Boilerplate - those standard legal clauses appearing at the end of the agreement. These clauses are often overlooked when reviewing an agreement because they are supposed to be "standard," and in drafting they are often cut from a previous agreement and copied into a new one. This is a mistake. Boilerplate is important and should be given as much scrutiny as the rest of the contract. Although this presentation will focus certain boilerplate language in IP transactions, most of the clauses discussed can be found in any type of transaction.

On August 10, 2010, the United States District Court for the Central District of California granted Blizzard Entertainment, Inc., the publisher of the online computer game World of Warcraft, $88.5 million in a copyright-infringement case against a Georgia resident. The game publisher filed suit in federal court in Los Angeles in October 2009 against Alyson Reeves of Savannah, Georgia, and five unidentified defendants.

Also similar to other MMORPGs, World of Warcraft requires the player to pay for a subscription, either by buying prepaid game cards for a selected amount of playing time, or by using a credit or debit card to pay on a regular basis. A subscription permits users to continue accessing Blizzard’s authorized WoW servers and play in the authorized WoW gaming environment. World of Warcraft is currently the world's most-subscribed MMORPG.

Blizzard claims that the gaming experience of legitimate players of WoW is under near constant attack by “cheaters, scammers, and other wrongdoers seeking to exploit WoW for their own illegitimate ends.” For this reason, Blizzard takes appropriate measures to protect and enforce its valuable intellectual property. For example, prior to installing the game client on a personal computer, Blizzard requires its users to assent to an End User License Agreement, which among other provisions, contains an express limitation on the license providing that a user may not “in whole or in part, copy, photocopy, reproduce, translate, reverse engineer, derive source code from, modify, disassemble, decompile, or create derivative works based on the Game…” Additionally, prior to playing WoW, users must create an account with Blizzard and agree to its Terms of Use which, among other provisions, provides that no one other than Blizzard shall host, provide access to, or emulate the communication protocols used to create the WoW gaming environment, and prohibits any modification of the WoW software, adding components to WoW, or using third-party programs for the purpose of hosting WoW. Blizzard has obtained copyright registrations in both the server and game client software code. 

Blizzard claimed that defendant Alyson Reeves, along with Does 1-5, operated www.scapegaming.com, which serves as a portal to a number of servers operated by scapegaming, designed to emulate the actual WoW game servers operated by Blizzard. Blizzard alleged that the scapegaming servers emulate the WoW servers, and enable large-scale, multi-player online play of Blizzard games. Blizzard alleged that the defendants developed the unauthorized servers to accommodate players that wished to play World of Warcraft without paying the monthly subscription fee. Scapegaming offered five different unauthorized WoW servers to its users, each replicating the WoW online gaming experience provided by Blizzard, but at the same time providing enhanced features that allowed players to advance in WoW and obtain objects more quickly. Blizzard claimed that scapegaming unjustly profited from these unlawful acts by encouraging its user to make “donations” to fund its continued operation, and that it encouraged these “donations” by providing “donors” with additional or enhanced game-play items. These items ranged in cost from $1 to $300.

Blizzard claimed that the unauthorized scapegaming servers and the players’ use of the scapegaming servers exceeded the express limitations set forth in the End User License Agreement and Terms of Use. Blizzard alleged that the defendants were well aware that their activities were unauthorized, even going so far as to place a term in the scapegaming Terms of Use designed to prevent Blizzard from discovering or receiving information about scapegaming’s actions stating that: “No one from Blizzard, assocated with Blizzard or any such affiliated company or anyone directed by Blizzard or its Related companies is permitted to enter these web sites or view any content contained within these sites at any time what so ever due to controversial reasons.”

After failing to respond to the complaint, the Court granted Blizzard’s Motion for Default Judgment and directed it to file additional evidence and legal briefing in order to “prove-up” its damages. The Copyright Act, 17 U.S.C. §504(b) permits the copyright owner to disgorge “any profits of the infringer that are attributable to the infringement.” “The copyright owner is required to present proof only of the infringer’s gross revenue, and the infringer is required to prove his or her deductible expenses and the elements of profit attributable to factors other than the copyrighted work.” Id. Blizzard submitted satisfactory evidence from third party PayPal Inc. showing that defendants’ PayPal account received $3,052,339 in gross revenues, which the Court awarded under 17 U.S.C. §504(b) in full since defendants failed to respond. Blizzard also requested $20,886,200 in statutory damages under the Digital Millennium Copyright Act (DMCA). Despite the large number, the Court found that they were entitled to much more.

Under the DMCA, “[a] person commiting a violation of section 1201 or 1202 is liable for either (A) the actual damages and any additional profits of the violater…or (B) statutory damages as provided in paragraph (3).” 17 U.S.C. §1201(3). The DMCA states that a party may elect to recover an award of statutory damages for each violation of section 1201 in the sum of not less than $200 or more than $2,500 per act of circumvention, device, product, component, offer, or performance of service…” 17 U.S.C. §1203(c)(3)(A) (italics added). Based on the allegations, the Court inferred that defendant provided each of its users with anti-circumvention products or services on at least one occasion. Blizzard submitted evidence that there were 427,393 members of dendendant’s website’s “community.” The Court concluded that each of the 427,393 community members downloaded, accessed, or otherwise used anti-circumvention software, services or products. Accordingly, the Court concluded that the appropriate measure of statutory damages was 427,393 users multiplied by the statutory minimum of $200 per “act of circumvention” and/or “performance of service” resulting in $85,478,600. After an additional award of $63,600 for attorney’s fees, plus the $3,052,339 in gross revenues, the award totaled $88,594,539.00. 

Now the real-life game begins to ensure that the massive default judgement award is not just a fantasy for Blizzard – collecting the money from the cyber infringers.

Matt Massari is a corporate and intellectual property transactions attorney at Weintraub Genshlea Chediak and member of the firm’s sports, media and entertainment industry practice group.

The federal Stored Communications Act (SCA) of 1986 was established in an attempt to give Fourth Amendment-type privacy protections to people for their Internet communications. In other words, Congress sought to protect people’s Internet privacy from warrantless intrusion.

One court has addressed at least one aspect of the privacy concerns related to social networking sites. According to the district court for the Central District of California in Crispin v. Christian Audigier, Inc., 2010 U.S. Dist. LEXIS 52832 (C.D. Cal. May 26, 2010), the SCA does protect the private communications of users of social networking sites against warrantless disclosure.

The section of the SCA relevant to the protection of Internet communications is 18 U.S.C. § 2702(a)(1). This section prevents providers of electronic communications service (ECS) from knowingly divulging the contents of communications while in electronic storage in that system. The question for the Crispin court was whether Facebook is an ECS.

Under the SCA, an ECS provider is "any service which provides to users thereof the ability to send or receive wire or electronic communications." Facebook would seem to qualify as an ECS provider because communicating electronically is a major feature of Facebook. However, courts have interpreted the SCA’s definition of an ECS provider to be limited to entities that provide e-mail services to the public at large, and in particular, to Internet service providers (ISPs) that provide customers with Internet access. Andersen Consulting LLP v. UOP, 991 F.Supp. 1041, 1042-43 (N.D. III. 1998). See also Crowley v. Cybersource Corp., 166 F.Supp.2d 1263,1270 (N.D. Cal. 2001) (agreeing with Andersen Consulting and holding that Amazon.com, an online merchant, was not an ECS provider because it did not independently provide Internet services, even though it received emails from customers), and In re Doubleclick Inc., 154 F.Supp.2d 497, 508-9 (S.D. N.Y. 2001) (held, ECS provider refers to ISPs such as American Online, UUNET, and Juno).

The Crispin court clarified that an ECS provider includes social networking sites. Thus, under the ruling, Facebook, absent a warrant pursuant to criminal proceedings, cannot disclose the contents of a user’s private electronic communications. The court then had to decide what communications are “private” and what content is protected.

According to the court, determining whether a communication is private requires a traditional Fourth Amendment privacy analysis—whether a person has an expectation of privacy. Thus,  messages posted on a person’s wall page that are made public under certain Facebook settings would likely not be considered private because there is no expectation of privacy over content that is made public. On the other hand, an individually sent message to one person, not made public on that person’s wall, would probably be considered private. It is unclear, however, whether wall posts that can be viewed by more than one person, such as a select group, but are not public, would be considered private or public.

With respect to what content is protected under the SCA, the court explained that “content” is defined as "any information concerning the substance, purport, or meaning of that communication." See 18 U.S.C. § 2510(8). In other words, the message that makes up the communication is considered “content.” A message includes text a person writes, an attachment, a video, a photo, etc.

According to the SCA and other case law, however, “content,” does not include information that identifies an account holder. The SCA, under 18 USC § 2702(c), specifically allows for “disclosure of customer records to anyone other than a government entity.” Further, case law interpreting the SCA has defined the term  “customer records” to include identifying information of an account user. For example, in Jessup-Morgan v. America Online, Inc., 20 F. Supp.2d 1105 (E.D. Mich. 1998),the plaintiff sued America Online, Inc. (AOL), claiming a violation of the SCA for revealing her identity to a private individual. In compliance with a civil subpoena, AOL had disclosed the identity of the plaintiff as the person who had posted a damaging message about another. The district court dismissed the plaintiff's claims against AOL, holding that AOL did not violate the SCA because the information revealed was not the "contents of a communication,” but instead “customer records” under section 2702(c).

Although Jessup-Morgan dealt with an account holder who used a false name to defame another, Facebook users may use pseudonyms or nicknames for lawful purposes. Given the ease with which Facebook users may find people, pseudonyms are fairly common.

Nothing in the SCA, however, limits disclosure of identifying information. While AOL, in the Jessup-Morgan case, disclosed information in response to a civil subpoena, nothing in the statute requires a subpoena for release of identifying information. Arguably then, a Facebook user’s account information is not protected from disclosure.

Thus, the advent of social networking sites like Facebook raises new concerns about privacy rights and the laws governing privacy on the Internet. Whether the SCA will be amended to take into account these new concerns is uncertain. But until then, Facebook users ought to be aware that while some communications via Facebook are protected under the SCA, account information and user identity might not be.

Thinking of running a smear campaign against a business competitor? Thinking of posting disparaging content about someone anonymously online? Think again. According to a decision made by the Ninth Circuit on July 12, 2010, anonymous online postings may not qualify as protected speech under the First Amendment.

The defamatory postings, contained in several online videos and blogs, included comments such as: "Quixtar has regularly, but secretly, acknowledged that its products are overpriced and not sellable"; "Quixtar refused to pay bonuses to Independent Business Owners in good standing"; Quixtar "terminated Independent Business Owners without due process"; and "Quixtar currently suffers from systemic dishonesty".

During discovery, the trial court granted a motion to compel a TEAM employee to reveal the identities of the anonymous online speakers. The anonymous speakers filed a petition with the Ninth Circuit to block the order, claiming First Amendment protection for their postings. The Ninth Circuit held that while the balancing test used by the trial court in granting the motion was improper, the trial court did not clearly err in deciding to allow discovery of the identities of the anonymous posters.

Protection for anonymous speech is not new.  First Amendment protection for anonymous speech was first articulated fifty years ago in Talley v. California in 1960.  More recently a United States Supreme Court case in 1995, McIntyre v. Ohio Elections Commission, reminded us that the United States has had a respected tradition of anonymity in the advocacy of political causes since the birth of America. The Federalist Papers, for example, by James Madison, Alexander Hamilton, and John Jay, some of the most famous publications in American history, were published  under the pseudonym “Publius.”

Today, the new medium for anonymous speech is the internet, which, according to the Anonymous Online court, “stands on the same footing as other speech.” The Ninth Circuit stated that speaking anonymously on the Internet “promotes the robust exchange of ideas and allows individuals to express themselves freely without ‘fear of economic or official retaliation… [or] concern about social ostracism.’”  

According to the Anonymous Online court, however, the level of protection afforded by the First Amendment to anonymous speech varies depending on the circumstances and the type of speech at issue.  Political speech, for example, is afforded the highest level of protection, while commercial speech is afforded limited protection. Of course, some speech, like the yelling-fire-in-a-crowded-theatre type, may not be protected at all if it incites violence or causes injury.

The anonymous videos and blog comments at issue in Anonymous Online were considered commercial speech, because the disparaging comments went straight to the heart of Quixtar’s commercial practices and business operations. Accordingly, the speech had only limited First Amendment protection. But categorizing the type of speech is only the first part of the analysis. Where speech is made anonymously and is potentially defamatory, a court must strike a balance between the value of protecting anonymous speech against a party’s need for relevant discovery.

The trial court in Anonymous Online, analyzed the commercial speech and whether its anonymous authors were protected from being discovered under the Doe v. Cahill standard; a standard giving speakers the highest level of protection. The Cahill standard requires discovery proponents to submit sufficient evidence to establish a prima facie case for each essential element of a defamation claim before the identities will be revealed. But even under this high hurdle, the trial court, under the weight of the facts, decided to grant the motion to compel discovery of the identities of the speakers.

The Ninth Circuit on appeal, however, held that the Cahill standard is appropriate for political-type speech; not commercial speech. The court held that in discovery disputes involving the identity of anonymous speakers, “commercial speech should be afforded less protection than political, religious, or literary speech.”  Because the trial court would have granted the discovery proponent’s motion under the less protective standard anyway, the Ninth Circuit found no clear error and upheld the decision.

This decision serves as a warning to anonymous online blog and video posters, especially in the commercial context. If your comments are potentially harmful to a business, it’s likely that a court will not be sympathetic to your First Amendment claims.  According to the Ninth Circuit, the value of protecting identities so as to promote the “robust exchange of ideas” is balanced against the potential for “irresponsible, malicious, and harmful communication.” Anonymous online posters beware: in the commercial context, the threshold for overcoming the limited First Amendment protection for your anonymous speech and identity may be fairly low.

Farzad and Lisa Tabari are auto brokers specializing in matching customers with new Lexus automobiles through authorized Lexus dealers. They used two Internet domain names to market their business – buy-a-lexus.com and buyorleaselexus.com. Toyota Motor Sales U.S.A. (“Toyota”), the exclusive distributor of new Lexus vehicles, objected to the Tabari’s use of their trademark “Lexus” in the domain names, and sued for infringement. The district court found infringement after a bench trial, and granted Toyota’s request for an injunction. Specifically, it enjoined the Tabari’s use of the Lexus mark in any domain names. The Tabaris appealed to the Ninth Circuit, which agreed with the Tabaris and reversed. Toyota Motor Sales U.S.A., Inc. v. Tabari (9^th Cir. July 8, 2010).

A different test is used to determine whether the nominative fair use defense will excuse the otherwise infringing use of a trademark when referring to the actual trademarked good. Here, the Tabaris were brokering Lexus automobiles. Indeed, “when they say Lexus, they mean Lexus.” Id. The test for nominative use requires the court to ask whether (1) the product was “readily identifiable” without use of the mark; (2) defendant used more of the mark than necessary; or (3) defendant falsely suggested he was sponsored or endorsed by the trademark holder. Tabari, Slip Op. at 9705. If the use meets all three factors of the test, it is not infringing. If the use does not meet one or more of these factors, the court can enjoin the use of the mark to the extent necessary so that the use does meet these factors as enjoined.

The Ninth Circuit faulted the district court for enjoining completely the Tabari’s use of the Lexus mark. “A trademark injunction, particularly one involving nominative fair use, can raise serious First Amendment concerns because it can interfere with truthful communication between buyers and sellers in the marketplace.” Id. Therefore, such an injunction must be carefully tailored to eliminate only the specific harm alleged.

Here, the court easily found that the injunction was overbroad because it prohibits domain names that on their face dispel any confusion as to sponsorship or endorsement by Lexus. For example, the injunction would preclude use of the domain name we-are-definitely-not-lexus.com. However, that did not end the inquiry. For if the domain name suggests sponsorship or endorsement by the trademark owner, the nominative use of the mark will still be found infringing. Toyota argued that because the domain name contained the entire trademark, “Lexus,” it suggested such sponsorship or endorsement. Not so, said the Ninth.

As a starting point, the court acknowledged that a domain name that is trademark.com will generally be considered suggesting sponsorship. However, just because the trademark is in the domain name does not always mean the site belongs to or is sponsored or endorsed by the owner. Online shoppers, the court noted, are more sophisticated than that. If they don’t find the site they are looking for at trademark.com, they will go to a search engine or word of mouth. In fact, the court said such online shoppers expect to get sites that are not the ones they are looking for, and are ready to hit the back button as they skip from site to site. The court said “this is sensible agnosticism, not consumer confusion.” Tabari, Slip Op. at 9711. The court found that the domain names in question here do not suggest sponsorship or endorsement by Toyota. 

Toyota argued that even if the injunction was overbroad, it could be modified to restrict the use to the Tabari’s actual domain names. The court then applied the three-part test for nominative fair use to determine, if it could, the necessary scope of any injunction. The use of the mark was deemed necessary to convey the fact that the Tabaris specialized in Lexus vehicles. Using the Lexus mark in their domain names accomplished this goal. “One way or another, the Tabaris need to let consumers know that they are brokers of Lexus cars, and that’s nearly impossible to do without mentioning Lexus.” Id. at 9713. It made no difference whether they used the name in the domain name, or through other means, they had to use the name. 

The court remanded to the district court to reconsider whether the injunction was necessary in light of the holding that the use of Lexus in the domain name did not suggest sponsorship or endorsement, and if an injunction was necessary, the district court would, in the first instance, need to determine the scope of injunctive relief necessary. At the very least, the court stated, the district court must modify the injunction to allow some use of the Lexus mark in the Tabaris domain names. Not a bad result for the Tabaris. Especially considering they were pro se both at the district court level and before the Ninth Circuit. For the rest of us, the case gives us something else to keep in mind. Using a trademark in a domain name might draw complaints from the trademark owner. But if the domain name user is careful to avoid a domain that suggests the trademark owner sponsors or endorses the domain user, that use is probably safe as nominative fair use of the trademark.

The Supreme Court recently decided a key case addressing the patentability of business methods. In In Re Bilski, 2010 U.S. Lexis 5521(June 28, 2010), the Court rejected the Federal Circuit of Court of Appeals’ “machine-or-transformation” test for determining the patentability of a process. The Court also declined to adopt a rule that business methods are not patentable.

The Federal Circuit Court of Appeals affirmed the PTO’s decision and rejected Bilski’s claims. In its decision, the Court of Appeals overruled its “useful, concrete, and tangible result” test from State Street Bank and adopted a new test, the “machine-or-transformation” test. Under the machine-or-transformation test, a process is only patentable if it either: (1) is tied to a specific machine or apparatus; or (2) it transforms one article into a different state or thing. The appellate court held that this test is the sole test to determine whether a process is patentable under 35 U.S.C section 101.

The Supreme Court granted certiorari to decide whether Bilski’s invention was patentable under section 101. The Court addressed three arguments that were asserted as the basis upon which it should reject the claims: (1) the claims did not satisfy the machine-or-transformation test; (2) the claims constituted a business method and business methods should not be patentable; and (3) the claims constituted an unpatentable abstract idea.

The Court first discussed the patent statutes. The Court noted that Congress had intended that the patent laws be given a broad scope. Thus, section 101 is to be literally construed to allow patentability of inventions. The Court explained that the exceptions to the patentability of a process under section 101, laws of nature, physical phenomena, and abstract ideas, are consistent with the requirement of the patent statutes that any invention be new and useful.

The Court next considered the Court of Appeals’ machine-or-transformation test. The Court said that district courts should not read the patent laws narrowly, and should not read into the patent laws requirements that Congress had not enacted. The Court held that the Court of Appeals’ rule that the machine-or-transformation test is the sole test for determining the patentability of the process violates principles of statutory interpretation. The Court found that “process” is defined in section 100(b) and is not limited to a specific machine or to the transformation of an article. The Court held that the machine-or-transformation test may offer a “useful and important clue” to determine the patentability of a process, but that it is not the exclusive test. Bilski, at *18. The Court explained that the machine-or-transformation test is too limiting or may not make sense to use with many of the new technologies. For example, the Court stated, at *20:  

“[T]he machine-or-transformation test would create uncertainty as the patentability of software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression, and the manipulation of digital signals.”

Next, the Court examined whether is should adopt an absolute rule precluding the patentability of all business methods. The Court held that section 101 could not be interpreted to exclude business methods from the definition of “process”. The Court noted that business method patents are expressly addressed by the patent statutes - 35 U.S.C. section 273 provides a defense to patent infringement for anyone who has previously used a business method that is covered by the patent. Thus, according to the Court, under federal law, business methods are patentable. 

The Court then addressed the question of whether Bilski’s claims constituted unpatentable abstract ideas. The Court stated, at *26:

                           “Rather than adopting categorical rules that might have wide-ranging and unforeseen impacts, the Court resolves this case narrowly on the basis of this Court’s decisions in Benson, Flook, and Diehr, which show that petitioners’ claims are not patentable processes because they are attempts to patent abstract ideas. In deed, all members of the Court agree that the patent application at issue here falls outside of §101 because it claims an abstract idea.”

The Court reviewed the Benson, Flook, and Diehr cases. In Benson, the Court held that an algorithm for converting decimal numerals into primary code was not patentable because it was an abstract idea, not a process. “A contrary holding ‘would wholly pre-empt the mathematical formula and in practical effect would be a patent on the algorithm itself.’” Id. at *27.  In Flook, the Court again held that a mathematical algorithm was an unpatentable abstract idea, even though, unlike the invention in Benson, the claims would not have pre-empted all uses of the algorithm. “Flook stands for the proposition that the prohibition against patenting abstract ideas ‘cannot be circumvented by attempting to limit the use of the formula to a particular technological environment’ or adding ‘insignificant postsolution activity.’” Id. at *28. In Diehr, the Court held that claims covering a process of molding and curing rubber that used a mathematical formula in some of its steps were patentable. 

“Diehr explained that while an abstract idea, law of nature, or mathematical formula could not be patented, ‘an application of a low of nature or mathematical formula to a known structure or process may well be deserving of patent protection.’” Id. at *29. 

The Court concluded that Bilski’s claims were not a patentable process, but an unpatentable abstract idea. The Court held, at *29-30:

“’Hedging is a fundamental economic practice long prevalent in our system of commerce and taught in any introductory finance class.’ [Citations omitted] The concept of hedging, described in claim 1 and reduced to a mathematical formula in claim 4, is an unpatentable abstract idea, just like the algorithms at issue in Benson and Flook. Allowing petitioners to patent risk hedging would pre-empt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea.”

The Court explained that it “need not define further what constitutes a patentable ‘process’, beyond pointing to the definition of that term provided in §100(b) in looking to the guide-posts in Benson, Flook, and Diehr.” Id. at *31.

With respect to the Federal Circuit’s machine-or-transformation test, the Court clearly rejected the machine-or-transformation test as the sole test for determining the patentability of a process. Id. at *32. The Court said that its opinion was not intended to endorse any particular test, but that the Federal Circuit could develop other tests consistent with the patent laws. Id.

The Ninth Circuit recently addressed the application of anti-dilution law to trademarks that happen to be common English words. In Visa International Service Association v. JSL Corporation (decided June 28, 2010), the Court held that the defendants’ use of the term “eVisa” for its multilingual education and information business was likely to dilute the Visa trademark. Joseph Orr, who operated eVisa through JSL Corp., ran an English language tutoring service while living in Japan called “Eikaiwa Visa.” (Eikaiwa is Japanese for “English conversation.”) After returning to the U.S., Orr started eVisa (the short form of Eikaiwa Visa) and claimed that the use of the word “visa” was meant to suggest “the ability to travel both linguistically and physically through the English speaking world.” Visa sued JSL claiming that eVisa was likely to dilute its “Visa” trademark. The district court granted summary judgment in Visa’s favor.

The Ninth Circuit observed that there are two types of dilution cases but that it was only concerned “with dilution by blurring, which occurs when a mark previously associated with one product also becomes associated with a second.” The court reasoned that “this weakens the mark’s ability to evoke the first product in the minds of consumers.” As examples, the Ninth Circuit listed hypothetical products such as Tylenol snowboards, Netscape sex shops and Harry Potter dry cleaners and stated that these names “would all weaken the ‘commercial magnetism’” of these marks and diminish their ability to evoke their original associations.” The Ninth Circuit emphasized that dilution isn’t about product confusion, but rather “when consumers form new and different associations with the plaintiff’s mark.” For instance, if everyone knows that Tylenol, the analgesic manufacturer, has not entered the snowboard business, the use of “Tylenol snowboards” would then bring to mind two products upon hearing the name “Tylenol.” 

The Ninth Circuit recognized that whether a defendant’s mark creates a likelihood of dilution is generally a question of fact that is not suitable for summary judgment. However, the Ninth Circuit held that “summary judgment may be granted in a dilution case, as in any other, if no reasonable fact-finder could fail to find a likelihood of dilution.” The Ninth Circuit continued by recognizing that Congress “has enumerated factors courts may use to analyze the likelihood of dilution including the similarity between the two marks and the distinctiveness and recognition of the plaintiff’s mark.” The Ninth Circuit concluded that in an appropriate case a trial court could conclusively determine one or more of these factors before trial.

Turning to the matter at hand, the Ninth Circuit recognized that the two marks were “effectively identical” with the only the difference being the prefix “e”. The Ninth Circuit recognized that this is commonly used to refer to electronic or online version of a brand and does no more to distinguish the two marks than with the words “Corp.” or “Inc.” tacked on to the end.

The Ninth Circuit further recognized that Visa is a strong trademark and that: “In general, the more unique or arbitrary a mark, the more protection a court will afford it.” The court reasoned that the Visa mark draws on positive mental associations with travel visas which facilitate new opportunities and experiences which “are good attributes for a credit card.” The court continued, however, by recognizing that these associations are sufficiently remote that the word “Visa” would not necessarily make people think of credit cards “if it weren’t for the Visa brand.” The court concluded that “this suggests that any association is the result of goodwill and deserves broad protection from potential infringers.” The Ninth Circuit concluded that Visa’s undisputed evidence that it was the world’s top financial services brand and was used for more online purchases than all other credit cards combined was more than sufficient to support the district court’s summary judgment.

JSL argued that Visa’s market surveys and expert testimony showing that the eVisa name diluted the Visa mark should have been excluded, however, the court recognized that a plaintiff “seeking to establish a likelihood of dilution is not required to go to the expense of producing expert testimony or market surveys, it may rely entirely on the characteristics of the mark at issue.” The Ninth Circuit further rejected eVisa’s claim that it did not intend to dilute the Visa mark, finding that “good intentions alone do not negate a showing of a likelihood of dilution.”

JSL also argued that its eVisa mark could not cause dilution because, in addition to being an electronic payment network, a visa was also a travel document authorizing the bearer to visit other countries. JSL argued that when a trademark is also a word with a dictionary definition, it may be difficult to show that the trademark’s holder’s use of the word is sufficiently distinctive to deserve anti-dilution protection. The court recognized that, although its true that the word visa is used countless times in common English, “the prevalence of such non-trademark use does not undermine the uniqueness of Visa as a trademark.” The court continued by recognizing that “the significant factor is not whether the word itself is common, but whether the way the word is used in a particular context is unique enough to warrant trademark protection.” The court concluded that eVisa was not using the term “visa” in its literal dictionary definition, such as “Orr’s Visa Services.” Rather, JSL was using the eVisa term to create a new association for the word with a product, not merely to “evoke the word’s existing dictionary meaning.” Specifically, the Ninth Circuit found that the defendant was attempting to create “a novel meaning for the word to identify a `multilingual education and information business.’” 

The Ninth Circuit concluded that: “dilution always involves use of a mark by a defendant that is `different’ from the plaintiff’s use. The injury addressed by anti-dilution law in fact occurs when marks are placed in new and different contexts, thereby weakening the mark’s ability to bring to mind the plaintiff’s goods or services.” Thus, the Ninth Circuit held that the lower court had proper granted summary judgment in Visa’s favor that “eVisa” unlawfully diluted the Visa mar.

By: Zachary M. Wadle

The following scenario is common when a business owner attempts to register a trademark with the United States Patent and Trademark Office (“USPTO”): The business owner decides upon a seemingly unique business trademark. The business owner conducts a quick internet search for similar trademarks being used in the same industry, and does not find anything. Confident in the uniqueness of the mark, the business owner files for registration of the trademark with the USPTO, pays the required fee, and presumes the application will fly through the registration process with a hitch. A few months later, the business owner receives an “office action” from an Examining Attorney at the USPTO.

The office action states that the business owner’s mark cannot be registered because of an arguably similar mark that was previously registered with the USPTO, which, according to the USPTO Examining Attorney, is likely to cause confusion in the marketplace. The business owner is not persuaded by the USPTO Examining Attorney’s logic. The business owner has never heard of the arguably similar mark, and does not believe that anybody will be confused by the other mark. Nevertheless, the business owner does not want to spend significant time and money hiring lawyers to argue against the USPTO Examining Attorney’s position. The business owner would prefer to simply agree with the other mark owner that both marks can peacefully coexist in the marketplace, because there is little, if any, chance of confusion in the marketplace. The business owner wonders, can I bypass the USPTO Examining Attorney’s registration refusal if I get the consent of the other mark owner to registration of my mark?  The answer is yes, so long as the other mark owner is willing to enter into what is commonly referred to as a “joint consent agreement” allowing both marks to register with the USPTO.   

Trademark joint consent agreements allow owners of potentially confusing trademarks to both register their marks with the USPTO, and continue use of their marks in their respective industries. Such agreements can vary in length and complexity, but the general goal of a consent agreement is to avoid a future likelihood of confusion between the marks. The provisions of an agreement usually correspond with one or more of the likelihood of confusion factors established by case law, including the similarity of the marks themselves, the similarity of the goods and services associated with the marks, and the established and likely to continue trade channels the marks will be used in.

By using these likelihood of confusion factors as a framework, parties to a consent agreement can delineate the differences between the existing uses of their marks or agree to new restrictions on the uses of their marks to avoid a likelihood of confusion in the future. For example, if two companies use similar marks to sell dental services/products, but one company sells dental services and products to individual consumers at a dentist’s office, while the other sells bulk dental products to dental professionals, it may make sense for the parties to agree to restrict the use of their marks to their existing trade channels in order to avoid future likelihood of confusion.

On the other hand, if the companies sell their products to the same customers, they might each agree to use their marks only in close proximity with their respective company brand names (called house marks), only in a particular color or stylized font, or only with a disclaimer. Other possible avenues for distinction include defining discrete geographic markets or restricting use to specific categories of products or services.

So long as the parties specifically describe why there is no likelihood of confusion between their respective marks, and set forth a plan to avoid any future confusion, caselaw is clear that a consent agreement between the parties is to be accorded substantial weight by the USPTO Examining Attorney. The case law further indicates that in order for a registration refusal based upon likelihood of confusion to be affirmed despite the existence of a consent agreement between the parties, the USPTO must put into the record evidence which tends to negate the underlying assumptions in the consent agreement, and/or point out that the consent is contradictory on its face. Absent this type of evidence, the trademark should proceed to registration.

Although joint consent agreements can be a useful way to avoid litigation and achieve trademark registration, they should be entered only after considering their potential impact, not only for the dispute at issue, but for future disputes as well. When a consent agreement is all that stands between settlement and litigation, it may be easy to overlook the potential impact that an agreement might have further down the road. Take the case of Apple Corps Ltd., the holding company that owns the Beatles’ record label, and Apple, Inc., the computer company. In the early 1980’s, as part of the settlement of a trademark dispute with Apple records, Apple computer reportedly agreed not to enter the music business. Of course, decades later, Apple computers entered the music business in a big way through the online iTunes music store. Presumably, a subsequent agreement was reached between the parties (at substantial expense to Apple computer) that allowed Apple computer to use the “Apple” trademark in connection with the iTunes music store.

Because joint consent agreements restrict the parties’ trademark rights and possibly impact future business plans, the provisions should be drafted narrowly. Parties should give thought to their current and future business plans, including markets to which they might expand. Consent agreements can lead to expedient resolution of business disputes, but they should only be entered after weighing the potential drawbacks and possible effect on future business plans.

In February 2010, a U.S. District Court judge for the Northern District of California denied the National Collegiate Athletic Association’s motion to dismiss a class-action lawsuit that argues the NCAA and its licensees should compensate former student athletes for the use of their images and likenesses. Subsequent to the judge’s order, eleven former college football and basketball players joined former UCLA basketball star Ed O’Bannon in the litigation. O’Bannon alleges that the NCAA has and continues to enter into agreements that allow the use of his image without compensation paid to him, including a 2007 agreement between the NCAA and Thought Equity Motion, Inc. to offer “classic” college basketball games online. 

The NCAA is a voluntary association of institutions, conferences, organizations and individuals through which the nation's colleges and universities govern their athletics programs.  The NCAA and its member institutions separately own and market large portfolios of trademarks and other intellectual property rights in connection with college athletics activities. Collegiate-licensed products include everything from clothing merchandise to electronic video games.  It’s been reported that the NCAA’s licensing deals are estimated at more than $4 billion.

O’Bannon was a star power forward for the UCLA Bruins men's basketball team from 1991 to 1995. O’Bannon alleges, on behalf of himself and other former student athletes, that the NCAA’s rules, regulations and licensing practices constitute anti-competitive conduct that deprives former student athletes of just compensation for use of their names and likenesses. In his complaint, O’Bannon cites NCAA Form 08-3a, which the NCAA requires student athletes to sign each year. By signing Form 08-3a, student athletes agree to the following:

You authorize the NCAA [or a third party acting on behalf of the NCAA (e.g., host institution, conference, local organizing committee)] to use your name or picture to generally promote NCAA championships or other NCAA events, activities or programs.

O’Bannon claims that the form requires student athletes to “relinquish all rights in perpetuity to the commercial use of their images, including after they graduate and are no longer subject to NCAA regulation.” O’Bannon Compl. ¶ 9.   O’Bannon claims that this form, together with NCAA Bylaw Article 12.5.1.1 which authorizes a member institution or recognized entity thereof to use a student-athlete’s name, picture or appearance to support charitable, educational or activities incidental to the student-athlete’s participation in intercollegiate athletics, enables the NCAA to enter into licensing agreements with companies that distribute products containing the student athletes’ images. 

O’Bannon claims that co-defendant Collegiate Licensing Company (CLC), the largest college licensing agency in the nation, serves as the NCAA’s “licensing arm” and facilitates these arrangements.  O’Bannon alleges that CLC as the “licensing representative” of the NCAA represents colleges, universities and athletic conferences, and that after the NCAA and its members obtain releases from student athletes, CLC brokers agreements that do not compensate him or the other putative class members for the use of their images.  As an example, O’Bannon cites an arrangement involving the NCAA, CLC and Electronic Arts, Inc. concerning video games that contain the likenesses of former student athletes. O’Bannon alleges that neither he nor other student athletes consent to these agreements, and that they do not receive any compensation for use of their images. 

O’Bannon asserts that the NCAA’s and CLC’s actions excluded him and other former student athletes from the collegiate licensing market. He argues that because the NCAA has rights to images of him from his collegiate career, it, along with its “co-conspirators”, fix the price for the use of his image at “zero.” Based on this alleged conduct, O’Bannon is seeking monetary relief, disgorgement of profits from the wrongful use of former student athletes’ images, and a permanent injunction prohibiting the NCAA and CLC from using former student athletes’ images without valid consent. The NCAA claims that it does not license student athlete likenesses or prevent former student-athletes from attempting to do so. 

On February 8, 2010, the District Court judge denied the NCAA’s and CLC’s separate motions to dismiss O’Bannon’s complaint, allowing it to move forward to discovery. Since the court’s order, eleven former college football and basketball players who competed in the 1990’s and in the past decade have joined the former UCLA basketball star in the class-action lawsuit. 

Clear, though controversial, lines seem to exist currently that allow the NCAA to use student athletes’ names and likenesses without compensation during their amateur playing times.  In O’Bannon v. NCAA, the court may take the opportunity to address the scope of the student athletes’ consent to use of their names and likenesses during their playing days, and the extent to which the NCAA can enter into licensing agreements that use former student athletes’ images and likenesses without compensation, such as “classic” college sports games online.

Recently the 9th Circuit heard an appeal involving the network and producers of the TV program “Ghost Hunters” and two individuals who claimed that the network stole their idea. Parapsychologist Larry Montz and publicist Daena Smoller maintain that in 1981 they conceived of and created written materials, including a screenplay, about a new reality television program featuring a team of investigators who use high tech equipment to study and occasionally debunk paranormal activity.

In Desny, the plaintiff Victor Desny wrote a script depicting the real life story of Floyd Collins, a boy who made headlines after he was trapped in a cave eighty feet under ground.  In an effort to market his script, Desny called Billy Wilder, a writer, producer and director at Paramount Pictures. Desny could not get through to Wilder and subsequently stripped his scrip to the bare facts so that Wilder’s secretary could copy it in short-hand over the phone.  After reading his synopsis, Desny told Wilder’s secretary that Wilder and Paramount could use the script only if they paid him a reasonable amount for doing so.  Shortly thereafter, Wilder created his own movie script mirroring Densy’s. Because Densy’s script was based on historical facts, and because Desny only conveyed the bare minimum of those facts to Wilder’s secretary, both parties conceded for the purpose of the appeal that the synopsis was not sufficiently original to form the basis of a federal copyright claim. The Court, however, held that Densy stated sufficient facts to establish the existence of an implied-in-fact contract between the parties. While this synopsis would most likely find itself shuffled into the category of “unprotected facts and ideas” under federal copyright law, the court held that “the policy that precludes protection of an abstract idea by copyright does not prevent its protection by contract.’” 

In 2003 the 9th Circuit re-affirmed Desny’s applicability in light of the preemption conditions embodied in the Copyright Act of 1976.  In Grosso, the plaintiff, Jeff Grosso, authored a screenplay about a group of friends planning to heist the cashier at a poker tournament in order to save their companion from a vindictive loan shark. After Grosso allegedly sent a copy of this screenplay to Miramax Films, Miramax released a movie titled “Rounders.” “Rounders” follows the story of a former gambling addict turned law school student who reverts back to his gambling to bail a friend out of trouble. Grosso sued on the grounds of copyright infringement and breach of an implied contract. On Appeal, the 9th Circuit affirmed the district court’s decision to dismiss Grosso’s federal copyright claim for lack of substantial similarities between his screenplay and Miramax’s film. The court then turned their attention to the issue of preemption regarding Grosso’s state-law implied contract claim.  Noting that a Desny breach of implied contract analysis is controlling, the court held that federal law did not preempt Grosso’s state-law claim because the rights he asserted under the state-law claim were not “equivalent” to those rights conveyed under federal copyright laws. The court clarified its position noting that these rights were not equivalent because they were not based on payment for “the idea itself, but for the services of conveying that idea.”

There are two conditions necessary for federal copyright law to preempt a state law claim.  First, the state-law claim must assert rights that are fixed in a tangible medium of expression and within the subject matter scope of federal copyright law. Second, those rights asserted under state law must be “equivalent” to those rights conferred to copyright owners under the Copyright Act of 1976. After holding that Montz and Smoller’s screenplays, videos, and other media satisfied the first condition the court turned its attention to whether their rights under the state-law implied contract claim were “equivalent” to those enjoyed under the Copyright Act. 

Montz’s claim for breach of implied contract alleged that “by accepting the Plaintiffs’ disclosure of its concept,” the defendants agreed that they “would not disclose, divulge or exploit the Plaintiffs’ ideas and concepts without compensation and without obtaining the Plaintiffs’ consent”; and that “by producing and broadcasting the [program],” “[t]he Defendants breached their implied agreement not to disclose, divulge or exploit the Plaintiffs’ ideas and concepts without the express consent of the Plaintiffs, and to share with the Plaintiffs . . . the profits and credit for their idea and concepts.”  The Court distinguished this from Desny and Grosso where the implied promise in those cases was to pay for the use of the plaintiffs’ work, while here Montz’s claim is that the defendants used his work, without authorization, to create (and then profit from) a new television program. Because the rights asserted by Montz under the implied contract are equivalent to the rights of copyright owners under § 106—namely, the exclusive rights to use and to authorize use of their work, the Court held that Montz and Smoller’s claim was preempted by federal copyright law. 

Yet Montz and Smoller, like Desny and Grosso, did expect to receive a share of the profits derived from the use of their ideas. However, this expectation, the Court stated, was not based on the belief that Montz and Smoller would profit from the sale of their script, but was merely derivative of their asserted right to retain exclusive control of their work while in a partnership with NBC. And, because their expectation to maintain control over their work was “equivalent” to those rights embodied in the Copyright Act, Montz and Smoller’s state law claim was preempted by federal copyright laws.

The 9th Circuit made it clear that those distributing their works of authorship who expect to retain control of those works and partner in production will no longer be able to turn to state breach of contract laws. Had Montz and Smoller’s primary intention been to sell their script to NBC rather than maintain control over it, the Court would likely have found a properly plead implied contract claim under Desny and Grosso.   

Victor’s Secret, a small store in Kentucky selling adult videos and sex toys, lost another battle in a trademark dilution case brought by Victoria’s Secret. Last month, the U.S. Sixth Circuit Court of Appeals affirmed an injunction granted by the District Court that concluded that the trademark Victor’s Secret or Victor’s Little Secret disparages and reduces the positive associations of the Victoria’s Secret mark. The Sixth Circuit on review sought to determine whether Victoria’s Secret’s case met the standards of “dilution by tarnishment” as set out in the recently enacted Trademark Dilution Revision Act of 2006.

Dilution can be separated into two related concepts: blurring and tarnishment. Blurring occurs when a defendant uses or modifies the plaintiff's trademark to identify the defendant's goods and services, raising the possibility that the plaintiff’s mark will lose its ability to serve as a unique identifier of the plaintiff's product. In these cases, consumers are not confused as to the source of the mark. The original trademark, however, is lessened. For example, if a car company decided to sell cars under the trademark McDonald’s, the link and image between the word “McDonald’s” and fast food is weakened.  

Besides blurring, dilution can be based on tarnishment. Tarnishment occurs when the trademark is used in an unsavory or unflattering manner, such as with lewd sexual products.   In this case, Victoria’s Secret claimed that Victor’s Secrets trademark and sexual products degrade the famous Victoria’s Secret trademark.

This case originally began when an Army Colonel saw an ad for Victor’s Secret in a local publication. The Army Colonel was not confused to the source of the two businesses or the two marks, but, ironically, the Army Colonel was offended because the sexually oriented business was semantically related with Victoria’s Secret trademark. The Colonel notified Victoria’s Secret who filed a complaint against Victor’s Secret for trademark infringement based on dilution. 

The case eventually came before the US Supreme Court. The Supreme Court reviewed the case under the Trademark Dilution Act of 1996. Based on the 1996 Act, the Supreme Court found that Victoria’s Secret must show that actual harm took place against Victoria’s Secret and that such harm lessened the capacity of the Victoria’s Secret mark to identify and distinguish goods or services sold in Victoria’s Secret stores. The Supreme Court remanded the case to the district court.

Because of this decision, Congress adopted the Trademark Dilution Revision Act of 2006 which lessened the burden that a plaintiff in a trademark dilution must exhibit to prevail. The purpose of the 2006 Act was specifically stated to lessen the “undue burden” trademark holders have with dilution claims. Under the 2006 Act, the standard for proving a dilution claim is likelihood of dilution and not actual dilution.

On remand to the District Court, no new evidence was introduced by the parties but the District Court reexamined the case based on the new 2006 Act which overruled the previous Supreme Court opinion. The District Court found that the Victor’s Secret mark, because it is sex related, disparages and reduces the selling power of the Victoria’s Secret mark. The question the Sixth Circuit had to answer on appeal is whether merely a semantic association between Victor’s Secret and Victoria’s Secret constitutes dilution by tarnishment when the junior mark, Victor’s Secret, is used to sell sexual products. The Sixth Circuit found that the 2006 Act reduces the burden of evidentiary production on the trademark holder and creates a rebuttable presumption that a new mark used to sex-related products is likely to tarnish a famous mark if there is a clear semantic association between the two. The Sixth Circuit further stated that the 2006 Act is designed to protect trademarks from any unfavorable sexual associations, and any new mark with a lewd or offensive-to-some sexual association raises a strong inference of tarnishment. 

This new standard under the 2006 Act as interpreted by the Sixth Circuit is somewhat worrisome as it creates a presumption of dilution by tarnishment with sex-related products. As Professor J. Thomas McCarthy points out, “[t]he Majority essentially creates a hard edged rule that no one can use a ‘famous’ mark (or one so similar that there is an ‘association’) as a mark for any product or service that a court thinks is ‘sex-related.’” Finally, it is quite ironic that the Sixth Circuit ignored the fact that the tarnished plaintiff, Victoria’s Secret, is widely known for its “sexy” lingerie and products.      

By: Scott Cameron

Copyright law protects authors and artists who create original works from those who might copy their works. A work may be registered with the United States Copyright Office, but the creator is protected by copyright law even if the work is not registered. As has been said, copyright protection attaches as soon as the pen leaves the page. Thus, copyright law provides a private right of action in federal court against anyone who copies, distributes, or makes derivative works without the permission of the creator of the work. Before the copyright owner can bring a suit for infringement of her copyright, however, the Copyright Act places a requirement that the copyright be registered with the Copyright Office.

The court first had to confront the issue of whether the requirement to register the copyright was jurisdictional, as the district court had dismissed the complaint for lack of subject matter jurisdiction due to the claimant’s failure to obtain a registration certificate prior to filing the lawsuit. Until recently, the prevailing view was that the failure to register a copyright stripped a federal court of jurisdiction to hear the infringement action. This question was an easy one here because the Supreme Court recently held in Reed Elsevier, Inc. v. Muchnick, 130 S. Ct. 1237 (2010), that the registration requirement is not jurisdictional. 

In Reed Elsevier, the Court stated “[t]he registration requirement in 17 U. S. C. A. §411(a) … imposes a precondition to filing a claim that is not clearly labeled jurisdictional, is not located in a jurisdiction-granting provision, and admits of congressionally authorized exceptions. See §§411(a)–(c).  Section 411(a) thus imposes a type of precondition to suit that supports nonjurisdictional treatment under our precedents.” Based on Reed Elsevier, the Ninth Circuit had little difficulty finding that the district court in Cosmetic Ideas erred in dismissing the claim for lack of subject matter jurisdiction. Rather than stop there, the court went on to answer the question of what registration means to determine if it had another basis to affirm the lower court. 

The court first looked to the plain wording of the statute for the meaning of “registration.” It found none. In fact, the court explained that a plain reading of the Copyright Act supported either interpretation. First, the court explained that the term was “unhelpfully defined” in Section 101 as “a registration of a claim in the original or the renewed and extended term of a copyright.” Next, the court engaged in a lengthy discussion showing that sections that required registration for bringing a lawsuit can be read either way. 

In the end, however, the court was persuaded that the application approach was better. This approach “avoids unnecessary delay in copyright infringement litigation, which could permit an infringing party to continue to profit from its wrongful acts.” The registration, if granted, is back-dated to the date of the application. Also, Section 411(a) permits a claimant to file a lawsuit for infringement even if the registration application is denied by the Copyright Office. The court noted that “the registration approach thus creates a strange scheme: Given that the claimant will ultimately be allowed to proceed regardless of how the Copyright Office treats its application, it makes little sense to create a period of ‘legal limbo’ in which suit is barred.”  

Thus, the Ninth Circuit joins the circuits that hold an infringement suit can be initiated once the application and fee for copyright registration is accepted by the Copyright Office. Added to the Reed Elsevier decision, a significant shift has occurred in the procedural requirements to copyright litigation. From a claimant’s perspective, it is now easier to file and maintain the lawsuit, especially if the Copyright Office takes some time in ruling on its application. On the defense side, more care is needed in responding to an infringement suit. A defense attorney must now be careful not to waive an affirmative defense that the work was not registered prior to filing the suit, for if the requirement is not jurisdictional, it seems that the defense can be waived by failure to assert it.

The last line in the Reed Elsevier decision leaves the waiver question unsettled. The Court “decline[d] to address whether §411(a)’s registration requirement is a mandatory precondition to suit that—like the threshold conditions in Arizona v. California, 530 U. S. 392, 412–413 (2000) (res judicata defense); Day v. McDonough, 547 U. S. 198, 205–206 (2006) (habeas statute of limitations); and Hallstrom v. Tillamook County, 493 U. S. 20, 26, 31 (1989) (Resource Conservation and Recovery Act of 1976 notice provision)—district courts may or should enforce sua sponte by dismissing copyright infringement claims involving unregistered works.” This may well be the subject of future litigation in the lower courts.

The Federal Circuit Court of Appeals has reaffirmed that patent applications must satisfy a written description requirement separate from the enablement requirement. In Ariad Pharmaceuticals, Inc. v. Eli Lilly & Co., 598 F.3d 1336 (Fed. Cir. 2010), an en banc Court of Appeals held that 35 U.S.C. §112, first paragraph, contains a written description requirement separate and in addition to the enablement requirement. 

The plaintiff, Ariad Pharmaceuticals, sued Eli Lilly for infringement of a patent pertaining to methods for using a transcription factor to modify gene expression. At trial, the jury found that Eli Lilly had infringed the patent and that the claims of the patent were valid. The district court denied Eli Lilly’s motion for judgment as a matter of law. 

The Court of Appeals identified two issues to be decided.  The first issue was whether 35 U.S.C. §112, first paragraph, includes a written description requirement separate from the enablement requirement. If there is such a requirement, the second issue was the scope and purpose of the requirement.

Ariad argued that there is no written description requirement in §112, first paragraph, separate from the enablement requirement. Ariad contended that §112 has two description requirements: first, what the invention is, and second, how to make and use the invention, but that the first requirement only applied in connection with issues of priority (e.g., amended claims, foreign and provisional priority, and interferences) because original claims themselves satisfy the written description requirement. Eli Lilly agreed with Ariad on the two different description requirements, but asserted that both requirements apply to all claims, including original claims.

The Court of Appeals first analyzed the statute’s language. The court agreed with Eli Lilly that the statute requires the specification to contain a “written description of the invention and of the manner and process of making and using it.” The court noted that Congress could have written §112 to refer only to an enablement requirement, but did not do so. 

The court next discussed Supreme Court precedent. The court stated at 1345:

“Like Lilly, we also read Supreme Court precedent as recognizing a written description requirement separate from an enablement requirement even after the introduction of claims…The Court ascribed two purposes to this portion of the statute, only the first of which involved enablement: ‘(1) to require the patentee to describe his invention so that others may construct and use it after the expiration of the patent and (2) to inform the public during the life of the patent of the limits of the monopoly asserted, so that it may be known which features may be safely used or manufactured without a license and which may not.’[Citation omitted.]”

The court explained the different purposes of the claims and the written description requirement, at 1347: 

“Claims define the subject matter that, after examination, has been found to meet the statutory requirements for a patent. [Citation omitted.] Their principal function, therefore, is to provide notice of the boundaries of the right to exclude and to define limits; it is not to describe the invention, although their original language contributes to the description and in certain cases satisfies it. Claims defined and circumscribe, the written description discloses and teaches.” 

by Matthew Massari

On May 24, 2010, the United States Supreme Court issued a unanimous decision that may ultimately change the way pro sports teams and leagues can license team-owned intellectual property for merchandise and apparel items. The Supreme Court’s ruling in American Needle, Inc. v. National Football League et al., case number 08-66, struck a significant blow to the long-standing joint venture between the National Football League (NFL) and its 32 member teams to license and market team-owned trademarks through a single entity. The case stems from a licensing agreement the NFL made with Reebok International Ltd. in 2000 to be the exclusive manufacturer and marketer of hats bearing NFL team trademarks.

Between 1963 and 2000 NFLP granted non-exclusive licenses to a number of vendors to manufacture and sell team-labeled apparel. In December of 2000 the teams voted to authorize NFLP to grant Reebok an exclusive 10-year license to produce and sell trademarked headwear for all 32 teams. When NFLP failed to renew its license with headwear manufacturer American Needle, Inc., the apparel company filed a lawsuit in the Northern District of Illinois, alleging that the agreements between the NFL, its teams, NFLP, and Reebok violated Sections of the Sherman Antitrust Act, which, inter alia, makes “[e]very contract, combination…or, conspiracy, in restraint of trade” illegal.

In defense of the NFLP licensing venture and exclusive license deal with Reebok, the NFL and its teams argued that they were incapable of “conspiring” with respect to exploitation of intellectual property rights because the NFL and its 32 teams act as a “single entity” and, therefore, are immune from antitrust laws. Under antitrust laws, a “single entity” cannot conspire with itself, because more than one distinct entity needs to exist in order for there to be a conspiracy. For example, the Supreme Court has held that a parent corporation and its subsidiary are not capable of an illegal conspiracy under the Sherman Antitrust Act. See Copperweld Corp. v. Independence Tube Corp. (1984) 467 U.S. 752. As an oversimplification of the issue, the Court needed to decide whether the NFL and its teams were a de facto “single entity,” akin to a parent/subsidiary relationship, or whether the NFL’s licensing venture actually joined together economic competitors causing a restraint of trade in the market for the teams’ intellectual property.

The Supreme Court’s inquiry was limited to the particular conduct at issue, licensing of teams’ intellectual property. The Supreme Court did not agree with the lower courts’ previous rulings in this context, which found that the NFL acted as a single entity for intellectual property licensing. Directly relevant to this issue, the Court found that the teams in fact compete in the market for intellectual property: 

To a firm making hats, the Saints and the Colts are two potentially competing suppliers of valuable trademarks. When each NFL team licenses its intellectual property, it is not pursuing the “common interests of the whole” league but is instead pursuing interests of each corporation itself; teams are acting as separate economic actors pursuing separate economic interests. Decisions by NFL teams to license their separately owned trademarks collectively and to only one vendor are decisions that deprive the marketplace of independent decisionmaking and therefore of actual or potential competition. 

The Court further found that although NFL teams have common interests such as promoting the NFL brand, they are still separate, profit-maximizing entities, and their interests in licensing team trademarks are not necessarily aligned. “While common interests in the NFL brand partially unite the economic interests of the parent firms,” the Court found that “the teams still have distinct, potentially competing interests” and that each of the teams is a substantial, independently owned, and independently managed business whose general corporate actions are guided or determined by separate corporate consciousnesses, and that their objectives are not common since the teams compete with one another, not only on the playing field, but to attract fans for gate receipts and for contracts with managerial and playing personnel. 

The broad potential implications of the Court’s ruling in this case have already been widely speculated in legal and sports industry circles. As for the intellectual property licensing implications, the Court’s ruling means that the 32 NFL teams’ joint venture to license and market teams’ individually owned intellectual property through a single entity may not be a viable business model much longer. The Supreme Court remanded the case back to the lower courts to decide whether the licensing venture and corresponding restraint of trade is reasonable, such that it actually promotes competition rather than suppresses it.

Matt Massari is a corporate and intellectual property transactions attorney at Weintraub Genshlea Chediak and represents various clients in the sports, media and entertainment industries.

On May 6, 2010, the Ninth Circuit issued its opinion in the case Au-Tomotive Gold Inc. v. Volkswagen of America, Inc., et al. in which it decided the issue of whether the sale of marquee license plates bearing Volkswagen badges that Au-Tomotive Gold (“Auto Gold”) had purchased from a Volkswagen dealer constituted trademark infringement or whether the sale of the plates was protected by the “first sale” doctrine. 

After Volkswagen sent Auto Gold cease and desist letters in 1999, Auto Gold filed suit seeking declaratory relief that its activities did not constitute trademark infringement. Volkswagen and Audi counterclaimed asserting numerous claims, including trademark counterfeiting and infringement under the Lanham Act.  The lower court initially granted summary judgment to Auto Gold under the doctrine of “aesthetic functionality” but the Ninth Circuit reversed this decision in an earlier appeal. The Ninth Circuit further held that Volkswagen and Audi had established their affirmative trademark infringement claims and remanded the case to the District Court to consider Auto Gold’s “first sale” defense. [Auto Gold also raised the defense of laches unsuccessfully which will not be addressed in this article.]

Auto Gold argued that because it had lawfully acquired the Volkswagen badges that had been incorporated into its marquee plates, and because its packaging disclaimed any association with Volkswagen, its product was protected under the “first sale” doctrine. The Ninth Circuit held, however, that the “first sale” doctrine did not provide a defense because the plates created a likelihood of confusion as to their origin. Specifically, the Ninth Circuit was not concerned as to whether there was a likelihood of confusion among purchasers of the plates, but rather, the Ninth Circuit focused “on the likelihood of post-purchase confusion among observers who see the plates on purchasers’ cars.”

In reaching this conclusion, the Ninth Circuit began by examining the history of the “first sale” doctrine, which was first recognized in a U.S. Supreme Court opinion, Prestonettes, Inc. v. Coty in 1924. There, the U.S. Supreme Court recognized that a defendant “by virtue of its ownership had a right to compound or change what it bought, to divide either the original or the modified product, and to sell it so divided.” The U.S. Supreme Court recognized that consumers would not be confused by the products’ manufacturer and reasoned “a trade-mark only gives the right to prohibit the use of it so far as to protect the owner’s good will against the sale of another’s product as his.” 

Since then, numerous courts have applied the “first sale” doctrine and have “generally focused on the likelihood of confusion among consumers.”    For instance, numerous district courts have applied the “first sale” doctrine in cases where a defendant had incorporated a trademark product into a new product and the courts in those cases have focused on “the possibility of confusion as the dispositive factor.”  The Ninth Circuit recognized that a separate line of cases further illustrated the central role of the likelihood of confusion where producers commit a trademark infringement by selling refurbished or altered goods under their original trademark.

Turning to the issue before it, the Ninth Circuit recognized that it had previously held (in the earlier appeal) that “the marquee license plates create a likelihood of post-purchase confusion on the part of observers of the plates.” The Ninth Circuit found that it was “likely that a person on the street who sees an Auto Gold marquee license plate with a VW badge will associate the plate with Volkswagen” and thus, “the demand for Auto Gold’s products is inextricably tied to the trademarks themselves.” 

Auto Gold argued that the likelihood of post-purchase confusion was irrelevant. The Ninth Circuit recognized, however, that Auto Gold was unable to cite any legal authority that the “first sale” doctrine applied to cases involving a likelihood of post-purchase confusion. Rather, in each case where the “first sale” doctrine had been applied, “the court either had a good reason not to be concerned with post-purchase confusion or took steps to avoid addressing the issue.”

The Ninth Circuit continued by recognizing that the issue of post-purchase confusion created “a free-rider problem.” The Ninth Circuit found that “[w]hen a producer purchases a trademark product, that producer is not purchasing the trademark.  Rather, the producer is purchasing a product that has been trademarked. If a producer profits from a trademark because of post-purchase confusion about the product’s origin, the producer is, to that degree, a free-rider.”

Auto Gold argued that it was not guilty of trademark infringement since “its marquee plates are of high quality.” The Ninth Circuit rejected this argument, however, finding that “likelihood of confusion, not quality control, is `the “key-stone” of trademark law.’” The Ninth Circuit recognized that courts have consistently found trademark infringement “even where defendants are not selling lower quality goods.”

Finally, Auto Gold argued that the public interest is served if it would be allowed to continue to sell its products given that the competition would help reduce prices. The Ninth Circuit rejected this argument on the ground that “trademark law protects trademark holders from the competition that results from trademark infringement, irrespective of its effect on prices.” The Ninth Circuit concluded that the district court correctly granted summary judgment to Volkswagen on its trademark infringement claim and rejected Auto Gold’s attempt to use the “first sale” defense. 

Thus, the Ninth Circus has reaffirmed that the focus in trademark infringement cases remains on the issue of likelihood of confusion.