By Audrey A. Millemann

One of the requirements of a valid patent is enablement. As set forth in 35 U.S.C. section 112, paragraph 1, a patent’s specification must contain “a written description of the invention, and of the manner and process of making and using it, in such full, clear, concise, and exact terms as to enable any person skilled in the art to which it pertains, or with which it is most nearly connected, to make and use the same.” The Court of Appeals for the Federal Circuit has explained that the enablement requirement is met “when one skilled in the art, after reading the specification, could practice the claimed invention without undue experimentation.” AK Steel Corp. v. Sollac, 344 F.3d. 1234, 1244 (Fed. Cir. 2003). Although anticipation or obviousness based on the prior art is a more frequently asserted basis for invalidating a patent in patent infringement litigation, the Federal Circuit’s decision in Sitrick v. Dreamworks, LLC, 516 F.3d. 993 (Feb. 1, 2008) suggests that lack of enablement may be becoming a far more powerful tool. 

During claim construction, Dreamworks argued that the claims should be narrowed to cover only video games. The plaintiff opposed that construction, and the court construed the claims as plaintiff requested, to cover both video games and movies. 

Dreamworks moved for summary judgment, including for invalidity for lack of enablement. The District Court for the Central District of California granted the motion, finding all of the challenged claims invalid for lack of enablement with respect to movies. 

The Court of Appeals affirmed. The court explained that in order to satisfy the enablement requirement, “the full scope of the claimed invention must be enabled.” Sitrick, supra, at 999. The court explained its rationale: 

“Enabling the full scope of each claim is ‘part of the quid pro quo of the patent bargain.’ AK Steel, supra, 344 F.3d. at 1244. A patentee who chooses broad claim language must make sure the broad claims are fully enabled. ‘The scope of the claims must be less than or equal to the scope of the enablement’ to ‘ensure that the public knowledge is enriched by the specification to a degree at least commensurate with the scope of the claims.’[citation omitted].”

The court found that because the district court had construed the claims to cover both video games and movies (as the plaintiff had argued), the patents had to enable both embodiments. The specifications described the detailed steps required for integrating a visual image into a video game, but these steps were not usable for the same process in movies and the patents did not describe how to integrate an image into a movie. 

The court stated that it was irrelevant if the patents were enabled for video games – the enablement requirement was not met unless the patents were enabled for both embodiments of the invention, video games and movies. Sitrick, supra, at 1000. 

The court held that Dreamworks’ evidence, consisting of the specifications of the two patents and expert testimony, was clear and convincing evidence of lack of enablement. The patents did not teach how to use, in movies, the technology described for using the invention in video games. In addition, defendants’ experts testified that a person skilled in the art could not use the specifications to utilize the invention in movies because video games and movies differed in many respects. 

In an earlier case, Automotive Technologies International, Inc. v. BMW of North America, Inc. 501 F.3d. 1274 (Fed. Cir. 2007), the court reached the same conclusion. In that case, the plaintiff’s patent covered side impact sensors used in airbags. The patent’s specification described mechanical sensors in detail, but also mentioned electronic sensors, and the claims covered both types of sensors. The district court granted a defendant’s motion for summary judgment on invalidity on the grounds that the full scope of the claims covered electronic sensors as well as mechanical sensors, but the specification did not teach a person skilled in the art how to make and use the invention with an electronic sensor. 

On appeal, the plaintiff argued that because one embodiment, mechanical sensors, was enabled, the claims were enabled. The Court of Appeals held to the contrary, at 1285:

“…[T]he claim construction of the relevant claim limitation resulted in the scope of the claims including both mechanical and electronic side impact sensors. Disclosure of only mechanical side impact sensors does not permit one skilled in the art to make and use the invention as broadly as it was claimed, which includes electronic side impact sensors. Electronic side impact sensors are not just another known species of a genus consisting of sensors, but are a distinctly different sensor compared with the well-enabled mechanical side impact sensor that is fully discussed in the specification. Thus, in order to fulfill the enablement requirement, the specification must enable the full scope of the claims that includes both electronic and mechanical side impact sensors, which the specification fails to do.” 

The plaintiff also argued that a person skilled in the art would be able to figure out how to use an electronic sensor in the invention. The court disagreed. “‘It is the specification, not the knowledge of one skilled in the art, that must supply the novel aspects of an invention in order to constitute adequate enablement.’ Although the knowledge of one skilled in the art is indeed relevant, the novel aspect of an invention must be enabled in the patent.” Id. at 1283. The court explained that “when there is no disclosure of any specific starting material or of any of the conditions under which a process can be carried out, undue experimentation is required.” Id. at 1284.

Thus in both Strick and Automotive Technologies, the plaintiffs had sought and obtained a broad claim construction, but had lost the case on summary judgment due to their failure to show that the scope of the claims was enabled. 

Some commentators have questioned whether the Federal Circuit is setting the enablement standard too high. That remains to be seen. At this point, however, it is clear that patent litigation plaintiffs should carefully consider the specification in seeking a broad claim construction, and defendants should scrutinize the broad claims to see if invalidity based on lack of enablement can be asserted.

In a complex case stemming from a dispute over scientific discoveries made more than three decades ago, the California Supreme Court has provided fresh guidance on determining when a fiduciary relationship exists. This past April, the court reversed the Court of Appeal’s findings that Genentech, Inc. (“Genentech”) violated a fiduciary duty to City of Hope National Medical Center (“City of Hope”) in connection with a 32-year old licensing agreement. Rather, the court held that a fiduciary relationship is not necessarily imposed simply when one party, in exchange for royalty payments, entrusts a secret invention to another party to develop, patent and market the product. This article provides a review of the case and its implications.

The case involved two scientists working for City of Hope during the 1970s. They developed a biotech process for manufacturing human proteins. In 1976, City of Hope entered into a royalty agreement with Genentech, in which it transferred its rights to those discoveries to Genentech. While Genentech paid City of Hope royalties on its products which derived from the discoveries by the two scientists, Genentech did not pay City of Hope royalties on licenses for its other products that used the same techniques developed by the scientists. City of Hope sued on the grounds that Genentech was required to pay royalties on its licensees’ product sales, even if those licensees did not follow the manufacturing process created by the two scientists. Genentech responded that the contract did not require it to pay royalties on the licenses.   

The California Supreme Court reversed the breach of fiduciary duty claim (although it upheld the breach of contract claim), holding that before one party will be considered a fiduciary of another, that party must “either knowingly undertake to act on behalf and for the benefit of another, or must enter into a relationship which imposes that undertaking as a matter of law” (citing Committee on Children's Television, Inc. v. General Foods Corp. 35 Cal.3d 197 (1983)). The court held that there were no facts to support the conclusion that Genentech entered into the royalty agreement with the intention to act for the benefit of City of Hope. 

The court then turned to the remaining issue: to determine whether an agreement to develop, patent, and commercially exploit a secret scientific discovery in exchange for the payment of royalties is the type of relationship that imposes a fiduciary duty to act on behalf of another as a matter of law.

City of Hope insisted that such fiduciary duty existed because its relationship with Genentech manifested four characteristics indicative of a fiduciary relationship. Those four characteristics included when: (i) one party entrusts its affairs, interests or property to another; (ii) there is a grant of broad discretion to one party, generally because of a disparity in expertise or knowledge; (3) one party must rely on the truth of the other party’s representations because that party has limited ability to monitor the other party; and (4) one party is vulnerable and dependent on the other.  

However, the court disagreed with City of Hope’s analysis, stating that a relationship which exhibits these four characteristics did not mean the relationship is fiduciary. The court stated that these four characteristics were common in many contractual arrangements; that it was normal for one party to depend on another party for its superior knowledge or position; and that “every contract requires one party to repose an element of trust and confidence in the other to perform.” The court reasoned that while City of Hope was vulnerable because it had to rely on Genentech’s superior ability in obtaining patents and in marketing products, its vulnerability alone did not establish that Genentech was a fiduciary of City of Hope. 

The court’s reasoning stemmed from the analysis in Wolf v. Superior Court 107 Cal. App. 4^th 25 (2003), where the Court of Appeals reasoned that because every contract, to some extent, requires a party to repose trust and confidence in the other, one party’s right to contingent compensation does not give rise to fiduciary duty (Wolf, supra, at p. 31). In the present case, Kennard stated: “We agree with the holding in Wolf…that fiduciary obligations are not necessarily created when one party entrusts valuable intellectual property to another for commercial development in exchange for the payment of compensation contingent on commercial success. The secrecy of information provided by one party to another—here the scientific discovery by City of Hope—may be considered by the trier of fact in deciding whether a fiduciary relationship exists, but it does not compel the imposition of fiduciary duties by operation of law.”

Kennard also pointed out that both parties had substantial bargaining power and were represented by counsel throughout the contractual negotiations—possible key facts which the court used to distinguish this case from prior cases in which a party’s vulnerability was “so substantial as to give rise to equitable concerns”. 

Case Implications: Narrowing When a Fiduciary Relationship May Be Implied.

The immediate effect of this case is that not all California licensing agreements are subject to the significant argument that a fiduciary relationship is formed when inventors assign a secret idea or device to another party in exchange for royalties (Stevens v. Marco, 147 Cal.App.2d 357 (1956)).

The value of this case goes far beyond the realm of licensing intellectual property from one party to another. Here, the court acknowledged that the royalty contract expressly stated that the parties’ relationship was not a joint venture, partnership or agency. The court’s acknowledgment of this disclaimer may suggest that contractual disclaimers of fiduciary relationships will be enforced when the factual circumstances do not create a fiduciary relationship as a matter of law. Of course, a disclaimer is by no means a guarantee that a court will not look to the parties’ conduct to determine if a fiduciary relationship has been created. Parties who may be at risk for being characterized as fiduciaries should take precautions when entering into contractual relationships by including such disclaimers in their written contracts. 

By James Kachmar

On March 5, 2008, the United States District Court for the Northern District of California (“District Court”) in First Advantage Background Services Corp. v. PrivateEyes, Inc., (“First Advantage”) found, inter alia, that the California Uniform Trade Secrets Act, California Civil Code section 3426, et seq. (“CUTSA”) preempts common law claims for intentional interference that are based on wrongful acts amounting to misappropriation of trade secrets. The First Advantage opinion holds that claims for intentional interference that are based on wrongful acts amounting to misappropriation of trade secrets may be preempted by CUTSA.

            The District Court began its discussion by addressing First Advantage’s motion to dismiss PrivateEyes’ fifth cause of action: intentional interference with prospective economic advantage. Citing Korea Supply Co. v. Lockheed Martin Corp., the District Court noted that PrivateEyes would need to satisfy the following elements in order to prevail: “(1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.” 

In dismissing PrivateEyes’ intentional interference claim in PrivateEyes’ initial counterclaim, the District Court found that the intentional interference claim failed to “allege an independently wrongful act outside a simple breach of contract,” a necessary requirement to satisfy the intentional interference claim’s third element.[1] To survive a motion to dismiss, PrivateEyes would have to “plead and prove that the defendant’s acts are wrongful apart from the interference itself.” An independently wrongful act is one that “is unlawful, that is, if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.” PrivateEyes’ amended counterclaim alleged three specific independently wrongful acts in an attempt to satisfy the third element of the intentional interference claim: misappropriation of trade secrets, breach of confidence, and trade libel.[2]

PrivateEyes alleged that First Advantage misappropriated trade secrets in violation of CUTSA because it improperly disclosed PrivateEyes’ confidential information, including PrivateEyes’ profit margins. First Advantage argued, however, that CUTSA preempted PrivateEyes’ intentional interference claim because CUTSA preempts any common law claim based on conduct which could support a trade secret claim.  Relying on Reeves v. Hanlon, a California Supreme Court case, PrivateEyes argued that trade secrets misappropriation can form the basis of an intentional interference claim. 

In Reeves, the court found the defendants “violated CUTSA for stealing a confidential client list, and found to have committed intentional interference based on wrongful acts including destruction of the plaintiffs’ computer files, misappropriation of confidential information, and improper solicitation of plaintiffs’ clients.”  The District Court disagreed with PrivateEyes’ reading of Reeves.  Specifically, the District Court stated that although Reeves discussed misappropriation in its analysis of the intentional interference claim, that discussion in and of itself did not “foreclose preemption” for a number of reasons. First, the District Court noted that the defendant in Reeves had not raised the issue of preemption. This was important because in San Jose Constr., Inc. v. S.B.C.C., Inc., the appellate court refused to rule on CUTSA preemption because the issue of preemption had not been raised below. Second, Reeves is distinguishable as it was specifically limited to whether an employer could bring an intentional interference claim against a competitor that hired the employer’s former at-will employees. Lastly, because there was no dispute as to the wrongful acts beyond misappropriation, the preemption analysis would have had no impact on the court’s decision.  The District Court recognized that in Cadence Design Sys., Inc. v. Avant! Corp., the only other California Supreme Court decision on point, the court suggested that CUTSA preempted all common law claims based on trade secret misappropriation.

The District Court also discussed California Civil Code section 3426.7(b), which identified the three categories of cases not preempted by CUTSA. Specifically, in addition to cases based on breach of contract and criminal remedies, any claims not based on trade secret misappropriation are not preempted by CUTSA. As a result, courts have interpreted this statute to mean that all claims which are based on trade secret misappropriation are preempted by CUTSA.

Applying this rule to PrivateEyes’ allegations in their First Amended Counterclaim, the District Court recognized that PrivateEyes had specifically alleged a CUTSA violation.  Because the intentional interference claim was a common law claim based on trade secret misappropriation, the District Court held that CUTSA preempted the claim.

The District Court also addressed PrivateEyes’ additional support of its intentional interference claim. Specifically, PrivateEyes alleged that First Advantage had engaged in a common law breach of confidence because it had improperly disclosed PrivateEyes’ “confidential and proprietary information to CCE in violation of its agreement to maintain the confidential nature of this information.” However, the District Court was critical of PrivateEyes’ breach of confidence claim because the language and facts used “in support of its allegation of breach of confidence are identical to those [PrivateEyes] offered in support of its misappropriation claim.”  Further, the District Court noted that the only other difference between the two claims was the existence of a contract, which by itself is inadequate to avoid preemption. Thus, the District Court held that CUTSA preempted the intentional interference claim based on breach of confidence because this was “still a common law claim based on facts which would amount to the misappropriation of trade secrets.”

The District Court’s decision in the First Advantage case suggests that CUTSA will preempt any claims for intentional interference that are based on wrongful acts amounting to misappropriation of trade secrets.  Although the plaintiff in First Advantage attempted to avoid preemption by CUTSA by basing its intentional interference claim on misappropriation of trade secrets and breach of confidence, the District Court followed an increasing body of authority holding that any common law claims based on trade secret misappropriation are preempted by CUTSA. 

Google may soon be facing an expensive and damaging class action lawsuit. A federal court ruled last month that Google can be sued for its role in serving ads on websites that use domain names that violate trademark and cybersquatting laws. This case is significant because Google is not the owner or user of the infringing domain names. Google is simply providing advertising services to these domain names. Google, seeking dismissal of the case, argued along these lines. The court, however, held that Google may be liable for cybersquatting.

The Anticybersquatting Consumer Protection Act (ACPA), established in 1999, provides trademark holders protection from cybersquatters. Cybersquatting is registering and using a domain name in bad faith with the intent of profiting from the goodwill created by another’s trademark. Cybersquatters often seek to sell the domain name to the trademark holder at an inflated price. In the early days of the internet, who ever registered a domain first had rights to that domain name. Many individuals bought names hoping to later sell them for exorbitant sums of money. For example, the generic domain name business.com sold for 7.5 million dollars in 1999. Concerned about this environment as it relates to federally registered trademarks, Congress passed the ACPA. The ACPA gives trademark owners legal remedies against defendants who cybersquat.

In this case, Vulcan Golf is not concerned with cybersquatters who seek to sell domain names, but, rather, they are concerned with cybersquatters who are providing empty sites that feature advertisements from Google’s AdSense program. For example, a cybersquatter may own a web address that is similar to the trademark but slightly misspelled. When a user mistakenly types in the wrong web address, an empty page appears featuring ads from Google. These ads will be targeted to the audience that typed in the incorrect domain name. If the user clicks on the ads, the domain name owner and Google earn money. Vulcan Golf claims since Google is benefiting from the illegal domain names, they are violating the ACPA.

In order to show a violation of the ACPA, the plaintiff must show that the defendant:

1.      has a bad faith intent to profit from the registered trademark; and

2.      registers, traffics in, or uses a domain name that is identical, confusingly similar, or, in cases of famous marks, dilutive of a mark that is distinctive or famous at the time the domain name was registered.

Google requested that the case be dismissed because the plaintiffs failed to show these two elements. Google’s main defense was that they can’t be found liable for violations under the ACPA because Google did not register, own or use the infringing domain names. Google argued that their role was merely providing advertising through their AdSense programs.

Despite these arguments, the court ruled that Google may be liable under the ACPA even if they do not own, register or use the infringing domain names. The court found it is plausible that Google participated in the “trafficking in” of an infringing domain name. The Court stated, “Google pays registrants for its use of the purportedly deceptive domain names, provides domain performance reporting, participates in the testing of domain names, uses semantics technology to analyze the meaning of domain names and select revenue maximizing advertisements and controls and maintains that advertising.”

It is this broad interpretation of “trafficking in” that may lead to a flood of lawsuits under the ACPA. Before this ruling, only owners and users of domain names were held liable under the ACPA. If Google, with its deep pockets, is now liable under the ACPA, expect to see many more lawsuits filed against them under the ACPA.

By Scott M. Hervey

On March 26, 2008, the District Court for the Central District of California issued an order closing one chapter to a long running battle between the heirs of one of the original creators of the iconic comic book superhero, Superman, and DC Comics. The court’s order addressed the heirs’ attempt to exercise their rights under the termination provision contained in the Copyright Act of 1976; a formalistic and complex statutory scheme which allows authors and their heirs to terminate a prior grant of copyright in a creation. 

At issue in the case was a 1938 grant (and other purported grants) by Jerome Siegel and his creative partner Joseph Shuster, of the copyright in the first edition of Superman published by DC Comics. The court’s order is a detailed 72 page ruling which devotes great consideration to the story behind the creation of Superman. As the court notes, “any discussion about the termination of the initial grant to the copyright in a work begins with the story of the creation of the work itself.”

In January, 1933, Siegel and Shuster first introduced the Superman character in a short story, The Reign of the Superman. The story told of a mad scientist’s experiment with a “deprived man from the bread lines,” and the creation of a villain with superhuman powers. A short time later, inspired to introduce a literary character which would bring hope amidst the general despair felt by most as a result of the Depression, Siegel revised the Superman character from a villain to a hero. 

Siegel and Shuster made numerous attempts to get their current version of Superman published.  The comic book publisher Detective Dan was the first potential publisher.  However, Detective Dan later rescinded its offer. Undaunted rejections, Siegel and Shuster continued to work on Superman. They enhanced his powers and modified the format from comic book to newspaper comic strip. 

By 1934, Siegel and Shuster had transformed the Superman character to its present day incarnation. Dressed in its now well known cape and outfit, complete with the “S” crest on its chest, Superman possessed superhuman strength, had the ability to jump an eight of a mile and leap a twenty story building; the character could run faster than an express train and was impervious to gunfire. Siegel and Shuster had also developed the concept of Superman’s secret identity and humanized this character by giving it an “ordinary person” alter ego in the form of Clark Kent. 

The two shopped Superman for a number of years to numerous publishers but were unsuccessful. During that time, Siegel and Shuster wrote other comic strips that were sold to Nickelson Publishing Company. When Nickelson closed up in 1937, Detective Comics acquired some of the comic properties that Siegel and Shuster had written. On December 4, 1937, Siegel and Shuster entered into an agreement with Detective Comics and agreed to continue to furnish these comics for the next two years. The agreement also gave Detective Comics a sixty day option to publish any new material created by Siegel and Shuster. 

Soon thereafter, Detective Comics decided to issue a new comic book magazine entitled Action Comic and became interested in Siegel and Shuster’s Superman material. With Detective Comics intending to publish Superman in an expanded thirteen page format, Siegel and Shuster began work on revising and expanding the existing Superman newspaper material into a format suitable for a comic book.  In February, 1938 Siegel and Shuster resubmitted their Superman material to Detective Comics. On March 1, 1938, prior to the printing of the first issue of Action Comics, Detective Comics sent Siegel a check for $130.00 (representing the per page rate for the thirteen page Superman comic book) and a written agreement for Siegel and Shuster’s signature.  The agreement assigned to Detective Comics “[all] the goodwill attached…and exclusive right[s]” to Superman “to have and hold forever.” Siegel and Shuster signed and returned the written assignment to Detective Comics. 

Siegel and Shuster’s grant of worldwide ownership rights in Superman was later confirmed in a September 22, 1938 employment agreement in which Siegel and Shuster acknowledged that Detective Comics was “the exclusive owner of Superman.” This agreement also provided for Siegel and Shuster to continue to supply the artwork and storyline for Superman at a per page rate for the next five years. 

Superman was published by Detective Comics on April 19, 1938 in Volume One of Action Comics. The comic was highly successful. However, while Superman continued to grow in popularity, a rift developed between the two creators, and Detective Comics. The parties engaged in legal bouts and disputes beginning in 1947, when Siegel and Shuster brought an action against Detective Comics seeking, among other things, to rescind their previous agreements with Detective Comics based lack of mutuality and consideration. The parties litigated again in 1969 as a result of the expiration of the initial copyright term for Superman. Siegel and Shuster brought suit seeking a declaration that they, not Detective Comics, were the owners of the renewal rights to the Superman copyrights. The results were not fruitful, and in 1970 the Federal District Court in New York ruled that the March 1, 1938 grant to Detective Comics (which was reconfirmed in a 1948 stipulation) had transferred and assigned to Detective Comics not only the  initial copyright term, but the renewal term in the Superman copyrights as well.

In 1976, Congress made substantial changes to the Copyright Act, and these changes would have a great and profound affect on Siegel and Shuster and their grant of rights to Detective Comics. The 1976 Act expanded the duration of the renewal term for works like Volume One of Action Comics that were already in their renewal term at the time of the Act’s passage. Additionally, the Act gave artists and their heirs the ability to terminate any prior grant of rights to their creation where the grants were executed before January 1, 1978. The purpose was to protect authors, given their lack of bargaining power. Specifically, Section 304(c) of the Act provided that any copyright subsisting in either its first or renewal term on January 1, 1978, other than a copyright in a work for hire, the exclusive or non-exclusive transfer or license executed before January 1, 1978 is subject to termination notwithstanding any agreement to the contrary.  It was this right of termination that spurred ten years of negotiation and litigation between the heirs of Jerome Siegel and Detective Comics, its parent company Time Warner, and their affiliated entities. 

While the 1976 Act created a new right allowing authors and their heirs to terminate a prior grant of copyright, the Act also set forth specific steps concerning the timing and contents of the termination notice that must be served in order to effectuate termination. The termination of a grant may be effective “at any time during a period of five years beginning of the end of 56 years from the date the copyright was originally secured” and the notice of termination must by served “not less than two or more than ten years” before its effective date. These statutory requirements, along with regulations promulgated by the Register of Copyright made the termination process difficult, complex and extremely technical. However, through assistance of able counsel, the Siegel heirs were able to serve seven separate notices of termination on April 3, 1997, purporting to terminate several of Siegel’s grants in the Superman copyright. The parties negotiated until February, 2002 but were unable to come to terms.  Litigation commenced in 2004. 

Detective Comics attacked the enforceability of the termination notices and claimed that certain portions of the Superman comic in Volume one of Action Comics were in the nature of a work for hire and not subject to termination. Detective Comics raised other technical challenges to the claims made by Siegel’s heirs. Although highly technical and intricate, the court essentially ruled in favor of Siegel’s heirs and returned to them the copyright in the Superman material that was published in Volume one of Action Comics. Left undecided was how to apportion the profits from the exploitation of new derivative works on a going forward basis. (A termination of rights does not affect the post termination utilization and exploitation of derivative work prepared before termination.) The Court noted that section 304(c)(6)(E) would appear to exclude the Siegel heirs from sharing in profits derived from the foreign exploitation of the Superman material. Additionally, the Court noted that profits derived form the use of the Superman trademarks need not be shared with the Siegel heirs. Also left open is the issue of an accounting for profits resulting from the exploitations of the works by Detective Comics’ corporate siblings, Warner Brothers Entertainment and its corporate parent Time Warner Inc. The genesis of this claim stems from certain inter-corporate transactions concerning the Superman copyright. In noting that summary judgment was inappropriate (and surely ensuring another ten years of litigation), the court noted that “whether the license fees paid represents the fair market value…or whether the license for the works was a sweetheart deal…” are questions of fact that are not answered on summary judgments.

By Jeff Pietsch           

 Trademark infringement occurs when a third party uses a mark in a way that infringes upon a trademark owner’s exclusive right and use of a trademark. Often, the third party will use a similar mark in a way that confuses consumers as to the source of the goods and services. For example, a fast food restaurant named “Wendi’s” would likely cause confusion with “Wendy’s.” Trademark infringement can occur only when it is likely that consumers will be confused as to the source of the goods. The purpose of this article is to examine the test and factors that courts use to determine if such infringement exists.

The following are factors used by courts to assess the possibility of trademark infringement by looking at the likelihood of consumer confusion. Not one of these factors is dispositive to the issue of consumer confusion, and each factor must be examined in the context of the ultimate likelihood of confusion.

 The first factor the court will look at is the strength of the marks in question. The strength of the marks is determined by distinctiveness of the mark. The more unique and distinct the mark, the more likely the mark will be protected against junior users. On the hand, the more descriptive and generic the mark, the less protection courts will provide to these marks. For example, the mark KODAK will receive more protection than a similar product that uses the mark FAST PHOTO.   

 Another factor examined is the similarity between the marks. Similarity of marks is tested based on sight, sound and meaning. The marks will be considered in their entirety to determine any similarities. A mark that looks different from another but gives off a similar commercial impression might be considered similar and thus weigh in favor of confusion. For example, a trademark that consisted of the word MONEY might be confused with the mark $$$ because the marks have similar commercial impressions.

 The courts will also look at the proximity of the goods in the marketplace. This test relates to the channels of trade used by the goods. The more related the goods the greater the likelihood that they would exist together in the marketplace. Similar marks that are also are related would likely cause confusion as to the source of those goods. Highly related goods are more likely to cause confusion compared to unrelated goods.

 The above three factors weigh heavily in determining likelihood of confusion. A mark will not be found confusingly similar with another mark if the two are not found similar in one of these areas, and the complaining mark is considered a weak mark.

 After reviewing these, the courts will examine the likelihood that the prior owner will “bridge the gap” in the marketplace. This factor addresses the possibility that a mark will expand into other product lines. The more likely expansion will occur, the more likely consumer confusion will exist.

 Next the courts examine evidence of actual confusion. When a case is brought to trial, the evidence is usually in the form of consumer surveys done by the parties. Survey evidence of this nature is often critical in determining likelihood of confusion in infringement cases.

The courts will also look to the sophistication of the buyers of the goods or services to determine likelihood of confusion. Courts have found that sophisticated buyers, such as those who have expertise in a specific area, are less likely to be confused by similarities in marks. In addition, courts have held that consumers of goods and services that are expensive exercise a higher degree of care in making these expensive purchasers. For example, a consumer would exercise a higher degree of care when purchasing a car compared to when that consumer purchases a piece of candy.

The last factor courts examine in a trademark infringement case is the intent of the defendant. If the defendant copies an existing trademark in bad faith to capitalize on that trademark’s goodwill, the courts will lean in favor of finding infringement. The likelihood of confusion, however, is the main consideration in determining infringement regardless of intent. If an individual copies a mark that does not lead to consumer confusion, the courts will likely not find infringement.

The above are not a rigid set of factors used by the courts. Most jurisdictions use some form of the above factors to determine if a likelihood of confusion exists. Regardless of the different variations, courts ultimately are seeking to discover if marks, as they are used in commerce, cause consumer confusion and lead to trademark infringement.  

The Ninth Circuit just doesn’t like karaoke. At least, that’s what plaintiffs, manufacturers of karaoke machines, in two recent opinions involving copyright law would likely say. In both decisions, the Ninth Circuit affirmed the district courts’ dismissal of the complaints without leave to amend. Both of these decisions discussed the various copyrights that are implicated in a karaoke device, including the copyright of the performance of the song itself, the song lyrics, and the synchronization of the two. Both decisions also involved the licenses required by karaoke device manufacturers.

Copyright law grants the copyright owner the exclusive rights reproduce and distribute the copyrighted work in “phonorecords.” However, as the Leadsinger court noted these exclusive rights are subject to a compulsory license under section 115, which “subjects phonorecords to a compulsory licensing scheme that authorizes any person who complies with its provisions to obtain a license to make and distribute phonorecords of a nondramatic musical work.” If, as Leadsinger argued, its karaoke device was a “phonorecord,” then the compulsory license under section 115 would allow the use of the songs and lyrics. 

The gravamen of the dispute involved license fees that BMG demanded of Leadsinger. As the court explained, “in addition to the mechanical fee required under to secure a compulsory license, BMG has demanded that Leadsinger and other karaoke companies pay a ‘lyric reprint’ fee and a ‘synchronization fee.’ Leadsinger has refused to pay these additional fees and filed for declaratory judgment to resolve whether it has the right to visually display song lyrics in real time with song recordings….” In essence, Leadsinger believes that the compulsory mechanical license under 17 U.S.C. § 115 should cover everything, and it should not be required to pay a separate fee to show the lyrics or to synchronize the lyrics with the music.

The Copyright Act defines “phonorecords” as “material objects in which sounds, other than those accompanying a motion picture or other audiovisual work, are fixed by any method now known or later developed, and from which the sounds can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.” 17 U.S.C. § 101. “Audiovisual works” are defined as “works that consist of a series of related images which are intrinsically intended to be shown by the use of machines, or devices such as projectors, viewers, or electronic equipment, together with accompanying sounds, if any….” Id. 

The Ninth Circuit found that the use of the lyrics, in projecting them on the screen synchronized with the music, met every element of an “audiovisual work,” and therefore was not a phonorecord. The court found that the “images of successive portions of song lyrics are ‘intrinsically intended to be shown by the use of machine [sic] … together with accompanying sounds.’” As an audiovisual work, it was excluded from the compulsory licensing scheme in § 115.

The end result was that Leadsinger could not rely just on the compulsory license fees it paid to BMG to make and distribute copies of phonorecords, it also had to pay BMG fees for synchronization licenses and reprint licenses to display the song lyrics.

In the second case, Sybersound Records, Inc. v. UAV Corp. et al., --- F3d ---, 2008 WL 509245 (9^th Cir. 2008), the Ninth Circuit continued its apparent disdain for karaoke. In that case, Plaintiff Sybersound Records, another karaoke device manufacturer, sued several of its competitors over the same licenses that were at issue in Leadsinger. In Sybersound, however, the complaint was that the other manufacturer defendants were not paying the license fees, therefore they were able to undercut Sybersound’s prices and compete unfairly. Sybersound claimed it was injured because it did pay all required license fees, and therefore its costs were higher than his competitors.

Sybersound’s problem, however, is that they didn’t own the copyrights on which they claimed the license fees were due. Because it didn’t own the copyrights, Sybersound did not have standing to complain about the actual infringement due to failure to pay the license fees. Apparently recognizing this problem, Sybersound sued instead for violations of California’s unfair competition law, RICO violations, and intentional interference. But all of these claims rested on one alleged wrong – the infringement of the copyrights Sybersound lacked standing to address. The court held that because Sybersound lacked standing to sue for copyright infringement, it also lacked standing to sue for related claims that required the copyright claims to be decided. The court also held that the unfair competition claim was preempted by the federal Copyright Act. Therefore, the court affirmed the dismissal of the complaint without leave to amend. 

Thus, for the second time in two months, the Ninth Circuit pulled the plug on karaoke plaintiffs. However, in so doing, it left us with a few reminders of what should probably be obvious points. First, karaoke devices, and the recordings that are played on them, contain more than one copyright. Each of these rights is separate and requires a separate license. Second, a plaintiff can only complain of the infringement of rights it owns. And third, a plaintiff cannot easily plead around this standing requirement by recasting its complaint in terms of other related claims. Or perhaps it’s really as simple as the Ninth Circuit just doesn’t like karaoke. 

By Audrey A. Millemann

The Federal Circuit Court of Appeals recently reversed a district court’s dismissal of a declaratory judgment action, relying on the Supreme Court’s decision in MedImmune Inc. v. Genentech Inc., 127 S.Ct. 764 (2007). See Micron Technology, Inc. v. MOSAID Technologies, Inc., 2008 WL 540182 (Feb. 29, 2008)

Micron was one of the four largest manufacturers of dynamic random access memory (DRAM) chips. Micron, together with Samsung Electronics Company, Ltd, Hynix Semiconductor, Inc., and Infineon Technologies of North America, controlled seventy-five percent of the worldwide market for these chips.

After sending letters to all four of the manufacturers who declined to enter into licenses with MOSAID, MOSAID began patent infringement litigation against each of the manufacturers. MOSAID first sued Samsung. Infineon then sued MOSAID for declaratory judgment of noninfringement. MOSAID and Samsung settled. MOSAID then sued Hynix, who later settled. MOSAID then settled with Infineon. In each settlement, MOSAID granted the manufacturer a license under its patents. MOSAID made statements in public and in its 2005 annual report that it intended to “aggressively” pursue all other DRAM manufacturers to force them to license MOSAID’s technology, and that it would be “unrelenting” in its litigation strategy. The industry believed that Micron was the next target of MOSAID.       

In July 2005, Micron filed a declaratory judgment in the Northern District of California seeking a declaration of noninfringement of 14 patents owned by MOSAID. The following day, MOSAID sued Micron and two other defendants, in the Eastern District of Texas, for infringing seven patents.  MOSAID later added one more defendant and three more patents to the Texas action.            

MOSAID then moved to dismiss the California action for lack of subject matter jurisdiction. The district court granted MOSAID’s motion on the grounds that Micron had no reasonable apprehension of being sued by MOSAID. The district court found that there was no evidence of threats from MOSAID to Micron for the last four years, no threats from MOSAID to Micron’s customers, and no public statements by MOSAID that it intented to sue Micron.           

Micron appealed and the Federal Circuit reversed.           

The court first held that the district court in California did have subject matter jurisdiction over the case. The district court had applied the wrong test – the “reasonable apprehension” test is not the proper test, according to the Supreme Court in MedImmune. The correct test, which the appellate court repeatedly stated “is more lenient,” is “whether the facts alleged under all the circumstances show that there is a substantial controversy between parties having adverse legal interests of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Micron, quoting MedImmune, 127 S.Ct. at 771.            

In applying this test, a district court must look at the evidence of all of the circumstances. In this case, the evidence included the series of letters from MOSAID to Micron, the previous suits from MOSAID against the other three manufacturers, and MOSAID’s public statements of its intent to aggressively pursue litigation against the remaining manufacturers.            

The appellate court explained that this case was just the type of case for which the Declaratory Judgment Act was intended. The court explained the purpose of the Act as follows, quoting from a previous decision in Electronics for Imaging, Inc. v. Coyle, 394 F.3d 1341, 1346 (Fed. Cir. 2005):

“[A] patent owner…attempts extra-judicial patent enforcement with scare-the-customer-and-run tactics that infect the competitive environment of the business community with uncertainty and insecurity…Before the Act, competitors victimized by that tactic were rendered helpless and immobile so long as the patent owner refused to grasp the nettle and sue. After the Act, those competitors were no longer restricted to in terrorem choice between the incurrence of a growing potential liability for patent infringement and abandonment of their enterprises; they could clear the air by suing for a judgment that would settle the conflict of interests.”

The court next addressed the district court’s discretion not to hear a case even if it has subject matter jurisdiction. The court explained that, based on MOSAID’s filing of its patent infringement suit against Micron in Texas one day after Micron filed its declaratory judgment action in California, “the parties in this dispute are really just contesting the location and right to choose the form for their inevitable suit.” Because of the “more lenient” test for declaratory judgment jurisdiction, the court noted that there is an increased likelihood of “a forum-seeking race to the courthouse between accused infringers and patent holders.” As a result, district courts must perform an analysis under 28 U.S.C. §1404(a), considering the factors of convenience. In essence, if there is subject matter jurisdiction in two different forums, the real issue is “the convenience and suitability of competing forums.”            

The court stated that under §1404(a), in general, the forum of the first-filed action controls, but that the interests of justice and convenience factors could alter that rule. In particular, courts should consider the convenience of witnesses, the lack of jurisdiction over necessary or desirable parties, and the existence and possible consolidation of related cases.            

In this case, the court found that MOSAID is a Canadian company, but that it had operations in the Northern District of California. Both MOSAID and Micron did business in both California and Texas; there were no related cases in Texas; and there was no evidence regarding the convenience or availability of witnesses. Therefore, the first-filed forum, the Northern District of California, was proper. 

Last October I had the good fortune of being invited to attend my friend’s “man shower” in Las Vegas. What made this trip interesting was the fact that this all guy’s version of a baby shower would be the subject of an episode of the VH1 reality TV show “Scott Baio is 46 and Pregnant.” While there are a number of interesting stories that came out of this first and only man style baby shower, the “what happens in Vegas stays in Vegas” rule prohibits me from telling you any. However, the tales fit for this article comes from my observations of the numerous, IP issues that came up during our two days of shooting.

As regular readers of my articles may know, part of my practice includes representing independent motion picture and reality television producers. While I have been production counsel for a number of movies and reality television shows, most of my work occurs before the cameras ever roll. Part of this work involves working with the production staff and preparing them to deal with those issues that may arrive when shooting in an environment you don’t entirely control. However, being on set and having to identify issues on the fly (especially when the person identifying the issues is not a lawyer) is very different from engaging in theoretical and hypothetical discussions.

Most states provide some type of protection of an individual’s right of publicity. In California, Civil code section 3344 and 3344.1 protect against the use of another’s name, voice, signature, photograph or likeness in connection with a commercial activity without consent. There are a number of ways production companies deal with crowds and securing the right of publicity. First, if the production company is dealing with a controlled location and is able to cast extras to play in the crowd, the extras would sign some type of agreement. In addition to items such as the extra’s fee, this agreement would contain certain language resulting in a grant of the extra’s right of publicity to the production company. This situation is more common for my motion picture production company clients.

My reality television production company clients do not enjoy the benefit of controlling all aspects of their shoot. It’s reality television, which usually means dealing with a live set and a crowd of ordinary people. If the shoot is such that the group of people being photographed is relatively small, the production company will usually get those who appear on camera to sign a standard appearance release. Depending on who drafted the release, it could have a variety of different language. However, most appearance releases grant the producer the right to make use of  the subject’s image, likeness appearance, voice or musical performance in the form of one or more photographs, video images, sound recordings, illustrations or other media for any and all programs, advertisements, promotions, product endorsements and any and all other uses relating to promoting, advertising, marketing, selling and/or exploiting the subject television show, and all ancillary products related thereto, including but not limited to “out takes,” and  “making of” specials.

Where the production is dealing with a very large crowd, the producer will post a number of large signs stating that filming is in progress and to vacate the area if you do not want to be videotaped, photographed, or recorded.   The notice will also usually state that your presence within the filming area constitutes consent to be recorded and portrayed in connection with the television program and that you expressly authorize and permit the use of your name, voice and likeness and all reproductions thereof for any purpose whatsoever throughout the world, in perpetuity, in any and all media, and without limitation and without any compensation whatsoever. I am unaware of any case where a person challenged the validity of such a notice; usually people are thrilled to be on TV.

The “more complex issues” which arise during an on-location shoot usually involve the inclusion of a third party trademark or copyright protected material into the program. When shooting on location, the production company will have the owner sign a location release. In addition to photographing the interior and exterior of the location, location releases usually also include the right to photograph and use the owner's name, logo, signs, marks or slogans, as depicted in, on, and/or about the location in connection with the production, exhibition, advertising and exploitation of the television program. What’s usually not included in the location release is the right to photograph third party trademarks which may be incorporated into signs or goods on or about the location.

Case in point, the VH1 production crew shooting the Baio show at the Hard Rock casino had to deal with scenes that were shot in a bar on the casino and in a diner. In those shots, they had to deal with Hines® mustard jars, Budwiser® beer bottles and neon signs for all types of beverages. While the production crew had obtained permission to shoot at the Hard Rock, that permission did not, and could not, extend to include third party brands such as these. The serious risk is that the brand owner may object to its mark being used in the television show and threaten to sue for trademark infringement. (15 USC 1125(a) - Any person who, on or in connection with any goods or services… uses in commerce any [mark]…which is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.)   So, producers hide product labels or peal them off bottles, move or cover signs, and, if that doesn’t work, blur them out in post production.

Works subject to copyright protection also offer interesting challenges. Paintings, photographs, background music or a television playing in the background all present problems. These works fall under Copyright law, and the owner of the copyright enjoys the following exclusive rights:

(1) to reproduce the copyrighted work in copies or phonorecords;

(2) to prepare derivative works based upon the copyrighted work;

(3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending;

(4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly; and

(5) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly. (17 USC 106)

For example, if a producer accidentally includes recognizable background music in a segment and does not secure the necessary rights, this would infringe on the copyright owner’s exclusive rights. This may or may not result in a lawsuit, but it certainly would cost the production company an little more to secure the necessary rights than it otherwise would have cost had the rights been cleared in advance.

There are a multitude of other complex issues that arise in the production of a television show or motion picture, which explains the proliferation of lawyers that practice entertainment law. 

As 2008 gets underway, its time for companies to take a fresh look at how they manage intellectual property assets. This applies to companies that have never taken serious steps to protect intellectual property, and those companies that have an understanding of the value of intellectual property and take active steps to secure and protect these assets.   The three steps below are a good starting point for companies addressing this issue for a first time, and are a well needed refresher for companies that already have IP management protocols in place.

 Intellectual property is a company asset, just like inventory. You wouldn’t think of running a company where you didn’t know the extent of your inventory. Likewise, it doesn’t make sense for a company not to have a firm understanding of all of its potential intellectual property assets. Even companies that regularly take steps to protect intellectual property through, for example, registering trademarks, or registering copyrights, a yearly review can prove beneficial. Sometimes marketing departments and independent divisions spin out valuable intellectual property assets that, for one reason or another, never made it past the desk of general counsel or a responsible executive.

You would want to review your company’s marketing and promotional materials, and website for trademarks, logos, or slogans that the company is using with frequency. If these trademarks have not been cleared, be sure to read Step No. 3 below on preventing  unintended liabilities. You would also want to look at domain names and toll free numbers, which may also serve as potential trademarks. If your company has changed its product packaging, point of sale displays, or product design, these may also be protectable trade dress. In order for the above to constitute trade dress, the packaging, or product design would have to be more than merely functional. 

You would also be wise to take stock of the company assets protectable under the federal copyright laws. For example, a company’s website, marketing materials, manuals, promotional videos, software, articles, white papers, etc. are all protectable under the federal copyright law. Although you may ultimately decide that the cost benefit of securing protection is such that registration does not economically make sense, the company should at least maintain inventory of its copyrightable works. 

In addition, a company needs to be mindful of any new inventions that were developed by the company or its employees during the last year. Such inventions may be protectable under federal patent laws. However, unlike copyright or trademarks, an inventor must secure a patent application within a very short period of time in order to prevent the work from falling into the public domain. Companies that routinely produce new inventions should put into place a process which enables inventors to disclose a potential invention to a responsible executive well prior to the invention being disclosed to the general public. 

In addition, a company should take stock of those items that it considers proprietary trade secrets. Trade secrets are items not generally known by the public but have economical value and are the subject of reasonable precautions to maintain their secrecy. In general, trade secrets have no duration of protectability and there is not a method for registering a trade secret in the United States. Items that may be protected by state trade secret laws include software source code and related documentation; customer lists, employee knowledge, training and experience; proprietary terminologies or definitions; specially developed customer information; sales practices; negative information such as negative results from research and development projects; and customer and consumer surveys. Each of the above could constitute proprietary trade secrets depending upon whether its owner took reasonable steps to maintain its trade secret status. (See Step No. 2 – Taking Steps to Protect Intellectual Property.)

 In addition to employee created and company created intellectual property, a company should take stock of its inventory of intellectual property acquired by way of contractual agreements. For example, a company should review agreements with its employees and make sure that these agreements have proper assignment language and confidentiality provisions. In addition, the company should review items that were developed or created through the use of independent contractors, such as photographers, web developers, software developers, advertising agencies, graphic artists, production companies, and the like. If the company intended to own all of the rights, including any intellectual property rights, in the works created by these independent contractors then the agreements with these independent contractors should have proper intellectual property vesting language – such as work made for hire language or an assignment provision. If the company’s agreements were only verbal or did not contain such language, then the company needs to make another resolution: make sure you own the intellectual property you paid for.

Step No. 2 – Take Reasonable Steps to Protect Your Intellectual Property

After you have created a working intellectual property inventory list, the next step is to identify those items that are already the subject of active protection efforts (i.e. pending or issued registrations) and those that are not. Then, the company executives, along with corporate counsel and if appropriate outside intellectual property counsel, should review the list of unprotected intellectual property and determine whether taking steps to secure their protection make economic sense. Sometimes, a company might find that the cost to secure protection of an intellectual property asset outweighs the potential economic value of that asset or that protection would be mostly duplicative of another item which is already protected. However, companies should take advantage of the intellectual property protection that costs less to secure. For example, securing copyright registration and trademark registration can be substantially less than securing patent protection. Most often, copyright protection is the least expensive intellectual property protection to obtain and the benefits of securing such protection prior to an act of infringement far outweigh the cost of securing the cost of filing the copyright registration application. 

Step No. 3 – Prevent Unintended Liabilities

A fair number of clients who become involved in disputes involving intellectual property rights find themselves on the receiving end of a cease and desist letter. Although most don’t intend to infringe, often the infringement occurs either through poor oversight or lack of prior due diligence or investigation. For example, most often in trademark disputes the potential defendant adopts and begins using a mark without having a trademark attorney perform a trademark search. Most of the time clients believe that if a Google web search did not uncover any conflicting references, they are home free. This is not the case. Google does not pick up entries in the federal or state trademark databases, or in the multitude of other proprietary databases that a full search would encompass. A trademark search performed by an experienced trademark attorney is the only way to go when it comes to clearing a mark for use. 

Other unintended liabilities result from the company’s interaction with independent contractors that have been hired to create something for the company. Whether it is a web designer hired to redesign a company’s website, a graphic artist hired to create a new logo or artwork, or a copyrighter hired to write content for company’s documents, a company needs to remember that in the past these types of vendors have been known to take shortcuts and “borrow” from existing sources. Unless a company executive is closely managing these professionals when they do their work, it would difficult to determine whether or not they engaged in acts that may be considered infringement until such time as the company receives a cease and desist letter. However, there are precautionary steps a company can take to prevent unintended liabilities. A company should always have written agreements with vendors such as these which unconditionally requires them to indemnify the company for any claims of infringement resulting from the works they were hired to create. Additionally, a company should require these vendors to carry insurance that would provide coverage for such a claim (either E&O or professional liability insurance) and that the company be named an additional insured on the policy. Lastly and most important, the company should have a general understanding of who they are doing business with.   A little time spent researching whether the vendor has negative claims with the Better Business Bureau, has licensing issues, generally has satisfied customers, whether there are any lawsuits pending, etc., can tell a company quite a bit about the work habits and ethics of any potential vendor. 

Lastly, a company should take a careful look at its data collection practices and make certain that its policies comply with a existing data management laws.  There have been some changes in existing laws and the passage of new laws concerning the management of consumer data and companies should make sure that its policies are in line with today’s requirements. If not, a company could potential face both civil and criminal liabilities depending on the circumstances. 

These steps are part of good IP management practices. It is always the easiest thing to settle back into the routine that we have always known. However, there is a substantial benefit to taking a fresh approach to IP management, and the benefit can drive directly into a company’s bottom line.

Last week, the Second Circuit affirmed a summary judgment against an advertising consultant in a suit against American Express. The consultant, Stephen Goetz, sued American Express for misappropriation and trademark infringement for the slogan “My Life, My Card” that Goetz claimed to have introduced to American Express. The court affirmed the summary judgment stating that Goetz never actually used the slogan in commerce. Since Goetz never used the slogan in commerce, he had no trademark rights in the mark.

In the summer of 2004, Goetz worked as a consultant for Mez Design. While at Mez Design, Goetz formulated an idea to allow credit card customers to personalize their credit cards by choosing a photograph to be displayed on the face of the card. Goetz then developed software to produce these cards with the idea of selling or licensing the software to credit card companies. After developing the software, Goetz mailed proposals to large credit card companies, including American Express. In these proposals, Goetz prominently displayed the slogan “My Life, My Card.” On July 30, 2004, Goetz mailed a proposal to American Express.

During this same time period, American Express was searching for a new global advertising campaign. They hired an agency which was brought in to develop the new campaign. On July 22, 2004, a week before Goetz sent his proposal, the agency proposed the slogan “My Life. My Card.” to American Express. American Express pursued the idea and asked the agency’s counsel to conduct a full trademark search on the slogan. This trademark search did not produce any results that referenced Goetz. American Express proceeded with the campaign, and on September 1, 2004 they registered the domain name www.mylifemycard.com. On September 15, they filed an intent to use application for the trademark “My Life. My Card.” A few months later, the global campaign featuring numerous celebrities was launched on television, print and internet ads.

Shortly after American Express’s campaign began, Goetz filed an action claiming that American Express infringed his trademark rights. The court in that case dismissed Goetz’ claims because Goetz had no protectable trademark rights in the slogan because he did not use the mark in commerce. Goetz also did not dispute the fact that American Express independently developed the slogan. Goetz appealed the ruling to the Second Circuit and argued that he was the first to use the mark in commerce based on his sales proposals to several credit card companies. This included his presentation to MasterCard. Goetz argued that since he used the slogan in commerce before American Express, he is the senior user of the mark.

After hearing these arguments, the Second Circuit affirmed the previous ruling. The court held that under the Lanham Act, a trademark or service mark is “any combination of words, names, symbols or devices that are used to identify and distinguish goods or services and to indicate their source.” On the other hand, copyright law protects the content of the creative work. A trademark identifies the source of the product and does not protect the creative content of the product. For example, a title of a song or movie may be a trademark, but the content of the song or movie is not. The court noted that an advertising agency that creates a slogan does not have a trademark in that slogan. The slogan is the agency’s creative work and does not usually identify the source of goods and services of that agency. The slogan, however, can become a trademark for the company that uses the agency’s slogan on their goods. Until the slogan is used by the company in commerce, it will not become a trademark. 

Goetz, however, claims that his slogan was used in commerce by Mez Design where Goetz was employed. The court disagreed. The court stated that “My Card, My Life” slogan did not distinguish the goods of the advertising agency. It is merely the creative work of the agency. The court examined the facts of the case and found that Goetz never used the slogan in commerce to sell his agency. Rather, he used the content of the slogan as part of an overall campaign to sell the credit card company’s products. The court found that the slogan never referenced the agency nor Goetz himself. In fact, each letter contained the Mex Design logo. This logo identified the source of the services of the agency. The slogan was merely the creative work of the agency, and was used to entice credit card companies to use his services.

Because Goetz never used the slogan in commerce as a trademark, Goetz had no protection from trademark laws. The slogan was the creative work of Goetz and did not identify his services. Goetz could pursue his claims under copyright law, but since he did not argue against the fact that both slogans were created independently, he would not be able to show such infringement. 

The "work made for hire" doctrine is a major exception to the fundamental principle that copyright ownership vests in the person who created the work. The significance of this doctrine is that, as the copyright owner of the work, an employer will own all exclusive rights to the work and may freely commercialize the property to its fullest extent. This article examines the provisions and case law underlying the "work made for hire" doctrine and provides some practical advice for employers when hiring an independent contractor or an employee who may create an original work during the course of the parties' relationship.

The U.S. Supreme Court first recognized the "work for hire" doctrine as early as 1903, when it held that copyright to certain advertisements created by an employee during the course of his employment belonged to his employer. (Bleistein v. Donaldson Lithography Co., 188 U.S. 239 (1903)). The courts did not truly examine the meaning of "ownership" of a work "for hire" until the Copyright Act codified this doctrine, which defines the word "author" as including "an employer in the case of works made for hire" (17 U.S.C. § 26). Accordingly, an employer may claim to be the "author" of a work under one of two prongs: first, if the work is prepared by an employee within the scope of the employee's employment; and second, if an independent contractor and employer agree in writing that the work created by the independent contractor shall be considered a "work made for hire".

When determining who owns a written work, the first question to ask is whether the creator of the work falls under the employee prong or the independent contractor prong. Generally, if the creator of the work is an employee, it is presumed that the employer owns the copyright. Any unease under this prong rests on whether the creator was an actual employee of the employer. The U.S. Supreme Court resolved much of the tension underlying this issue in 1989, in Community for Creative Non-Violence ("CCNV") v. Reid, which involved a dispute over ownership of a sculpture commissioned by a nonprofit organization. (CCNV, 490 U.S. 730 (1989)) The Court held that the artist was an independent contractor and not an employee since the sculptural works did not fall within one of the nine specific categories of "commissioned" works listed in the Copyright Act, and no written agreement between the parties existed. In reaching this conclusion, the Court examined the common law agency principles, which include: (1) the hiring party's right to control the manner and means of creation, (2) who provided the materials and tools, (3) the skill required by the hired person, (4) the location of the work, (5) the length of the relationship between the parties, (6) how the hired party was paid, (7) who hired and paid assistants, (8) whether the work is part of the regular business of the hired party and (9) the tax treatment of the hired party. CCNV has been viewed as a major legal victory for independent contractors in that creators who produce work at the request and expense of a third party do not necessarily give up their copyrights in the process. For hiring parties, it stands as a warning that the hiring party does not automatically own the copyright just because they paid for the commissioned work.

If the creator of the work is not an employee, then three requirements of the independent contractor prong must be satisfied in order for the hiring party to own the original work. The requirements are: (1) prior to the commencement of the work, the parties must agree in writing that the work shall be considered a "work for hire"; (2) the work must have been "specially ordered" or "commissioned" by the employer; and (3) the work must fall within at least one of nine statutorily mandated categories of commissioned works listed in the Copyright Act. The nine categories include: using the work as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas. (17 U.S.C. § 101). An original must fall into one of these nine categories; otherwise a "work made for hire" provision in an agreement does not always result in a work becoming "for hire." A novel, for example, can never be a work made for hire because it does not fall into one of these nine categories.

To avoid problems concerning copyright ownership with independent contractors, the hiring party should always reduce its intentions to writing, and include a provision in the written agreement which contains a clause stating that the work created by the independent contractor is considered a "work made for hire." The agreement should also contain a "back up" clause which states that in the event the work does not qualify as a "work made for hire", the employer may obtain the exclusive rights to a copyrightable work created by an independent contractor through an assignment.

By Dale C. Campbell

Lawyers can’t turn around without being bombarded with CLE brochures announcing yet another e-discovery workshop. Electronic discovery is a new medium for storing information, but the time-tested rules concerning an attorney’s ethical duty to the court and opposing counsel in connection with discovery have not changed. On January 7, 2008, Magistrate Judge Barbara L. Major on the United States District Court, Southern District of California, issued an order granting sanctions against Qualcomm Incorporated and several of its attorneys in connection with discovery abuses. (See Qualcomm Incorporated v. Broadcom Corporation, U.S.D.C., S.D. Cal. Case No. 05-CV-1958-B (BLM). The Qualcomm decision commands the attention of all corporate counsel and litigators involved in the discovery process. As stated by Magistrate Judge Major, the decision “provide[s] a roadmap to assist counsel and corporate clients in complying with their ethical and discovery obligations and conducting the requisite ‘reasonable inquiry.’”

Plaintiff Qualcomm sued defendant Broadcom alleging Broadcom’s infringement of several Qualcomm patents. Broadcom filed a counterclaim alleging inequitable conduct and waiver. Broadcom’s waiver defense was based upon Qualcomm’s participation in the Joint Video Team (“JVT”) in 2002 and early 2003 during which the digital video signals standards were adopted. Whether Qualcomm participated in the JVT in 2002 and early 2003 was a crucial fact because, if Qualcomm did participate, it would have to have granted royalty-free licenses to its technology.

Broadcom served document demands requesting all documents reflecting Qualcomm’s participation in the JVT and also requesting any emails received or sent by Qualcomm setting standards for processing digital video signals. Qualcomm, in response to those document demands, said that it produced all non-privileged documents it located after a reasonable inquiry.

Broadcom also took the deposition of the person most knowledgeable under Rule 30(b)(6). The court found the counsel’s conduct during the preparation and designation of the PMK to be extremely troubling. Qualcomm initially designated one PMK who did not have personal knowledge concerning Qualcomm’s participation, or lack of participation, in the JVT in late 2002 to early 2003 despite being so designated. Qualcomm recognized this deficiency and designated a new representative. That new representative testified falsely that Qualcomm did not participate until December 2003. Broadcom was able to impeach the witness with the only email it had in its possession dated December 2002, reflecting Qualcomm’s earlier participation. Nevertheless, Qualcomm and its counsel continued to deny any earlier participation in the JVT and even doubted that the December 2002 email was even received by Qualcomm.

While preparing a witness for trial, the trial team reviewed the witness’s laptop and discovered 27 separate emails dating back to August 6, 2002, which made it clear that Qualcomm had been involved with the JVT and in establishing the standards for digital signals prior to late 2002. The Qualcomm trial team decided not to produce the emails yet call the witness at trial, asking carefully-tailored questions if the witness had ever “read” emails from the JVT. During cross-examination, Broadcom’s attorney asked if the witness ever received such emails, to which she answered truthfully that she had. Broadcom demanded the immediate production of the emails.

Even after knowing of the 21 emails, trial counsel argued a motion in limine to exclude the one December 2002 email in Broadcom’s possession by arguing there was no evidence that the email was actually sent to Qualcomm and that there was no evidence of anything ever being sent. Trial counsel made these representations to the court after he had been made aware of the 21 emails on the witness’s computer.

Broadcom immediately demanded the production of all emails after the witness admitted she had several on her laptop. In a side-bar conversation, trial counsel, despite having participated in the decision not to produce them, told the court that he had seen the emails and was not even sure if Broadcom had previously requested or if they fell within a previously request of Qualcomm. Qualcomm turned over the 21 emails over the lunch hour.

The jury returned verdicts in favor of Broadcom, finding that Qualcomm was guilty of inequitable conduct and the patents were unenforceable due to waiver. 

The court ordered a post-trial investigation into the discovery abuses. Qualcomm objected to the investigation and argued that it had performed an adequate search for documents. Despite Qualcomm’s argument that it conducted an adequate search, the post-trial investigation revealed that a simple word search of archived emails searching for “JVT” and other single search terms readily revealed the existence of 46,000 documents containing over 300,000 pages. Qualcomm’s in-house counsel wrote a letter to the court advising it of these further findings, apologizing to the court for not conducting a more thorough search earlier, and further acknowledging that the located documents were inconsistent with argument made by counsel at trial.

The court focused on Federal Rule 26(g)(2), which provides for sanctions against individual attorneys who failed to comply with their ethical obligations. Rule 26(g)(2) provides that every discovery response must be signed by an attorney and that the attorney’s signature “constitutes a certification that to the best of the signer’s knowledge, information, and belief, formed after a reasonable inquiry,” the response is consistent with the rules of law. The courts have confirmed that Rule 26(g)(2), like Rule 11, requires that the court impose “an appropriate sanction” on the attorney if a discovery response is not formed after a reasonable inquiry and therefore is without substantial justification.

Qualcomm argued in opposition to the sanctions that at no time did Broadcom file a motion to compel the production of documents. The court gave no weight to this argument, noting that the responding attorney has a duty to respond to discovery in good faith and the court will not require the asking party to file motions if the responding party affirms that it will produce all responsive documents. This is especially the case here, where Qualcomm had already affirmed that it would produce all non-privileged responsive documents. Litigants are not required to file motions to compel in order to preserve their rights in the event the opponents fail to properly discharge their obligations to produce relevant information.

The court emphasized that the parties and the attorneys have a duty to respond to discovery in good faith. That good faith must be after a reasonable inquiry, which will be dependent upon individual facts and circumstances. The court noted that, in the age of electronic discovery where clients and attorneys cannot physically touch each document, the attorneys must work closely with their clients to ensure that the attorney and the client have discharged their duty to respond in good faith after reasonable inquiries. “Attorneys must take responsibility for ensuring that their clients conduct a comprehensive and appropriate document search.”

The attorneys at Qualcomm produced no substantial justification for their failure to produce the 46,000 documents. This lack of justification is reinforced by the fact that trial counsel did not disclose the 21 emails when found, surgically asked questions of the witness to avoid disclosing that she had received the 21 emails, and did not voluntarily search for any additional documents after locating the first 21.

In view of all the factors, the court noted the following factors influencing its decision on sanctions: Trial counsel did not properly designate the Rule 30(b)(6) deponents; did not require a search of archived emails; did not give the 30(b)(6) witness relevant documentation; and, did nothing to ensure that the witness would be knowledgeable. The attorney has the obligation to ensure that the Rule 30(b)(6) witness is fully knowledgeable of the facts upon which he/she will testify. Secondly, Qualcomm’s attorney repeatedly argued that the court and the jury should to ignore the December 2002 email that Broadcom had obtained and repeatedly tried to discredit that the email ever existed in an effort to distort the evidence. Qualcomm even brought a motion for summary judgment, offering testimony that it had not participated in the JVT during 2002 and had not received any information from the JVT.

The court issued sanctions against Qualcomm and several of its attorneys; this article will focus on the duties of the attorneys and the sanctions imposed on them. The court relied upon the Rules of Professional Conduct, Rule 5-200, which provides that a lawyer shall not seek to mislead the judge or jury by a false statement of fact or law, and Rule 5-220, that a lawyer shall not suppress evidence when the lawyer or the lawyer’s client has a legal obligation to reveal or produce. The court, in reviewing the rules and in reviewing counsel’s activities, referred several attorneys to the State Bar for investigation. The court emphasized that it was inconceivable that Qualcomm had actively and successfully hidden this information so effectively from its lawyers that the lawyers could not know or suspect that suppressed documents existed. The court also immediately rejected any thought that the retained attorneys were so inept or disorganized that they could not have discovered this information if a reasonable inquiry had been made. The court then questioned whether there was sufficient evidence that the counsel actively participated with Qualcomm to hide the documents and all evidence of Qualcomm’s early involvement in the standards. The court noted that Qualcomm continued to exert the attorney-client privilege and, therefore, evidence on this issue was limited, although there was circumstantial evidence based on trial counsel’s failure to disclose the 21 emails promptly upon their discovery.

Ultimately, the court found the evidence supported a finding that Qualcomm did not tell its retained lawyers about the evidence. The lawyers suspected there was additional evidence or information but chose not to conduct a reasonable search. This was not a case where only one or two smoking-gun documents were not found, but instead 46,000 critical documents had not been produced. These documents were not from just one employee, but dozens of employees, several of whom testified falsely at trial and in depositions.

The court noted that different attorneys had different levels of culpability, but emphasized that lead counsel are responsible for the activities of the individuals working under their direction and that junior attorneys have an ethical obligation to comply with the rules and the ethical obligations independent of what they may be instructed by supervising attorneys. Emails and other electronic discovery impose differing challenges which attorneys must overcome in order to discharge their discovery obligations. The ethical rules and discovery obligations have not changed with e-discovery – an attorney must still make a reasonable inquiry and may sign a discovery response only if it is “formed after a reasonable inquiry.”

Plaintiffs in trademark infringement cases may not be eligible for attorney fees depending on their election of damages. This last December, the Ninth Circuit Court of Appeals examined whether or not electing statutory damages for trademark counterfeiting claims under 15 U.S.C. § 1117(c) precludes the awarding of attorney fees under 15 U.S.C. § 1117(b). The court held that an election for statutory damages does indeed bar the plaintiff from recovering attorney fees in counterfeiting cases.

Section of 1117 of the Lanham Act which covers trademarks specifically lists the types of damages that can be awarded in trademark actions. 1117(a) covers actual damages and states that damages can be recovered for (1) defendant’s profits, (2) any damages sustained by the plaintiff and (3) the costs of the actions. This section states that the court can award damages in the amount of the actual damages not to exceed three times the amount of such. In addition, the court may, in exceptional cases, award reasonable fees to the prevailing party.

Section 1117(b) covers treble damages for use of counterfeit marks.  This section states, “In accessing damages under subsection (a) of this section, the court shall, unless the courts find extenuating circumstances, enter judgment for three times such profit or damages, whichever is greater, together with a reasonable attorney’s fee ….” 

The last subsection under 1117 covers statutory damages for counterfeit marks. 1117(c) states that the plaintiff at any time before the rendering of the final judgment may elect to recover, instead of actual damages under subsection (a), an award of statutory damages for an amount not less than $500 and no more than $100,000. If the counterfeiting use is willful, the court can award up to $1,000,000.

In this case, K&N elected to be awarded damages under this last subsection. This election was likely guided by the fact that the sales of the decals were for only $267. The district court, in its discretion under subsection (c) awarded K&N statutory damages in the amount of $20,000. It also awarded attorney fees which was the basis of Bulat’s appeal. Bulat argued that the election of statutory damages under subsection (c) does not include attorney fees. In fact, subsection (b) specifically relates back to subsection (a). The fact that both subsections (a) and (b) include reference to attorney’s fees and subsection (c) does not, led the court to rule in favor of Bulat. The court held that the district court erred in awarding statutory damages and attorney’s fees. Thus, a plaintiff who elects statutory damages is barred from recovering attorney fees. 

It is interesting to note that subsection (c) was adopted three years after the other two sections were adopted. Whether or not the drafters intended this result may be decided by the Supreme Court if K&N appeals this ruling. Until then, Plaintiffs will likely be hesitant to elect damages under subsection (c), especially if the party’s attorney’s fees are significant.