appellee provides as follows:

(a) There have been no previous appeals in this case.

(b) It is aware of no other case that will be directly affected by the Court‘s

decision in this case.

1

JURISDICTIONAL STATEMENT

The trial court had jurisdiction under 28 U.S.C. § 1331, 28 U.S.C. § 1338(a),

and 28 U.S.C. § 1367. This Court has jurisdiction to hear Syrus‘ appeal and

SQUARE‘s cross-appeal under 28 U.S.C. § 1295(a)(1). This appeal was timely

filed in accordance with 28 U.S.C. § 2107 and Fed. R. App. P. 4(a) on November

4, 2016, within 30 days of the District Court‘s order on October 10, 2016.

SQUARE cross-appeals from a summary judgment holding 35 U.S.C. § 273

inapplicable to ―ornamental designs.‖

2

STATEMENT OF THE ISSUES

1. Did the District Court improperly deny SQUARE‘s prior user defense to

design patent infringement because the language of 35 U.S.C. § 273 tracks

the subject matter for utility patents in 35 U.S.C. § 100 and 35 U.S.C. § 101

and § 273 says nothing of ornamental designs?

2. Did the District Court properly exercise jurisdiction over SQUARE‘s breach

of the Joint Research Agreement counterclaim by finding it shared a

common nucleus of operative fact with Syrus‘ claim?

3. Did the District Court properly held a breach of the Joint Research

Agreement by interpreting the phrase ―patentable subject matter‖ in the

Agreement to refer to § 101?

3

STATEMENT OF THE CASE

On October 7, 2015, Syrus sued SQUARE in the United States District

Court for the District of Cascadia for infringement of its D736,836 design patent

[hereinafter ―´836 patent‖]. (R. 16:7–9). SQUARE answered with a prior user

defense under 35 U.S.C. § 273. (R. 16:9–10). SQUARE counterclaimed for breach

of contract under Cascadian state law, alleging that Syrus‘ publication of

―Tokémon Go‖ disclosed information belonging to SQUARE under their

Agreement. (R. 16:10–13, 18:26–30). The District Court had federal question

jurisdiction over the patent infringement claim, and it had jurisdiction over the

breach of contract counterclaim under § 1331, § 1338, or § 1367. (R. 16:25–29;

17:1–5).

Prior to discovery, Syrus attempted to dismiss SQUARE‘s breach of contract

counterclaim for lack of subject matter jurisdiction, but the District Court denied

Syrus‘ motion. (R. 16:17–18). The Court held that Syrus‘ claim and SQUARE‘s

―derive[d] from a common nucleus of operative fact,‖ allowing the court to

exercise jurisdiction. (R. 17:36–37). After discovery, both parties filed cross

motions for summary judgment under stipulations. (R. 18:12–13). Syrus stipulated

to breaching its Agreement with SQUARE if the Tokémon Go application fell

outside the ―patentable subject matter‖ given to Syrus under section 5.1 of the

4

Agreement. (R: 18:13–16). SQUARE stipulated to infringing Syrus‘ design patent

if its prior user defense under § 273 did not apply. Id.

The Court held that Syrus breached the Joint Research Agreement by using

and publishing the cannabinoid-identifying software in its Tokémon Go

application. (R. 19:3–4; 20:13–15; 21:31–33). The Court also held that SQUARE‘s

prior user defense was inapplicable as a matter of law because SQUARE‘s

allegedly infringing GUI was an ―ornamental design,‖ and thus not explicitly

covered under § 273. (R. 19:26–29). Syrus timely appealed on November 4, 2016

and SQUARE took a cross-appeal on the infringement issue. (R. 21:35–36).

5

STATEMENT OF THE FACTS

As clinical applications of cannabinoids become more prevalent,

enforcement agencies and researchers increasingly seek information on their

productive, usage, and chemical characteristics. (R. 2:7–10). However, since

current technology requires ―isolation of the cannabinoids in a laboratory setting,‖

field identification of these cannabinoids is difficult. (R. 2:28–3:4). In 2011,

SQUARE, a small nonprofit research group, solved this problem by discovering

that each cannabinoid species reflected light at a unique polarization angle. (R.

3:10–11). SQUARE also realized a device that detected polarized light could

detect whether a specific cannabinoid was present in a sample based on the

presence or absence of that cannabinoid‘s polarized light. (R. 8:30–35).

As SQUARE lacked the resources to create ―real-world identification

devices‖ implementing this discovery, it sought a partner that would ―develop,

protect, and commercialize its discovery.‖ (R. 3:21–24; 4:1–4) (emphasis added).

SQUARE selected Syrus because of Syrus‘ larger resources and experience in

implementing smaller players‘ discoveries into software. (R. 4:5–8). Because

SQUARE had minimal funds, it granted Syrus exclusive commercialization and

patent rights in the software that Syrus developed. (R. 4:8–9). In exchange,

SQUARE reserved all rights in its original discovery, and required Syrus to keep

SQUARE‘s removal actions confidential. (R. 4:12–14).

6

On October 12, 2011, Syrus and SQUARE entered an Agreement codifying

this understanding. (R. 4:14–16). Section 3.2 of this Agreement stated that any

―existing technology, information, or other know-how . . . will remain a trade

secret of SQUARE.‖ (R. 4:27–5:2). The parties also agreed ―to use commercially-

reasonable safeguards to keep [that information] confidential,‖ and to return

―physical manifestations‖ of these secrets when the Agreement ended. (R. 5:2–5;

5:7–10). However, ―as an exception to [Section] 3.2,‖ Agreement Section 5.1

allowed Syrus to pursue patent rights on ―commercialize-able and patentable

subject matter developed by Syrus.‖ (R. 5:13–15). Any ―subject matter developed

under this Agreement outside of [the 5.1 subject matter]‖ had to remain ―secret and

confidential under the terms of Section 3.2.‖ (R. 5:25–30). This Agreement lacked

an integration clause. (R. 5:34–35).

After two months of development, Syrus implemented SQUARE‘s

discovery into cannabinoid-identification software, which it delivered to SQUARE

for SQUARE‘s internal use. (R. 6:1–2, 9–11). On January 3, 2012, Syrus began

developing an application and GUI, and filed Patent Application 13/400,777

[hereinafter ―‘777 application‖] on this software. (R. 6:11–16). This application

described a system for identifying cannabinoids in the field using polarized light.

(R. 7:1–15). The system included three devices: a polarizer (105), a computer

processor (101), and an unspecified display device (190). (R. 7:23–30). The claims

7

disclosed methods to collect polarized light, convert that light into data, and

compare that output data against known cannabinoid polarization angles to identify

a cannabinoid. (R. 8:20–27; 9:1–4; 9:19–25). The application specifically

disclaimed scope over natural phenomena, and allowed the use of known methods

for polarization. (R. 6:21–26; 8:8–15). On April 24, 2013, the Examiner allowed

the ‘777 application, as identification of specific cannabinoids in the field using

polarized light was unknown in the prior art. (R. 9:17–18; 10:4–6).

However, the Examiner withdrew this allowance on July 17, 2013, stating

that developing § 101 case law rendered the ‘777 patent application a ―preemptive

application‖ of the ―natural phenomenon‖ of cannabinoid polarization of light. (R.

10:8–12). Syrus attempted to amend the ‘777 patent application over the next

several years, but could not persuade the Examiner to withdraw the rejection. (R.

10:11–12).

During the examination of the application, Syrus slowed its development

and delivery of software to SQUARE, prompting SQUARE to create its own GUI.

(R. 10:13–16; 14:5–9). On November 20, 2013, SQUARE employee Luce Morales

drew a map overlay for SQUARE‘s identification software. (R. 14:9–13). Morales

handed this GUI to a recently hired programmer named Ernest Temperance, who

implemented it so that users could interact with Syrus‘ software on any computing

device. (R. 14:13–16, 19–23). SQUARE finished its GUI on December 4, 2013,

8

over a year before Syrus filed for a design patent, and installed this GUI in its

internal tracking system. (R. 14:24–27; R. 15:10). SQUARE has since used this

tracking software and GUI to aid law enforcement authorities in detecting illegal

cannabinoids. (R. 14:24–28). Syrus played no role in the development of

SQUARE‘s GUI, and none of SQUARE‘s employees ever worked with anyone at

Syrus on any GUI. (R. 14:29–30).

Syrus never delivered its promised large-scale cannabinoid software and

GUI; thus, with Syrus‘ consent, SQUARE terminated the Agreement on April 16,

2014. (R. 10:16–18). Syrus returned physical materials provided during

development of the software to SQUARE. (R. 11:8–10). Despite the termination of

the Agreement and its return of physical materials, Syrus ―presumed‖ it could

continue developing its own cannabinoid-identifying technology. (R. 15:5–7).

Syrus began developing its own mobile application and GUI for identifying and

geotagging cannabinoids using the same software sent to SQUARE. (R. 15:3–6).

On December 10, 2014, Syrus filed a design patent application for its GUI. (R.

15:10–11).

While secretly developing its own cannabinoid–identifying application,

Syrus appealed to the PTAB to overturn the Examiner‘s rejection of its ‘777

application. However, the PTAB affirmed the Examiner‘s rejection, holding the

‘777 application was ―based on the abstract use of [the] natural phenomenon‖ of

9

cannabinoid-specific light polarization. (R. 12:18–21). The PTAB also held that

―none of the [‘777 application‘s] claims at issue recited a specific application of

[that] natural phenomenon.‖ (R. 12:36–13:12). As the ‘777 application was

unpatentable, Syrus abandoned it on August 17, 2015. (R. 11:12–14).

Syrus then released the ‘777 application‘s software, called ―Tokémon Go,‖

through multiple outlets; this application used the same software that Syrus

delivered to SQUARE. (R. 15:7–9). On September 2, 2015, SQUARE informed

Syrus that Syrus‘ Tokémon Go application used SQUARE‘s trade secret

cannabinoid polarization database in violation of the Agreement. (R. 15:30–16:1).

SQUARE also noted the striking similarity between Syrus‘ GUI and its own, and

asked Syrus to explain the similarity between the two GUIs. (R. 16:1–4). On

September 9, Syrus asserted that SQUARE‘s GUI infringed Syrus‘ unpublished,

patent-pending GUI design. (R. 16:5–6). On September 29, 2015, Syrus‘

application issued as design patent D736,836 [hereinafter ‘836 patent]; Syrus sued

SQUARE for infringing that patent a week later. (R. 15:10–12; 16:7–9).

10

SUMMARY OF THE ARGUMENT

The District Court erred in granting summary judgment by holding

SQUARE‘s § 273 prior user defense was ―inapplicable as a matter of law.‖ First, §

273 implicitly allows prior user defenses for infringing ornamental designs, not

just for the subject matter of utility patents. Second, the District Court erroneously

decided a disputed fact issue in its summary judgment. SQUARE‘s GUI is a

―machine‖ under 35 U.S.C. § 101, and thus falls within § 273(a) subject matter.

Finally, there is a disputed issue of material fact over whether Morales was in

privity with Syrus based on her employment relationship with SQUARE.

Therefore, this Court should (1) vacate the District Court‘s grant of summary

judgment, (2) hold that § 273 includes ornamental designs as a matter of law, and

(3) remand to the District Court to determine whether SQUARE‘s GUI falls within

§ 273(a) subject matter and whether § 273(e)(2) applies.

The District Court properly found a ―common nucleus of operative fact‖ that

allowed it to exercise jurisdiction over SQUARE‘s counterclaim under § 1367.

First, § 1367 establishes the Gibbs ―case or controversy‖ standard as the only

condition for admitting permissive counterclaims. While the Tenth Circuit has yet

to interpret that statute, multiple Circuits and Congressional history signal

Congress‘ intent to establish broad jurisdiction over permissive counterclaims.

Second, SQUARE‘s counterclaim has a ―common nucleus‖ with Syrus‘ claim

11

under Gibbs: the two claims share a common incident that is more than

background information. The District Court could also exercise federal question

jurisdiction under § 1338(a), since SQUARE‘s claim is compulsory, ―arises under‖

a patent statute, and satisfies the Gunn factors. Thus, this Court should affirm the

District Court‘s exercise of jurisdiction.

The District Court properly held that Syrus breached its Agreement with

SQUARE because Tokémon Go and its predecessor ‘777 application fell outside

―patentable subject matter‖ granted to Syrus under section 5.1. The District Court

properly identified ―patentable subject matter‖ under section 5.1 refers to § 101 as

this technical term was used in its technical context. In addition, since the USPTO

held that no claim in Tokémon Go satisfies § 101, its holding precludes Syrus from

re-litigating that issue here. Finally, as Tokémon Go was directed to the ―natural

phenomenon‖ of cannabinoid light polarization, it has never been patentable

subject matter. Therefore, Tokémon Go is not ―patentable subject matter‖ as

defined in Agreement section 5.1, and the District Court properly held Syrus liable

for breaching the Agreement. Thus, this Court should affirm the District Court‘s

holding that Syrus breached the Agreement.

12

ARGUMENT

I. THE DISTRICT COURT IMPROPERLY DENIED SQUARE’S PRIOR USER DEFENSE.

The District Court erroneously granted summary judgment that held

SQUARE‘s prior user defense under § 273 ―inapplicable as a matter of law.‖ (R.

20:13). This Court reviews a District Court‘s grant of summary judgment de novo,

applying the same standard as the District Court and drawing all reasonable

inferences in favor of the nonmovant. Anderson v. Liberty Lobby, Inc., 477 U.S.

242, 255 (1986). Summary judgment is proper if the evidence shows no genuine

issue as to any material fact and the moving party is entitled to a judgment as a

matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

A. 35 U.S.C. § 273 implicitly includes ornamental designs.

The District Court held that § 273 ―only appl[ies] to subject matter accused

of infringing a utility patent,‖ since it ―says nothing of ‗ornamental designs‘‖ and

―[its] language closely tracks the subject matter for utility patents.‖ (R. 19:29–34).

However, 35 U.S.C. § 171(b) states that ―the provisions of this title relating to

patents for inventions shall apply to patents for designs, except as otherwise

provided.‖ § 171(b) (emphasis added). Unless this ―otherwise provided‖ condition

is met, ―design patents are generally governed by the same principles that apply to

other patents.‖ Rains v. Niaqua, Inc., 406 F.2d 275, 276 (2d Cir. 1969). Another

patent provision similarly does not include ―ornamental design‖ and ―tracks‖ the

13

language of § 101. See 35 U.S.C. § 271(c) (tracking § 101 by stating ―a component

of a patented machine, manufacture, combination or composition, or a material or

apparatus for use in practicing a patented process‖). Yet courts have previously

held that this provision applies to design patents. See Bergstrom v. Sears, Roebuck

& Co., 496 F. Supp. 476, 493 (D. Minn. 1980) (implying that § 271 applies to

design patents despite the absence of ―ornamental designs‖ from statute‘s

language). By contrast, patent provisions that exclude ornamental designs

explicitly use the language ―except for design, plant, or provisional applications.‖

35 U.S.C. § 41.

Second, even though § 273 does not explicitly include ornamental designs,

that statute‘s legislative history also indicates that § 273(a)‘s subject matter

implicitly includes design patents. Since the Leahy-Smith America Invents Act

[hereinafter AIA] was enacted in 2011, before the ‘836 patent issued on September

29, 2015, that patent is governed by the AIA-amended version of § 273. (R. 15:11–

12). The AIA added a statutory note to § 273 stating ―this section shall apply to

any patent issued on or after the date of the enactment of this Act.‖ AIA, Pub. L.

No. 112-29, 125 Stat. 284, at § 5(c) (2011) (emphasis added). ―The fact that this

provision was codified as a statutory note is of no moment. The Statutes at Large

provide the evidence of the laws of the United States.‖ Conyers v. MSPB, 388 F.3d

1380, 1382 (Fed. Cir. 2004); see also United States v. Welden, 377 U.S. 95, 98 n.4

14

(1964) (noting that a provision must be read ―in the context of the entire Act, rather

than in the context of the ‗arrangement‘ elected by the codifier‖). Had Congress

intended to exclude design patents, it could easily have said so explicitly, as it did

in § 41. Since Congress chose not to impose such a limitation, § 273‘s statutory

note shows that Congress intended to include ornamental designs such as

SQUARE‘s GUI within § 273.

Third, even if Congress meant for the language of § 273(a) to ―track‖ § 101,

§ 273(a) still implicitly includes ornamental designs. A design patent requires,

among other items, an ―ornamental design for an article of manufacture,‖ while §

273 applies to ―subject matter consisting of a . . . manufacture.‖ §§ 171, 273

(emphases added). §§ 273, 171, & 101 all contain a reference to ―manufacture.‖

And so, like the Supreme Court‘s most recent Apple v. Samsung decision holding

an ―article of manufacture‖ in § 171 is consistent with § 101‘s ―manufacture,‖ then

so too does § 273 and § 171 refer to the same ―manufacture.‖ Apple v. Samsung,

No. 15–777, 2016 WL 7338398, at *6–7 (2016). Thus, if an ornamental design,

such as SQUARE‘s GUI, is ―for an article of manufacture,‖ such as the device

displaying SQUARE‘s GUI, then the subject matter ―consists of a manufacture‖

under § 273(a). Therefore, § 273(a) implicitly includes design patents as a matter

of law.

15

B. SQUARE’s GUI is a “machine” under § 273(a) because a user interacts with it.

The District Court erred by granting summary judgment despite a disputed

issue of fact. SQUARE‘s GUI is ―subject matter consisting . . . of a machine . . .

used in a . . . commercial process.‖ 35 U.S.C § 273. The Supreme Court has

defined the term ―machine‖ as ―a concrete thing, consisting of parts, or of certain

devices and combinations of devices.‖ CLS Bank Int'l v. Alice Corp. Pty, 717 F.3d

1269, 1316 (2013) (citing Burr v. Duryee, 68 U.S. 570 (1863)), aff’d, 134 S. Ct.

2347 (2014). A GUI allows a user to interact with a computer through graphical

elements. USPTO, JULY 2015 UPDATE: SUBJECT MATTER ELIGIBILITY, app. 1 at 7,

https://www.uspto.gov/sites/default/files/documents/ieg-july-2015-app1.pdf. These

graphical elements contain controls to accept user input for those processes. Id.

SQUARE‘s GUI is a machine because users interact with the GUI via a

―computer or mobile device‖ executing the underlying software. (R. 14:21–23).

This Court has held that software programs such as GUIs are ―digital machines‖

that are ―made of specific parts that interact . . . to achieve a specific result.‖

Amdocs (Isr.) Ltd. v. Openet Telecom, Inc., 841 F.3d 1288, 1317 (Fed. Cir. 2016);

see also Trading Technologies, No. 2016-1616, 2017 WL 192716 (Fed. Cir. 2017)

(slip op.) (affirming that stock trading GUI falls within the ―substantive criteria of

patentability‖). While Trading Technologies involved a method claim, SQUARE

may claim its GUI under any category so long as that GUI is patentable. See Alice

16

Corporation Pty. Ltd. v. CLS Bank International, 134 S. Ct. 2347 (2014)

(reaffirming Mayo‘s two-step, preemption-oriented patentable subject matter

analysis). A contrary holding might allow ―artful drafting [to] turn something

unpatentable to patentable subject matter.‖ Diamond v. Diehr, 450 U.S. 175, 191–

92 (1981).

Furthermore, SQUARE‘s GUI modifies existing technological systems to

solve known problems and is therefore patentable subject matter. This Court has

found claims eligible that were ―directed to a specific improvement to the way

computers operate, embodied in [a] self-referential table.‖ Enfish, LLC v. Microsoft

Corp., 822 F.3d 1327, 1334 (Fed. Cir. 2016). Similarly, SQUARE‘s GUI, which

encompasses the cannabinoid-identifying software, incorporates a self-referential

table in its cannabinoid database. (R. 3:20–21). Likewise, this Court has found that

―claimed process[es] us[ing] a combined order of specific rules‖ that improved

existing technological processes are patentable. McRO, Inc. v. Bandai Namco

Games America Inc., 837 F.3d 1299, 1315 (Fed. Cir. 2016). Similarly, SQUARE‘s

GUI and software improves existing technology by avoiding a ―potentially

destructive, chemical test‖ previously required to identify a cannabinoid. (R. 2:25–

28; 3:1–4; 9:13–17). Under the precedents of McRO and Enfish, SQUARE‘s GUI

qualifies as ―patentable subject matter,‖ and falls within the scope of § 273(a).

17

C. § 273(e)(2) does not apply because SQUARE developed its GUI unilaterally and without agency.

The District Court did not reach the privity question; however, Syrus argues

that Morales was in privity with Syrus because SQUARE was in privity with both

Morales and Syrus. See (R. 19:6–20:15); (R. 18:19–22). Section 273(e)(2) bars

alleged infringers from a prior user defense if they derived the allegedly infringing

subject matter from ―persons in privity with the patentee.‖ § 273(e)(2). The

existence of privity between parties depends on the nature of their relationship:

―the closer that relationship, the more the equities will favor applying the

doctrine.‖ Shamrock Techs. Inc. v. Med. Sterilization, Inc., 903 F.2d 789, 793 (Fed.

Cir. 1990). Assessing the privity of a relationship involves evaluating all of that

relationship‘s direct and indirect contacts. See Intel Corp. v. U.S. Int'l Trade

Comm'n, 946 F.2d 821, 838 (Fed. Cir. 1991).

Syrus‘ claimed privity between Morales and SQUARE amounts to a

standard employment relationship, which is insufficient to prove privity under

Federal Circuit precedent. Where a patent assignor was directly involved in

manufacturing an infringing product and his knowledge enabled the defendant‘s

infringement, this Court found they were in privity. MAG Aerospace Industries,

Inc. v. B/E Aerospace, Inc., 816 F.3d 1374, 1380 (Fed. Cir. 2016). Here, by

contrast, Morales could not have enabled SQUARE‘s infringement, since she

lacked the computer skills necessary to implement SQUARE‘s GUI in its software.

18

(R. 14:9–16). Furthermore, since neither ―Morales . . . [n]or anyone at SQUARE

ever worked with anyone at Syrus on any GUI,‖ Morales was not directly involved

in SQUARE‘s alleged infringement. (R. 14:28–30; 19:11–13). Thus, Syrus cannot

prove Morales‘ involvement in developing SQUARE‘s allegedly infringing GUI.

Therefore, this Court should vacate the District Court‘s grant of summary

judgment, hold that § 273 includes design patents, and remand this case to the

District Court for further determinations under § 273(a) and (e)(2).

II. THE DISTRICT COURT PROPERLY EXERCISED JURISDICTION OVER THE BREACH OF CONTRACT CLAIM.

A. Section 1367 extends supplemental jurisdiction over all permissive counterclaims that satisfy Gibbs.

This Court reviews a motion to dismiss for lack of subject matter jurisdiction

de novo. Microsoft Corp. v. GeoTag, Inc., 817 F.3d 1305, 1311 (Fed. Circ. 2016).

Because this is a matter of jurisdiction pertaining to § 1367, which is not patent

specific, 10th Circuit law governs. See Panduit Corp. v. All States Plastic Mfg.

Co., Inc., 744 F.2d 1564 (Fed. Cir. 1984) (establishing that regional appellate court

law should apply when the issue at hand is not unique to patent law). The Tenth

Circuit reviews an exercise of jurisdiction de novo. See FDIC v. Hulsey, 22 F.3d

1472, 1479 (10th Cir. 1994). The movant must establish that jurisdiction is proper.

Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 104 (1998). Under § 1367, the

Tenth Circuit would affirm exercising jurisdiction over SQUARE‘s counterclaim.

19

Section 1367 grants supplemental jurisdiction ―over all other claims . . . that

[] form part of the same case or controversy under Article III.‖ § 1367(a)

(emphasis added). Congress considered language limiting § 1367 to claims arising

from the same ―transaction or occurrence,‖ but rejected it for the ―case or

controversy‖ standard. Baer v. First Options, 72 F.3d 1294, 1298–99 (7th Cir.

1995). This choice of language indicates that Congress deliberately abrogated the

judicial requirement that permissive counterclaims require independent

jurisdiction. Jones v. Ford Motor Co., 358 F.3d 205, 213 (2d Cir. 2004).

Additionally, this Court has noted that § 1367(a) extends supplemental jurisdiction

―to the limits of Article III.‖ Voda v. Cordis Corp., 476 F.3d 887, 894 (Fed. Cir.

2007). Since Article III allows federal courts to hear permissive counterclaims, the

District Court correctly exercised jurisdiction over SQUARE‘s counterclaim.

As the District Court correctly noted, several other Circuits have adopted

this interpretation of § 1367(a). (R. 17:23–27). Since the Tenth Circuit has not

interpreted § 1367 as applied to permissive counterclaims, the District Court

properly looked to these other Circuits. Id. (citing Walker v. THI of N.M. at Hobbs

Ctr., 803 F.Supp.2d 1287 (D.N.M. 2011)). The Seventh Circuit endorses this

interpretation, stating that ―courts should use the language of [§ 1367] to define the

extent of their powers.‖ Channell v. Citicorp Nat’l Servs., 89 F.3d 379, 385 (7th

Cir. 1996). The Second Circuit likewise holds that ―after [the enactment of] section

20

1367 . . . courts [cannot] assert . . . that permissive counterclaims require

independent jurisdiction.‖ Jones, 358 F.3d at 212–13. Similarly, the First Circuit

notes that ―the statute does not [differentiate] ‗permissive‘ or ‗compulsory‘ . . .

[thus] § 1367 governs supplemental jurisdiction over [all] counterclaims.‖ Global

NAPs, Inc., v. Verizon New Eng., Inc., 603 F.3d 71, 86–87 (1st Cir. 2010). Based

on these authorities, the District Court properly recognized that § 1367 grants

jurisdiction over SQUARE‘s counterclaim.

B. SQUARE’s counterclaim has a “common nucleus” with Syrus’ claim that satisfies Gibbs.

A ―common nucleus of operative fact‖ exists where ―a plaintiff's claims . . .

would ordinarily [be tried] in one judicial proceeding.‖ Price v. Wolford, 608 F.3d

698, 702–03 (10th Cir. 2010); United Mine Workers v. Gibbs, 383 U.S. 715, 725

(1966). The Tenth Circuit interprets the Gibbs test to require a common incident

that gives rise to both claims‘ causes of action. See Jones v. Intermountain Power

Project, 794 F.2d 546, 549–53 (10th Cir. 1986) (upholding jurisdiction because

plaintiff‘s state and federal claims arose from same breach of contract). The

District Court correctly identified this common incident in ―the mutual actions of

the parties [under] the Agreement,‖ which created both parties‘ GUIs and software.

(R. 17:36–18:5). SQUARE created its allegedly infringing GUI because Syrus

failed to deliver a GUI as promised under the Agreement. (R. 5:21–24; 6:9–12).

Likewise, Syrus developed the ‘777 application pursuant to its rights under the

21

Agreement, and breached the Agreement‘s non-disclosure clause by publishing

Tokémon Go. (R. 5:13–15, 25–29; 6:13–16; 15:1–6). Since both causes of action

arose under the Agreement, the District Court properly found a ―common nucleus

of operative fact‖ between the two claims.

Furthermore, the District Court served judicial economy, convenience, and

fairness by hearing SQUARE‘s counterclaim and Syrus‘ claim together. Gibbs

stated that ―considerations of judicial economy, convenience and fairness to

litigants‖ may favor exercising jurisdiction; this case implicates these concerns.

Gibbs, 383 U.S. at 725. First, the District Court not only concluded pretrial

proceedings, but reached judgment; re-running the entire trial would strain judicial

economy. (R. 18:11–12; 19:3–4). Remanding SQUARE‘s claim to state court

would be both inconvenient and unfair to the parties, who would have to litigate

the same events twice. See Borough of W. Mifflin v. Lancaster, 45 F.3d 780, 789–

90 (3rd Cir. 1995). Finally, because there is a substantial federal interest in a

uniform body of patent law, interpreting § 273(e)(2)‘s application to design patents

is an issue of substantial federal interest. (R. 18:15–16, 31; 19:1–2). Thus, since all

the Gibbs supplemental factors are met, the District Court properly exercised

jurisdiction over SQUARE‘s counterclaim.

Unlike the claim rejected in Angioscore, the ―common nucleus‖ here is not

mere ―background information‖ and is sufficient to uphold supplemental

22

jurisdiction. This Court has found a ―common nucleus‖ between two claims that

―involve the same witnesses, presentation of the same evidence, and determination

of the same, or very similar, facts.‖ Angioscore v. Trireme Med., LLC, 2016-1126,

–1129, 2016 WL 6595984, *3 (Fed. Cir. 2016). Here, Morales can both testify to

SQUARE‘s intentions regarding the Agreement and identify the ‗ordinary

observer‘ needed to judge the similarity of SQUARE‘s and Syrus‘ GUIs. (R. 14:9–

13). Likewise, Syrus‘ ‘777 application establishes whether Tokémon Go is

―patentable subject matter‖ and clarifies the proper category for SQUARE‘s GUI.

(R. 18:23–25, 31; 19:1–2). Finally, Syrus‘ claim of privity under § 273(e)(2) and

SQUARE‘s breach of the Agreement rely on the same events leading to the

Agreement‘s dissolution. (R. 18:25–31). Thus, unlike the mere ―background

information‖ about the defendant‘s line of business in Angioscore, the present facts

satisfy this Court‘s ―common nucleus‖ test. And therefore, under Tenth Circuit

law, the District Court properly recognized the common nucleus of operative facts

between Syrus‘ claim and SQUARE‘s counterclaim.

C. The District Court erred by not exercising independent federal question jurisdiction over SQUARE’s counterclaim.

The District Court should also have found that Syrus‘ breach of contract

counterclaim arises under federal patent law, and therefore the Court has

independent federal question jurisdiction under § 1338(a). (R. 17:13–15). Section

1338 states, ―[t]he district courts shall have original jurisdiction of any civil action

23

arising under any Act of Congress relating to patents, plant variety protection,

copyrights and trademarks.‖ 35 U.S.C. § 1338(a) (emphases added).

SQUARE‘s counterclaim ―arises under‖ federal patent law per the Gunn

test, which this Court applies to determine whether a claim ―arises under‖ §

1338(a). See Jang v. Boston Sci. Corp., 767 F.3d 1334, 1337-38 (Fed. Cir. 2014)

(holding a patent royalty dispute met the Gunn test because the analysis required

determining infringement and validity of underlying patents). Under Gunn, federal

jurisdiction exists over state law claims whose federal issues are necessarily raised,

actually disputed, substantial, and capable of resolution without disrupting

federalism. Gunn v. Minton, 133 S. Ct. 1059, 1066 (2013). Like Jang, this case

necessarily raises and actually disputes the federal issue of § 101‘s scope in the

disputed ―patentable subject matter‖ term of the Agreement. (R. 18:28–19:2).

Since the issue of § 101‘s scope will determine the outcome of SQUARE‘s breach

claim, it is also substantial. (R. 20:36–38; 21:29–33). Finally, maintaining Federal

Circuit jurisdiction over patent-related disputes is important to ―the federal system

as a whole‖ and not merely ―to the particular parties in the immediate suit.‖ Jang,

767 F.3d at 1337–38 (citing Gunn, 133 S. Ct. at 1066). Thus, independent federal

question jurisdiction exists over SQUARE‘s breach of contract counterclaim, and

the District Court properly exercised jurisdiction over SQUARE‘s counterclaim.

24

III. THE DISTRICT COURT CORRECTLY HELD THAT SYRUS BREACHED ITS AGREEMENT WITH SQUARE.

This Court interprets contracts de novo. Cal. Fed. Bank v. United States, 245

F.3d 1342, 1346 (Fed. Cir. 2001). This Court applies Cascadian state law to

interpret the Agreement. Erie R.R. v. Tompkins, 304 U.S. 64, 78 (1938). Cascadia

has adopted the Restatement (Second) of Contracts, has no court-developed

common law, and treats other states‘ interpretations of the Restatement as

persuasive. (R. 16:13–16).

A. The District Court correctly held that “patentable subject matter” in the Agreement refers to 35 U.S.C. § 101.

The District Court correctly held that ―the term ‗patentable subject matter‘ in

[the Agreement] . . . refers to . . . § 101.‖ (R. 20:27–29). ―Unless a different

intention is manifested, . . . technical terms and words of art are given their

technical meaning when used in a transaction within their technical field.‖

Restatement (Second) of Contracts § 202(b)(3) (Am. Law Inst. 1981). Absent such

intent, courts follow a term‘s meaning ―[i]n the popular and normal sense‖; thus,

courts have held that ―barrels‖ in energy contracts means ―barrels of oil,‖ not

―barrels of gas.‖ Id. at cmt. (e) (citing Wahlenmaier v. American Quasar

Petroleum Co., 517 S.W. 2d 390, 393 (Tex. Civ. App. 1974)). Here, the phrase

―patentable subject matter‖ is popularly known in the patent field to reference §

101. See, e.g., Mayo Collaborative Servs. v. Prometheus Labs., Inc., 566 U.S. 66

25

(2012) (―Section 101 of the Patent Act defines patentable subject matter.‖); see

also Diamond v. Chakrabarty, 447 U.S. 303, 315 (1980) (―Congress has performed

its constitutional role in defining patentable subject matter in § 101‖). In light of

this meaning, the District Court properly held that the ―use of the term ‗patentable

subject matter‘ in a contract defining intellectual property rights [clearly] refers to

35 U.S.C. § 101.‖ (R. 20:27–29). Thus, the Restatement supports the District

Court‘s interpretation that ―patentable subject matter‖ refers to § 101.

Additionally, Cascadia looks to other states‘ treatment of contracts under the

Restatement as persuasive. Colorado courts have applied § 202(b)(3) to hold that

contractual terms bear their ordinary meanings unless the contract explicitly states

otherwise. See Bledsoe Land Co. LLLP v. Forest Oil Corp., 277 P.3d 838, 845

(Colo. App. 2011) (holding the term ―completion‖ in an energy lease is not

ambiguous because ―nothing in the [l]ease [] would lead a reasonable person to

think the term ‗completion‘ means anything other than its plain English meaning‖).

While Syrus argues that ―patentable subject matter‖ refers to something other than

§ 101, it did not explicitly redefine that term in the Agreement. (R. 18:32–33;

19:1–2). As section 5.1 of the Agreement is entitled ―Patenting and

Commercialization‖ and discusses the rights from ―[r]esulting patents,‖ Syrus

meant ―patent‖ to reference § 101 in that section. (R. 5:18). Consequently, the term

26

―patentable subject matter‖ should bear the standard definition of that term under §

101, since the Agreement‘s language supports that interpretation.

Furthermore, any ambiguities in the Agreement should be resolved against

Syrus because Syrus was the more experienced party. In resolving ambiguities,

Cascadian courts interpret terms ―against the party who supplies the words or from

whom a writing otherwise proceeds.‖ Restatement (Second) of Contracts § 206

(Am. Law. Inst. 1981). This provision codifies a preference in interpreting

contractual terms against parties who are more knowledgeable and able to protect

themselves during contract drafting. See Bledsoe Land Co., 277 P.3d at 845

(disregarding offered definition of ―completion‖ because offeror knew industry

meaning of term from experience). Here, Syrus is the experienced party, as it ―was

known for its work in developing software-based research and analysis tools.‖ (R.

4:2–8). If Syrus meant to define the term ―patentable subject matter‖ differently

from the norm, it could easily have specified that definition in the Agreement.

Syrus may argue that ―patentable subject matter‖ in section 5.1 of the

Agreement could include design patents, but even if it did, its Tokémon Go

application is not included. When subject matter is ―primarily functional, rather

than ornamental,‖ then the subject matter is ―not patentable subject matter under 35

U.S.C. § 171.‖ In re Chung, 243 F.3d 561 (Fed. Cir. 2000). SQUARE‘s GUI is

primarily functional, and since Syrus‘ GUI is based on the same technology as

27

SQUARE‘s GUI, it is also primarily functional. Therefore, even if ―patentable

subject matter‖ could include design patents under § 171, then SQUARE‘s GUI is

primarily functional and would not be covered under ―patentable subject matter‖

under section 5.1.

B. Syrus cannot re-litigate whether the Tokémon Go application is “patentable subject matter.”

The District Court properly held that Syrus could not re-litigate Tokémon

Go‘s patentability under § 101 because Tokémon Go uses the same cannabinoid-

identifying technology as the ineligible ‘777 application. (R. 21:13–14) (citing B &

B Hardware, Inc. v. Hargis Industries, Inc., 135 S. Ct. 1293 (2015)). ―When an

issue of fact or law is actually litigated and determined by a valid and final

judgment . . . [it] is conclusive in a subsequent action between the parties.‖

Restatement (Second) of Judgments § 27 (Am. Law. Inst. 1980). Decisions of the

Patent and Trademark Office have previously precluded litigants in subsequent

actions. See B & B Hardware, Inc., 135 S. Ct. at 1310 (granting preclusive effect to

TTAB decisions if other preclusion requirements met). A party may re-argue a

decision‘s key issues in a subsequent action only so long as that party has the right

to appeal. See SkyHawke Techs., LLC v. DECA Int'l Corp., 828 F.3d 1373, 1376

(Fed. Cir. 2016). Here, the PTAB‘s prior judgment held that ―none of the claims‖

in Tokémon Go‘s cannabinoid-identifying software were ―patentable subject

matter.‖ (R. 12:36–37; 21:6–7). Furthermore, Syrus had the opportunity to appeal

28

the PTAB‘s decision under 35 U.S.C. § 141, but abandoned that right when it

abandoned its rejected ‘777 application. See 37 C.F.R. 90.3 (2012); see also

Blonder-Tongue Labs. v. University of Illinois Found., 402 U.S. 313, 323–324

(1971) (noting the President's Commission on the Patent System stated that a

―patentee, having been afforded the opportunity to exhaust his remedy of appeal

from a holding of invalidity, has had his 'day in court' and should not be allowed to

harass others on the basis of an invalid claim‖); (R. 11:12–14).

Syrus may argue that because the parties in the previous proceeding were

different—the USPTO and Syrus—there can be no issue preclusion. However,

SQUARE was a party in the previous proceeding because it was a co-owner of the

patent during the appeal to the PTAB. (R. 5:18–21; 11:2–4); see Blonder-Tongue

Labs., 402 U.S. at 323–324 (―Was there a final judgment on the merits? Was the

party against whom the plea is asserted a party or in privity with a party to the prior

adjudication?‖). SQUARE was certainly a party to the proceeding and in privity

with Syrus. Therefore, Syrus is precluded from re-litigating Tokémon Go‘s

patentability.

Moreover, Syrus argues that if the ‘777 application was properly claimed

then it would have fallen within ―patentable subject matter‖ under § 101. But, the §

101 exception for ―laws of nature‖ and ―natural phenomena‖ has been recognized

for over 150 years. See Alice, 134 S. Ct. at 2360; see also Parker v. Flook, 437

29

U.S. 584, 590 (1978) (―The concept of patentable subject matter under § 101 is not

‗like a nose of wax which may be turned and twisted in any direction . . .‘‖). Thus,

Syrus should not be able to re-litigate whether Tokémon Go contains ―patentable

subject matter.‖

C. The District Court correctly held that Tokémon Go was not “patentable subject matter.”

The District Court correctly held that the Tokémon Go application was not

―patentable subject matter‖ either in 2011 or in 2015. This matter pertains to the

District Court‘s interpretation of a patent statute, thus this court reviews the matter

under Federal Circuit law and with a de novo standard of review. CLS Bank Int'l v.

Alice Corp. Pty, 717 F.3d 1269, 1276 (2013), aff’d, 134 S. Ct. 2347 (2014).

Step one of the Alice test ―calls upon us to look at the ‗focus of the claimed

advance over the prior art‘ to determine if the claim's ‗character as a whole‘ is

directed to excluded subject matter.‖ Affinity Labs of Texas, LLC v. DIRECTV,

LLC, 838 F.3d 1253, 1257 (Fed. Cir. 2016). Here, the specification only points to a

method of identifying cannabinoids by the natural phenomenon of polarized light.

(R. 9:1–16). Because the specification is generally directed to detecting the

presence of a natural phenomenon, then the Court should move to step two. Ariosa

Diagnostics, Inc. v. Sequenom, Inc., 788 F.3d 1371, 1376 (Fed. Cir. 2015), cert.

denied, 136 S. Ct. 2511 (2016).

30

Step two of the Alice test requires a determination as to ―whether the

elements of the claim, considered both individually and as an ordered combination,

add enough to transform the nature of the claim into a patent-eligible

application.‖ Alice, 134 S. Ct. at 2355. Like the PTAB already stated, claim 1 does

―nothing substantively beyond the use of cannabinoid-identifying light polarization

to, well, identify cannabinoids.‖ (R. 13:21–23); see also Ariosa, 788 F.3d at 1376;

Cybersource Corp. v. Retail Decisions, Inc., 654 F.3d 1366, 1372 (Fed. Cir. 2011);

Parker, 437 U.S. at 590–91. Next, claim 2 ―repeat[ed] the patent ineligible steps of

claim 1‖ and used ―a conventional comparison of new and old information,‖ which

―cannot render [claim 2] non pre-emptive.‖ (R. 13:28–36); see also Classen

Immunotherapies Inc. v. Biogen Idec., 659 F.3d 1057, 1067–68 (Fed. Cir. 2011).

Meanwhile, claims 6 and 11 were ―mere field-of-use limitations [or] audience

identifiers.‖ (R. 13:37–38); see also Bilski v. Kappos, 130 S. Ct. 3218, 3231

(2010). Individually, the claims do not transform Tokémon Go into patentable

subject matter.

In combination, the specification briefly mentions that ―[p]rior to the

example method and embodiments disclosed herein, a more involved, and a

potentially destructive, chemical test would need to be carried out on the subject to

determine cannabinoid profile.‖ (R. 9:12–16). However, this method would still

interfere significantly with innovation in other fields now or in the future, such as

31

the medical and pharmaceutical industries that have ―taken greater interest in the

clinical effects of these plants for treating certain disease states.‖ (R. 2:2–5). The

Supreme Court cases, however, have not distinguished among different laws of

nature or natural phenomena according to whether or not the principles they

embody are sufficiently narrow. See, e.g., Parker, 437 U.S. at 584 (holding a

narrowed mathematical formula was unpatentable). In Parker v. Flook, the

Supreme Court stated the issue in the case as follows: ―The question in this case is

whether the identification of a limited category of useful, though conventional,

post-solution applications of such a formula makes respondent's method eligible

for patent protection.‖ Id. at 585. The answer to that question was ―no‖ because

granting exclusive rights to the mathematical formula would be exempting it from

any future use. Id. at 594–95. Similarly, a patent on the cannabinoid-identifying

technology would preempt all uses of polarized light to identify cannabinoids. (R.

9:19–25). The District Court correctly held that ―the fully-developed

administrative [‘777 application record], which Syrus did not appeal, amply

supplies this analysis.‖ (R. 21:10–12). Therefore, this Court should affirm the

District Court‘s holding that Syrus breached the Agreement.

32

CONCLUSION

On issue one, this Court should (1) vacate the District Court‘s grant of

summary judgment, (2) hold that § 273 includes ornamental designs as a matter of

law, and (3) remand to the District Court to determine whether SQUARE‘s GUI

falls within § 273(a) subject matter and whether § 273(e)(2) applies. On issue two,

this Court should affirm the District Court‘s denial of Syrus‘ motion to dismiss for

lack of jurisdiction. And on issue three, this Court should affirm the District

Court‘s holding that Syrus breached the Agreement.

Dated: February 6, 2017 Respectfully submitted,

THOMAS LEMENS Matthew Melançon_____ MATTHEW MELANÇON Attorneys for Defendant-Cross Appellant

33

CERTIFICATE OF SERVICE

We certify that on the 6th day of February, 2017, a true and correct copy of this

document was served on counsel of record for all parties in compliance with Fed.

R. App. P. 25(b).

THOMAS LEMENS

Matthew Melançon_____ MATTHEW MELANÇON

Attorneys for Defendant-Cross Appellant

CERTIFICATE OF COMPLIANCE

We certify that the foregoing brief meets the technical rules promulgated by the

Federal Circuit Court of Appeals. This brief is in double-spaced 14-point font with

a one-inch margin on all sides. This 32-page, 6,851-word brief complies with the

limitations set by this Court in Fed. R. App. P. 32(a)(7), given the exemptions in

Fed. R. App. P. 32(f).

THOMAS LEMENS Matthew Melançon_____

MATTHEW MELANÇON

Attorneys for Defendant-Cross Appellant