Welcome to Skilled in the Art. I'm Law.com IP reporter Scott Graham. I've got a special expanded edition of the briefing today. Here's what's on tap:

• Plenty of questions following PTAB Appointments Clause ruling.

• Mattel and Quinn Emanuel win latest round in Bratz doll case (yes, it's still going).

• Senate IP Subcommittee examines patent quality.

• Samsung and Covington argue Section 112 is now fair game in IPRs.

• Dropbox and Covington win trademark dispute with Navy contractor.

As always, you can email me your feedback and follow me on Twitter.

Judges Kimberly Moore and Raymond Chen.

The PTAB Is Dead. Long Live the PTAB.

The PTAB's constitutional crisis is over, just one month after it started.

I'm dating it to Oct. 1, when a Federal Circuit panel loudly signaled at oral argument that it believes the PTAB's administrative patent judges are principal officers under a 2018 Supreme Court decision. That would mean they must be appointed by the president and confirmed by the Senate.

The court formally confirmed that view Thursday in Arthrex v. Smith & Nephew, but resolved the problem by reading civil service protections for the APJs out of the Patent Act. The idea is that by bringing APJs directly under the supervisory control of the PTO director, APJs are now inferior officers, and their appointment by the Commerce secretary remains constitutionally valid.

Judge Kimberly Moore's 30-page opinion in Arthrex raises all sorts of questions. Here are a few I'm wrestling with:

➤ What's the hurry? The court just received lengthy supplemental briefing from the parties and the government on Tuesday. Two days later it issued its momentous decision. I'm thinking two possible reasons: 1) The court was concerned that the constitutional violation was ongoing, and the sooner it addressed and corrected it the better. Or 2) Chief Judge Sharon Prost and Judge Timothy Dyk have been drawn to the Polaris Innovations argument set for Monday, which raises the same issue, and have a different perspective on it. ➤Is Judge Moore a little too quick on the constitutional trigger?

I think that's one not-unreasonable way of looking at it. Moore is also the author of In re Tam and In re Brunetti, two opinions striking down provisions of the Lanham Act as violating the First Amendment.

Another perspective would be that Moore is in sync with the Supreme Court (Tam and Brunetti were both affirmed, after all) and she's trying to smother the PTAB appointment problem with minimal disruption—and without Supreme Court intervention. I mean, imagine the havoc a mere cert grant would wreck. Would the PTAB keep issuing final written decisions for another six months, knowing they might have to decide them all over again? It's also notable that Judge Raymond Chen, a former PTO solicitor who is hardly a PTAB hater, signed onto Moore's Arthrex opinion.

➤ What happens to all of the other PTAB decisions? Previous final decisions where appeals have run presumably remain final. Decisions going forward are constitutional, so long as the Federal Circuit (and the Supreme Court) interpret the Patent Act the same way as Moore. That leaves cases currently on appeal. "We see the impact of this case as limited to those cases where final written decisions were issued and where litigants present an Appointments Clause challenge on appeal," Moore wrote. Those cases will be sent back to the PTAB for reconsideration—including a new hearing—before a new panel of PTAB judges.

➤ Won't those new judges have the same appointment problem as the old judges? Nope, because now those judges will be operating under the threat of being fired if their decision displeases the PTO director. Which makes them constitutional, in the eyes of the Federal Circuit applying Supreme Court case law.

MGA Too Late with Mattel Trade Secret Claims

Three days have proven costly for MGA Entertainment in its long-running IP litigation with Mattel.

The California Court of Appeal ruled this week that MGA was three days too late bringing trade secret claims over its Bratz dolls that were once worth $170 million.

I know what you're thinking: Wasn't the Bratz litigation 15 years ago? The answer is yes, that's when Mattel first sued one of the Bratz doll designers. Mattel would go on to win $100 million in a federal copyright suit and then lose it on appeal, and MGA would win a $170 million trade secret counterclaim and lose it on appeal.

So MGA tried again with its trade secret claims in state court. But once the federal litigation ended, MGA had a statute of limitations problem. The company had filed its counterclaim three years and three days after raising the affirmative defense of unclean hands in the copyright case. That defense included allegations that Mattel had been "monitoring, 'spying on' or gaining knowledge of MGA's trade secrets" through false pretenses.

The statute of limitations for trade secret misappropriation in California is three years.

So even though Mattel pretty much admitted that its employees used fake credentials to gain access to MGA showrooms for intel on new products, MGA was three days too late in suing over it, California's Second District Court of Appeal ruled Tuesday.

"The very same suspicions based on the very same facts that impelled MGA to plead that defense were sufficient to put MGA on inquiry notice of its potential claims," Justice Elizabeth Grimes wrote for a unanimous panel.

Quinn Emanuel Urquhart & Sullivan got the win for Mattel. Partners John Quinn, Kathleen Sullivan, Michael Zeller, Dylan Proctor and Daniel Posner led Mattel's team. MGA was represented by Stris & Maher.

University of Texas law professor Melissa Feeney Wasserman

Senate Panel Takes Up Patent Quality

We live in polarized, partisan times. Each side has staked out different visions of where the country should be headed, with no daylight in between.

I'm talking about patents, of course. But I've got to credit Sens. Thom Tillis and Chris Coons of the Senate Judiciary's IP subcommittee for at least giving a long listen to both sides of the patent debate.

The subcommittee convened its tenth hearing in eight months this week. While its initial focus was on patent eligibility, the subcommittee also has held hearings on the dearth of women inventors, the STRONGER Patents Act, and even IP in the sports industry.

A common thread has been strengthening the role patents play in the economy, but on Wednesday the senators looked at another side of the coin: the issuance of poor-quality patents. Subcommittee chair Tillis said the PTO is putting out too many patents that ultimately fail under Sections 102, 103 and 112. "It's wrong to put patent applicants through the rigorous application process, only to grant them a patent that has defects and flaws," he said.

That framing seems likely to resonate across both sides of the patent aisle. So too might University of Texas law professor Melissa Feeney Wasserman's point that the PTO depends heavily on two fees that it collects only when patents are granted: issuance and renewal fees. She proposed raising patent application fees and lowering the others. The goal would be "to minimize the risk that the agency's revenues will be insufficient to cover its operational costs, and to diminish an agency's financial incentive to grant more patents when revenues fall short."

Naturally, there was a Section 101 angle to the discussions. "Wouldn't a clearer test for patent eligibility free up some of the examiners' time, to spend more time on other statutory criteria?" Coons asked Commissioner of Patents Drew Hirshfeld.

"Certainly one of the struggles we've had in recent years is the amount of time examiners have needed to spend on subject matter eligibility, and training and retraining" on it, he said. But the guidance PTO Director Andrei Iancu issued in January "has gone a long way to help in this regard."

Who's Arguing?

Next week is a calendar week at the Federal Circuit. Samsung Electronics v. Prisua Engineering is a case I have an eye on.

The PTAB sometimes encounters indefinite claim terms in IPR proceedings. Because IPRs are limited to challenges under Sections 102 and 103, the board's usual MO is to decline to institute proceedings on indefinite claims. But now that the Supreme Court has said in SAS Institute that the board must institute on all challenged claims if it institutes on one, the board has a quandary: What to do with the indefinite claims?

Samsung and Covington & Burling partner Richard Rainey are asking the Federal Circuit to rule that the PTAB can now make the call on Section 112 in a post-SAS world. "The text of the IPR statute indicates that although an IPR petition must be based on Section 102 and 103 grounds, the Board's final written decision may address 'patentability' more broadly," Samsung argues in a brief signed by Rainey.

Prisua Engineering, which won a $4.3 million jury verdict that's been put on hold pending the PTAB proceedings, calls this argument "rather frivolous." John Carey of Carey Rodriguez Milian Gonya points out that in Cuozzo v. Lee, when the Supreme Court was looking for an example of how the PTAB might exceed its statutory powers, it gave ruling under Section 112 as an example. The Federal Circuit has subsequently stated that "in an IPR, the Board cannot declare the claims indefinite." There is "no reason to upend settled practice and defy the Supreme Court just to bail Samsung out of the consequences of its risky strategy," Carey argues.

The argument is set for Nov. 4.

Dropbox Wins Trademark Fight Over 'Smart Sync'

Dropbox and Covington & Burling have beaten back a military contractor's allegation of trademark infringement over Dropbox's Smart Sync product.

Ironhawk Technologies registered SmartSync in 2007 for software it supplies to the U.S. Navy. Dropbox launched Smart Sync, which allows users to choose whether files are stored locally or online, in 2017.

U.S. District Judge Dean Pregerson ruled Oct. 24 that SmartSync is a descriptive mark entitled to no trademark protection. Ironhawk's CEO testified that his company's software performs "synchronization, replication, and distribution of data," and preserves bandwidth "intelligently."

"The term 'SmartSync,' therefore, appears to describe at least some of the characteristics of Ironhawk's product, namely synchronization and 'intelligent' transport, compression, and synchronization," Pregerson wrote in a 16-page order.

Plus, the Navy spends thousands or tens of thousands of dollars licensing Ironhawk technology, and only after lengthy review involving meetings with technical crews. "Although the cost of Dropbox services is much more modest, the high degree of care exercised by the Navy, particularly for such expensive products as Ironhawk SmartSync licenses, weighs heavily against likelihood of confusion," Pregerson concluded.

Covington's team was led by partners Clara Shin and Jeffrey Davidson and included special counsel Laura Brookover and associates Rebecca Jacobs, Isaac Chaput, Matthew Verdin, and Diane Ramirez.

IP Lateral – Paul Hastings

Merri Moken has joined Paul Hastings' IP group in New York. She represents plaintiffs and defendants in patent infringement, trade secret misappropriation and contract-related matters. Moken previously practiced at Holland & Knight and joins Paul Hastings as of counsel.

"She complements our firm's strength in life sciences and tech, and adds further strength in strategic intellectual property counseling, licensing, trademark and contractual matters," Bruce Wexler, the firm's global IP co-chair, said in a written statement.

"I am thrilled to join Paul Hastings and its powerhouse intellectual property team," Moken said.

That's all from Skilled in the Art this week. I'll be on hiatus on Tuesday, but will see you all again next Friday.