Recent Developments in IP of Interest to Business Attorneys
Different Forms of Intellectual Property Protection – in 100 Words
Utility Patent - a government-issued certificate protecting the useful features of an invention.
Design Patent - a government-issued certificate protecting the ornamental features of an invention.
Trademark - a word, phrase, symbol or design that distinguishes the source of goods or services from those of another. Can be federally registered and/or registered in states.
Trade Secret – any information that provides one with an advantage over those who don't have the information. Owner must take measures to protect the trade secret.
Copyright – the exclusive legal right to copy, publish, sell or distribute an original work. Can be federally registered.
Product Configuration Trade Dress – the appearance of a product, packaging, or interior décor that is distinctive or has acquired secondary meaning.
Cybersquatting – registering a domain name with a bad faith intent to trade on the goodwill of another's trademark.
The 2011 American Invents Act Changes the Rules
First-to-File Will Now Establish Priority
It is not uncommon that several inventors will conceive of the same invention at about the same time. For example, Alexander Graham Bell and Elisha Gray independently developed telephone technology in the mid-1870s, and they filed patent applications within hours of each other on Valentine's Day, 1876. But the fact that Bell filed a few hours earlier did not give him priority because U.S. law gave priority to the first to invent, unlike the rest of the world where first-to-file was and is almost always the rule. The Patent Office ruled that Bell had priority only after Bell's and Gray's invention records were reviewed to see who was the first inventor.
Perhaps the biggest change that the AIA will make is to convert the U.S. to a first-to-file system. When this provision takes effect on March 16, 2013, it will dramatically simplify the long and expensive disputes that arose when multiple applications were filed for similar inventions. The first-to-file system will encourage early filings by companies with the resources to do so, to the detriment of smaller companies that typically need to see if an invention really works before incurring the expense of a patent application. Given the one-year grace period under which inventors can market their inventions prior to filing, there will be an incentive to file an application early, and then perhaps file another application later if the invention is changed after design work and market testing are completed. The availability of simple provisional patent applications will ease this burden and cost, but inventors will still have to file promptly to ensure that they are not beaten to the punch by subsequent inventors.
New Post-grant Proceedings for Patent Validity Challenges
An accused infringer can challenge the validity of a patent in court but such proceedings are expensive and lengthy. Prior to the AIA, a party could also challenge a patent by asking the PTO to reexamine the patent, in either an inter partes or an ex parte proceeding. Reexaminations were less expensive than court challenges, but these reexaminations were limited to challenges based on prior patents and printed publications, and could take several years.
The AIA provides new ways to challenge patents in expedited, cost-effective proceedings. A new procedure called post-grant review will be available for any patent issuing from an application filed on or after March 16, 2013. A post-grant review needs to be filed within nine months of issuance of a patent, and permits validity to be challenged on essentially any ground. A final decision is to be issued within one year of the filing. If unsuccessful in its post-grant review, the entity requesting review is barred in any future proceeding from raising a defense it made or could have made in the review. After nine months from issuance, a patent will still be open to challenge in an inter partes review, but only based upon prior patents and publications. Ex parte reexamination remains available, but the proceedings still will take several years, and tend to be very favorable to the patentee, given that the reexamination requester has limited ability to participate in the process.
PTO Fees Will Increase but "Micro Entity" Status is Established That Will Reduce Fees by 75%
There has been widespread frustration that it takes two to three years for the PTO to examine and issue a patent, largely due to a shortage of patent examiners. Since enactment of the AIA, a 15 percent surcharge has been added to PTO fees, and this money will be primarily used to hire additional examiners. There will also be patent offices established in Detroit, Dallas, Denver and the Bay Area. As in the past, small entities (companies having fewer than 500 employees) can pay fees at 50 percent of the normal rate, but under the new law a category of "micro-entity" is established that will permit fees to be reduced by 75 percent. A micro-entity is currently defined as a university or an entity with gross income of less than $150,000 per year and who has not filed more than four patent applications.
Limited Prioritized Examination Will be Available
For an additional fee initially set at $4,800 (small entities at half that) it will be possible to have an application examined on an expedited basis, such that final disposition should take no more than one year.
False Patent Marking Claims Are Curbed, and Virtual Marking Is Established
Prior to the AIA, a patentee provided constructive notice that a product was patented by marking it with the applicable patent number. If product is sold under a patent and the product is not properly marked, damages do not start to run until an infringer is provided with actual notice of the patent by the patent owner. The pre-AIA penalties for mismarking could be draconian. The AIA made major changes to patent marking, including removing the severe penalties for mismarking. It also provided that, rather than printing an actual patent number on the product, a patentee can display on the product the word "patent" together with the URL of a Web page where the actual patent number(s) may be found, identifying the products to which the patents pertain.
Other Provisions Will Make it More Difficult to Attack Patent Validity
Violation of the "best mode" requirement will not be a basis to invalidate a patent. A patent owner can correct inventorship defects without alleging that prior identification of inventors was "without deceptive intent." Patent owners are permitted to submit prior art to the PTO in a "Supplemental Examination" to correct mistakes in prior disclosures, which will make it more difficult to assert that the patent owner committed inequitable conduct during the examination of the patent.
For a more detailed discussion of the AIA, please see an article co-authored with Johnathan Mansfield entitled Reinventing Patent Law: The American Invents Act Changes the Rules, published in the November 7, 2011 Oregon Bar Bulletin.
Apple Appears to be Winning the Smartphone/Tablet Patent Litigation – But Is It?
We've all heard about Apple's big victory in August in which it won $1.05 billion against Samsung for utility and design patent infringement by 25 different cell phone models and three tablet computers. Apple, Inc. v. Samsung Electronics Co., No. 5:11-cv-01846 (N.D. Ca. 8/24/12). Other accused models were found not to infringe. Samsung's infringement was determined to be willful except for two of the design patents. Samsung counterclaimed infringement of its patents by Apple products—iPhone 3G, iPhone 3GS, iPhone 4, iPad 2 3G, and iPod Touch 4th Generation.
The Apple design patents cover the entire products Apple is trying to protect—the iPhone and the iPad. Such protection creates an advantage for Apple in its injunction requests against Samsung, compared to utility patents on a single feature of a multi-component, multi-featured product. But the Apple design patents may be of particular importance with respect to only Samsung's products, and not necessarily products from other makers of Android-based phones. Evidence presented at the Samsung trial showed a concerted effort by Samsung to match the iPhone and iPad designs, and Apple may not have similar evidence against other competitors.
The utility patents, conversely, are of more general concern to cell phone manufacturers and to Android developer Google Inc., because the features found to infringe are supported under the Android standard. Claims were directed a "snap back" feature, whereby when a user scrolls in one direction across the face of the device past the edge of an electronic document, the screen snaps back to the document. Many of the devices were found to infringe a claim directed to the "pinch to zoom" feature—using two fingers to zoom in or out. Many other user-friendly features are the subject of other Apple utility patents at issue in the case.
One interesting aspect of the verdict is that it is not consistent with the injunctions previously issued by the district court judge. The jury awarded no damages as to the Galaxy Nexus phone and the jury determined that the Galaxy Tab did not infringe, and yet both of these models were the subject of preliminary injunctions.
While Apple Inc. has done well in district court, it is having trouble defending against Samsung's appeals. On October 11 the Federal Circuit reversed as an abuse of discretion a preliminary injunction against one popular Samsung smart phone. Apple Inc. v. Samsung Electronics Co., 201`2 U.S. App. LEXIS 21085 (Fed. Cir. 10/11/12). The appealed case is at an earlier stage in the Northern District litigation. The appeals court ruled that Apple failed to show a nexus between the patented feature—known as "unified search" and not including the voice capabilities of Siri—and consumer demand capable of causing irreparable harm to Apple . In the interest of judicial economy, the court also chose to reverse a claim construction judgment by the lower court. Under the appeals court's construction, the Samsung phone at issue likely does not infringe.
In reversing the preliminary injunction, the Federal Circuit stated that Apple failed to show that a sufficiently strong causal nexus between the alleged harm and the alleged infringement to support an injunction. "Sales lost to an infringing product cannot irreparably harm a patentee if consumers buy that product for reasons other than the patented feature," the earlier court said. "If the patented feature does not drive the demand for the product, sales would be lost even if the offending feature were absent from the accused product." Apple's evidence fell short in this regard mostly because it was directed to the popularity of Siri, a feature that the Galaxy Nexus does not have.
To compound the tarnish on Apple's big verdict, courts in Korea, Japan and the United Kingdom have ruled against Apple in similar litigation. While the U.S. market is big, both companies market their products to the world, and the global market is of paramount importance.
In his posthumously published book on Steve Jobs, Walter Isaacson quoted Jobs as saying: "I am going to destroy Android, because it has stolen product. … They are scared to death, because they know they are guilty." Apple's present Chief Executive Tim Cook emailed his employees after the jury's billion dollar verdict: "We chose legal action very reluctantly and only after repeatedly asking Samsung to stop copying our work. … We value originality and innovation and pour our lives into making the best products on earth. And we do this to delight our customers, not for competitors to flagrantly copy."
We will have to see whether the recent setbacks on appeal will bring Apple into negotiations with Samsung and other Android platform users. According to the research firm IDC, smartphones powered by Android make up about 68 percent of worldwide shipments, compared to Apple's 17 percent. Samsung has shipped 44 percent of all Android smartphones worldwide in the most recent quarter. Some experts predict that the billion dollar verdict will drive manufacturers back to the drawing board as they try to design smartphones and tablets that avoid Apple's patents. Because these design efforts are costly and take a long time, 18 to 36 months according to Jefferson Wang of IBB Consulting, manufacturers will have to decide whether to rely on more reversals on appeal, or to invest in changes now so they have products continually coming out that are not likely to be enjoined by Apple in court.
Use Design Patents to Your Clients' Advantage
Design patents cover ornamental features rather than functional features, which are protected by utility patents. Design patents cost far less than utility patents, but design patents have historically been quite narrow in scope. However, in Egyptian Goddess, Inc. v. Swisa, Inc., 543.F.3d 665 (Fed. Cir. 2008), cert. denied, 729 S. Ct. 1917 (2009), the Federal Circuit broadened the infringement test for design patents that has made design patents much more valuable than they had been in the past. See also Crocs Inc. v. International Trade Commission, 598 F.3d 1294 (Fed.Cir. 2010), where the Federal Circuit reversed an ITC ruling and found infringement because of the broadened Egyptian Goddess test.
There has been much criticism of design patents following Apple's successful assertion of its "rounded rectangle" smartphone and tablet design patents. But design patents are getting attention in other industries as well. Given the exploding use of design patents in the auto industry, in August the House IP subcommittee held a hearing on a bill that would severely limit to term on design patents on automotive replacement parts to 30 months after the parts have first been offered for sale. Design patents now have a term of 14 years from issuance. The presence of design patents often forces collision repair shops to purchase repair parts from the original manufacturer. Testimony at the hearing noted that in 2005 Honda was issued 100 design patents and, as of the August hearing, it had received 600 design patents in 2012.
While this particular bill is unlikely to get anywhere, this effort shows the attention that design patents are getting, and the value of the protection they afford at a cost that is often no more than 10 to 20 percent of a utility patent.
Enforceability of Agreements Not to Attack Validity of Patents
Licenses often provide language that the licensee admits validity of the patent and agrees not to challenge validity of the patent in court or in a PTO proceeding. Those provisions are normally not enforceable in court under Lear v Adkins, 395 U.S. 653 (1969). To overcome the effect of such unenforceability, as part of the settlement of a lawsuit patentees often insist on a consent decree admitting validity, stating that the admission constitutes both claim preclusion and issue preclusion. It has long been held in that instance that the public policy of finality of litigation trumps the public interest in seeing questionable patents invalidated. See Foster v. Hallco Mfg. Co., Inc., 947 F.2d 469 (Fed. Cir. 1991). However, since the Medimmune case there has been some confusion about whether these earlier cases are still good law. Medimmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007). We know the Medimmune case for its holding that a nonrepudiating licensee can attack validity and establish a case or controversy in a declaratory judgment action. With the coming of post grant review, and its easier and less expensive forum for attacks on validity, this issue is going to be an important one for the Federal Circuit.
In a case decided this summer by the Second Circuit, Rates Technology Inc. v. Speakeasy Inc., 2012 U.S. App. LEXIS 15489 (2d. Cir. 2012), the court held that a no-challenge clause in a pre-litigation settlement was not enforceable. In so holding, the court reviewed the public policies of finality of litigation, sanctity of contract, and invalidation of questionable patents, and ruled that this matter was much like that in Massillon-Cleveland-Akron Sign Co. v. Golden State Advertising Co., 444 F. 2d 425 (9th Cir. 1971), and concluded that Lear's policy of encouraging validity challenges should permit such an attack in a pre-litigation settlement.
This case was originally appealed to the Federal Circuit, which transferred the case to the Second Circuit, holding that no patent question was involved. That is a little surprising since there have been a number of such cases that the Circuit has taken, and post-Medimmune guidance is needed. But while this was not a decision by the Federal Circuit, look to the Federal Circuit to follow it given the Second Circuit's clear explanation of the prior decisions, the public policies, and the rationale for its decision.
Other Decisions on Whether Validity Challenges are Appropriate
In the case of In re Construction Equipment Company, 665 F.3d 1254 (Fed. Cir. 2011) a divided Federal Circuit held that a PTO reexamination was not unlawful even though it was initiated by a party that lost in a fully adjudicated patent infringement lawsuit years earlier. Noting that the art presented in reexam was far closer than the art considered during the trial, the majority, relying on In re Swanson, 540 F.3d 1368 (Fed. Cir. 2008), held that the reexamination proceedings were not barred by res judicata or issue preclusion.
A very similar case, In Re Baxter Int'l., Inc., 678 F.3d 1357 (Fed. Cir. 2012), also involved a litigated patent that was now the subject of a reexamination based upon prior art that was not before the district court. In 2009 the Circuit affirmed a district court judgment of validity as a matter of law. In a reexamination proceeding following that decision, the Board of Patent Appeals and Interferences considered the Circuit's prior ruling but nonetheless found the patent invalid as being obvious, based in part upon prior art not considered by the district court or by the Circuit in the earlier decision. The Circuit affirmed the BPAI, citing In re Swanson, noting that the BPAI is not bound by the court's prior determination. Judge Newman, who dissented in CEC, also dissented here, arguing that the majority's decision permits administrative nullification of a final judicial decision.
Another case, Bunzl Processor Distribution v. Kappos, 2012 U.S. App. LEXIS 9983 (Fed. Cir. May 23, 2012), authored by the dissenting Judge Newman in CEC, refused a request to stay an appeal from a pending inter partes reexamination in which the same patent that was simultaneously being litigated in district court. She ruled that a stay was inappropriate, especially since the district court case had not even gotten to trial. The defendant was losing in the reexamination and had filed a declaratory judgment action in court to get another shot at validity. Judge Newman noted that the cases may result in inconsistent decisions, and this is precisely what happened in CEC. But where, as in Bunzl, the cases are proceeding simultaneously, the likelihood of different prior art being presented in the two proceedings, which was found to be critical in CEC, is perhaps reduced.
With inter partes review becoming available under the AIA, we are likely to see more defendants using PTO proceedings after being unsuccessful in court. Patentees have always served document requests directed to "all pertinent prior art of which defendant is aware," and such requests are more critical than ever to make sure all of the pertinent art is before the court. It is difficult for defendants to withhold prior art but as in CEC, once the defendant loses an infringement action, they typically retain other counsel who often have their own searching resources that are able to develop additional prior art. These cases show that the fight is never over even after a final judgment and appeals are exhausted.
Seagate's Objectively Reckless Standard is Now a Question of Law
In Bard Peripheral Vascular, Inc. v. W.L. Gore & Associates, 682 F.3d 1003 (Fed. Cir. 2012), the Circuit ruled that the "objective prong" of the test for willful patent infringement is a question of law to be decided by a judge and is reviewed de novo on appeal. In Seagate, the Circuit defined a two-prong test for willfulness that requires clear and convincing evidence (1) that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent, and (2) that the infringer had knowledge (or should have known) of this risk. In re Seagate Technology LLC, 497 F. 3d 1360 (Fed. Cir. 2007). Bard's holding could result in summary judgments prior to trial or, where there are mixed questions of law and fact the jury would be allowed to determine the relevant facts, such as those related to anticipation or obviousness. The ultimate legal question of whether a reasonable person would have considered there to be a high likelihood of infringement of a valid patent, would then be decided as a matter of law by the judge. The Bard ruling will undoubtedly be cited to the Northern District in Samsung's JMOL motion to throw out the jury verdict of willful infringement.
This ruling will presumably make findings of willful infringement even more difficult and unlikely. Is that a good thing? Perhaps. But in any event, we will likely see fewer such decisions based upon emotion or prejudice against one side or the other.
Recent Federal Circuit Cases on Damages Have Been Helpful in Defining Evidence to be Considered
In Uniloc USA v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011), the Federal Circuit held that the 25% rule of thumb that many lower courts had used to determine what percentage of an infringer's profits should go to the patent owner was a fundamentally flawed tool. In ResQNet.com Inc. v. Lansa Inc., 594 F.3d 860 (Fed. Cir. 2010), the court vacated an award because plaintiff's damages expert used licenses that bore no relationship to the claimed invention to establish a baseline royalty of 12.5%. Lucent Technologies Inc. v. Gateway Inc., 580 F.3d 1301 (Fed. Cir. 2009) ruled that the jury's award lacked sufficient evidentiary support as to running royalty agreements to arrive at a lump-sum damages award.
In two other decisions Chief Judge Rader, sitting with district courts, helped clarify the law as to the entire market value rule (Cornell v. Hewlett-Packard, 2009 U.S. Dist. LEXIS 41408 (N.D.N.Y. 2009)) and the role of the district courts as gatekeepers to exclude inappropriate expert testimony under Daubert (IP Innovation LLC v. Red Hat Inc., 2010 U.S. Dist. LEXIS 139920 (E.D. Tex. 2010)).
In these decisions the Federal Circuit and Judge Rader have emphasized the need for greater rigor in presenting, challenging, and reviewing a claim for patent infringement damages. The recent rulings appear to have had an impact: a recent study from PricewaterhouseCoopers reports that the 2010 median patent damages award was $1.8 million—the lowest since 1995. The Bard case, discussed above, holding that the objective recklessness willfulness issue is to be decided by the court, will also likely have an effect in reducing damage awards. So for plaintiffs, we need to exercise our imagination and our powers of advocacy to beat back the trend, while defendants need to be sure to make full use of the help the Federal Circuit has provided.
In two related en banc cases the Federal Circuit makes it Easier to Prove Induced Patent Infringement
Late this summer the Federal Circuit issued an en banc decision resolving two conflicting panel decisions: Akamai v Limelight Networks, Inc. and McKesson Technologies Inc., v. Epic Systems Corp., 692 F.3d 1301 (Fed. Cir. 2012). This ruling significantly alters the landscape of indirect patent infringement by making it easier to prove induced infringement in patent cases involving multiple actors. The Akamai-McKesson decision was issued by a sharply divided court, with the majority overruling a prior Federal Circuit decision BMC Resources, Inc. v. Paymentech,L.P., 498 F.3d 1373 (Fed. Cir.2007), which held that inducement liability under 35 U.S.C.§ 271(b) required the existence of an act of direct infringement under § 271(a), meaning that all steps of a claimed method be practiced, alone or vicariously, by a single entity or joint enterprise.
The majority opinion characterizes its decision as being directed to induced infringement, where direct infringement (§ 271(a)) requires that "a single actor commits all the elements of infringement" and induced infringement (§ 271(b)) occurs when "a single actor induces another actor to commit all the elements of infringement. Neither was the case here, and "when the acts necessary to give rise to liability for direct infringement are shared between two or more actors, doctrinal problems arise" according to the majority. The opinion contrasts two generic scenarios that illustrate the issues before the Court: an actor performs some of the steps of a claimed method and induces others to commit the remaining steps (the fact pattern in Akamai) versus an actor inducing multiple parties to "collectively perform" all the steps of a claimed method, i.e., no single party has performed all of the steps (the fact pattern in McKesson).
The majority opinion in Akamai, establishes what is being called an "inducement-only rule." This newly-expressed principle makes the inducing entity liable on greatly enlarged grounds, such as potentially advising or encouraging acts that may constitute direct infringement, even though under the court's reading of § 271(a), there is no party, alone or vicariously, that is a direct infringer of the patented method.
Patentable Subject Matter: The Supreme Court Weighs in Again
A unanimous U.S. Supreme Court determined earlier this year that claims on methods of use in the field of personalized medicine—adjusting a drug dosage after observing a patient's reaction to a drug administration—do not constitute patent-eligible subject matter under 35 U.S.C. §101. Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S. Ct. 1289 (2012). Overturning the Federal Circuit, the court said that to transform an unpatentable law of nature into a patent-eligible application of such a law, one must do more than simply state the law of nature while adding the words "apply it." The court concluded that the steps of the claims at issue in this case failed to add enough to the inventive concept of Prometheus Laboratories' patents—the correlations between metabolite levels and effectiveness of the drug.
A number of recent Federal Circuit cases appear to conflict with the Supreme Court's Prometheus ruling, so we can expect some of those decisions to be remanded for further consideration. Needless to say, the area of patentable subject matter under 35 USC 101 is anything but clear right now. However, at least the Federal Circuit is attempting to clarify the area as it pertains to computer software.
Patentable Subject Matter: Is the Federal Circuit Finally Going to Decide if Software Constitutes Patentable Subject Matter?
The Federal Circuit has ordered an en banc rehearing of CLS Bank Int'l. v. Alice Corp., 2012 U.S. App. LEXIS 20906 (Fed. Cir. October 9, 2012). In its panel opinion, the Federal Circuit held that, when considered as a whole, the claimed data processing invention was patent eligible. The patentable subject matter question in CLS Bank is virtually indistinguishable from the parallel issue in Bancorp Services, LLC v. Sun Life Assurance Company of Canada (U.S.), 687 F.3d 1266(Fed.Cir. 2012). In that case, however, the Federal Circuit ruled the invention ineligible under §101. Hopefully the Federal Circuit will provide clear guidance on an issue that has been unclear for the 50 years computer software has been a part of our lives.
Patentable Subject Matter: "Discovery" is Not the Same as "Invention"
The Federal Circuit recently held that an individual who discovered two unknown species of oak trees and later asexually produced the trees, did not "cultivate" the plants within the meaning of 35 U.S.C. § 161, and therefore could not receive patents on the plants. In re Beineke, 690 F.3d 1344 (Fed. Cir. 2012). Although 1954 amendments to the 1930 Plant Patent Act expanded the list of patent eligible subject matter, the court agreed with the PTO that even under the amendments only plants that are in some way developed through human cultivation are patent eligible. Because the trees in this case where fully grown when discovered, and because they apparently developed without any human intervention, they were not subject to patent protection.
Care Must be Taken in Contacting Suspected Infringers
Medimmune held that even though the declaratory judgment plaintiff may not have a reasonable apprehension of being sued, a case or controversy can still exist if the dispute is "definite and concrete." Medimmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007). The Federal Circuit recently applied the Medimmune holding in 3M Co. v. Avery Dennison Corp., 673 F.3d 1372 (Fed. Cir. 2012). In 3M the parties had for years been in litigation over other related patents. The present case was filed almost a year after a telephone conversation in which Avery's counsel told 3M's counsel that its products "may infringe," and offered a license. When the license was rejected, Avery's counsel apparently said that an analysis of 3M's product supported a conclusion of infringement. The district court dismissed the case based upon lack of subject matter jurisdiction, because of the "informality" of the parties' interactions, that Avery had not presented 3M with a detailed analysis of alleged infringement, and as a result of Avery's not setting a strict deadline by which 3M had to respond.
The Federal Circuit acknowledged the absence of a bright line rule, but held that the communications appeared to be sufficient to establish a case or controversy under Medimmune regardless of whether the communications were informal, and whether or not Avery's counsel said the 3M product "may infringe" or "does infringe." The court also discounted the fact that 3M waited a year to file the declaratory judgment action. The case was remanded to the district court to make findings as to relevant factual disputes and to determine, consistent with the court's opinion, whether a case or controversy existed.
The 3M opinion distinguished Innovative Therapies Inc. v. Kinetic Concepts Inc., 599 F.3d 1377 (Fed. Cir. 2010). In that case the court found no case or controversy where communications to the declaratory judgment plaintiff were by an employee who had no decision-making authority and had not personally evaluated the device in dispute
3M, in combination with Medimmune, shows how careful counsel have to be in raising an infringement issue. While parties usually are loath to be the one to initiate litigation, where a patentee is susceptible to suit in a remote forum, the only safe practice appears to be to file suit in a more favorable forum prior to initiating such contact.
Settlement Negotiations May Be Discoverable Despite Rule 408
According to the Federal Circuit, settlement negotiations that go to reasonable royalties and damage determinations are not protected under Rule 408 and thus are discoverable. In re MSTG Inc., 675 F.3d 1337 (Fed. Cir. 2012). The court denied a petition for writ of mandamus to vacate a lower court's discovery order in the settlement of a dispute involving mobile phone patents. The Circuit held that the trial court did not abuse its discretion when it ordered the production of documents relating to settlement negotiations between the plaintiff and third parties. These negotiations were part of other suits to enforce the same patent, the other suits having been settled. The settlement agreements had been produced but the parties disagreed on whether the negotiations that led up to the agreements were to be made available to counsel. The Circuit held the negotiations to be discoverable because the communications that take place during negotiations that could be beneficial in determining reasonable royalties and damage calculations.
According to the court, Rule 408 protects not only settlements between the parties in the litigation, but also settlements and negotiations involving third parties. However, "In enacting Rule 408, Congress did not take the additional step of protecting settlement negotiations from discovery," the court said. That is, while Rule 408 prohibits the introduction of settlement agreements to prove or disprove a disputed claim, it "specifically permits such evidence … for any other purpose."
I think most of us assume that such negotiations will not be discoverable. While they are not likely to be admissible or even discoverable to show that the parties were willing to compromise their positions to settle a case, MSTG presents a real risk, so in the event we participate in exchanges concerning royalties and financial data, any written exchanges should be prepared based on the assumption they may in fact be discoverable and admissible in court.
Federal Circuit Upholds Enforcement of Trade Secret Misappropriation Outside the U.S.
Late last year in TianRui Group Co. v. International Trade Commission, 661 F. 3d 1322 (Fed.Cir. 2011), the Federal Circuit confirmed that Section 337 of the Tariff Act of 1930 (19 U.S.C. 1337) permits exclusion of articles made by processes protected under domestic trade secret laws where the underlying act of misappropriation occurred entirely outside of the U.S. The court also held for the first time that such investigations are governed by federal common law and not state law. Finally, in yet another important part of the decision, the court clarified that Section 337 investigations involving non-statutory IP rights do not require proof that the domestic industry practices the rights at issue. In so holding, the court found that importation of articles into the U.S. provided a sufficient domestic nexus under Section 337 as long as it is demonstrated that the importation causes or at least threatens to cause domestic injury.
In this case TianRui engaged in licensing talks with the claimant Amsted Industries but when those talks fell apart, TianRue hired away employees away from one of Amsted's Chinese licensees. Because the misappropriation was clear, the litigation focused on whether extraterritorial application of Section 337 was appropriate. The case is significant because it provides an new remedy for a company attempting to challenge imports into the U.S. that are derived from the misappropriation of trade secrets, or potentially any other unfair competition, overseas.
Protection of Color Trademarks
One area of trademark law that seems to be getting more attention these days is protection of trademarks to particular colors. A decision last month by the Second Circuit upheld the validity of a trademark registration by Christian Louboutin for its red soled shoes. Christian Louboutin S.A. et al., v Yves Saint Laurent America, Inc., 2012 U.S. App. LEXIS 18663 (2d Cir. Sept. 5, 2012). Louboutin was pleased because the district court had said its registration should be cancelled. In the lower court's opinion the judge stated: "[It] is inconceivable that the Lanham Act could serve as the source of the broad spectrum of absurdities that would follow recognition of a trademark for the use of a single color for fashion items." Christian Louboutin S.A. et al., v Yves Saint Laurent America, Inc., 778 F. Supp. 2d 445 (S.D.N.Y. 2011). The Second Circuit not only found it conceivable but upheld the registration. Yves Saint Laurent was pleased with the decision because the only red soled shoes it is still selling have red uppers, and the Second Circuit determined that Louboutin's mark should be protectable only against red soled women's shoes that had a contrasting upper color.
Traditionally courts have been reluctant to grant trademark protection to colors, noting the so-called color depletion theory that would necessarily limit the number of colors available for particular products. But in its 1985 landmark ruling regarding Owens Corning's attempt to register the color pink for its insulation, the Federal Circuit held that the overall color of a product was not precluded from registration as a trademark. In re Owens-Corning Fiberglas Corp., 774 F. 2d. 1116(Fed. Cir. 1985). In 1995, the Supreme Court resolved a split in the circuits and went along with the Federal Circuit, holding that a single color of a product is capable of being registered and protected as a trademark. Qualitex Co. v. Jacobson Prods. Co., 514 U.S.159 (1995).
In addition to noting its federal trademark registration, Louboutin presented evidence that its shoes are priced from $600 to $4000 a pair and that they sell 240,000 pairs per year with annual revenues of well over $100 million dollars. Louboutin doesn't advertise its shoes but they are apparently seen on the red carpet at the Academy Awards and the Emmys. Sarah Jessica Parker and Jennifer Lopez wear them and J LO actually released a song in 2009 about her Louboutins.
I have found it to be relatively easy to register color trademarks although it is often necessary to first register them on the Supplemental Register in the PTO because the PTO will often challenge the marks as not being sufficiently distinctive. A Supplemental Registration, unlike one on the Principal Register, does not carry a presumption of validity but often supports a registration to the Principal Register after 5 years. It is helpful if during that 5 years your clients promote their color in the marketing of the product. The best example of that is Owens Corning's "In the Pink" campaign featuring the pink panther, but a color campaign doesn't have to be so prominent or expensive to support protection of a mark. A campaign that mentions "watch for the _____" might work just fine.
Think "Copyrights" When Your Client Comes to You With an Architectural Work
Copyright protection has been provided for architectural works since 1990 when it was added to 17 U.S.C. 102 as one area in which original works of authorship could be protected. This law has been widely used since it was enacted. The statute recently received a boost from the Second Circuit which in August ruled that there is no requirement that architectural drawings contain sufficient detail to support actual construction. Scholz Design v. Sard Custom Homes LLC, No. 11-3298 (2d Cir., August 15, 2012). It has previously been contended in this case and others that the plans had to be so detailed as to allow a normally skilled builder to construct the building. This case rejected that argument and, given the importance of copyright rulings from the Second Circuit, the ruling is likely to be followed in other jurisdictions.