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Technology Cases to Watch in 2017

Attorneys who work in the technology industry are keeping a weather eye on a variety of issues and cases that could make waves in 2017, from cyber safeguards and liabilities to the flexibility enjoyed by would-be patent litigants in where they can bring suit.

Here, technology attorneys discuss the matters they'll be watching in the new year.

Cyber Policy and Safeguards

A number of cases are testing the limits of where free speech and liability, and responsibility to law enforcement, intersect.

That includes criminal prosecutions against Backpage.com executives, who in December were given a reprieve when a California state judge held that pimping charges were barred by the Communications Decency Act. Incoming U.S. Sen. Kamala Harris, D-Calif., has promised not to back down from the fight against online brothels in the wake of that loss.

“It's a case that really kind of tests the limits of immunity for online service providers under Section 230” of the CDA, said Brian Willen, a litigation partner with Wilson Sonsini Goodrich & Rosati.

Section 230 safeguards internet companies from civil liability for third-party content, but the Backpage matter and others will continue to test the limits of those protections in 2017.

“We're still fighting about exactly what it requires and doesn't require,” Willen said of the statute, one that is “fairly cryptic” in how it's written.

Various courts have come to different conclusions on Section 230 immunity, Willen noted, and the issue is not limited to Backpage. According to Willen, it also implicates short-term housing rental sites such as Airbnb Inc. which are facing down city ordinances imposing registration and other regulatory restrictions.

Airbnb was dealt a blow in 2016 when a California federal judge refused to issue an injunction against a registration ordinance in San Francisco he said wasn't a free speech infringement. Enforcement of the measure has been put on hold while the parties discuss a potential settlement.

Willen is directly involved in another California case that in 2017 will continue testing the limits of tech and internet company culpability, one of several lawsuits accusing Twitter, Facebook and Willen client Google of facilitating terrorism because Islamic State members use the companies' social networks as a tool for propaganda and recruiting.

“The claim is that you're not doing enough to stop bad people from using your service,” he said. The technology companies are fighting to have at least one of those cases, the California lawsuit, dismissed by arguing CDA immunity.

For law enforcement, combatting terrorism means trying to track down communications and it means search warrant issues that may play out further in 2017. The Second Circuit ruled against the federal government over the summer when it found that search warrants can't be applied extraterritorially to demand access to consumer data stored overseas by service providers like Microsoft Corp. The appellate court could rule on the government's rehearing request this year, which could in turn yield a U.S. Supreme Court petition.

Orrick Herrington & Sutcliffe LLP partner Aravind Swaminathan is also keeping an eye on privacy and cyber-related enforcement under the incoming presidential administration, enforcement that's kicked up recently but could fade after Jan. 20 or at least change direction.

“The landscape for regulatory enforcement may be changing significantly,” he said.

The Backpage case is People of the State of California v. Carl Ferrer et al., case number 16-FE-019224, in the Superior Court of the State of California, County of Sacramento.

The housing ordinance case is Airbnb Inc. v. City and County of San Francisco, case number 3:16-cv-03615, in the U.S. District Court for the Northern District of California.

The California ISIS case is Gonzalez et al. v. Twitter Inc. et al., case number 4:16-cv-03282, in the U.S. District Court for the Northern District of California.

The search warrant case is U.S. v. In the Matter of a Warrant to Search a Certain Email Account Controlled and Maintained by Microsoft Corp., case number 14-2985, in the U.S. Court of Appeals for the Second Circuit.

Can Patent Owners Restrict Use After Sale?

The Supreme Court will be mulling that question in 2017 when it takes on Impression Products Inc. v. Lexmark International Inc. The high court agreed in December to hear Impression's challenge of a Federal Circuit ruling that continued a long-standing holding that foreign sales never exhaust U.S. patent rights and also found that post-sale restrictions on patented items are permissible.

The case involves Impression’s business of refurbishing and refilling Lexmark printer cartridges and reselling them. Impression does not dispute that it infringes but argues that Lexmark's patent rights were exhausted because some cartridges were sold outside the U.S. The Federal Circuit disagreed in a February decision that reaffirmed its 2001 ruling in a case known as Jazz Photo that foreign sales cannot exhaust patent rights. It held at the time that a more recent high court copyright case doesn't apply because of the distinctions between copyrights and patents.

Another Impression argument involved a discount program it runs, under which some cartridges are sold at a lower price if the buyer agrees to use them only once and then return them and at higher prices with no restrictions.

In district court, a federal judge found that the sales of the lower-priced cartridges exhausted Lexmark's rights because post-sale restrictions cannot preserve them. The Federal Circuit disagreed and remanded the case with instructions to enter judgment of infringement for Lexmark, only for Impression to seek and obtain high court review.

It’s not uncommon for companies like drugmakers or software manufacturers to attach post-sale restrictions to the sale of their products. But that could all change if the Supreme Court decides to shut the door on these sorts of restrictions.

Effects of a Supreme Court reversal in 2017 could have immediate effects, according to Kirkland & Ellis LLP partner Kenneth R. Adamo.

“A lot of people will be looking to reset their licensing arrangements outside the United States,” Adamo told Law360.

The case is Impression Products Inc. v. Lexmark International Inc., case number 15-1189, in the Supreme Court of the United States.

Big Data, Big Issues

Technology requires people to design and make it. Recruiting those workers could also be a major issue in 2017 after the U.S. Equal Employment Opportunity Commission said in its strategic enforcement plan released in October that data-based hiring would be a particular area of concern for the next four years. That strategic enforcement plan also identified potential issues with other popular employment practices in the technology space such as employing workers not as staff but as independent contractors.

The worry with using big data analytics, from social media and other publicly available online sources, to identify the traits most likely to yield a successful candidate, is in employing an algorithm that accidentally narrows the search to a very specific and very homogenous pool of recruits.

“Data analytics is only as good as what people are putting in,” said Anna Suh of Fenwick & West LLP. “If companies and recruiters are approaching it from the possibility of either subconscious or intentional bias, then that's going to have reverberating impacts in terms of what turns up.”

EEOC enforcement probes, Suh told Law360, can simply look at disparate treatment regardless of intent. Numbers showing disparate treatment of protected classes, she said, could come back to haunt companies employing such techniques.

According to Suh, technology law observers are keeping a close eye out for legal cases based on big data analytics recruiting. Technology companies and other early adopters are increasingly relying on such techniques, she said, in order to remain competitive in recruiting the best and brightest candidates.

“I think it's prevalent and ripe for a big case to come out,” she said, especially with new EEOC rules expected in 2017.

Home Is Where the Technology's Heart Is

Both sides of the technology patent bar are likely to keep a close eye in 2017 on TC Heartland LLC v. Kraft Food Brands Group LLC. The Supreme Court agreed in mid-December to hear TC Heartland's appeal seeking restrictions on where patent lawsuits can be filed, which could put a severe damper on patent owners' ability to seek out favorable courts, and could effectively bar most suits from the patent hotbed of East Texas.

Kraft sued liquid sweetener company TC Heartland for alleged infringement only for the defendant to try to move the case to its home base in Indiana federal court, an effort that was unsuccessful. At issue in the closely watched case is the Federal Circuit’s broad interpretation of patent venue, which began with a 1990 decision known as VE Holding, in which the appeals court held that patent suits can be filed in any district where the defendant makes sales.

TC Heartland argues that holding was overruled by a 2011 federal law, and that under that statute, patent suits can be filed only in places where the defendant is incorporated or has an established place of business and has allegedly infringed. The Federal Circuit found in April, however, that the 2011 changes were “minor” and did not impact venue.

How the Supreme Court decides could have wide-ranging implications, and bills on the issue are also working their way through Congress. Although the case doesn’t involve the Eastern District of Texas, where the most patent suits are filed, a decision restricting venue in the way TC Heartland has requested would keep most suits out of the district, since few patent defendants are based there.

The Eastern District of Texas is an attractive venue for patent suits, especially those by nonpracticing entities that file scores of suits at once, since its policies are perceived to be favorable to plaintiffs, such as a speedy timetable for trials that can put pressure on defendants to settle.

“This is really, really important for tech companies because no one [from these big companies] really wants ... to fly to the Eastern District of Texas. That district is favorable to plaintiffs, not the defendants, which are usually the tech companies. It's just not a place that tech companies want to be in,” said Ahsan Shaikh, a partner at McDermott Will & Emery LLP.

The case is TC Heartland LLC v. Kraft Food Brands Group LLC, case number 16-341, in the Supreme Court of the United States.

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