A basic prerequisite for the ownership and registration of a trademark is that the mark is “used in commerce.”  The Trademark Act defines “use in commerce” as the bona fide use of a mark in the ordinary course of trade. Under the Act, a mark is deemed to be used in commerce when: (i) the mark is placed in any manner on goods, their containers, their displays, on the goods’ tags or labels and, in certain cases,  on documents associated with the goods or their sale; and (ii) the goods are sold or transported in interstate commerce.

A display is allowable and acceptable evidence of use where it is associated directly with the goods offered for sale.   Banners, menus, window displays and other items designed to catch the attention of prospective purchasers and induce them to make a purchase are all acceptable to show trademark usage. However displays don’t always have to be in close proximity to the goods. Given all of this, it stands to reason that advertisements would also be acceptable evidence of use. After all aren’t advertisements designed to catch the attention of prospective purchasers and induce them to purchase the goods? Then why is it that the USPTO refuses to accept advertisements an acceptable evidence of use.

The USPTO bases its refusal to accept advertisements as proper specimens of use on Section 45 of the Lanham Act. The Act states a mark must be placed on the goods or their containers directly, but relaxes this requirement and permits placement of the mark on a “displays” or “documents associated with the goods.”  Interpreting whether a mark on a display or document satisfies the “use in commerce” requirement, the USPTO and the Trademark Trial and Appeal Board (“TTAB”) apply a narrow interpretation, insisting that there be a close physical association between the products and the displays, inasmuch as the consumer must be able to associate the mark on the display with the product. As such, the USPTO and TTAB take the following position with regard to advertisements: (1) the depiction of a mark in advertising is not a use in the trademark sense; and (2) a mark used in advertising is not physically associated with the goods.  

The requirement that there be a close physical association between the good and the display or document originates from the common law notion of affixation which required that a trademark be "affixed,"or physically attached to the products so that the public would be able to associate the mark with the product. The Lanham Act, however, does not strictly follow the common law notion of affixation. The Act accepts as a proper specimen displays associated with the goods. Over time case law has expanded on what is considered a “display associated with the goods” resulting in a very thin and very fuzzy line between what is and isn’t acceptable as showing trademark use.

This expansion begin in Lands End, Inc. v. Manbeck, 797 F. Supp. 511 (E.D. Va. 1992). In that case the District Court reversed the TTAB and held that use of a mark in a mail order catalog can qualify as a display associated with the goods. Following the decision, the USPTO implemented a policy which allows a catalog to be an acceptable specimen showing trademark use where (1) the catalog specimen includes a picture of the relevant goods; (2) the trademark is sufficiently near the picture; and (3) the catalog contains information necessary to order the goods.

Following Lands End  was the 1999 TTAB case of In re Hydron Technologies, Inc. 51 U.S.P.Q.2d 1531 (T.T.A.B. 1999) which held that a television infomercial is an acceptable specimen showing trademark use. In holding that the visual appearance of a slogan 3 times for a total of 9 seconds on an infomercial was sufficient trademark use, the TTAB found compelling the fact that the mark appeared in the infomercial in close association with images of the goods, and, like a catalog, the infomercial provided customers with the ability to purchase the goods. 

Most recently, in In re Dell Inc, 71 U.S.P.Q.2d 1725 (T.T.A.B. 2004) the TTAB found that an internet website can be an acceptable specimen of use. The TTAB determined where the mark is displayed on a web page in close proximity to a picture of the goods and the web page contains information or means for ordering the goods, the use of the mark on the web page is trademark use and the web page is an acceptable specimen. 

In each of the above cases, the crucial element which makes the specimen acceptable evidence showing trademark use is that there is a means of ordering the product. This was made clear in In re Genitope Corp., 78 U.S.P.Q.2d 1819 (T.T.A.B. 2006) where the TTAB rejected a web page as a specimen because it did not provide a means for ordering the product, but only indicated how a person could obtain more information on the product.

While the USPTO has expanded what it will accept as evidence of use to the modern day equivalent of “point of purchase” displays, the Restatement (Third) of Unfair Competition requires only that “the manner of use must be calculated to cause prospective purchasers to associate the designation with the goods, services, or business of the user.”  In a sharp break with the USPTO and common law notions of fixation, the Restatement explicitly recognizes advertising as a method of trademark:

“Modern marketing techniques also rendered the affixation requirement obsolete with respect to trademarks for goods. Use of a designation in the various advertising media can now establish the designation's significance as an identifying symbol as surely as its appearance on packaging or labels…. Under the rule as stated in this Section, use of a mark on point of sale displays, price lists, menus, or mail solicitations can also constitute use as a trademark, as can other advertising uses calculated to inform prospective purchasers of the association between the designation and the user or the user's goods and services.”

Perhaps some day the USPTO will adopt the Restatement’s position and drop its strict adherence to the prohibition against advertisements. The Restatement’s position is more in line with modern consumer behavior and the role of brands in today’s society. Until such time, trademark practitioners will still have to deal with the USPTO’s hyper technical requirements. As such, best practices would dictate that trademark practitioners be more involved with a client’s initial advertising campaign and product roll-out to ensure that there is at least one acceptable specimen for the USPTO.

A federal district court in Minnesota dismissed claims made under the Computer Fraud and Abuse Act (18 U.S.C. § 1030) (“CFAA”) for the receipt of unwanted text messages. The CFAA, which was originally adopted as criminal law to prohibit actions that damaged another’s computer system or stealing information from it, now permits a claim for civil damages. 

In order to recover under the CFAA, a plaintiff must show that a defendant caused a violation of one of CFAA’s provisions which caused damage to the plaintiff.  Czech made three specific claims under CFAA, namely that WSOD (1) was obtaining information from Czech’s cell phone and was not authorized to do so, (2) damaged Czech’s cell phone by its transmission and (3) intentionally accessed Czech’s cell phone without authorization.

With respect to Czech’s claim that WSOD wrongfully obtained information from her phone, Czech needed to show that WSOD intentionally accessed her cell phone without authorization and obtained information from such access.  Czech claimed that WSOD obtained information from her by obtaining operation and storage capacity, bandwidth and memory from her wireless device.  In addition, WSOD received a receipt of delivery notification once a text message was sent to Czech’s cell phone.  The Court noted that even if WSOD caused Czech’s wireless device to slow or consumed bandwidth, there is no evidence that WSOD gained information from Czech’s cell phone.  Czech argued that WSOD viewed information such as an individual would view a website.  The court did not accept this analogy because the type of information gathered by viewing a website versus the information gathered by a sender of a text message is not similar.  The information obtained by a sender of a text message is very limited, and therefore the court held that no information was obtained.

Czech’s second claim was that WSOD damaged Czech’s cell phone by WSOD’s transmission.  To plead this claim, Czech needed show that WSOD knowingly caused the transmission of a program, information, code or command, and as a result of such conduct, intentionally caused damaged without authorization to Czech’s cell phone.  The court boiled down the issue here to whether sending unwanted messages “intentionally causes damage without authorization” to Czech’s cell phone.  Czech argued that WSOD’s unwanted text messages caused numerous problems to her phone, such as exhausting the cell phone’s memory, interfering with the phone’s bandwidth and causing the phone to reboot or shutdown.  The court found that under Czech’s claim any unwanted incoming message, no matter the size or extent of the message, would damage her cell phone by depleting memory.  The court did not believe that it was congress’ intent that unwanted text messages that did not impair the recipient’s cell phone service would constitute a claim under the CFAA.  Even if Czech was able to show that her service was interrupted or delayed because of WSOD’s text messages, the CFAA requires that the sender of the text messages must have intended to cause the damage.  In this case, it was clear that WSOD was not intending to cause damage to cell phones, but, rather, it was trying to sell its services.

Czech’s third claim that WSOD intentionally accessed Czech’s phone also failed because Czech could not demonstrate that WSOD intentionally sent the unwanted messages to Czech.  The Court also questioned whether sending text messages to a phone constituted access. 

Because Czech was unable to provide any plausible facts alleging the WSOD intentionally sent unwanted text messages and that these text messages actually damaged her phone, the court dismissed the complaint.  Although unwanted text messages are often an annoyance and may cost the cell phone user some money in usage fees, the CFAA does not protect the cell phone user in this situation.  If there was actual damage done to the phone besides consuming memory, such as losing the ability to access other text messages, the court may have found WSOD liable under the CFAA.

by Scott Hervey

After four years, the quest to obtain federal trademark protection for the mark MATTRESS.COM by owner 1800Mattress.com IP, LLC, formerly Dial-A-Mattress Operating Corp, has been put to bed. The United States Court of Appeals for the Federal Circuit has finally held that the mark is generic and not entitled to registration.

This case reflects the fine and often illusive line between marks that are merely descriptive and those that are generic. The distinction can make a very big difference to the mark owner. Descriptive marks are registrable on the Supplemental Register and are capable of elevation to the Principal Register after obtaining secondary meaning, while generic marks are never capable of registration.

15 U.S.C. §1052 provides that no trademark by which the goods of the applicant may be distinguished from the goods of others shall be refused registration on the principal register on account of its nature unless it .... (e) Consists of a mark which, (1) when used on or in connection with the goods of the applicant is merely descriptive or deceptively misdescriptive of them. A mark is considered merely descriptive if it describes an ingredient, quality, characteristic, function, feature, purpose, or use of the specified goods or services. For example, the mark APPLE PIE has been held merely descriptive of potpourri and the mark BED & BREAKFAST REGISTRY held merely descriptive of lodging reservations services. The determination of whether a mark is merely descriptive requires consideration of the context in which the mark is used or intended to be used in connection with those goods/services, and the possible significance that the mark would have to the average purchaser of the goods or services in the marketplace. The mark need not describe all the goods and services identified, as long as it merely describes one of them.

By contrast, generic terms are terms that the relevant purchasing public understands primarily as the common or class name for the goods or services. Put in common parlance, if the general public primarily understands the word to designate the product rather than the producer, the word is generic. Generic terms are incapable of functioning as registrable trademarks denoting source, and are not registrable on the Supplemental Register or on the Principal Register after having acquired secondary meaning. Generic terms are terms that the relevant purchasing public understands primarily as the common or class name for the goods or services. For example, in Yellow Cab Co. of Sacramento v. Yellow Cab Co. of Elk Grove, 266 F. Supp. 2d 1199 (E.D. Cal. 2003) the court determined that the mark YELLOW CAB was determined generic for taxi service, and in Retail Servs., Inc. v. Freebies Publishing, 364 F.3d 535 (4th Cir. 2004) the court determined that the mark FREEBIE is generic for free products or services

There is a two-part test used to determine whether a designation is generic: (1) What is the class of goods or services at issue? and (2) Does the relevant public understand the designation primarily to refer to that class of goods or services? The test turns upon the primary significance that the term would have to the relevant public.

On appeal, Dial-A-Mattress argued that in upholding the refusal to register the TTAB did not show by clear evidence that the relevant public refers to the class of on line stores selling mattresses by the mark MATTRESS.COM. The Federal Circuit disagreed with Dial-A-Mattress, concluding that substantial evidence supported the TTAB’s conclusion that the mark is generic. The Federal Circuit noted that the TTAB considered each part of the mark, “mattress” and “.com” and determined that both were generic. Considered in its entirety, the term “mattress.com” added no new meaning. In coming to this conclusion the TTAB noted the prevalence of this term in the website addresses of several online mattress retailers that provide the same services as Dial-A-Mattress. The Federal Circuit noted that such reliance is permissible to that the relevant public would understand and believe that a website operating under the term “mattress.com” provides online mattress store services.

Determining the line between marks that are merely descriptive and generic is often extremely difficult. It is easy to understand the basis for a generic based refusal for the marks E-TICKET for a computerized reservation and ticketing of transportation services, IM for instant messaging or ICE PAK for a reusable ice substitute for use in food and beverage coolers. However given the challenge of determining where the line between a mark being descriptive and being generic cases like Dial-A-Mattress are always challenging for trademark attorneys and mark owners. One solution – avoid choosing marks that push the envelope of descriptiveness.

Earlier this year, the Tenth Circuit court upheld a preliminary injunction granted in favor of an electronics equipment manufacturer against a reseller of its goods in a trademark infringement action. In Beltronics v. Midwest Inventory Distribution, the reseller (Midwest) argued that it was able to resell the manufacturer’s goods based on the first sale doctrine. The court, however, disagreed with this assessment and ruled that the resellers violated the manufacturer’s trademark rights because Midwest’s sales caused consumer confusion.

Learning of the possible damages to its goodwill, Beltronics filed a suit against Midwest for trademark infringement and sought preliminary injunction to stop further sales. The district court granted the injunction and Midwest filed an appeal.  The issue that the court examined on appeal was whether or not Midwest violated Beltronics trademark rights.

The guiding principle in trademark law is that trademarks are granted in order to protect consumers. Trademarks protect consumers by identifying the source of goods.  If a product sold in the marketplace causes confusion to the source of goods, then the sale may constitute trademark infringement. The more likely the confusion, the more likely infringement has occurred.    

Beltronics argued that the manner in which Midwest sold radar detectors caused confusion in the minds of consumers. Midwest, however, relied on a specific defense to trademark infringement known as the first sale doctrine. The first sale doctrine states that those who resell genuine trademarked products are generally not liable for trademark infringement. The rationale behind this defense is as stated above. Trademark law is designed to prevent sellers from confusing consumers about the source of products. If a genuine article is being resold, this confusion does not exist. If a purchaser of a product does no more than “stock, display and resell a producer’s product under the producer’s trademark” no trademark violation has occurred.

The first sale doctrine, however, does not apply when the reseller sells trademarked goods that are materially different than those sold by the trademark owner. Since a materially different product is not genuine, consumers may be confused as to the source of the products. In order to determine if Midwest could rely on the first sale doctrine, the court determined whether the changes that Midwest made to the product as sold on eBay constituted a materially different product. Midwest argued that its changes were not materially different because the changes revolved solely around the product’s warranty. Midwest claimed that it removed the serial number, so consumers would know that the purchaser would not be covered under Beltronics’ warranty. In addition, on its eBay sales page, Midwest disclosed to potential purchasers that the product was covered by Midwest’s own warranty and not any other. Based on these facts, Midwest argued that the changes to the product were immaterial and that it was protected from any liability under the first sale doctrine.

The court, however, was not persuaded by these arguments. The court held that even though there may have been no physical change in the products, there was a material difference in the nonphysical characteristics associated with the product. Since Midwest did not offer the same warranty as Beltronics did, the court held that this constituted a material difference. The court stated that such characteristics as warranties and customer service must be considered when examining the product as a whole. Since the resale of a trademarked product that is materially different constitutes trademark infringement, the court upheld the preliminary injunction.

On the other hand, the court may have ruled differently if Midwest’s disclosures were more effective. Because several consumers who purchased the radar detectors through eBay eventually came to Beltronics seeking warranty coverage shows that consumer confusion actually did exist. Consumers thought they were purchasing a radar detector that was covered by Beltronics’ warranty and service commitments. What they actually were purchasing was the same physical product but without the nonphysical services associated with the trademark. This led the court to conclude that Midwest infringed on Beltronics’ trademark rights. If Midwest disclosures were effective and consumers were not actually confused, the court may have ruled in favor of Midwest.

Several weeks ago, on November 9, 2009, the United States Supreme Court heard oral argument in a key patent case. The case is Bilski v. Kappos (the USPTO). The issue before the Court was whether the Court should reverse the Federal Circuit’s “machine-or-transformation” test for the patentability of process inventions. The Supreme Court’s decision will determine the extent to which processes (or methods), particularly business methods, are patentable.

Bilski filed a patent application for a method of hedging the risks in commodities trading. The Patent and Trademark Office rejected the claims as unpatentable on the grounds that the invention was an abstract idea. The Board of Patent Appeals and Interferences affirmed the rejection. The Federal Circuit Court of Appeals, in an en banc decision in 2008, affirmed the rejection. The court established a new test for the patentability of process inventions called the “machine-or-transformation” test. Pursuant to the new test, in order to be patentable, a process must either: (1) transform an article from one state into another state; or (2) be tied to a specific machine. 

Bilski appealed to the Supreme Court. Over 60 amicus curiae briefs were filed. 

At oral argument Bilski’s attorney, J. Michael Jakes, argued that the Supreme Court should reverse the machine-or-transformation test as being too rigid and not based on the statutes that define patentable subject matter (35 USC § 101). He argued that § 101 was intended to be read broadly to allow for inventions in new areas of technology. He emphasized that the machine-or-transformation test, which applies only to processes and not to other types of patentable subject matter, is not based on Supreme Court precedent or on the patent statutes. 

Several Justices appeared skeptical that all processes should be patentable. They suggested that Bilski’s approach would result in every successful businessman having a patentable invention. The Justices asked what the limits on patentability should be.

Mr. Jakes argued that there are limits as to what is patentable. He said that, for example, the fine arts are not patentable. The Justices then asked whether human activities should be patentable. Mr. Jakes answered that they are patentable, and as an example, cited surgical methods performed by doctors. When pressed by Justices Breyer and Stevens as to what should be patentable, Mr. Jakes stated that the rule was set forth in Diamond v. Diehr.  In that case, the Court specifically identified what is not patentable, such as abstract ideas. Justice Ginsburg asked Mr. Jakes why the Court could not adopt a system similar to that in Europe, in which business methods have been held not patentable. Mr. Jakes responded that the European system is based on a definition of “technology” that excludes business methods and that the U.S. cannot adopt. 

The Justices challenged Mr. Jakes to explain the advantages of providing patent protection to inventions. Mr. Jakes explained that there are two advantages: the patent laws encourage people to invent and also force a disclosure of new inventions to the public. In response, Justice Breyer said that there are also two disadvantages to the patent laws: patents result in higher prices for products, which results in less use of those products, and the licensing process is too time-consuming. 

The deputy Solicitor General, Malcolm Stewart, represented the PTO. He argued that the machine-or-transformation test is not rigid. He explained that the Court did not need to decide the harder question of what to do if part of a process is tied to a machine and part of a process is not. 

Justice Sotomayor asked Mr. Stewart if it wouldn’t be safer to simply exclude all business methods from patent protection. Mr. Stewart replied that that would not be correct because it would eliminate claims to new machines or software that are patentable. 

The Justices then questioned Mr. Stewart extensively about the State Street Bank case. Mr. Stewart explained that under the machine-or-transformation test, the result in State Street Bank would be the same. He said that the claims in that case were patentable because they were directed to a machine, not a process. 

When pushed by the Justices, Mr. Stewart stated that Bilski was not the right case for the Court to address the “hard questions” concerning the patentability of software or medical diagnostics. He argued that these questions should be left unresolved for another case. Justice Ginsburg stated that the Federal Circuit had indicated that the machine-or-transformation test was sufficient for the invention before it and that other types of inventions could be addressed as the cases arose. She concluded that the Court could decide Bilski without addressing those difficult questions. 

Mr. Stewart concluded by stating that the economic history of the United States would have been very different had people believed that process inventions like Bilski’s could be patented and that competitors could be precluded from using such methods.

On rebuttal, Mr. Jakes stated that the difficult questions must be faced now because the Federal Circuit has established the machine-or-transformation test as the proper test for all process inventions. He said that the proper question before the Court was whether Bilski’s invention is an abstract idea. He further argued that the test should not be whether an invention is transformed, but whether it is a practical application of a useful result. 

The commentators do not agree on how the Court will decide Bilski. Some believe that the Court will strike down all business methods, while others believe that the Court will further modify the machine-or-transformation test to allow such patents.

A central issue in all trade secret litigation is the adequacy of plaintiff’s pre-discovery disclosure of the alleged trade secrets. The Fourth District Court of Appeal has contributed to the growing body of case law interpreting the adequacy of the initial trade secret disclosure required by California Code of Civil Procedure section 2019.210. (Perlan Therapeutics v. Superior Court of San Diego County (November 4, 2009), 178 Cal.App.4th 1333.) Section 2019.210 provides that a plaintiff suing for misappropriation of trade secrets must identify the alleged trade secrets with “reasonable particularity” before commencing discovery. The Perlan decision joins two other recent decisions evaluating the particularity required in the plaintiff’s trade secret disclosure. (See Brescia v. Angelin (2009) 172 Cal.App.4th 133 and Advanced Modular Sputtering, Inc. v. Superior Court (2005) 132 Cal.App.4th 826.) The Perlan court analyzes the Brescia and Advanced Modular decisions in addressing critical procedural and substantive questions.

The defendants attacked the amended trade secret statement, stating that it “remains a non-committal collection of loosely worded conclusory allegations.” Defendants demanded a clear explanation of the particular substances and processes at issue, arguing that plaintiff’s descriptions were not reasonably particular and were not sufficient as to distinguish that information the description from matters generally known in the scientific field.

The purpose of section 2019.210 has been outlined by the court in Advanced Modular. Those four purposes include: (1) promoting well-investigated claims and discouraging the filing of meritless trade secret complaints; (2) preventing plaintiffs from abusing the discovery process to learn about defendants’ trade secrets; (3) framing the issues in order to place reasonable limitations on discovery from defendants; (4) allowing defendants to formulate well-reasoned defenses and not have to wait until the eve of trial. (Id. at 1343, citing Advanced Modular, supra, 132 Cal.App.4th at 833-34.)

The Perlan court analyzed what has been described as the “’ubiquitous’ problems of litigating the appropriate scope and timing of trade secret identification.” (Id. at 1344.) Plaintiffs rarely provide detailed descriptions of the alleged trade secrets without court order. They do so for numerous reasons, some more legitimate than others. Plaintiffs do not want to be tied down early on in the litigation in the hope of amending or refining their contentions as the litigation and discovery progress. Plaintiffs also have the legitimate concern that, in the event defendants did not completely misappropriate their trade secrets, a detailed description in the section 2019.210 statement will give defendants the valuable element they did not steal. Plaintiffs are also justifiably concerned that the detailed disclosure might somehow be leaked to the public, thereby depriving plaintiffs of the economic value of the trade secret. 

The trial court in Perlan held that plaintiff’s amended statement failed to describe the alleged trade secret with reasonable particularity and failed to demonstrate that the information disclosed was not generally known to the public. The appellate court affirmed the ruling and relied on the prior decisions in Advanced Modular and Brescia in doing so. The Perlan decision is useful in that it summarizes both the procedural issues related to the appellate review as well as the substantive issues relating to the adequacy of the disclosure. 

The Perlan court held that the adequacy of a section 2019.210 statement is a discovery issue and discovery rulings are reviewed for an abuse of discretion, citing Scripps Health v. Superior Court (2003) 109 Cal.App.4th 529, 533. However, the court in Advanced Modular and in Brescia reviewed the legal questions de novo, and the plaintiff in Perlan argued that the Court should do the same. The Perlan court noted that Advanced Modular and Brescia correctly applied the de novo standard of review, but only because the trial courts in those cases applied an improper legal meaning of “reasonably particular.” In Advanced Modular, the trial court erroneously weighed the conflicting testimony from a competing expert and, in Brescia, the trial court conducted a mini-trial seeking an explanation how the trade secrets which Brescia had described with precision differed from publicly-available information. Those trial courts applied an incorrect interpretation of “reasonable particularity,” which those appellate courts correctly reviewed de novo. However, the Perlan court found that the trial court had applied the correct legal standards and, therefore, it was obligated to review the decision under the abuse of discretion standard.

The Perlan court noted that neither Brescia nor Advanced Modular provides an easy answer to the substantive question of whether the plaintiff’s statement was sufficiently detailed. Advanced Modular held that the section 2019.210 disclosure does not require “every minute detail” of the trade secret or the “greatest degree of particularity possible.” (Advanced Modular, supra, 132 Cal.App.4th at 835-36.) Section 2019.210 also does not require a mini-trial on the merits of the misappropriation claim before discovery can begin. However, the Advanced Modular court also held that, where “the alleged trade secrets consist of incremental variations on, or advances in the state of the art in a highly specialized technical field, the more exacting level of particularity may be required to distinguish the alleged trade secrets from matters generally known to people skilled in the field.” (Id. at 836.) The Advanced Modular court went on to hold that the trial court applied the wrong legal standard in weighing the conflicting testimony of experts as to whether the section 2019.210 disclosure, although reasonably particular, actually disclosed information not generally known to the public. In that context, the court held that the trial court committed reversible error in improperly weighing the conflicting testimony of the parties’ respective experts. 

In Brescia, the plaintiff claimed a trade secret in its pudding formula and manufacturing process and disclosed the precise recipe and process in its section 2019.210 disclosure. Despite this exacting disclosure, the trial court found that Brescia’s disclosure was silent on the question of whether the recipe was known to persons knowledgeable in the field. The appellate court disagreed, holding that section 2019.210 does not create a mechanism by which a defendant can litigate the ultimate merits of the case – for example, whether the precise formula at issue was actually a trade secret. The precise recipe identified by Brescia was certainly sufficient to allow a defendant to formulate a defense and to investigate whether the recipe was within the public domain and was, therefore, not a trade secret.

After reviewing this precedence, the Perlan court found that plaintiff’s trade secret designation did not comply with the standards of section 2019.210 in that the statement was not “succinct” because it contained numerous pages of surplusage, including objections, qualifications, allegations, and references to hundreds of pages of documents. The Perlan court held that the exactitude used by plaintiff in Brescia in reciting its exact pudding recipe was not legally required by section 2019.210, but certainly more specificity was required of the plaintiff. The court found that a highly-specialized technical field like this one does require a more exacting level of particularity to describe the trade secret and to identify what is known to persons knowledgeable in the field, citing Advanced Modular.

The lessons to glean from Perlan is that the section 2019.210 statement must describe the alleged trade secret concisely and with clarity, but need not include “every minute detail.” If more than one trade secret is alleged, the individual trade secrets must be segregated and not blended together. The section 2019.210 statement should further describe how the trade secrets differ from publicly-available knowledge. Lastly, the disclosure must not contain unnecessary surplusage and should avoid documents that require the court and the defendant to guess which specific reference might constitute the alleged trade secrets. As the court stated, “Perlan [is not] entitled to hide its trade secrets in ‘plain sight’ by including surplusage and voluminous attachments in its trade secret statement.” (Perlan, supra, at 21.)

The Perlan decision includes a final discussion that should impact a litigant’s decision on whether to seek writ relief related to the adequacy of the section 2019.210 disclosure. The plaintiff in Perlan argued that it would suffer undue prejudice if forced to disclose the additional information about a trade secret before commencing discovery. The appellate court was not sympathetic, finding that once discovery commences, plaintiff will be required to provide responses to interrogatory and document demands that will require disclosure of the alleged trade secrets in exacting detail. The tactical advantages concerning when the detailed information was provided is generally not sufficient to warrant extraordinary appellate relief.  That reasoning would apply equally to a defendant contemplating extraordinary relief. A defendant can always obtain detailed information later by way of interrogatories, requests for admission, and document demands, and the tactical advantage of having the plaintiff disclose the alleged trade secret with more detail at the outset generally should not warrant extraordinary relief.

By Zachary Wadlé

Most people are familiar with the concept of trademarks in the form of logos or words.  But intellectual property can also be embodied in sounds not represented by words and drawings, but rather musical notes and/or auditory tones.  While sound marks are not nearly as common as word marks, many sound marks are immediately recognizable, including Southwest Airline’s “Ding!,” MGM's roaring lion, AOL’s “You've got mail,” the Pillsbury Doughboy’s giggle, NBC’s chimes, Nokia’s default cell phone ringtone, and the Harlem Globetrotter’s theme song.  However, the legal requirements to register such sound marks are different than word marks, and much less well-defined by the courts.

In sum, if a sound can be readily associated with the source of a product or service in the minds of consumers, it can potentially serve as a trademark.  Therefore, to be protected, sound marks must be a distinctive source identifier – as in, when you hear the DING!, you know it’s Southwest Airlines. But a different spectrum of distinctiveness than that applied to traditional word marks is followed in the case of sound marks. The U.S. Trademark Trial and Appeal Board (TTAB) has defined the spectrum as the distinction between “unique, different, or distinctive” sounds on the one hand and “commonplace” sounds on the other hand. Unfortunately, no further explanation of this distinction has been made by the courts. The most that can be said is the former are inherently distinctive and thus do not require secondary meaning, while the latter require secondary meaning to demonstrate distinctiveness. Secondary meaning for sounds has been described as whether consumers “recognize and associate the sound with the offered services . . .exclusively with a single, albeit anonymous, source.” In re General Electric Broadcasting Co. at 563.

Presuming that an applicant for a sound mark can demonstrate distinctiveness, often times the applicant must then address a registration refusal based on the doctrine of functionality.  In the case of sound marks, the functionality doctrine primarily comprises “utilitarian functionality” which can defeat a mark containing a product feature that “is essential to the use or purpose of the article or . . . affects the cost or quality of the article.” Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844, n.10 (1982).

Harley-Davidson dealt with the functionality hurdle when it applied to register “the exhaust sound of applicant’s motorcycles, produced by V-twin, common crankpin motorcycle engines when the goods are in use,” and was opposed by several other competing motorcycle companies. See Kawasaki Motors Corp. v. H-D Michigan, Inc., 43 U.S.P.Q.2d 1521 (T.T.A.B. 1997); Honda Giken ogyo Kabushiki Kaisha v. H-D Michigan Inc., 43 U.S.P.Q.2d 1526 (T.T.A.B. 1997). The opposing parties argued that the exhaust sound proposed to be trademarked by Harley was purely functional because it merely the sound produced by any engine of that type. Ultimately, the question of whether the Harley exhaust sound was functional was never decided because Harley abandoned its trademark application in the face of substantial opposition. Regardless, the issue of functionality is an important issue to consider when contemplating a sound mark. There are many products and services that create a unique sound that consumers recognize as an indication of unique source. The question then becomes how functional is that sound when produced. If the sound is merely functional, registration of the mark may be difficult.

In today’s business environment, considerable money is spent so that products and services can not only be seen, but also “heard” by consumers. If you have associated your business with a unique, non-functional sound, it may be worth registering your sound mark to ensure that the sound of your business remains your own.

Section 2019.210 of the Code of Civil Procedure requires that a plaintiff identify its alleged trade secrets with “reasonable particularity” before that party can commence discovery on its claims based upon trade secret misappropriation. In Perlan Therapeutics, Inc. v. Superior Court (NexBio, Inc.), a California appellate court revisited the requirements of section 2019.210 and held that a trial court has “broad discretion” in determining whether a plaintiff has complied with its obligations under section 2019.210. 

Perlan attempted to conduct discovery after providing an initial 2019.210 trade secret disclosure statement but defendants moved for a protective order.   Perlan then amended its 2019 statement which was again met with a motion for protective order. Perlan’s amended trade secret statement consisted of a “preliminary statement” and “general objections” that often appear in typical discovery responses. The rest of the amended trade statement consisted of four pages, much of which repeated the narrative in the second amended complaint and provided additional technical details concerning the trade secrets that was also publicly available. The statement continued to provide additional details about an invention and related processes that were not included in the second amended complaint but contained only general descriptions and did not provide the specific identification of particular ingredients used in the process. The statement concluded by claiming that the trade secrets also included “all related research, development, advancements, improvements and processes related thereto.” 

In granting the defendant’s motion for protective order and thus preventing plaintiff from engaging in discovery, the Court concluded that Perlan “failed to demonstrate that the purported trade secret(s) is not generally known to the public or to other persons who can obtain economic value from its disclosure or use.” The Court also held that, although plaintiff was pursuing a claim for the misappropriation of several trade secrets, “the statement has not clearly identified all of the trade secrets at issue.” After the Court granted the protective order, plaintiff filed a petition for a writ of mandate challenging the Court’s discovery order. 

The reviewing Court noted that although “writ proceedings are not the favored method for reviewing discovery orders,” it published “this opinion to emphasize that trial courts still have broad discretion under section 2019.210.” The Court began by noting the purpose of section 2019.210 was to: (1) Promote well-investigated claims and dissuade the filing of meritless trade secret complaints; (2) prevent plaintiffs from using the discovery process as a means to obtain the defendant’s trade secret; (3) assist the court in framing the appropriate scope of discovery and in determining whether plaintiff’s discovery requests fall within that scope; and (4) enable defendants to form complete and well-reasoned defenses. With these considerations in mind, the Court, after reviewing the record, concluded “(1) Perlan has the ability (but not the inclination) to provide clearer, more specific information about at least one of its alleged trade secrets; and (2) although Perlan lacks any particular information beyond three purported trade secrets, Perlan wishes to reserve the right to unilaterally amend (without leave of the Court) its identification so it can broaden its lawsuit to include claims it hopes to develop in discovery.” In reaching this conclusion, the Court reviewed two recent California appellate decisions, Advanced Modular Sputtering, Inc. v. Superior Court (2005) 132 Cal.App.4^th 826 and Brescia v. Angelin (2009) 172 Cal.App.4^th 133.

The Court noted that the Advanced Modular court observed that “the letter and spirit of section 2019.210 require the plaintiff … to identify or designate the trade secrets at issue with ‘”sufficient particularity’” to limit  the permissible scope of discovery by distinguishing the trade secrets ‘”from matters of general knowledge in the trade or of special knowledge of those persons … skilled in the trade.”’” The Court noted that although trade secret identification does not require “every minute detail” of the trade secret to be disclosed or the “greatest degree of particularity possible,” nor does it envision a “miniature trial on the merits of a misappropriation claim before discovery ay commence,” the Court noted that where the alleged trade secrets consist of incremental variations on, or advances in the state of the art in a “highly specialized technical field;” then “a more exacting level of particularity may be required to distinguish the alleged trade secrets from matters already known to persons skilled in that field.” 

Likewise, in reviewing the Brescia decision, the Court recognized that section 2019.210 “does not create a procedural device to litigate the ultimate merits of the case – that is, to determine as a matter of law on the basis of evidence presented whether the trade secret actually exists.” The Court noted that the Brescia court rejected the theory “that a trade secret claimant must, in every case, explain how the alleged trade secret differs from information available in the public domain.” 

In light of these decisions, the Perlan court concluded that the legal interpretation of “the meaning of section 2019.210’s `reasonable particularity’ requirement” is a de novo review. However, a trial court’s determination of whether a party has complied with 2019.210 which does not include an improper understanding of the legal meaning of “reasonably particular” will be reviewed only for an abuse of discretion. The Perlan court noted that “so long as a trial court applies the correct legal standard and there is a basis in the record for its decision, appellate courts should not micromanage discovery. Rather, the trial court must exercise its sound discretion in determining how much disclosure is necessary to comply with section 2019.210 under the circumstances of the case.” 

With that standard in mind, the Perlan court concluded that the trial court correctly determined that Perlan’s amended trade secret disclosure statement was inadequate. First, Perlan did not identify all of its trade secrets that it claimed to have been misappropriated. Second, Perlan was not entitled to include broad “catch all” language as a tactic “to preserve an unrestricted unilateral right to subsequently amend its trade secret statement.” The Court cautioned that if plaintiff did not known what its only trade secrets were, it had no basis to allege that defendants misappropriated them. The Court also noted that, if Perlan uncovered additional evidence during discovery that more of its trade secrets had been misappropriated, “it may have good cause to amend its trade secret statement under appropriate circumstances.”

Finally, the Court noted that Perlan was not being required “to convince defendants or the court in its section 2019.210 statement that its alleged trade secrets are not generally known to the public. This is an element of their case that must be proven, but not at the pre-discovery stage of the action.” The Court recognized, however, that the trial court was “simply applying the rule that in a `highly specialized technical field’ (such as developing protein based treatments for viral infections) a more exacting level of particularity may be required to distinguish the alleged trade secrets from matters already known to persons skilled in that field.”

The Perlan decision reminds plaintiffs of their duty to identify their alleged trade secrets with reasonable particularity and that a determination of whether this requirement has been satisfied will be left to the broad discretion of the trial court. In cases involving “highly specialized” fields of expertise, a plaintiff may wish to error on the side of caution and provide more detail about its alleged trade secrets because the trial court may place a greater burden on the party to make a detailed disclosure prior to allowing discovery to commence.

Recently the 7^th Circuit in Sunstar, Inc. v. Alberto-Culver Company provided a reminder to attorneys engaging in a business transaction between domestic and a foreign parties. Stated plainly, the 7^th Circuit reminded business attorneys that if a term is included in a transaction document – especially if that term is a foreign word – be sure you understand what it means. This case presented the question of how a foreign legal term included in a trademark license agreement should be interpreted where the choice of law for such agreement was Illinois state law. 

Additionally, the license agreement refers to the license granted to Sunstar as a senyoshiyoken, which in English means “exclusive use rights.” According to Japanese trademark law, the holder of a senyoshiyoken not only has an exclusive right to use the licensed trademarks within the geographical scope of the license but, holds other rights and privileges such as the right to sue infringers of the trademarks in its own name. Under Japanese trademark law, the holder of a senyoshiyoken is treated, in certain circumstances, as if they were the trademark owner.

In 1999 Sunstar began using a variant of the Alberto-Culver’s V05 mark. Sunstar described it as a “modernized” version of the licensed trademark. Alberto-Culver refused to amend the license agreement to permit Sunstar to use the modernized version and considered such use a breach of the license agreement. Sunstar filed suit seeking a declaration that Sunstar’s use of the modernized version of the mark was permitted by the license and as a holder of a senyoshiyoken.

At the District Court, Albert-Culver took the position that the parties used the term “senyoshiyoken” merely to indicate that Sunstar could register the license with the Japanese trademark office and that the term did not confer on Sunstar the rights that a senyoshiyoken confers on a holder under the Japanese law. The District Court agreed and refused to instruct the jury on the legal meaning of the Japanese term. 

On appeal, the 7^th Circuit found fault with the District Court and stated that it could not find any basis for the proposition that the term senyoshiyoken should be defined as suggested by Alberto-Culver. The court noted that when parties to a contract, especially sophisticated parties, use a technical term there is a presumption that they are using it in its technical sense.  Where a technical term also happens to be a foreign term the presumption is that it is used in its foreign technical sense. Here, the 7^th Circuit noted that the parties were using a foreign technical legal term, and despite that the contract calls for Illinois law to govern, the meaning of senyoshiyoken is to be determined under Japanese trademark law. (The court noted that the parties certainly could not have meant that the meaning of senyoshiyoken would be decided under Illinois law as the word has no meaning under Illinois law.) 

Accordingly, the court turned to Japanese trademark law to determine whether the holder of a senyoshiyoken is permitted to use variants of the license the trademark. After reviewing various scholarly articles on Japanese trademark law, the court determined that as a holder of a senyoshiyoken, the Japanese rule of law would allow the type of changes that Sunstar sought to make to the licensed trademarks. Under Japanese trademark law (as well as under U.S. trademark law) the change Sunstar sought to make, notably a change in the trademark typeface, is not considered a material alteration of the original trademark. The court further explained that the longer the term of the license, the less plausible it is to assume that, in the absence of an express prohibition, the license was forbidden to make small changes to the licensed trademark. Here, the court noted that the license was for 99 years and changes in language, typeface, marketing methods, and trademark styles would be likely and would require the modification to the wording or appearance of the licensed mark in order to enable the branded product to be marketed effectively. 

Although in this case both U.S. and Japanese law were the same, the 7^th Circuit’s holding would allow for a situation where a foreign legal term, interpreted pursuant to the laws of its home nation, could result in a determination that would otherwise not occur under U.S. law. Thus, where foreign counsel insists on the inclusion of a foreign legal term U.S. counsel should be certain how that term will affect the transaction under the laws of the foreign nation.

By Jeff Pietsch

Not all trademark law is aimed at protecting consumers. The Federal Trademark Dilution Act (“Act”) is aimed at protecting a company’s property right in its trademark. Dilution is defined as “the lessening of the capacity of a famous mark to identify and distinguish goods or services, regardless of the presence or absence of competition between the parties or the likelihood of confusion, mistake or deception.” In essence, dilution forbids the use of a famous trademark by others in any manner that lessens the uniqueness of the mark. Again, the purpose of the dilution doctrine is not to protect the consumer, but to protect the property right and goodwill that a company has developed in a mark.

Besides blurring, dilution can be caused by tarnishment. Tarnishment occurs when the trademark is used in an unsavory or unflattering manner. In a case last year, Hershey, the chocolate maker, claimed that an individual sold marijuana in packages that resembled Hershey products, the Hershey trademark was degraded by such use.

In order for a trademark owner to succeed on a trademark dilution claim, it must satisfy the elements of the claim. The first and most important aspect of a dilution claim is that the mark must qualify as a distinctive and famous mark. The Act states that courts should consider, but are not limited to, eight factors. These are:

1.       The degree of inherent or acquired distinctiveness of the mark

2.       Duration and extent of the use of the mark in connection with the goods and services

3.       Duration and extent of advertising and publicity of the mark

4.       Geographical extent of the trading area in which the mark is used

5.       Channels of trade for the goods or services for which the mark is used

6.       Degree of recognition of the mark in the trading areas and channels of trade used by the mark’s owner and the person against whom the injunction is sought

7.       Nature and extent of use of the same or similar marks by third parties; and

8.       When and how the mark was registered.

From these eight factors, it is clear that Hershey’s, in the above case, would constitute a famous mark based on its duration of use of its mark along with its advertising and publicity.

The traditional remedy in dilution cases is an injunction against the trademark violator. In addition, monetary damages may be rewarded if the defendant is found to have willfully intended to trade on the trademark owner’s reputation or to cause dilution of the famous mark. 

By Audrey Millemann

One of the requirements for obtaining a patent is enablement. As set forth in 35 U.S.C. §112, ¶1, the specification of the patent must teach a person skilled in the art how to make and use the invention without undue experimentation. The enablement requirement must be satisfied at the time the patent application is filed for each claim. If a claim in a patent is not enabled, it is invalid.

“A method of treating Alzheimer’s disease and related dementias which comprises administering to a patient suffering from such a disease a therapeutically effective amount of galanthamine or a pharmaceutically-acceptable acid addition salt thereof.”

The patent application was filed on 1986. The specification was slightly longer than one page and contained brief summaries of six scientific articles which discussed the use of galanthamine on humans or animals for various purposes. None of the six articles addressed the treatment of Alzheimer’s or dementia or the potential of galanthamine to treat those diseases.

The PTO examiner rejected the original claims on the grounds of indefiniteness and obviousness. The claims were found to be indefinite because they covered a method of “treating and diagnosing” Alzheimer’s and the examiner stated that diagnosis was not related to treatment. The obviousness rejection was based on several of the scientific articles disclosed in the specification which addressed the treatment of memory loss in animals. 

In response to the office action, the inventor deleted the word “diagnosis” so that the claims covered only the treatment of Alzheimer’s, which overcame the indefiniteness rejection. The inventor overcame the obviousness rejection by asserting that the scientific studies on memory loss had no relevance to Alzheimer’s because they were conducted under unrelated circumstances. The inventor also stated that experiments on animal models related to Alzheimer’s had begun. 

The patent was allowed and issued in 1987. The research on the animal models was not completed by the time the patent issued and was not provided to the PTO.

The inventor later licensed the patent to Janssen. Janssen then obtained FDA approval to treat Alzheimer’s with galanthamine. Shortly thereafter, several drug companies filed abbreviated new drug applications for generic versions of galanthamine. Janssen sued these companies for patent infringement. 

At a bench trial, the defendants admitted infringement, but asserted that the patent was invalid as anticipated, obvious, and not enabled. The district court found that the patent was not anticipated or obvious but was invalid on the grounds that it was not enabled. The court held that the specification lacked utility, as the animal tests were not done, and that it was not enabled because it did not describe the dosage to be used. 

Janssen appealed. The Federal Circuit Court of Appeals affirmed the trial court’s decision. 

The Court of Appeals discussed both the enablement and utility requirements: 

“The utility requirement prevents mere ideas from being patented. As we noted in Genentech, Inc. v. Novo Nordisk A/S, 108 F.3d 1361, 1366 (Fed. Cir. 1997), ‘patent protection is granted in return for an enabling disclosure of an invention, not for vague intimations of general ideas that may or may not be workable…Tossing out the mere germ of an idea does not constitute enabling disclosure.’”

The court further stated:

“The utility requirement also prevents the patenting of a mere research proposal or an invention that is simply an object of research. Again as the Supreme Court stated in Brenner ‘a patent is not a hunting license. It is not a reward for the search, for compensation for its successful conclusion.’ [Citation omitted.] A process or product ‘which either has no known use or is useful only in the sense that it may be an object of scientific research’ is not patentable. [Citation omitted.] As we observed in Fisher, inventions do not meet the utility requirement if they are ‘objects upon which scientific research could be performed with no assurance that anything useful will be discovered in the end.’”

The court explained that patent applications for methods of treating diseases usually include test results to satisfy the utility requirement. The test results need not be Phase II (human trials), but rather may be from animal tests or in vitro research. 

The court found that the patent application, however, did not include any test results. The six scientific articles clearly did not provide evidence of utility because the inventor had stated during the prosecution of the patent that those references did not relate to the method of the invention and did not render it obvious. 

Janssen argued that utility was demonstrated by analytic reasoning and that test results were not necessary. The court noted that Janssen’s suggested reasoning was not included in the specification and was therefore irrelevant. 

The court concluded:

“Thus, at the end of the day, the specification, even read in the light of the knowledge of those skilled in the art, does no more than state a hypothesis and propose testing to determine the accuracy of that hypothesis. That is not sufficient. [Citation omitted.] ‘If mere plausibility were the test for enablement under §112, applicants could obtain patent rights to “inventions” consisting of little more than respectable guesses as to the likelihood of their success. When one of the guesses later proved true, the “inventor” would be rewarded the spoils instead of the party who demonstrated that the method actually worked.’” 

“[A] party may obtain discovery of documents and tangible things otherwise discoverable under [Rule 26(b)(1) of the Federal Rules of Civil Procedure] and prepared in anticipation of litigation or for trial by or for another party or by or for that other party’s representative . . . only upon a showing that the party seeking discovery has substantial need of the materials in the preparation of the party’s case and that the party is unable without undue hardship to obtain the substantial equivalent of the materials by other means.”

Fed. R. Civ. P. 26(b)(3)(emphasis added). Among other things, the purpose of this doctrine is “to preserve a zone of privacy in which a lawyer can prepare and develop legal theories and strategy ‘with an eye toward litigation’ free from unnecessary intrusion by his adversaries.” United States v. Adlman, 134 F.3d 1194, 1196 (2d Cir. 1998) (citing Hickman v. Taylor, 329 U.S. 295, 510-11 (1947)). Unlike the attorney-client privilege, which protects all confidential communication between a client and his or her attorney in connection with legal advice sought by the client, the attorney work product doctrine’s protections are far narrower. The latter’s protections apply only to documents prepared by attorneys for their clients in anticipation of litigation or for trial. Textron, 577 F.3d at 30-31. 

In determining whether a document was prepared “in anticipation of litigation,” courts have utilized two different tests: (1) the Fifth Circuit’s “primary purpose” test, under which documents are deemed to be prepared in anticipation of litigation when the “primary motivating purpose behind the creation of the document was to aid in possible future litigation.”  United States v. El Paso Co., 682 F.2d 530, 542 (5th Cir. 1982); and (2) the “because of” test, where the “relevant inquiry is whether the document was prepared or obtained ‘because of’ the prospect of litigation.”  United States v. Textron Inc. and Subsidiaries, 507 F.Supp.2d 138, 149 (D.R.I. 2009) (citing Adlman, 134 F.3d at 1205). The First Circuit has adopted the “because of” test. Maine v. Dept. of the Interior, 298 F.3d 60, 68 (1st Cir. 2002).  

Other circuits, including the Ninth, have also adopted the “because of“ standard, which, rather than considering “whether litigation was a primary or secondary motive behind the creation of a document,” considers “the totality of the circumstances and affords protection when it can fairly be said that the ‘document was created because of anticipated litigation, and would not have been created in substantially similar form but for the prospect of that litigation.’”  In re Grand Jury Subpoena, 357 F.3d 900, 907-08 (9th Cir. 2004) (citations omitted); see, also, Logan v. Commercial Union Ins. Co., 96 F.3d 971, 976-77 (7th Cir. 1996) (adopting “because of” test); PepsiCo, Inc. v. Baird, Kurtz & Dobson LLP, 305 F.3d 813, 817 (8th Cir. 2002) (adopting the “because of” test). Given that the “because of” standard does not consider whether the primary motive behind the document creation was litigation, it is arguably a more protective standard than the “primary purpose” one, especially with respect to dual purpose documents.

Publicly traded companies like Textron must prepare audited financial statements to comply with federal securities laws.  Textron, 577 F.3d at 22 (citing 15 U.S.C. §§ 78l, 78m (2006)). In doing so, the company “must calculate reserves to be entered on the company books to account for contingent tax liabilities.” The possibility and amount of the company’s potential future tax liabilities is often the subject of both legal and financial analysis.  Textron, 577 F.3d at 22-23. After the Enron debacle, the IRS began obtaining companies’ tax accrual work papers if the IRS suspected the company had engaged in transactions that the IRS considered to be tax avoidance transactions.  Id., citing 26 C.F.R. § 1.6011-4(b)(2)(2009)). In Textron, the IRS determined that Textron had engaged in a number of sale-in, lease-out (“SILO”) transactions – transactions deemed by the IRS to be tax avoidance transactions.  Textron, 577 F.3d at 23-24.

The IRS sought accounting work papers, but also sought copies of memoranda prepared by Textron’s in-house expressing their judgments regarding Textron’s chances, in percentage terms, of prevailing in any possible litigation and calculating a tax reserve amount in the event Textron did not prevail in such litigation.  Textron and Subsidiaries, 507 F.Supp.2d at 142-43. The IRS also sought work papers “consisting of the previous year’s spreadsheet and earlier drafts of the spreadsheet together with notes and memoranda written by Textron’s in-house tax attorneys, reflecting their opinions as to which items should be included in the spreadsheet and the hazard of litigation percentage that should apply to each item.” Id. at 143. Textron refused to produce the documents, claiming, among other things, that the documents were privileged attorney work product.  Textron, 577 F.3d at 25. The IRS brought an enforcement action in federal court to obtain the work papers.  Id. The district court denied the IRS’ petition, concluding that the papers were protected by the work product doctrine.  Id. On appeal, a divided 1st Circuit court upheld the district court’s decision.  Id.

The IRS sought, and was granted, a rehearing en banc. The Court found that, based on the evidence presented in the trial court, that the purpose of the work papers was to make financial entries, to file quarterly and annual financial statements with the SEC, and to obtain a clean audit.  Id. at 27. Textron’s director of tax reporting also testified that Textron, as a publicly traded company, was required to file its financial statements with the SEC, including any tax reserves.  Id. at 28. The Court rejected the claim of privilege finding that “only work done in anticipation of or for trial . . . is protected.”  Id. at 30. The Court even ordered the attorney memorandum evaluating the chances of prevailing in any future litigation.

The Court observed that, in adopting FRCP 26, the advisory committee noted that “materials assembled in the ordinary course of business, or pursuant to public requirements unrelated to litigation, or for other nonlitigation purposes,” even if prepared by attorneys or representing legal thinking, are not protected by the work product doctrine.  Id., quoting Fed. R. Civ. P. 26 advisory committee’s note (1970). The Court stated that Textron’s tax audit work papers were prepared in the ordinary course of business, and “would have been created in essentially similar form irrespective of the litigation.”  Textron, 577 F.3d at 30, citing Maine, 298 F.3d at 70. The Court further determined that the “only purpose of Textron’s papers was to prepare financial statements” and that there was no evidence in this case that the work papers were prepared for potential use in litigation.  Id. The Court concluded that the work product doctrine is not “designed to help the lawyer prepare corporate documents or other materials prepared in the ordinary course of business,” especially when there is “a legal obligation to prepare such papers.”  Id. at 31. In Textron’s case, the tax audit papers had to be prepared to comply with the securities laws and accounting principles for certified financial statements. Id. In short, the court concluded that the work product doctrine protects “work done for litigation, not in preparing financial statements.”  Id. at 31.

In its most liberal construction, it is possible that the ruling could make all documents created by attorneys in the normal course of business discoverable. Alternatively, the ruling can be narrowly read as limited to the tax context. The Court noted that its decision, at least in part, rested on public policy grounds – “[u]nderpaying taxes threatens the essential public interest in revenue collection.”  Id. Further, the opinion notes that “[o]ther circuits have not passed on tax audit work papers and some might take a different view.”  Id. at 30 (emphasis added).  The opinion also discusses that the “work product protection for tax audit work papers has been squarely addressed only in two circuits,” the First and the Fifth.  Id. (emphasis added).  Thus, while other circuits have ruled on the applicability of the attorney work product doctrine as it applies to dual documents in general, only the First and Fifth circuits have ruled on the doctrine’s applicability to tax audit work papers, which arguably makes the Court’s opinion more narrow. Given the First and the Fifth Circuit split, the decision could possibly be reviewed by the Supreme Court. In the interim, this ruling makes tax accrual work papers prepared by in-house attorneys potentially discoverable in litigation.  

To safeguard both attorney-client privilege and work product, in-house and outside counsel should use caution in preparing memoranda or letters to be placed within accounting records to support management positions and judgments, and should not communicate with outside auditors with respect to interpretations and judgments or conclusions. These judgments are to be made by management of a company (with or without consulting counsel).  Counsel’s written memoranda and letters to the client should always be framed in anticipation of a challenge in positions where questions on treatment or judgment may be challenged, and circulation of such guidance should be limited. Still, regardless of how the courts apply the attorney work product doctrine, it is important to note that the decision does not alter other confidential communications between clients and attorneys under the more traditional attorney client privilege.

*David Muradyan and Sara Davidson have recently joined the Weintraub firm and are awaiting their Bar results.

By Zachary J. Wadlé

Missouri teenager Jimmy Winkelmann grew weary of his high school classmates’ blind and materialistic infatuation with The North Face products, and decided something had to be done. Mr. Winkelmann’s answer was to come up with his own competing apparel line to mock the ubiquitous North Face fleece jackets found on his high school campus. He called his line “The South Butt” and designed a suspiciously similar logo to that of The North Face.

The North Face apparently does not want people thinking about alternatives. In August, lawyers for The North Face sent Winkelmann a cease and desist letter requesting that Winkelmann stop using The South Butt name, and The South Butt logo. There are undoubtedly similarities between the two logos. Both logos are red squares with white lettering and design. The North Face logo features a half-dome with three ridges. The South Butt logo uses a similar design, but upside down, and with two ridges that Winkelmann confirmed are meant to infer “butt cheeks.”

The North Face’s counsel wrote to Winkelmann that the companies' logos are similar enough to possibly cause "consumer confusion as to the source, sponsorship or affiliation of particular promotions and services that could dilute or tarnish the distinctive quality of the famous and distinctive [The North Face] marks." The North Face requested that Winkelmann stop sales, production and promotion of his product, and also asked him to drop his trademark application for The South Butt LLC and its logo.

To respond to The North Face’s missive, Winkelmann enlisted attorney Albert Watkins, who is a friend of Winkelmann’s father and reportedly traded his services for a good bottle of red wine. Mr. Watkins wrote to The North Face: "I am compelled to respectfully disagree with the posture or assertion that 'The South Butt' would in any way give rise to confusion on the part of any person. In fact, the sense of parody employed by Jimmy within the context of his South Butt undertakings clearly demonstrate a respectful, if not flattering 'anti-North Face' posture designed in all respects to distinguish itself from any and all North Face products." 

Mr. Watkins’ letter invokes a primary affirmative defense raised by defendants in response to trademark infringement claims. Winkelmann’s defense rests on his claim that The South Butt represents a protected parody of The North Face’s trademark rights. Trademark parody involves the appropriation of another’s mark as a well known element of popular culture, and then building on it to contribute something new for humorous effect or social commentary. The Fourth Circuit's decision in Louis Vuitton Malletier, S.A. v. Haute Diggity Dog, LLC, 507 F.3d 252 ("Louis Vuitton") is an important trademark parody decision because it provides a detailed analysis of the parody defense to trademark infringement claims.

Haute Diggity Dog, LLC was a company that sold a number of parody pet products including products named Chewnel No. 5, Jimmy Chew, Dog Perignonn, Sniffany & Co., and Dogior. The product which was the subject of the Louis Vuitton lawsuit was Haute Diggity Dog's parody pet toy called CHEWY VUITON. The toy mimicked the shape, design and color of a Louis Vuitton handbag, but was intended as a chew toy for dogs. Unfortunately for Haute Diggity Dog, Louis Vuitton was not amused by such haute couture for dogs. In fact, Louis Vuitton was so doggone incensed, it filed a lawsuit against Haute Diggity Dog alleging trademark infringement of its Louis Vuitton mark.

The first question facing the Court was whether or not CHEWY VUITON was a trademark parody. As stated by the Court, a trademark parody is a simple form of entertainment conveyed by juxtaposing the irreverent representation of the trademark with the idealized image created by the mark's owner. It must convey two simultaneous and contradictory messages: that it is the original, but also that it is not the original and is instead a parody. This latter message not only differentiates the parody from the original but must also communicate some articulable element of satire, ridicule, joking or amusement.

The Fourth Circuit found Haute Diggity Dog's use of CHEWY VUITON was a parody. The CHEWY VUITON toy was found to be similar in its name, monogram, design and coloring, which clearly indicated to the Court that the toy was an imitation. The Court also noted that all of the design and name elements were different. (e.g., Chewy/Louis, Vuiton/Vuitton). Each of the design elements Haute Diggity Dog selected to create the parody was close, but not identical to the design elements of the Louis Vuitton handbags

The Court then turned to the question of whether Haute Diggity Dog’s parody infringed upon Louis Vuitton’s trademark rights. The Court found that the strength of the Louis Vuitton mark was a factor that weighed in favor of Haute Diggity Dog.  Normally, a strong mark favors the senior trademark owner, but, in the case of a parody, the fame of the mark allows consumers to readily perceive the target of the parody.  Similarity of the marks themselves also favored Haute Diggity Dog. The Court found that the parody was sufficiently blatant so as to easily invoke the famous Louis Vuitton trademark in the mind of consumers, yet still distinguish the products.  The similarity, or in this case dissimilarity, of the products also was in Haute Diggity Dog's favor as one product was a $20 dog chew toy and the other was an expensive designer purse. With respect to similarity of facilities and advertising channels, the Court found it relevant that Haute Diggity Dog's products generally were sold at pet stores with other pet products, including other parody products, while Louis Vuitton handbags generally were sold in Louis Vuitton boutiques or department stores and advertised in high-end fashion magazines. Based upon these circumstances, the Court found that Haute Diggity Dog did not infringe upon Louis Vuitton’s trademark.

Will Mr. Winkelmann’s “The South Butt” brand prevail against The North Face’s infringement claim? The question is difficult to answer with certainty. Undoubtedly, The South Butt was intended by Winkelmann to invoke The North Face brand in the minds of consumers for the purposes of mocking blind consumer allegiance to The North Face brand. However, unlike the facts in Haute Diggity Dog, Winkelman’s products do not seem to be readily distinguishable from The North Face products. Winkelmann sells a South Butt fleece jacket, just like the North Face does. Winkelmann apparently markets his South Butt apparel to the same consumers that the North Face does. These facts tend to support The North Face’s position, and may cause trouble for Winkelmann.

What can be said with certainty is if you intend to use a trademark parody in your business, you must be prepared to be sued, or at minimum, harassed by a larger and more well-known company. By definition, the more famous a trademark, the more likely a parody will be effective. Is your trademark important enough to be on the other side of a large and presumably well-funded adversary like Louis Vuitton? Unless you are lucky enough to have counsel like that of Mr. Winkelmann who will conduct your defense for a good bottle of wine, you must be prepared to expend a considerable sum in legal fees to prove that your mark is a parody and does not infringe upon the rights of another company.

This is about a birthday card. Not just any birthday card mind you. This birthday card, produced by Hallmark Cards, depicts a cartoon waitress, dressed in an apron, serving food to a restaurant customer. However, not just any waitress could create such a controversy requiring an appeal to the 9^th Circuit. This waitress has, for her head, an oversized photograph of Paris Hilton’s head, and is engaged in witty banter with the customer wherein the cartoon waitress with the oversized Paris Hilton head states Paris’ trademarked (yes, she did file for Federal trademark protection) phrase, “That’s Hot.” What’s all the fuss about? Apparently Hallmark forgot to ask the young heiress if they could use her picture on their card.

California’s anti-SLAPP statute is designed to discourage lawsuits that are brought to deter common citizens from exercising their political or legal rights. The language of the statute explains that “it is in the public interest to encourage continued participation in matters of public significance, and…participation should not be chilled through abuse of the judicial process.” Usually the anti-SLAPP statute arises in connection with litigation relating to the defendant speaking out about an important public issue. In past cases, such matters have included union elections (Macias v. Hartwell, 55 Cal. App. 4th 669); political campaign statements (Conroy v. Spitzer, 70 Cal. App. 4th 1446); homeowner protests (Foothills Townhome Ass’n v. Christiansen, 65 Cal. App. 4th 688); and investigations into the use of charitable funds (Dove Audio, Inc. v. Rosenfeld, Mayer & Susman, 47 Cal. App. 4th 777). My research did not uncover any anti-SLAPP litigation involving a birthday card – until now.

California’s anti-SLAPP statute provides that a complaint which arises from the defendant’s right of petition or free speech under the United States or California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim. The terms, "act in furtherance of a person's right of petition or free speech under the United States or California Constitution in connection with a public issue," include:

(1) any written or oral statement or writing made before a legislative, executive, or judicial proceeding, or any other official proceeding authorized by law;
(2) any written or oral statement or writing made in connection with an issue under consideration or review by a legislative, executive, or judicial body, or any other official proceeding authorized by law;
(3) any written or oral statement or writing made in a place open to the public or a public forum in connection with an issue of public interest;
(4) or any other conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech in connection with a public issue or an issue of public interest.

Hallmark’s unique defense focused on the fourth element. The court recognized the birthday card qualified as free speech, and Hallmark claimed that because the card was a parody of Hilton, it was in connection with an issue of public interest. Hilton argued that the birthday card was commercial speech and that such speech cannot, as a matter of law, raise a public issue under the anti-SLAPP statute. 

The court disagreed with Hilton’s position and found that the card itself was not commercial speech. Commercial speech is speech that merely advertises a product or service, and the card is not advertising for a product – it is the product. The court stated that although the card is sold for profit, that does not make it commercial speech for First Amendment purposes.

Concerning whether or not the Paris Hilton card is in connection with an issue of public interest, the court agreed with Hallmark. Paris Hilton is a person in the public eye and a topic of widespread public interest. Arguably not the same as a union voting controversy, but the court stated that the statute is to be interpreted broadly.

Although Hallmark made a threshold showing that Hilton’s suit falls under the anti-SLAPP rubric, that did not prevent Hilton from litigating her right of publicity claim.  Even though Hilton’s claim arises out of Hallmark’s free speech, as long as Hilton can substantiate a legally sufficient claim, the anti-SLAPP statute would not prevent her bringing such claim.

Addressing Hallmark’s First Amendment defense, the court cited to Comedy III Prods., Inc. v. Saderup and noted that “when an artist is faced with a right of publicity challenge to his or her work, the artist may raise as an affirmative defense that the work is protected by the First Amendment inasmuch as it contains significant transformative elements or that the value of the work does not derive primarily from the celebrity’s fame.” If the celebrity likeness is the “very sum and substance” of the work in question, then it is not transformative – it has not become primarily the defendant’s own expression rather then the celebrity’s likeness.

Ultimately the 9^th Circuit did state that Hallmark’s card is not transformative as a matter of law. The court also clearly identify the two ends of the spectrum: “literal, conventional depictions of the Three Stooges drawn in charcoal and sold on t-shirts” – not transformative as a matter of law; half human/half worm cartoon characters incorporated into a larger story – transformative as a matter of law. The oversized head of a blond “celebra-heiress” superimposed on a cartoon body on the front of a greeting card – for the trial court to decide.

In a recent case from the Eastern District of Missouri, Cornelius v. DeLuca (E.D. Aug. 18, 2009), the district court addressed whether a fitness website and online retailer was liable for negative comments and reviews posted by users concerning plaintiffs’ dietary supplements.  In Cornelius, plaintiffs Cornelius and Syntrax Innovations, Inc. alleged that its competitors were posting on defendants’ website “libelous statements” about the plaintiff and had “tortuously interfered with plaintiffs’ business expectancies.”  Further, plaintiffs alleged that Ryan Deluca and Bryna Mathews DeLuca, principals of the website in question, Bodybuilding.com, had engaged in a “civil conspiracy” with the competitors to “post libelous statements and to tortuously interfere with plaintiffs’ business expectancies.” Specifically, plaintiffs alleged that the internet website bodybuilding.com was an online retailer for the sale of nutraceuticals, including those manufactured by plaintiffs, and that the website allowed representatives of plaintiffs’ competitors to post “libelous statements regarding plaintiffs and their products” in the public forums and comments. Finally, plaintiffs alleged that the defendants assisted the competitors by posting the libelous statements which were false and open to the public.

The CDA was enacted in 1996 with the “primary goal . . . to control the exposure of minors to indecent material” over the internet. Courts have recognized that “an important purpose of the CDA was to encourage internet service providers to self regulate the dissemination of offensive materials over their services.” (Zeran v. America OnLine, Inc. (4^th Cir. 1997) 129 F.3d 327, 331, cert. denied (1998) 524 U.S. 937.)  Courts have also noted that a second goal of the CDA was to avoid the chilling effect upon internet free speech that would be occasioned by imposing tort liability upon companies that do not create harmful messages, but rather, are intermediaries for their delivery. Thus, CDA immunity is available to an interactive computer service provider or user who undertakes good faith efforts to restrict access to objectionable material.  In order for immunity to apply, a plaintiff must establish three elements: (1) the defendant is a provider or user of an interactive computer service; (2) the cause of action treats the defendant as a publisher or speaker of information; and (3) the information at issue is provided by another information content provider.

In determining liability under the CDA, the court stated that while a provider cannot be liable for the statements of others, it can be liable for its own statements.  In reviewing plaintiffs’ complaint, the court found that plaintiffs did not make any specific allegations as to how the defendants “conspired” with the plaintiffs’ competitors to post these allegedly libelous statements other than through their operation of the website’s message board. Significantly, the court concluded that “not a single statement [posted on the website] is alleged to be attributable to the defendants.”  As a result, the court granted the defendants’ motion to dismiss because the plaintiffs’ complaint did not set forth any facts that could make the defendants liable for statements made by others, in light of the CDA.

This is just one of many cases where the courts have strictly construed section 230 as providing full immunity to internet providers whose users – not the providers -- post defamatory information or commit other tortuous conduct.  See e.g., Zeran v. America Online, Inc., 958 F. Supp. 1124 (E.D.Va. 1997), aff’d., 129 F.3d 327 (4^th Cir. 1997), cert. denied, 524 U.S. 937 (1998) (Court held AOL not liable pursuant to the CDA for defamatory statement posted by an AOL subscriber in numerous AOL bulletin boards); Doe v. GTE Corp., 347 F.3d 655 (7^th Cir. 2003) (Court held that the CDA protected Internet Service Provider (ISP) from liability to college athletes for the ISP’s customer’s use of service to post images of athletes who were unknowingly recorded while in a locker room setting).