Faster Patent Processing Still Won't Be Fast Enough

Interesting article by Jennifer Martinez on Politico last week: Tech investors call for patent reform, followed by an even more interesting response from a tech VC, Gary Lauder of Lauder Partners, the day after. The essence of the Martinez article is that certain VCs suggest that we need a separate patent regime for software because our existing system is unable to keep up with the rapid pace of software development. Mr. Lauder's response recalls my post from last month in which I questioned whether even 20 months would be fast enough.  Politico quotes him as saying: "The patent backlog is the primary problem, not laws providing fair protections to inventors. The patent backlog for software and Internet patents is now at least 40 months in an industry that re-invents itself several times a year. This is caused by the patent office's revenue being diverted away by Congress, so it can't hire sufficient examiners."

Mr. Lauder went on to highlight one obstacle to patent reform.  Politico quotes him as suggesting: "it may make sense to adopt different rules for software patents (e.g. forced Peer-to-Patent), but I would be concerned that the body that comes up with such rules would not adequately represent the ones who need patents most: start-ups."

False Patent Marking - You Can't Fudge It

Courts in several recent cases have held that one cannot avoid a charge of false patent marking by fudging the marking. Back in April, when I posted about false marking concerns arising out of the rule in the Forest Group case that the qui tam damage award of up to $500 applies to each item improperly marked, some practitioners suggested that one might be able to avoid the problem by fudging the marking. Suggested markings included examples such as “this product may be covered by the following patent” and “this product is the subject one or more of the following patents.”

The court rejected the “may be covered” marking in Pequignot v. Solo Cup Co., 540 F. Supp. 2d 649, 654-55 (E. D. Va.2008). In a case decided in the Eastern District of Pennsylvania just last month, Hollander v. Etymotic Research, another court held that a marking that stated “ [X products] are covered by one or more of the following U.S. patents: [list]” would be false if any of the listed patents had expired.” The defendant argued unsuccessfully that if any of the listed patents had not expired, the statement would be literally true and therefore there should be no possible liability for false marking. Another court reached the same conclusion in Brinkmeier v. Graco Children's Products Inc., 684 F. Supp. 2d 548 (D. Del. 2010).

False marking requires both falsity and intent to deceive. The take away here is that it may be difficult cannot win on the falsity prong if one marks his product with any expired patent, regardless of the possible literal truth of the marking statement as a whole.


Foreign Company Liable for U.S. Infringement Despite Shipping F.O.B.

For purposes of determining whether U.S. copyright law applies to sales of infringing goods to Unites States customers, the method of shipping is irrelevant. That is the holding in recent decision from the Northern District of Illinois in Zimnicki v. General Foam Plastics and Nixan Int’l.

Some readers of this blog may remember the difference between a contract that provides for delivery to a shipper “Free On Board” or “FOB” and delivery "Delivery Ex Ship" or "DES."  When goods are delivered FOB, title passes to the purchaser when the seller delivers them to the shipper at the port of departure, and the purchaser bears the risk of loss thereafter. In a DES contract, the risk of loss remains with the seller until the goods are actually delivered to the buyer at the port of arrival.  Perhaps the best news about the Zimnicki decision is that copyright lawyers can forget all this.

In Zimnicki, the copyright owner brought suit for violation of U.S. copyright against the both the U.S. distributor, General Foam, and the overseas manufacturer, Nixan. Nixan received the order in Hong Kong, manufactured the goods in Hong Kong, and then shipped them to Yantian China, where General Foam’s shipper shipped them FOB to General Foam in the U.S.  Nixan argued that it could not be liable for U.S. infringement because its only activity was in China, where title passed when the goods were shipped F.O.B.

The court rejected that defense, declining the invitation to exalt form over substance for fear that it would “encourage gamesmanship." The court held that the sale and delivery to the U.S. took place in one seamless transaction and constituted a distribution by sale in the U.S., regardless of whether title passed F.O.B.

Not a Satisfied Customer? Sue.

If a business advertises that your business is a satisfied customer of theirs, and it isn’t, you can sue for violation of the Lanham Act. In broad strokes, that is the Second Circuit’s recent holding in Famous Horse v. 5th Avenue Photo.

The salient facts as alleged by Famous Horse were as follows. Famous Horse operates the V.I.M. stores in New York City, retailers of discount jeans and sneakers. Famous Horse alleged that it ordered a quantity of Rocawear jeans from 5th Avenue, a wholesaler, but the jeans turned out to be counterfeit.  V.I.M. stopped selling the counterfeit jeans and stopped doing business with 5th Avenue. 5th Avenue, nevertheless, told other retailers that V.I.M. was a satisfied customer. Famous Horse brought claims for violations of Lanham Act Sections 32(a) (registered trademark infringement) and 43 (a) (false endorsement).

The Court ruled that Famous Horse sufficiently stated a false endorsement claim, and that such claims can constitute violations of section 43(a). The court rejected arguments that the Lanham Act only addresses confusion concerning the source of the goods themselves. Although 5th Avenue never affixed the V.I.M. trademark to any goods, the court held that by advertising V.I.M. as a satisfied customer, 5th Avenue wrongfully used the V.I.M. mark in connection with advertising for 5th Avenue’s services.

Famous Horse als asserted an unfair compettion claim under Section 43(a). With respect to that claim, the court ruled that, although Famous Horse is not the owner of the Rocawear trademark, and the parties are not direct competitors because one is a wholesaler and one a retailer, Famous Horse had standing to sue for 5th Avenue’s alleged counterfeiting of the Rocawear mark. The court reasoned that the counterfeit jeans sold for lower prices than even discounted Rocawear jeans. Therefore, the court reasoned, V.I.M. could be injured by the counterfeiting both because it might lose sales and because consumers might think that V.I.M. did not offers Rocawear jeans at significantly discounted prices. Although the court recognized that damages for such injury might be difficult to prove, the court declined to limit standing for such claims to direct competitors, rejecting the rule it discerned in the 7th, 9th and 10th circuits that only direct competitors have standing, and lining up with the more flexible approach it discerned in the 3rd , 5th and 11th Circuits. The Second Circuit referred to its standing test as the “reasonable interest” test, requiring (1) a reasonable interest to be protected against false advertising and (2) a reasonable basis for believing that the reasonable interest will be damaged.