12 FOR 2012

Here is a link to the materials from last night's IP presentation at the Brewhouse.

Thanks to all those who came, and especially to those who helped close it down.

Upcoming IP Seminar in Norwalk, CT

I will be hosting a seminar at The Brewhouse Restaurant - 13 Marshall Street, Norwalk, CT, Thursday, February 2, 2012, 6:00 PM – 7:30 PM

The program is entitled:

12 for 2012: 12 Things Every Business Needs To Know About IP This Year -

12 key factors to consider in your IP strategy for 2012. Summarized in 12 slides within 48 minutes, with a 12 minute Q&A.

Complimentary cocktails and hors d'oeuvres.

Topics will include:

The impact of the America Invents Act on IP Strategy;

The advantages and disadvantages of IP licenses and sales;

How to adapt to 2011 case law hostile to rights owners;

The powerful branding trick used by the world’s most successful brand owners;

The real reason copyright registration is important; and

What to expect now that SOPA is dead.

If you are interested, please register at :www.foxrothschild.com/events/eventDetail.aspx

I look forward to seeing everyone there.

 

 

POST-LICENSE USE OF TRADEMARK IS COUNTERFEITING

A former trademark licensee’s continued use of a trademark after termination of the license constitutes trademark counterfeiting. That is the holding in a recent District of Indiana default judgment case, Century 21 v. Destiny Real Estate. The court explained:

If an unrelated entity had created an identical trademark and provided authorized goods or services (or the kind provided by the owner of the mark) under that mark, there would be no question that there was counterfeiting. The Court can conceive of no reason why an ex-franchisee should escape liability for counterfeiting simply because that person had access to a franchisor’s original marks because of the former relationship and therefore did not need to reproduce an identical or substantially similar mark.

Other courts have come to differing conclusions on this issues, in various contexts. In a 1997 case, the 6th Circuit held that a franchisee’s holdover use of a trademark was not counterfeiting. The 9th Circuit held that the licensee’s holdover was counterfeiting in a 2005 case involving continuing use of the Idaho potato certification mark.

The significance is that pursuant to 15 U.S.C. § 1117(b), if he is found to be a counterfeiter, the former licensee can be liable for statutory damages(up to $2 million in cases of willful counterfeiting), and will be liable for three times profits or damages, whichever amount is greater, together with a reasonable attorney’s fee unless the court finds “extenuating circumstances.” If he is merely an infringer, statutory damages are not available and treble damages and attorneys’ fees are less certain to be awarded. They may be awarded “subject to the principles of equity.”

The Century 21 court’s damage, injunction and individual liability analyses also are noteworthy. Century 21 sought its actual damages plus treble damages. The court held that such an amount would be quadruple, rather than treble damages, one multiple too many. The court further reduced the award to two times damages, on the ground that the liquidated damages provided for in the license agreement and awarded by the Court coincided with the actual damages, and therefore to awarded treble damages in addition would again result in quadruple recovery.

On a cheerful note for trademark owners, the Court granted a permanent injunction, finding that “the injury especially justifying injunctive relief is the loss of control over and harm to its valuable name and trademark, in which it has invested substantial effort and money over time to develop goodwill.” If that is going to suffice under Ebay, trademark owners may not need to be as concerned that injunctions against infringers will be harder to come by.

The court declined to impose liability on Destiny Real Estate’s principal. After surveying the law on individual liability for corporate trademark infringement, the Court found that Century 21’s allegations that the individual was President of the company and authorized or approved of the misconduct were not sufficient bases to hold the individual liable for the corporation’s infringement.
 

The Death of False Marking

Good post by Paul Morgan on PatentlyO concerning the death of false marking litigation and ongoing importance of patent marking.

NO PRESUMPTION OF IRREPARABLE HARM IN FALSE ADVERTISING CASES EITHER

Irreparable injury cannot be presumed in Lanham Act false advertising cases. That was the ruling in Leatherman Tool v. Coast Cutlery, a case decided in October in the District of Oregon. In that case the court found that Leatherman made a preliminary showing that its competitor, Coast Cutlery, deliberately included in advertising literally false statements concerning the sharpness of its knife blades. The court did not issue a preliminary injunction, however, because it found Leatherman’s affidavits avowing concern that sales would be diverted were speculative, and insufficient to prove that Leatherman would be irreparably harmed by its competitor’s literally false advertising.

On the heels of cases within the past five years expressly ruling a presumption of irreparable harm does not apply in patent and copyright cases,  a recent decision from the First Circuit in a trademark case and a one from the District of Arizona concerning another Lanham Act case, it is now seems likely, to the extent it was not after the Supreme Court's decision in Ebay, that  the days in which plaintiffs can count on a presumption of irreparable harm in an IP case of any type may be numbered.

The challenge now, for intellectual property owners, scrupulous advertisers and courts, is to prevent us from sliding into a culture of infringe now, pay later. Infringers will no doubt in every case assert that irreparable harm cannot be proven because the wrongdoing can be remedied by payment of damages, in the form of a license fee or, in the case of false advertisers and trademark infringers, payments for proven diverted sales. That leaves the plaintiff with a difficult task to prove otherwise, the danger the presumption of irreparable harm was designed to prevent. And so the battle lines are re-drawn. 

TAMING THE E-DISCOVERY BEAST

The Federal Circuit’s proposed Model Order on E-Discovery offers a number of good suggestions that should help reduce the burden of electronic discovery in patent cases, and some that merit further consideration and debate. Among the best ideas are the following three:

1. Requiring separate requests for email, rather than permitting email to be included in requests such as “all documents and electronic information” (¶6). This will sharpen the focus on just what types of email communications are relevant. We should consider whether all types of electronic information should be requested separately, and indeed whether to require that specific types of “documents” (correspondence, memoranda, drawings, etc.) should be specifically requested rather than encompassed with omnibus terms.

2. Limiting the metadata parties are required to produce to that revealing times of sending and receipt and the distribution list (¶5). There are times when creation and edit dates are important, so perhaps that also should be included. Most other metadata is typically irrelevant.

3. Presumptive limits of 5 custodians and 5 search terms (¶¶ 10-11). Those limits obviously will not be suitable in all cases, but at least we have a low-number starting point. The suggestions about how to treat conjunctive and disjunctive combinations of terms, and encouragement of the use of narrowing search criteria, are excellent.

Three ideas that merit more careful thought are:

1. The blanket exemption of disclosures of privileged esi from the usual rules concerning waiver, and prohibition on use of allegedly privileged material to challenge the privilege (¶¶ 12-14). One might consider whether we should go that far. Exclusion of material based on privilege is an obstacle to the discovery of truth, and examination of the privileged material itself is the best way to see if it should be privileged. Particularly since the model rules require that requests specify custodians and search terms and limit data to senders and recipients, it should be easier to identify privileged materials and therefore we may not need to be so tolerant of inadvertent disclosures.

2. The extent to which the proposed rules rely on cooperation among counsel (¶¶ 2, 9-11). Not all patent litigants and litigators are particularly cooperative, and one might argue that we are better off just ringing the bell and allowing the parties to come out fighting rather than asking them to make nice first. The idea that parties will jointly agree to modify presumptive limits strikes me as fantastic. One side or another will always think it is in its interest to have less discovery rather than more and vice versa.

3. The decision not mandate initial disclosure of basic documentation about the patents, prior art, accused products and relevant finances (¶ 8). Why not?

The premise and impetus for the proposed model rules cannot be disputed. Far reaching electronic discovery can be tangential to the real issues in a patent case, and collecting volumes of electronic data with the idea that one will run key searches later is expensive and inefficient. The proposed model rules for patent litigation offer possible ways to address those concerns that merit serious examination, not just for patent cases, but for all intellectual property cases.
 

THE CASE FOR SOFTWARE VERSIONS, REGISTRATIONS AND RECORD-KEEPING

A recent case from the First Circuit underlines the utility, from a copyright perspective, of delineating versions of software, registering each version, and keeping copies. That is not always so easily done, because unlike other copyrightable works, such as a novel, software is never “done.” There is always another bug to fix, feature to add or compatibility issue to address. But to effectively employ copyright protection, it is a necessity.

The concern is proof. In order to prove infringement, the copyright owner must first prove what it is that is copyrighted, and that a copyrighted work was registered. That is generally simple enough, but with an evolving work, such as software, it becomes less so. That was the case in Airframe Systems v. L-3 Communications. In that case, Airframe accused L-3 of unauthorized copying of its software between 1997 and 2003.

The court’s opinion reports that Airframe had some pretty damning evidence, particularly a comment in the L-3 code that said “I do not know what this code is used for so I will leave it here anyway.” The problem was, Airframe did not have a copy of the software as it existed in those years and hadn’t registered a version during those years. Airframe attempted to prove infringement by comparing the L-3 code to an updated version of the Airframe software from 2009. The court held that without a copyright registration for the software as it existed during the years in question, and without a way of proving exactly which portions of the 2009 code were present in the version L-3 was accused of copying, Airframe could not prove infringement. The opinion reviews a number of cases in which copyright claims failed because of the plaintiff’s inability to prove the contents of the work allegedly infringed, and discuss the applicability of the best evidence rule in this context.

It seems that Airframe may not have registered any version of its software between 1988 and 2003. That is too long. Software developers and makers of other evolving works should anticipate the need to prove the state of their products at different times and take and register “snapshots” that will enable them to prevail when infringements come to light.
 

INTENT TO USE A TRADEMARK MUST BE SUPPORTED BY DOCUMENTARY EVIDENCE

Trademark applicants filing intent-to-use applications must possess documentary evidence of their “bona fide intention” to use the applied-for mark in connection with the claimed goods and services. Failure to do so may result in a successful opposition of the application or cancellation of a resulting registration, as a recent decision by the Trademark Trial and Appeal Board confirmed (Spirits Int'l B.V. v. S.S. Taris Zeytin Ve Zeytinyagi Tarim Satis Kooperatifleri Birligi, Opposition No. 91163779, 99 U.S.P.Q.2d 1545 (T.T.A.B. 2011)).

To meet the “bona fide intention” requirement, applicants should have reasonably concrete plans to commercialize all of the claimed goods and services under the mark, and applicants should be taking steps to implement those plans, such as by undertaking product research and development, market research, or development of promotional materials. A mere hope or desire that business will expand at some point in the future to encompass additional goods or services is not sufficient. When an applicant does have a bona fide intention to use a mark, the applicant should produce documentary evidence of that intention, such as photographs of product prototypes, draft promotional materials or product specifications, draft business plans, or records of meetings such as presentations to potential investors. This written record could be key in saving an application or registration.

Trademark owners and applicants should also be careful in selecting the goods and services for listing in an application. It is sometimes very tempting, especially with goods such as clothing, to list a broad array of goods that applicant hopes to sell at some point in the future (or does not want someone else selling under the same mark). But without a bona fide intention to use the mark for those goods, supported by documentary evidence, the entire application or registration could be in jeopardy. It is also important to keep in mind that applicants must continue to have a bona fide intention to use the mark on all listed goods and services throughout prosecution of the application, and upon filing of a statement of use, the applicant must submit a sworn statement that the mark is used with all listed goods and services. There are procedures to divide out goods and services not yet in use so applicants can obtain a registration on the active goods and services and maintain a pending application on the remainder.

 

The foregoing is a guest post authored by Chris Kinkade of Fox Rothschild's Princeton, NJ office.

 

 

Reverse Greenwashing

Good stuff on the Green Patent Blog reporting on a lawsuit between plastic bag makers and a reusable bag maker.  The plastic bag makers claimed that the reusable bag maker published false statements about the negative environmental impact of plastic bags.  GPB labels this type of claim "reverse greenwashing" because instead of allegedly falsely promoting the environmental benefits of its own products, the reusable bag maker was allegedly doing the opposite, making false statements about the detriments of the competitors' products.

I'm not sure that is actually reverse, or upside down or something else.  We won't find out in that case because it settled, but claims of that type are likely to help keep environmental claims near the vanguard of false advertising law for the near future.

DEFINITELY NO PRESUMPTION OF IRREPARABLE HARM FOR PATENT INFRINGEMENT

The Federal Circuit this week expressly confirmed that there is no presumption of irreparable harm for patent infringement, and injunctions should not be granted automatically in patent cases. That is consistent with the Supreme Court's decision in Ebay v. MercExchange and the rule in copyright cases as reported in the July 13, 2011 post on this blog.

The following is an excerpt of the relevant portion of the opinion in Robert Bosch LLC v. Pylon Mfg. Corp., No. 11-1096 (Fed. Cir. Oct. 12, 2011) (internal citations omitted):

Prior to the Supreme Court’s decision in eBay, this court followed the general rule that a permanent injunction will issue once infringement and validity have been adjudged, absent a sound reason to deny such relief. . . . In addition, at least in the context of preliminary injunctive relief, we applied an express presumption of irreparable harm upon finding that a plaintiff was likely to succeed on the merits of a patent infringement claim. In eBay, the Supreme Court made clear that "broad classifications" and "categorical rule[s]" have no place in this inquiry. Instead, courts are to exercise their discretion in accordance with traditional principles of equity. The Supreme Court, however, did not expressly address the presumption of irreparable harm, and our subsequent cases have not definitively clarified whether that presumption remains intact. . . . We take this opportunity to put the question to rest and confirm that eBay jettisoned the presumption of irreparable harm as it applies to determining the appropriateness of injunctive relief. In so holding, we join at least two of our sister circuits that have reached the same conclusion as it relates to a similar presumption in copyright infringement matters. Although eBay abolishes our general rule that an in-junction normally will issue when a patent is found to have been valid and infringed, it does not swing the pendulum in the opposite direction. In other words, even though a successful patent infringement plaintiff can no longer rely on presumptions or other shortcuts to support a request for a permanent injunction, it does not follow that courts should entirely ignore the fundamental nature of patents as property rights granting the owner the right to exclude. . . . While the patentee’s right to exclude alone cannot justify an injunction, it should not be ignored either. 

The foregoing is a guest post authored by Chris Kinkade of Fox Rothschild's Princeton, NJ office.


 

YOU CAN'T COPYRIGHT A BOWL OF FOOD

You can’t copyright a bowl of food; and you can’t copyright a garden. For those who may be wondering just where the outer limits of copyrightability lie, two cases this year identified material that is beyond those limits. In Kim Seng Co. v. J & A Importers, Inc., the court in the Central District of California held that a bowl of food is not sufficiently fixed to qualify for copyright. The court reasoned that a bowl of food could never be static because the food will necessarily perish.

Earlier this year, the Seventh Circuit wrestled with the fixation requirement in Kelley v. Chicago Park District. The art at issue in that case was a garden. Chapman Kelley designed and planted a wildflower garden in Chicago’s Grant Park, carefully selecting and arranging the flowers to achieve a particular effect when they bloomed. When the Chicago Park District reduced the size of the garden, Kelley sued for violation of the Visual Artists Rights provision of the Copyright Law, 17 U.S.C. 106A, contending that the Parks District impermissibly modified his work. The court held that the garden was not a sculpture or a painting, and did not qualify in any way as a “writing” that could be protected by copyright. The court explained “Simply put, gardens are planted and cultivated, not authored. A garden’s constituent elements are alive and inherently changeable, not fixed.”

Food for thought as you watch the next episode of Cake Boss.
 

WHAT ARTISTS CAN LEARN ABOUT BRANDING FROM THE PARTRIDGE FAMILY

In a few words, your brand can be even more valuable than your talent. This is the lesson we can draw from recent litigation brought by the actor David Cassidy against the owner of The Partridge Family. As a star of The Partridge Family, David Cassidy may have been well-compensated for his work on each episode, and he undoubtedly has earned significant residual income from re-runs over the years. Apparently only now, however, has he realized the amount of income he lost because he did not share in revenue received from merchandise sales. He recently filed suit claiming that he is owed a fortune.

Artists should be as concerned about revenue opportunities that may arise beyond their actual work, opportunities such as merchandising or endorsements, as they should about the amount they are paid to perform. They should try to ensure that their talent contracts guarantee them a share in revenues generated from merchandising. And they must then police such uses to be sure they are receiving their rightful share. Better not to be seeking your fortune three decades later.
 

A TRADEMARK SURVEY CHECKLIST

Here is a six-step checklist for trademark infringement litigants hoping to prove likelihood of confusion through survey evidence. Litigants who carefully consider each of these issues should have a better chance of having their survey results admitted in evidence.  It is derived from last year’s summary judgment decision in Competitive Edge v. Staples in the Northern District of Illinois.

1. Universe - Be sure to correctly identify the “universe” of respondents. It should be consumers in the market at issue. If the universe is erroneous or undefined, the reliability of the survey is diminished.

2.  Sample – The sample population must represent the universe, and be neither under-inclusive nor over-inclusive.

3. Clear Questions – Survey Questions must be clear and precise..

4. Filter Questions – The survey should include some open ended questions. Acceptable answers should include “don’t know.”

5. Double Blind – Ideally neither the questioner nor the respondents should know the reason for the survey.

6. Data Collection and Recording – Questions must be asked, and responses recorded, consistently and accurately.
 

BETTER COPYRIGHT REGISTRATIONS REQUIRED IN THE INFORMATION AGE

Copyright owners may now be filing more copyright applications because district courts in New York, Arizona and Alaska have ruled that registration of a compilation does not suffice to register the individual works included in the compilation unless the individual works and authors are specifically identified on the application. For new works, copyright owners should now register new works individually in addition to registering the compilation, or specifically identify each work and author on the compilation application.  For works previously included in a compilation registration, but not specifically identified, copyright owners must either seek individual registration or supplement the original registration. Prior to the three recent decisions, the Copyright Office had permitted, and based in part on that policy courts had allowed, that a single registration for the compilation sufficed to register the individual works included in that compilation regardless whether the individual authors and works were specifically identified.

I see the recent decisions as a product of the information age. The established rule was one steeped in practicality. It was cumbersome for owners to prepare applications, and for Copyright Office employees to file and catalog them. Searching was cumbersome, because one had to go to the Copyright Office to look through the catalog and review hard copy files. Access to deposit copies was restricted. As a practical matter, few were actually searching, and it seemed wasteful to require more burden and paper when a single registration would suffice in many instances.

Now we can now store, and find, almost everything online. Instead of having to send a person to the Copyright Office to look at paper records, one is increasingly able to get information online. And we expect that. We want to be able to access and search all information all the time. Now that logistical impediments to discovering information are being removed, we won’t tolerate faulty inputs. In particular for those who want to license, and therefore benefit from fast and complete access to comprehensive information about prior art, the modification of behavior certain to result from recent court decisions is a boon.
 

PATENT DESTRUCTION OF TRADE SECRET LIMITED TO WHAT IS DISCLOSED

Just because you have applied for a patent for your invention does not necessarily mean that all of your trade secret protection is lost. A recent Fifth Circuit case explains that particular processes and know how that may relate to the invention but are not part of the disclosure remain subject to trade secret protection, as do undisclosed combinations of disclosed elements.

It is settled that publication by the USPTO constitutes a public disclosure that destroys any trade secret protection one might exist in the invention. Thus, historically once a patent issued and, after patent applications became subject to publication (year 2000), once a patent application is published, trade secret protection is lost. As a result, patent protection and trade secret protection can be mutually exclusive.

What is lost when a patent is published, however, is limited to what is disclosed. Knowledge such as how to adapt the invention to work with another device, how to care for the invention, and even how to use the invention in combination with other disclosed inventions, may remain subject to trade secret protection. Patentees would be well-served to consider what secret knowledge they have developed beyond what is disclosed in their patents, and treat that knowledge as they would any other trade secret.
 

WHY FASHION ISN'T COPYRIGHTABLE

As debate continues about whether to extend copyright protection to clothing design, the recent decision in Jovani Fashion v. Cinderella Devine explains why clothing has been denied copyright protection, although fabric design has been protected. The issue is functionality. Even the clearly creative elements of clothing design are so interwoven (pun intended) with the clothing’s function that clothing design typically fails both the physical and conceptual separability tests.  The physical separability test, as its name suggests, concerns whether the creative elements literally can be separated from the utilitarian aspects of the work.  The conceptual separability test concerns whether one can conceive of the creative elements apart from the useful ones. 

 

If you are interested in further explanation of those tests and the copyrightability of useful articles, I recommend the Jovani Fashion case and cases cited therein, and Chapter 16 of Substantial Similarity in Copyright Law.
 

COPYRIGHT IDEA/EXPRESSION: TOWARD A BRIGHTER LINE?

A recent decision from the District of Connecticut in Scholz Design v. Sard Custom Homes holds that for architect to sue successfully for infringement of his drawing, the copied drawing must convey sufficient information to allow construction of the building depicted. In Scholz Design Because the allegedly copied drawings were not sufficiently detailed to enable one to construct a building using them, the court dismissed the copyright claims.

Of all the tricky issues in copyright law, one of the trickiest is distinguishing between idea and expression. Copyright law prohibits copying the expression but permits copying the idea. Determining where to draw the line between the two often involves a close judgment call. The Scholz Design decision arguably makes the call easier in the context of architectural works, because it offers a clear standard: information sufficient to allow construction. Copyright jurisprudence has, however, generally rejected such strict rules. It remains to be seen whether the Scholz Design decision signals a shift in the paradigm.
 

COPYRIGHT - DAMAGES BETTER, INJUNCTIONS WORSE

Copyright litigants would be wise to focus early on available infringement remedies in light of recent decisions. Following the Supreme Court decision in Ebay v. MercExchange and the Second Circuit Decision in the Salinger v. Colting case, litigants need to plan that they will need to prove irreparable injury to get an injunction, the presumption of irreparable harm is no longer available. That could make injunctions tougher to get in some cases. At the same time, litigants should plan that pre-judgment interest, dating back to the beginning of the infringement, is available based on the Third Circuit's recent decision in the Haughey case. Pre-judgment interest could significantly increase damages in certain cases.  So it might be harder to make 'em stop, but you might make 'em pay more.
 

PATENT LITIGATION GETS EVEN HARDER FOR PATENTEES

Although indisputably correct, the Federal Circuit ruling earlier this year that patentees could not rely on the “25% rule” in calculating damages can only serve to increase billings for experts and litigators, and raise costs for patentees. The 25% rule was an accepted “rule of thumb” that a reasonable patent license fee would typically be 25% of the profits earned from sales of the infringing product. In situations where damages were difficult to quantify, and comparable license fee figures were not available, patentees would use the 25% rule as a basis for their money demand. So long as courts accepted that, patentees could sometimes avoid the extremely difficult, if not actually impossible task of quantifying damage when good data was not available.

The Federal Circuit in Uniloc v. Microsoft exposed the absence of sufficient statistical foundation for the 25% percent rule in most situations. Moreover, the court explained that even if the rule had statistical validity, courts should not make damage awards based on results in other circumstances. The court’s message to patentees is that they will not be permitted to cut corners on their damage proof; to prove damages patentees are going to have to do the often extremely hard work.

That, of course, will lead to more hours billed by experts and litigators. Experts to dig for more data and create defendable formulae. Litigators to argue over whether the experts have done it successfully. Although intellectually correct, rejection of the 25% rule further increases the expense of patent litigation and further cements its inaccessibility to many individuals and small businesses.
 

PATENTLY ABSURD

Here's a link to a cogent editorial from the Economist regarding Congress' decision to continue to divert PTO funds. The editors agree with the thesis of my April 26 post, that this is simply absurd.

ABUSE OF PROCESS REQUIRED FOR A CASE TO BE EXCEPTIONAL UNDER THE LANHAM ACT

The Lanham Act authorizes courts to award attorneys’ fees to the prevailing party in “exceptional cases.” 15 U.S.C § 1117. The Seventh Circuit addressed what it means for a case to be exceptional last year in Nightingale Home Healthcare v. Anodyne Therapy. The Seventh Circuit settled on the following standard.

[A] case under the Lanham Act is “exceptional,” in the sense of warranting an award of reasonable attorneys’ fess to the winning party, if the losing party was the plaintiff and was guilty of abuse of process in suing, or if the losing party was the defendant and had no defense yet persisted in the trademark infringement or false advertising for which he was being sued, in order to impose costs on his opponent.

Abuse of process the court explained, is the misuse of legal process primarily to accomplish a purpose for which it was not designed, such as in a Lanham Act case, suing “to obtain a competitive advantage independent of the outcome of the case by piling litigation costs on a competitor.”

The abuse of process standard for exceptional Lanham Act cases in the Seventh Circuit is less exacting than the Federal Circuit’s test for finding an exceptional case for purposes of awarding attorneys fees in a patent case, discussed in my April 14, 2011 post. The Federal Circuit requires not only subjective bad faith but objective unreasonableness to qualify a patent case as exceptional.

The court surveyed precedent nationwide and found an absence of consensus on a precise standard. That portion of the opinion is a good resource for litigants in every circuit. A researcher can start there and then move to the authorities cited from the particular court in which he is litigating.
 

WE HAVE AN INJUNCTION, WHY CAN'T WE GET CONTEMPT?

It is not always the case that once a court issues an injunction prohibiting further patent infringement , any further infringement will be punishable by contempt. That is often a disappointment for patent owners, but the recent Federal Circuit en banc opinion in Tivo v. Echostar explains how this can occur.

A two part inquiry is required to determine whether the enjoined party may be found in contempt. The first question is whether there are “colorable differences” between the enjoined product and the re-designed product. The crucial question for determining whether there are colorable differences is: what are the differences between the features relied on to determine infringement and the modified features? If the differences are “colorable” or “significant” there can be no contempt, even if the re-design still infringes the patent. If, on the other hand, any differences are not colorable, the court must then determine whether the re-design infringes the patent. The enjoined party should be held in contempt only if the differences are non-colorable and the re-design infringes.

On a motion for contempt, the patentee bears the burden of proving both the absence of colorable differences and the continuing infringement by clear and convincing evidence. It is no defense, however, that the enjoined party did not intend to violate the injunction, although the court may in its discretion consider diligence and good-faith efforts for purposes of mitigating the punishment.

The Court rejected Echostar’s argument that it should not be held in contempt because the injunction was vague and overbroad. The Court emphasized that the time to challenge the clarity of the injunction is when it issues; a party cannot act first and then complain about ambiguity or breadth when it is caught.
 

LICENSING VERSUS SELLING YOUR SOFTWARE

Software, in particular, typically is equally amenable to licensing or sales models. In a word, control is typically the most compelling reason to license your IP rather than selling it. Freedom from ongoing duties to buyers is often a compelling reason to sell it. Video game makers, particularly those who make games for play on the Internet or otherwise among gaming “communities” seem increasingly have settled on the licensing model because they think it enables them to insure a level playing field for all of their customers. Inevitably, however, their customers feel, or at least want to feel that they own the software they purchased.

So what are the principal factors courts use to differentiate a license from a sale? Case law seems to be coalescing around three. Considering how one wants to address each may help individual IP owners decide whether licensing or selling works better for them.

The first seems obvious, what the agreement says. If it says it is a license, it more likely is.

The second is whether the IP owner significantly restricts users’ ability to transfer the software. In a recent Ninth Circuit case concerning the World of Warcraft game, the court held that restrictions prohibiting re-sale, restricting transfer to those who agreed to abide by the end user license agreement and requirements that the transferor delete all of its copies, evidenced a license rather than a sale.

The third is whether the IP owner imposes significant restrictions on the manner in which the software may be used. The court in the World of Warcraft case held that restrictions on the locations in which the software could be used , prohibitions on use with third-party software and reservation of a right to alter the game or suspend users evidenced a license.
 

DON'T COUNT ON GETTING ATTORNEYS' FEES IN PATENT CASES

It isn’t easy to recover attorneys’ fees from one’s adversary in patent cases, and it does not happen often. In the American system overall, the presumption is that each side pays its own attorneys’ fees. Patent cases are not really an exception, notwithstanding the fact that the Patent Law, 35 U.S.C. § 285, grants the court discretion to award attorneys’ fees in “exceptional cases.”

In two recent cases, Old Reliable Wholesale v. Cornell Corp. and iLOR v. Google, the Federal Circuit reiterated that the exceptional case standard is an “exacting” one. Absent misconduct in the course of the litigation or in securing the patent, sanctions may be imposed against the patentee only if both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.” Brooks Furniture Mfg., Inc. v. Dutailer Int’l, Inc., 393 F.3d 1378, 1381 (Fed Cir. 2005).

Patent litigants are sometimes seduced by the prospect of recovering attorney’s fees, and sometimes threaten to seek fees in an effort to intimidate their opponents. But in patent litigation the costs and the stakes will inevitably be high for both sides, and it is more likely than not that the parties will bear their own costs.
 

Real Progress on Patent Reform?

Here's a link to an entertaining White House video featuring Austan Goolsbee, Chairman of the Council of Economic Advisers, discussing the need to improve efficiency in the Patent Office.  If the PTO can meet Mr. Goolsbee's goals and something like the America Invents Act  becomes law, the system should start to get much better soon.

A GOOD MUSIC COPYRIGHT RESOURCE

If you are interested in music copyright, check out UCLA Law's Copyright Infringement Project website.  Recordings and sheet music of the works at issue in some of the best known music copyright infringement cases are available for listening and viewing.  You can search by case name or song title.  The site also features a useful glossary of musical terms.

A THREE STEP CHECKLIST TO AVOID NAKED TRADEMARK LICENSING

The threat of a trademark being deemed abandoned as a result of naked licensing sometimes seems more theoretical than practical. Trademark abandonment is a harsh remedy, subject to a high burden of proof for its proponent, and there are multiple ways to structure a trademark license such that the trademark licensor can “police” the licensee’s use of the trademark without thoroughly inspecting every licensed product. A recent case from the Ninth Circuit reminds us, however, that there are minimum standards that trademark licensors must meet.

The concept behind the prohibition on naked licensing is intuitive. If a trademark owner allows a licensee to use his trademark without ensuring that the licensed products meet the standards the trademark has come to symbolize in the minds of consumers, the trademark loses its symbolic value and we might as well allow anyone else to use it.

In FreecycleSunnyvale v. The Freecycle Network, the Ninth Circuit affirmed a decision that a non-profit recycling group (which one might think would make a sympathetic trademark owner) failed to do the minimum. The opinion suggests the following three step checklist for trademark licensors to follow when licensing their trademarks.

1. Put it in the contract – This seems obvious. There should be written license agreement that specifies the standards to be maintained. The license should say that the licensor has rights to either inspect or supervise to ensure that standards are maintained.

2. Do what you say – Whatever you say you are going to do, be it inspection or supervision, do it.

3. Prove you can trust the licensee – It is permissible to rely on the licensee to handle the day-to day, if there is a “close working relationship.” If you are going to do that, include in either the body of the contract or the “whereas” clauses, the basis of the close working relationship and reasons why the licensee can be trusted based on past history or mechanisms in place. Be sure to permit more extensive scrutiny if the relationship changes, and if the relationship does change, re-evaluate the measures in place to determine if more control is needed.

By doing those three things, trademark licensors stand a better chance of avoiding the harsh punishment of trademark abandonment.
 

A GOOD PODCAST

If you're interested in the net neutrality debate and want some historical context, or if you would just enjoy hearing two smart guys having a thoughtful conversation about economics and the history of telecommunications in this country, check out the latest podcast from the Intellectual Property Colloquium. Professor Doug Lichtman of UCLA Law interviews Professor Tim Wu of Columbia Law.

Attorneys can get CLE credit for listening.

An earlier interview Professor Lichtman did with Chief Judge Rader of the Federal Circuit is also worth a listen.

All of Professor Lichtman's Intellectual Property Colloquim podcasts are available on iTunes.

A FUN COPYRIGHT CASE TO LITIGATE

Does the new Olympic logo for the Rio de Janiero games infringe on one used by The Telluride Foundation? There was a story by Chris Chase on Yahoo! Sports yesterday comparing the two logos and also a painting by Matisse that has similarities to both.  If this one ends up in litigation it could be very interesting.

The works involved are below, Olympic logo first, followed by the Telluride logo and then the Matisse painting.  I think we can safely assume Matisse didn't copy from the other two, but what about the Telluride logo?  Is it based on Matisse?  Is the Rio Olympic logo more likely copied from Matisse or Telluride or neither?  What do you think?

Rio Olympic Logo

 


 

ARE WEB SEARCHERS IMMUNE TO INITIAL INTEREST CONFUSION?

Recent case law suggests that the theory of trademark infringement on the Internet based on initial interest confusion may be on the wane, and that companies may feel more comfortable including trademarks other than their own in their Website metatags and purchasing advertisements keyed to another's mark.

Metatags are words invisibly embedded in Web pages. They cause search engines such as Google to identify the tagged Web pages in response to queries containing the tagged term. Many trademark practitioners have objected to the practice of including trademarks other than one’s own in metatags on Websites.

The basis for the objection is initial interest confusion. The theory of initial interest confusion is that a consumer looking for a particular product, if wrongly directed to the source of a similar product, may buy the similar product instead. Picture, for example, a hungry family looking for McDonald’s who see a sign pointing east and follow it to Mac’s Diner. When they arrive, they might just eat at Mac’s rather than doubling back and continuing to search for McDonald’s. Translated to the Web, the thought is that if a competitor were to include the words “Fox Rothschild” in its metatags, one who sees the competitor’s site in the list of sites returned by search for “Fox Rothschild” might go to the competitor’s site instead of the Fox Rothschild site.

At least two courts this year have now rejected the initial interest confusion theory for Internet users. The first was the U.S. Court of Appeals for the 9th Circuit in Toyota Motor Sales v. Tabari, 610 F.3d 1171. In that case, Judge Kozinski wrote:

When a domain name making nominative use of a mark does not actively suggest sponsorship or endorsement, the worst that can happen is that some consumers may arrive at the site uncertain as to what they will find. But in the age of FIOS, cable modems, DSL and T1 lines, reasonable, prudent and experienced internet consumers are accustomed to such exploration by trial and error. They skip from site to site, ready to hit the back button whenever they’re not satisfied with a site’s contents. They fully expect to find some sites that aren’t what they imagine based on a glance at the domain name or search engine summary. Outside the special case of trademark.com, or domains that actively claim affiliation with the trademark holder, consumers don’t form any firm expectations about the sponsorship of a website until they’ve seen the landing page—if then. This is sensible agnosticism, not consumer confusion. So long as the site as a whole does not suggest sponsorship or endorsement by the trademark holder, such momentary uncertainty does not preclude a finding of nominative fair use. (citations omitted.)

The Massachusetts Superior Court adopted the same reasoning earlier this month in Jenezebar v. Long Bow Group, quoting portions of the Toyota opinion and elaborating that: “This court finds that this initial uncertainty does not qualify as confusion and is an inevitable part of Web searching.”

These two cases suggest a possible trend of judicial skepticism regarding initial interest confusion as a theory of trademark infringement on the Internet.
 

A FAIR USE NO BRAINER?

Copyright cases involving contentions of fair use tend to be among the most difficult to handicap. The vagaries of the four factor test (the purpose and character of the use, the nature of the copyrighted work, the amount and substantiality of the portion taken, and the effect of the use upon the potential market), and the fact that it seems almost no two fact patterns are ever the same,  often combine to create room for reasonable minds to differ.

How fun, then, to come across a no brainer.  A slam dunk, guaranteed loser for the accused infringer. Add to the mix a famous tweeting author and a misinformed, smart aleck defendant, and the inevitable result becomes all the more entertaining.

HarperCollins v. Gawker was just such a case. Last month, Gawker obtained a pre-release copy of Sarah Palin’s new book

and posted first 21 and then 12 pages of it on its Website without commentary or analysis. Governor Palin got wind of what Gawker had done, and reportedly tweeted “The publishing world is LEAKING out-of –context excerpts of my book w/out my permission? Isn’t that illegal?”, and complained to her publisher which, predictably, sued. One of the folks at Gawker got wind of the Governor’s tweet and, presumably before consulting Gawker’s counsel, reportedly posted on Gawker: “Sarah: If you’re reading this—and if you are, welcome—you may want to take a moment to familiarize yourself with the law. Try starting here or here. Or, skip the totally boring reading and call one of your lawyers. They’ll walk you through it.”

Turns out, the Supreme Court decided a case much like this one in 1985. The appropriate “really boring reading” is Harper & Row Publishers v. Nation Enterprises, 471 U.S. 539. In that case, the Court held that early publication by The Nation of 300 words of the soon to be released memoirs of President Ford, with analysis and commentary did not qualify as fair use. Not surprisingly, the district court HarperCollins followed the Supreme Court and entered a TRO requiring Gawker to take down the excerpts. The case settled shortly thereafter.

I invite to supply your own moral to this story. For me, it’s as simple as “smart aleck infringers provide entertainment for IP bloggers.”
 

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.
 

Dead and Buried

LimeWire died this week. Enjoined out of existence like Napster, Grokster and Aimster before it. Its legacy is that it helped fuel contempt for the copyright law in a substantial segment of the population.

 Here’s what you will see if you go to the LimeWire site.

Legal Notice
This is an official notice that LimeWire is under a court-ordered injunction to stop distributing and supporting its file-sharing software. Downloading or sharing copyrighted content without authorization is illegal.


Good.
 

No Secrets in IP Litigation

One of the things that seems to surprise and offend many IP litigants is the invasiveness of discovery under the Federal Rules of Civil Procedure. Parties often are surprised to learn how much they must disclose about their business in discovery. Understandably, they are offended when their adversary is given the opportunity to inspect sensitive business information, particularly product development and financial information.

Agreed upon protective orders often provide a measure of comfort by limiting the number of people who will have access to the disclosed information, but they are a double edged sword. Once a protective order is in place, one can almost guarantee that arguments that disclosure of possibly relevant evidence should not occur because of the secrecy of the material will fail.

A recent opinion that illustrates the point comes from a patent case in the Northern District of Illinois, Jab Distributors v. London Luxury. Jab sought discovery of London Luxury’s sales and financial information pertaining to the allegedly infringing product. London Luxury opposed production of such information generated prior to the time Jab began marking its product with the patent number, on the ground that such information was irrelevant because London Luxury could not recover damages prior to marking, and on ground that disclosure to a competitor would be harmful.

The court required production. It found that the profitability of the infringing product pre-marking would inform the calculation of a reasonable license fee (a measure of damages), and also relevant to the alleged obviousness of the patent. The Court rejected London Luxury’s argument that disclosure would be inappropriate because the information in question was the subject of a confidentiality agreement with a third party, and held that the protective order, which included an “attorneys eyes only” provision, provided adequate safeguards against disclosure of sensitive information to a competitor. The court noted that London Luxury offered only attorney argument and failed to submit sworn declarations or affidavits explaining the need for secrecy.

The take-away here is that parties involved in litigation should be aware of the presumptive expansiveness of federal court discovery, and that they will be fighting a steep uphill battles to keep even sensitive competitive information from their adversaries. If there is information that should not be disclosed, parties should first determine whether a suitable protective order can provide adequate protection. If so, more often than not courts are receptive to those. If not, parties should prepare early to resist disclosure and provide the best possible admissible evidence of the need for secrecy, but be aware that the odds are against them.
 

IP Rules the World

Interesting article in the New York Times this morning reports that Silicon Valley companies in the business of developing solar panels have been beaten to market by the Chinese, and that the Chinese are driving down prices and margins while the U.S. companies are struggling to gain enough efficiencies to enable them to compete. The article quotes the CEO of one of the U.S. companies, Innovalight: “How do you fight against enormous subsidies, low-interest loans, cheap labor and scale and a government strategy to make you No. 1 in solar?” The obvious answer he gives: “Innovation will be the heart of the U.S. strategy, and although it might not create the same scale, we’re exporting well-protected technology to China and creating well-paying jobs here.”

Recent news on the domestic “well-protected technology” front is less encouraging than one would hope, however. The USPTO reports on its Data Visualization Center that the average time a patent remains pending is nearly three years (35.3 months), and there is a backlog of nearly three quarters of a million patents. If no new patents were to be filed, the USPTO estimates that it would take approximately 26 months to issue a first office action for every one. The USPTO aspires to reduce the average time a patent remains pending to 20 months. That would be much better, but is it good enough for the heart of our strategy?
 

Innovation In Connecticut

I attended the Connecticut Technology Council’s Innovation and Entrepreneurship Summit last week.  It was very well-run, and offers a great chance for investors to see a lot of interesting new companies in only a few hours, and for the new companies to practice their elevator pitches. I was able to meet a number of the CTC’s 2010 Top 100 Tech Companies To Watch.

Some of the more interesting companies included: Natural State Research, a Stamford Company with technology that converts plastic into a clean-burning fuel that can be used in existing internal combustion engines; Aquasent, a company formed by three UConn professors that has pretty interesting technology for underwater computer networking, licensed from UConn; and Spot On Networks, which sells wireless Internet access to large residential developments.  A personal favorite was MoxMe!, which has Google and Facebook applications that allow one to integrate children’s school and athletic calendars with one’s own. MoxMe! could theoretically make it possible for me to keep track of which kid needs to be at which field, when.
 

New Green IP Tool

Here's a link to a new WIPO page, the IPC Green Inventory, that basically aggregates the various patent classifications relevant to "environmentally sound technologies" or "ESTs" so that one can search the relevant classifications.  Here's the WIPO press release.

Delete the Musicologists

Interesting work going on at NYU’s Music and Audio Research Laboratory. They’ve developed software that graphs the various elements of a musical recording and then can compare each to any other recording. They’re working with NYU’s library to add the NYU collection to the musical database. There already is other software available that is capable of comparing digital audio files to determine if one sound recording is identical to another (useful in sampling and file sharing cases).

Until recently if one wanted to make this type of comparison, one would need to engage a human musicologist to perform a similar analysis, often using a privately assembled database to identify similarities among prior art. The tremendous potential utility of this software for music plagiarism litigation is obvious. Soon, our musicologists may be more statisticians than musicians.

more on cgl insurance policy coverage for patent disputes

Following up on my August 16 post concerning coverage for patent infringement claims under the “advertising injury” provision of a company’s Comprehensive General Liability (“CGL”) policy, Judge Kane of the U.S. District Court for the District of Colorado issued an opinion recently in which he offered a fairly bright line distinguishing what is covered from what is not.

In Dish Network v. Arch Specialty Ins. Co., Judge Kane explained:

…the fact that a patented technology is capable of advertising goods or carrying promotional messages does not transform the technology into an advertising idea. Patent infringement may, however, constitute an advertising injury where an entity uses an advertising technique that is itself patented. The crucial inquiry, therefore, focuses on whether the complained of advertisement incorporates a patented advertising techniques as an element. If so, then the alleged infringement may constitute ‘advertising injury.’ If, however, the alleged infringement concerns the method of conveyance there is no ‘misappropriation of advertising idea.’


The patents in suit addressed methods of automated telephone call processing. Claim 219 of one of the patents in suit, "Telephone interface call processing system with call selectivity" claimed “A telephone interface system according to claim 199, wherein said select interactive operating format involves advertising of a product for sale."  Claim 199 claimed a telephone interface system for individually interfacing callers at a multitude of remote terminals for voice-digital communication through a telephone communication facility….”

The Court held that the patents involved technology that was capable of advertising goods or carrying promotional methods rather than advertising techniques, and that the insurer had no duty to defend or indemnify Dish Network with respect to the patent infringement claims.
 

A Humanitarian Exception to the Patent Laws?

Interesting article in the New York Times Magazine concerning Plumpy'nut, a patented peanut product that has worked wonders at re-nourishing starving children in the Third World.  The Peanut Solution dips a toe into the debate over whether limitations should be included in the patent regime for inventions with humanitarian implications.

More on False Patent Marking

Here is a link to an informative article written by some colleagues at Fox Rothschild concerning recent developments in false marking jurisprudence.  False marking issues were the subject of April 4, 2010 and June 16, 2010 posts on this blog.

Green IP Litigation

On this day after Earth Day, are you considering advertising the environmental benefits of your product? Is your competitor already doing it, and perhaps overselling the environmental benefits of its product? Are you considering a trademark that includes words such as “green” or “eco” or “enviro?” Do you have an invention that promises environmental benefits?

If you said yes to any of those, know that the word green when used to mean “good for the environment” has a many shades as the color green. That uncertainty, of course, makes litigation concerning the proper use of the word green and related terms increasingly likely.

The USPTO is struggling with what it means to be “green.” Reports are that trademark applications including words associated with the environment are up, and the USPTO is giving such applications increased scrutiny. As green and other terms relating to the environment are included in more trademarks, infringement litigation is more likely, as are office actions and litigation involving allegations of misuse of such terms.

On the patent side, the USPTO has sought to encourage development of environmentally-friendly technology by fast-tracking “green” patent applications. At least one report, however, suggests that restrictive interpretations concerning what types of inventions qualify have rendered the program less effective than many hoped. USPTO representatives have been speaking about the program at a number of conferences, but I have been unable to attend. I’d love to hear from anyone who has heard the USPTO’s view on this concern. I wonder what might happen when a business tries to advertise the green benefits of an invention that is rejected for the USPTO program. Should that rejection in any way inform the decision as to whether such green advertising is false?

False advertising litigation should be the largest byproduct of the green ambiguity. By many accounts, assertions of environmental benefits, both legitimate and illegitimate, are up. “Greenwashing”, the practice of falsely advertising products as having environmental benefits is bound to be an area of increased litigation for business, consumers and the FTC. The Seven Sins of Greenwashing offers a method of analyzing so-called “green” advertising that could lead to some interesting litigation strategies.

The current issue of the John Marshall Law School Intellectual Property Law Review offers a number of interesting articles concerning these issues. In particular, Maureen Gorman’s article What Does it Mean to Be Green: A Short Analysis of Emerging IP Issues in "Green" Marketing and Eric Lane’s Consumer Protection in the Eco-Mark Era: A Preliminary Survey and Assessment of Anti-Greenwashing Activity and Eco-Mark Enforcement, offer much food for thought.
 

A Faster End to Frivolous Copyright Infringement Cases?

Defendants in copyright infringement cases may find comfort in the Second Circuit’s recent decision in Peter F. Gaito Architecture v. Simone Development Corp. The Second Circuit blessed what has become an increasingly common practice in the Southern District of New York: that of dismissing copyright infringement cases in which the works are obviously dissimilar at the pleading stage, rather than requiring a trial or motion for summary judgment.

The case involved alleged infringement of an architectural design. The Second Circuit affirmed the district court’s decision dismissing the case based on the court’s comparison of the two works at issue, holding that such dismissal was proper because the absence of similarities in copyright protected elements made it impossible for the plaintiff to allege “substantial similarity” between the two.

Notwithstanding prior case law endorsing this approach, comparison of the works at issue on a motion to dismiss previously seemed to be of questionable legitimacy. The Second Circuit itself acknowledged that the question of substantial similarity is inescapably a question of fact. As a result, even where the case for infringement seemed weak, it seemed the more prudent course for defendants to answer the complaint and then seek summary judgment rather than moving to dismiss under Rule 12(b)(6).

Now, defense counsel should consider very seriously moving to dismiss immediately. The potential litigation cost savings for defendants could be significant. Inevitably, on the other hand, the process will be abused and defendants in cases that really do pose issues of fact will make frivolous motions to dismiss.

An odd aspect of the decision is the district court’s finding, repeated by the Court of Appeals, that certain of the similarities identified by the plaintiff concerned “generalized concepts and ideas that are common to countless other high-rise residential developments.” It is unquestionably proper to exclude ideas from the comparison because they are not protected by copyright, but then it should not matter whether such ideas are common. So why the reference to commonality? And how would one know at the pleading stage, and without expert testimony whether certain elements are “common to countless other high-rise residential developments?” A judge living in New York City may have significant exposure to urban architecture, but the determination of commonality would seem to require evidentiary support.
 

IP Counsel Must Communicate With Marketing and Manufacturing Personnel

A recent decision from the Federal Circuit underscores the need for IP counsel to communicate with the company’s manufacturing and marketing staff. IP counsel, and company management, should be aware of the importance of marking patented products properly. Generally, it takes little prodding or persuasion to insure that patented products are identified with the patent number; everyone involved can easily see value in that, not only in terms of preserving the right to seek damages, but in terms of intimidating competitors and impressing consumers.

But what about when the patent expires? We all know we should not be marking our product in a way that is deceptive, but it typically doesn’t seem so urgent to adjust molds, presses or packaging to delete the patent information. So what if we make a few runs marked with the expired patent?

Forest Group Inc. v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009) cautions that we should be more diligent. In that case, the Federal Circuit held that the penalty for intentional false marking, up to $500, applies on a per product basis, as opposed to a per run basis. So if you are making widgets and run a single post-patent production of 100,000, your potential exposure is $50,000,000.

Bear in mind that imposition of false marking penalties requires actual intent to deceive, so demonstrably honest mistakes should not result in punishment.  Also, courts have discretion to determine the amount of the per product penalty, so an award could be significantly less than $500 per. The Federal Circuit itself suggested in the Forest Group case that in cases involving large runs of inexpensive products, the penalty could be limited to fractions of a penny per article. And, in the Pequignot v. Solo Cup case, although the court held that marking with an expired patent constituted false marking subject to penalty, the court ultimately exonerated the defendant, holding that a patent owner that used production machinery that was expensive to re-tool and, for that reason and in consultation with patent counsel, did not change its markings until it changed its machinery, was not liable for intentional false marking on runs it made post-patent term but pre-purchase of new machinery.

On the other hand, there are reports of emergence of a new type of patent troll, who seeks out products marked with expired patents and then sues to collect half the penalty (the other half goes to the government). That raises the level of risk for owners of expired patents. It is possible the Federal Circuit could disagree with the Virginia court’s analysis and apply a less lenient standard to patent owners that mark with expired patents. Moreover, subsequent case law could condemn the advice Solo received from its patent counsel, removing reliance on counsel’s advice as a justification for less than prompt re-marking.

Rather than putting your company at the mercy of an opportunistic plaintiff and ultimately a court, if your patent expires, the safest course may be to change your markings immediately. If that is impossible or highly impractical, one would be wise to document the reasons and weigh carefully the potential litigation costs against the re-tooling costs.
 

Design Patent Infringement- No Experts Please

There is some concern about a recent decision from the Southern District of Ohio in which the court, with little evidentiary analysis, relied on an expert opinion to bolster its own analysis that summary judgment should not be granted for the defendant because a jury could find infringement. Fortunately, a better view, that expert opinion should not be permitted on the issue of infringement, has been expressed in two other recent cases.

The test for determining infringement in design patent cases is the “ordinary observer” test, from the decision of the Supreme Court in Gorham Co. v. White 81 U.S. 511 (1871), more recently vindicated by the Federal Circuit in Egyptian Goddess v. Swisa, 543 F.3d 665 (Fed. Cir. 2008). The test as written by the Supreme Court is “if in the eye of an ordinary observer, giving such attention as a purchaser usually gives, two designs are substantial the same, if the resemblance is such as to deceive such an observer, inducing him to purchase one supposing it to be the other, the first one patented is infringed by the other.”

The Ohio court accepted the expert’s opinion that the ordinary observer would be deceived. That raises the obvious question “how could the expert know what an ordinary observer would think? He couldn't. That’s why the courts in HR U.S. LLC v. Mizco Int’l and Chef’n Corp. v. Trudeua Corp. excluded such testimony.

Excluding testimony concerning the ordinary observer test is consistent with the way similar issues are treated in copyright and trademark law. In copyright cases, expert testimony is not permitted on the issue of whether an ordinary observer would find the works in question “substantially similar.” Nor do we permit expert opinions concerning the “likelihood of confusion” of the typical consumer in trademark cases; we permit only surveys of actual consumers.


 

Think Before You Sue For Infringement of Marketing Materials

Copyright can be a effective tool for preventing competitors from copying a business’ marketing materials. Before asserting a copyright infringement claim, however, one should thoroughly understand the limits of what can be achieved in litigation, and the possible costs. Each year, when preparing the update for Substantial Similarity in Copyright Law, I am struck by the number of cases involving catalogs or brochures that seem to waste resources that could be better invested in improving the product or promoting it more effectively.

Damages caused by the copying of marketing materials are difficult to prove. Businesses typically generate their profits from sales of the products and services promoted, not from the marketing materials themselves. Tying any particular product sales, or lost sales, to such materials is often difficult. Whether one may recover attorneys' fees is a matter of the court's discretion, and by no means a certainty. That often leaves statutory damages as the only means of recovery. Statutory damages are limited to $150,000 even in the case of willful infringement ($30,000 in cases where deliberate copying cannot be proved). That may seem like a significant sum, but when one factors in the cost of legal services, and the cost of company employee time and effort, the result may be only a Pyrrhic victory.

In most cases, the defendant challenges the plaintiff’s copyright, alleging that the material lacks sufficient originality to be copyrightable, or was itself copied from other materials. Such a challenge can immediately put the copyright owner on the defensive, and require efforts from those involved in creating the materials to prove originality, disruptions the plaintiff may not have considered at the outset.

Some of the questions one should ask before bringing a claim for copyright infringement of marketing materials, in addition to the likelihood of success and the likely cost are: How much of the motivation for bringing the suit is real damage, as opposed to insult? Who can better withstand the cost and disruption of litigation? And, is it worth it if the recovery is less than the cost of litigation?
 

COPYRIGHT TERMINATION - WATCH OUT FOR WORK FOR HIRE

I predict a continuing stream of litigation arising from the termination provision of the Copyright Act in coming years. In extremely bold strokes, the termination law permits authors of works, or their heirs, to terminate any transfer or exclusive license within certain time periods after the date of the grant. To terminate, an author or his heirs needs to give a prescribed form of written notice to the grantee within a certain window of time. Affected parties may dispute the timing and sufficiency of the termination notice, as well as whether the work at issue is eligible for termination. Works made for hire are not subject to termination.

An example of the type of litigation we may continue to see in the eligibility category is Marvel Worldwide v. Kirby . That case looks like it could be a battle royale concerning whether Jack Kirby’s heirs can terminate Marvel’s rights in certain comics, with mega law firms on both sides.

The Kirby heirs contend that Jack Kirby is the author of certain comics published by Marvel. Kirby is known as the creator of the fantastic Four, X-Men and the Incredible Hulk. The Kirby heirs served termination notices purporting to end Marvel’s rights to publish the comics. The Marvel companies contend that the comics at issue are works made for hire, which would make Marvel the “author” and prevent Kirby heirs from terminating their rights.

Work made for hire issues are often fertile ground for litigation. Disputes concerning termination rights are just another context in which such disputes may arise. 

Connecticut Unfair Trade Practices Preempted

Connecticut, like many other states, decades ago enacted a "mini-FTC" Act, modeled after the federal law, 15 U.S.C. § 45(a)(1), prohibiting unfair trade practices. The Connecticut version is the Connecticut Unfair Trade Practices Act ("CUTPA"). Most states that have enacted such laws have either in the statutes themselves or in case law, narrowed their applicability to discourage unfair trade practice claims in ordinary business disputes. In Connecticut…not so much. As David Belt discussed in a Connecticut Bar Journal article roughly a year ago, assertion of CUTPA claims is commonplace in business litigation in Connecticut, and Connecticut seems to have more litigation by far concerning its state unfair practice laws than any other state in the country. CUTPA is particularly attractive to plaintiffs because it permits recovery of punitive damages and attorneys’ fees.

Recent cases remind us, however, that the preemption provisions of the Copyright Law and judicial interpretation of Article 4 of the Constitution with respect to the Patent Law restrict CUTPA claims in the intellectual property arena. The garden-variety patent or copyright infringement case (to the extent there is such a thing) cannot be asserted as a CUTPA claim. In a case decided this past October, RCE Nice Bearings v. Peer Bearing Company, Judge Vanessa Bryant of the District of Connecticut dismissed the plaintiff’s CUTPA claim insofar as it relied on accusations of wrongdoing pertaining to copyright infringement. Also this fall, Judge Stefan Underhill of the District of Connecticut dismissed, without prejudice, a CUTPA claim that he found did not include sufficient allegations beyond those necessary to prove patent infringement.

Unlike the copyright and patent laws, the federal trademark and unfair competition laws do not preempt state law claims based on similar facts.  Connecticut plaintiffs in trademark infringement cases can continue to include CUTPA counts in their complaints.  Diageo (maker of Johnny Walker Black Label) did that in a complaint it filed recently against the makers of the Johnny Barker Black Label product for dogs.

Courts have discretion in copyright and patent cases to award attorneys’ fees and increase damages. Before one asserts a CUTPA or other state unfair trade practices claim in a copyright or patent infringement case, one should expect that a motion to dismiss is possible.  One should weigh the likelihood and potential benefits of additional recovery of punitive damages and attorneys’ fees under CUTPA, against the potential costs and delays of such a motion.