In April 2009, the Fourth Circuit upheld a summary judgment granted in favor of an online technology system designed to prevent plagiarism in a copyright infringement action. (A.V. v. iParadigms, L.L.C., (4th Cir. Apr. 16, 2009)). The plaintiffs, four high school students who were required to use the system by their schools, sued iParadigms’ for using their written works through the company’s “Turnitin Plagiarism Detection Service.” The plaintiffs argued that Turnitin’s archiving of the students’ works in its system constituted a violation of their copyrights under the Copyright Act, 17 U.S.C. §101 et seq. The court, however, disagreed with this assessment and ruled that the archiving of students’ works falls under the fair use doctrine, which allows the use of copyrighted works for the purposes of criticism, comment, news reporting, teaching, scholarship, or research.

The Fourth Circuit analyzed the four nonexclusive “fair use” factors under the Copyright Act: (1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work. Furthermore, whether a given use of a copyrighted material is “fair” is based on a balancing test of these four factors, which are “weighed together, in light of the purposes of copyright.”

First, the court determined that iParadigms’ use of plaintiffs’ works was “highly transformative” and thus a “fair use” because it had a completely different function and purpose than the original works, and served a public interest by discouraging plagiarism. Second, although an unpublished highly creative work is entitled to stricter protection due to the author’s right to first publication, the court reasoned in this case that the website’s use of plaintiffs’ works did not have the “intended purpose” or “incidental effect” of diminishing creativity, or rights to first publication. Third, the court found that iParadigms’ use is limited in scope to electronic comparison purposes, and that its use of the entirety of the plaintiffs’ works did not preclude a finding of “fair use.” Fourth, the court noted that the Turnitin system did not depreciate the market value of plaintiffs’ works, since each plaintiff indicated that selling of such written works was dishonest and that he or she would not sell his or her original work for the objective of plagiarism. Thus, the court concluded that iParadigms’ use of the student works was “fair use” under the Copyright Act and affirmed the summary judgment on the plaintiffs’ copyright infringement claim.

This case is similar to search engine fair use claims, in which third-party works are electronically stored in a very profitable database. Many courts are also finding search engine copyright infringement cases as “highly transformative” and thus a “fair use” because they benefit the public by presenting new information on the Internet. (Perfect 10 Inc. v. Amazon.com Inc. (9th Cir. 2007)). The issue of whether archived copyrighted works in a database to which others can gain access is a “fair use” continues to be prevalent in realm of intellectual property.

By W. Scott Cameron

The Internet is a seemingly endless and ever-expanding collection of information. You can find almost anything on the Internet if you look for it, and look in the right place. To find it, however, you often need the “domain name,” or address, of the web site that has the information you want. Every web page has its own unique domain name, and only one company can maintain the database that keeps track of all the domain names on the Internet. That company, currently VeriSign, Inc., essentially controls the Internet. The way VeriSign got that control, and the way it keeps it, led the Coalition for ICANN Transparency, Inc. (“CFIT”), to file an antitrust lawsuit, CFIT v. VeriSign, Inc. The Ninth Circuit ruled this week that CFIT can go forward with its suit, reversing the district court which had dismissed the suit three times. This begs the question: Will the Ninth Circuit bring down the Internet?

In 2005, ICANN renewed the contract with VeriSign for the .com registry without accepting competitive bids for the contract. It also renewed the .net contract, but awarded it to VeriSign after competitive bidding. CFIT’s complaint alleged that prior to the 2005 renewal, VeriSign had harassed, and even sued, ICANN. That lawsuit was dismissed after VeriSign paid ICANN a fee of between $6 and $12 million in exchange for favorable terms on the contracts. In the current lawsuit, CFIT alleged that VeriSign also hired lobbyists to support its position with ICANN, “stacked” ICANN meetings with VeriSign supporters, paid bloggers to attack ICANN’s reputation, and planted stories in the media critical of ICANN, all to further the chances of keeping the .com and .net contracts. The settlement of the VeriSign-ICANN lawsuit required VeriSign to cease all such activity. 

CFIT’s lawsuit claims that VeriSign violated Sections 1 and 2 of the Sherman Antitrust Act in obtaining and keeping the contract. CFIT’s Section 1 claim alleges that VeriSign and ICANN conspired to restrain trade in connection with the terms of the contracts for maintaining both the .com and .net registries. CFIT’s Section 2 claim alleges that VeriSign’s conduct in obtaining the anti-competitive contracts constituted monopolization or attempted monopolization of the .com and .net registration markets. In addition, CFIT claimed there was a separate market for expiring domain names sufficiently distinct from previously unregistered domain names to constitute a separate antitrust claim. 

CFIT’s Section 1claim alleges that CFIT and ICANN conspired to restrain trade. Specifically, CFIT complains that in 2005 ICANN renewed its agreement with VeriSign without any competitive bidding on the contract. Moreover, the new agreement contained a provision that it would automatically renew unless a court issues a final order finding VeriSign to be in breach, and VeriSign fails to cure the breach. Although the district court found no possible antitrust claim there, the Ninth Circuit disagreed, stating that “concerted action between co-conspirators to eliminate competitive bidding for a contract is actionable harm to competition.” CFIT v. VeriSign, --- F.3d --- (9^th Cir. 2009). The complaint also claimed that competition had been eliminated in the renewal of domain names, which the Court noted was “precisely the type of allegation required to state an injury to competition.” CFIT also alleged that this resulted in higher prices to consumers, which the Court agreed was sufficient to state a claim. 

The Court found that the allegations of pricing provisions in the 2006 .com agreement were sufficient to state a claim because the allegations were of concerted action to restrain trade rather than unilateral action. The Court explained that “an entity cannot be held liable for antitrust violations if it simply unilaterally raised prices, absent a showing that it either conspired with another entity in order to restrain trade, or acted in a market in which it holds or is attempting to hold a monopoly.” CFIT v. VeriSign. Here, the complaint was sufficient because it alleged conspiracy along with the anticompetitive pricing.  

The district court had dismissed the Section 2 claims alleging unlawful monopoly because CFIT (1) failed to state a claim for predatory conduct, and (2) failed to allege that expiring domain names are a separate market. The Ninth Circuit reversed on both counts. 

The Court faulted the district court for construing the allegations of predatory conduct as limited to litigation against ICANN. Given all the other predatory conduct alleged against VeriSign, the Ninth Circuit held it was error to limit the allegations as pertaining to just the litigation. The Court also agreed with CFIT that ICANN is essentially a private standards-setting body, and noted that a Section 2 violation may be based on improper coercion of such a standards-setting body. Citing Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988), the Court held that CFIT stated a claim for Section 2 violations regarding the .com contract. The Court noted that commentators had even predicted that Allied Tube would provide a basis for antitrust liability against VeriSign.

The Ninth Circuit agreed with CFIT that expiring domain names are a separate and distinct market for antitrust purposes. Expiring domain names are different from, and more valuable than, previously unregistered domain names because they have a history, and have established traffic. Indeed, the “complaint alleges that every word in the English language is already registered as a domain name, and that desirable domain names can be difficult to come by.” CFIT v. VeriSign, Inc. The expiring domain names are more valuable because all the good names are already taken. The Internet Commerce Association filed an amicus brief agreeing that the expired domain name market exists now, but it did not just a few years ago. In all, the Court found that expiring domain names are a separate market, and the complaint stated a claim for Section 2 claims as to the .com registry. Because the district court had ruled it was not a separate market, the Ninth Circuit reversed on that basis also.

However, the Ninth Circuit agreed that CFIT did not state an antitrust claim as the .net registry under either Section 1 or Section 2. The Court found important that the .net contract was awarded to VeriSign after a competitive bid. Without additional allegations, the complaint did not sufficiently allege wrongdoing as to this contract. The Court did allow CFIT a fourth chance to get it right, and granted it yet another chance to amend its complaint to allege claims for the .net contracts.

If CFIT is successful in it suit, ICANN will likely have to change the way it awards contracts for domain name registries. However, there is little danger that this suit will cause the entire .com and .net domains, the largest on the Internet, to come crashing down. It might just mean that domain names become a bit cheaper to register. These days, lower prices can only be a good thing. Of course, there is a long way to go before this case concludes – the case is back to the district court and still in the pleading stage, more than four years after the complaint was originally filed.

By Audrey A. Millemann

A recent decision from the Federal Circuit Court of Appeals has interpreted provisions in patent litigation settlement agreements that grant a covenant not to sue. The case is TransCore, LP v. Electronic Transaction Consultants Corp., 2009 WL 929033 (Fed. Cir. 2009). 

In TransCore, the plaintiff,TransCore, LP, owned several patents covering automated toll collection systems. TransCore sued Mark IV Industries, a competitor, in 2000, for infringement of the patents. The parties settled the case. In the settlement, Mark IV paid TransCore $4.5 million and TransCore released all existing claims against Mark IV and agreed to an unconditional covenant not to sue for future infringement of the patents.

TransCore then sued ETC in the Northern District of Texas for infringement of four patents. Three of the patents were involved in the TransCore-Mark IV case, and the fourth was issued after the settlement. TransCore sought damages of $20 million.

ETC moved for summary judgment on the grounds that Mark IV’s sales of the toll collection systems to ISTHA were authorized pursuant to the TransCore-Mark IV settlement agreement. ETC argued that the doctrines of patent exhaustion, implied license, and legal estoppel barred TransCore’s claims. 

In 2008, the district court granted ETC’s motion for summary judgment. The court held that the TransCore-Mark IV settlement agreement barred TransCore’s claims as to the toll collection systems sold by Mark IV to ISTHA because TransCore’s patent rights with respect to those systems had been exhausted. 

TransCore appealed to the Federal Circuit. The appellate court affirmed the grant of summary judgment. 

The Federal Circuit explained that under the doctrine of patent exhaustion, “the initial authorized sale of a patented item terminates all patent rights to that item” and that “exhaustion is triggered only by a sale authorized by the patent holder,” quoting the Supreme Court in Quanta Computer, Inc. v. LG Electronics, Inc., 128 S.Ct. 2109, 2115, 2121 (2008). The Federal Circuit held that the issue raised by the TransCore case was “whether an unconditional covenant not to sue authorizes sales by the covenantee for purposes of patent exhaustion.”

TransCore argued that a settlement agreement conveying a license was different from a settlement agreement containing a covenant not to sue, and that the covenant not to sue in the TransCore-Mark IV settlement agreement did not authorize sales. The appellate court disagreed.

According to the court, a patent owner can only convey what it owns, and patent owners only have the right to exclude others from making, using, selling, offering for sale, or importing the patented invention. The court stated: “one cannot convey what one does not own. This principle is particularly important in patent licensing, as the grant of a patent does not provide the patentee with an affirmative right to practice the patent but merely the right to exclude.” Therefore, the court stated that “a patentee, by license or otherwise, cannot convey an affirmative right to practice a patented invention by way of making, using, selling, etc.; the patentee can only convey a freedom from suit.” The court quoted the Supreme Court in stating that “as a license passes no interest in the monopoly, it has been described as a mere waiver of the right to sue by the patentee.” De Forest Radio Telephone & Telegraph Co. v. United States, 47 S.Ct. 366 (1927). 

The appellate court held that a non-exclusive license to a patent is equivalent to a covenant not to sue. The court explained that:

“As a threshold matter, a patent license agreement is in essence nothing more than a promise by the licensor not to sue the licensee. Even if couched in terms of ‘licensee is given the right to make, use, or sell X,’ the agreement cannot convey that absolute right because not even the patentee of X is given that right. His right is merely one to exclude others from making, using or selling X. Indeed, the patentee of X and his licensee, when making, using, or selling X, can be subject to suit under other patents. [Citation omitted.]”

The court noted that the question was not whether a settlement agreement is a covenant not to sue or a license, as both are authorizations, but rather whether the settlement agreement authorized sales.

The court found the covenant not to sue language in the TransCore-Mark IV settlement agreement to be very clear – TransCore agreed not to sue Mark IV for future infringement of any kind. Because there was no limiting language, this meant that all possible infringing acts (making, using, selling, offering for sale, and importing) were permitted. The court indicated that the result might have been different had TransCore used limiting language, such as permitting only “making” or “using” the patented systems. 

Based on the clear, broad language of the settlement agreement, the court held that Mark IV’s sales of the systems to ISTHA were authorized and that TransCore’s patent rights to those systems had been exhausted. 

This case is likely to affect the drafting of both patent litigation settlement agreements and patent licenses. It is not enough to refer to the term as a “covenant not to sue” or a “license.” According to the court, this difference is merely one of form, not substance. Thus, careful drafting is required in order to avoid having a covenant not to sue be interpreted as a license.

by Dale C. Campbell

Section 43(a) the Lanham Act provides for liability related to unregistered marks. Section 43(a) provides for civil liability for any person who, IN connection with any goods or service uses in commerce any word, term, name, symbol or any combination thereof, or any false designation origin, false or misleading description of fact or false or misleading misrepresentation of which (a) is likely to cause confusion as to the origin, sponsorship or approval of the goods or services by another person or (b) in commercial advertising or promotion misrepresents the nature, character qualities or origin of his or her good, service or commercial activity. Subsection (a) is commonly known as the false origin claim and subsection (b) is commonly known as false advertising claim. In short, one can’t be liable for claims of false origin even if the statements are not made in the course of commercial advertising or promotion as required in subsection (b).

A plaintiff frequently elects to rely on defendant’s profits rather than attempt to prove its own damages. Defendant’s profits may be greater than the plaintiff’s damages and, perhaps more importantly, reliance on defendant’s profits is often easier to prove and does not require the plaintiff to disclose its own internal financial information or deal with the requirement to prove damages with reasonable certainty; without undue speculation.

The Seventh Circuit Court of Appeal issued a decision in late 2008 which addressed the issues of legal standards for damages under the Lanham Act. WMS Gaming, Inc. v. WPC Productions, Ltd. Plaintiff and defendant were both engaged in internet gaming on an international basis. Defendant had been utilizing plaintiff’s registered trademarks during the years 2004 through 2006.  Defendant predominantly displayed plaintiff’s marks on its website and other marketing materials. Defendants had refused numerous demands to take down the marks and, in fact, refused to defend a lawsuit thereby allowing entry of default judgment. At the prove up hearing, the District Court focused just on plaintiff’s damages based upon its interpretation of the complaint as seeking only damages, rather than an award for an accounting of defendant’s profits. The District Court also found that the evidence plaintiff submitted with respect to defendant’s profit did not identify which portion of that revenue was attributable to the games that infringed plaintiff’s mark. 

The Seventh Circuit Court of Appeal reversed stating that the plaintiff has the alternative of pursuing defendant’s profits or plaintiff’s damages citing a Supreme Court decision from nearly a century ago, in Hamilton-Brown Shoe Company v. Wolf Brothers & Company 240 U.S. 251 (1916). In Hamilton-Brown, the Supreme Court stated: “The owner of the trademark is entitled to so much of the profit as resulted from the use of the trademark.” The Supreme Court ruled that the burden would be on defendant to establish any proper cost to deduct from the entire revenue stream as well as to try to identify any element of profit that was intrinsic to the product, not attributable to the use of the name. The Appellate Court in WMS Gaming found that the District Court improperly placed the burden upon plaintiff to show which of defendant’s sales were attributable to the use of plaintiff’s mark stating: “When a trademark plaintiff offers evidence of infringing sales and the infringer fails to carry its statutory burden to offer evidence of deductions, the plaintiff’s entitlement to profits under the Lanham Act is equal to the infringer’s gross sales.” 

The litigants in a Lanham Act case must be careful not to assume too much with respect to the legal issues related to recovery of defendant’s profits versus plaintiff’s damages. Not all uses of a mark constitutes commercial advertising such as in the WMS Gaming or other leading cases dealing with the option of pursuing defendant’s profits. Subdivision 43(a)(1)(b) of the Lanham  Act requires that the confusing word or phrase be used “in commercial advertising or promotion.” The Circuit Courts which have addressed this issue instruct that a defendant cannot be liable for violating the Lanham Act on a false advertising claim unless, among other things, the complained of communications were part of an overall strategic marketing plan. Fashion Boutique of Short Hills, Inc. v. Fendi USA, Inc. 134 F.3d 48 (2^nd Cir. 2002). In Fendi, various sales persons had made disparaging comments stating that the defendant sold fake merchandise. The Second Circuit found that plaintiffs could only establish approximately 30 such false and misleading comments and therefore plaintiff had not established that the misrepresentations were used in “commercial advertising or promotion.” The court held: “The touchstone of whether a defendant’s actions may be considered ‘internal advertising or promotion’ under the Lanham Act is that the contested representations are part of an organized campaign to penetrate the relevant markets. Proof of widespread dissemination within the relevant industry is normal concomitant of meeting this requirement. Thus, businesses harmed by isolated disparaging statements do not have redress under the Lanham  Act, but instead must seek redress under state law causes of action. Fashion Boutique, Id. at 56.

If a defendant utilizes plaintiff’s mark in something other than a “commercial advertising or promotion” the plaintiff need do more than just establish a few isolated uses of its mark in order to seek all of plaintiff’s profits. The Ninth Circuit has addressed this issue in Lindy Pen Company, Inc. v. Bic Pen Company, Inc. 982 F.2d 1400 (9^th Cir. 1993). The Lindy court found that one of the hallmarks of trademark infringement is that, should a plaintiff be able to infringement, it is only entitled to recover damages directly caused by the infringement. Citing Rolex Watch v. Michel Company 179 F.3d 704, 712 (9^th Cir. 1999). The “plaintiff must prove both the fact and the amount of damage.” Lindy Pen at p. 1407. Furthermore, a jury cannot infer trademark damages based solely on evidence of a decline in sales or willful misconduct; the law requires plaintiffs to distinguish between damages caused by lawful and unlawful conduct. Computer Access Tech. Corp. v. CatalystEnters, Inc. 273 F.Supp.2d 1063, 1074 (N.D. Cal. 2003). 

The Lanham Act provides broad and varying remedies available to a plaintiff. However, the plaintiff must not treat the issue of damages cavalierly by relying on case law affirming defendant’s obligation to present evidence of costs or what elements of gross sales are not attributable to the use of plaintiff’s mark. Lawsuits alleging sufficient wrongful acts constituting commercial advertising or promotions offers plaintiff a wide ranging options to seek either its damages or defendant’s profits. However, in false origin cases or false statement cases not involving commercial advertising or promotion, plaintiff still has the burden of proving the isolated wrongful acts and causal connection between those acts and either plaintiff’s damages or defendant’s profits. The burden shifting provisions of the Lanham Act work well in commercial advertising promotion cases; but cannot be applied in ways to seek all of defendant’s profits from all business activities if plaintiff is only able to establish isolated infringing use of the mark or isolated misleading statements.

by Zachary Wadlé

Hilton Hotels Corporation and two high-ranking executives are facing a civil lawsuit and a federal grand jury investigation stemming from allegations that they developed Hilton's new luxury lifestyle brand, “Denizen,” using proprietary information stolen from rival hotel company Starwood.

The civil complaint filed in federal district court in White Plains, New York, alleges that Ross Klein and Amar Lalvani, two former Starwood executives who joined Hilton last summer, stole more than 100,000 electronic and paper documents containing Starwood’s trade secrets.

The Hilton criminal investigation makes clear that, in extreme cases, misappropriation of trade secrets can go far beyond the civil courtroom and into the criminal justice system. Trade secrets are protected under both federal and state laws. Although the statutory definitions vary somewhat, these statutes all reflect a similar understanding of what constitutes a trade secret, and what constitutes misappropriation of a trade secret.

The Uniform Trade Secrets Act ("UTSA"), which has been enacted in many states, and other state trade secret statutes provide civil penalties for the misappropriation of trade secrets. Liable parties can be required to pay all damages resulting from the misappropriation, as well as, in some cases, multiple damages or punitive damages. In addition, the defendants can be enjoined from using or disclosing the trade secrets. 

The 1996 federal Economic Espionage Act ("EEA") (18 U.S.C. §§ 1831-1839), as well as statutes in various states, including California, can also impose criminal liabilities, including heavy fines and prison terms, for theft of trade secrets. The EEA imparts criminal liability for the theft or misappropriation of trade secrets as well as any attempt or conspiracy to steal or misappropriate trade secrets. Sections 1831 and 1832 of the EEA are directed to different types of defendants. Section 1831 specifically punishes someone who intends or knows that the violation of the Act will benefit a foreign government, instrumentality, or agent, as those terms are defined in Section 1839. In contrast, Section 1832 targets trade secret theft more generally, without regard to its benefits to a foreign entity. Section 1831 applies to the theft of either products or technical skills unrelated to a product, while Section 1832 is more limited to addressing theft of a trade secret "that is related to or included in a product." Each statute uses broad terms to embrace both direct and indirect theft of a trade secret, including its alteration or destruction.

Individuals and organizations convicted of violating Sections 1831 and 1832 are subject to severe penalties. Persons convicted of violating Section 1831 may be fined up to $500,000 or imprisoned up to 15 years, or both, while any organization that commits any offense prohibited by Section 1831 may be fined up to $10,000,000. A person convicted of violating Section 1832 faces a fine of up to $500,000 or a prison sentence of up to 10 years, or both, while any organization that commits any offense described in Section 1832 may be fined up to $5,000,000.

The considerable damages and criminal liability provided for by federal and state statutes underscore the importance of having a trade secret policy for your business. At minimum, all businesses should have written policies in place concerning the use of trade secrets. Instruct new employees that the company will not tolerate violation of prior confidentiality agreements and that employees should not use any information which might be deemed to be their former employer's trade secret. Obtaining representations from new employees can serve as helpful evidence in defending the employer against an EEA claim. Strongly consider having new employees confirm in writing that they understand these obligations. Most importantly, take seriously any allegation of trade secret misappropriation. As Hilton has learned, the stakes in trade secret litigation can quickly escalate, and it is best to ensure that no misappropriation occurs in the first place.

On May 7, 2009, the Ninth Circuit issued its opinion in the case, Barnes v. Yahoo!, Inc. (No. 05-36189), in which it decided the issue of whether the Communications Decency Act of 1996 (“CDA”) protected Yahoo from a lawsuit where it allegedly promised to remove harmful material to the plaintiff from its website but failed to do so. 

In 2004, Cecilia Barnes broke up with her boyfriend and he responded by posting profiles of Ms. Barnes on a Yahoo website. The profiles contained nude photographs of Ms. Barnes and her ex-boyfriend that were apparently taken without her knowledge and the profiles included solicitations to engage in sexual intercourse. The ex-boyfriend also participated in discussions in Yahoo chat rooms in which he posed as Ms. Barnes and directed correspondents to the fraudulent profiles of Ms. Barnes he had created. In response to these profiles, several men contacted plaintiff, including visits to her office, all in the expectation of sex.

Ms. Barnes sent Yahoo two more mailings over the following month and a local news program prepared to broadcast a report concerning the incident. One day before the broadcast, Yahoo’s Director of Communications called Ms. Barnes and asked her to fax her the previous statements she had mailed to Yahoo. The Director of Communications told Ms. Barnes that she would “personally walk the statements over to the division responsible for stopping unauthorized profiles and they would take care of it.” Ms. Barnes claimed that she relied on this oral representation and took no further action regarding the profiles. Another two months passed with no action by Yahoo at which point Ms. Barnes filed a lawsuit against Yahoo.  (The profiles were taken down from Yahoo’s website shortly thereafter.) 

The Court construed Ms. Barnes complaint against Yahoo to assert two causes of action: (1) “negligent undertaking” under section 323 of the Restatement 2^nd of Torts; and (2) a theory of promissory estoppel under section 90 of the Restatement 2^nd of Contracts. Yahoo removed the action to federal court and its motion to dismiss the complaint was granted by the lower court which found that, under the CDA, Yahoo was immune from liability as a matter of law. 

The Ninth Circuit began by recognizing that section 230(c) of the CDA provides an affirmative defense and that procedurally, Yahoo should have raised this issue as an affirmative defense and then moved for judgment on the pleadings. Given that the lower court, however, had granted the motion to dismiss, the Ninth Circuit overlooked this procedural irregularity and considered the matter on the merits.

The Ninth Circuit recognized that section 230 of the CDA “protects certain internet-based actors from certain kinds of lawsuits.” The Legislative purpose was designed “to promote the free exchange of information and ideas over the internet and to encourage voluntary monitoring for offensive or obscene materials.” 

Under section 230(c)(1) of the CDA, “[n]o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” Yahoo’s motion to dismiss was based exclusively on this section and it argued that courts were barred “from treating certain internet service providers as publishers or speakers.” Although the Ninth Circuit disagreed with the breadth of Yahoo’s argument, it concluded that section 230(c)(1) “only protects from liability (1) a provider or user of an interactive computer service (2) when plaintiff seeks to treat under a state law cause of action as a publisher or speaker (3) of information provided by another information content provider.” 

The Ninth Circuit focused on whether plaintiff’s two causes of action required Yahoo to be treated as a “publisher or speaker” in order to impose liability. The Ninth Circuit recognized that defamation is the most frequently-associated cause of action with section 230 of the CDA. In fact, the CDA had been enacted in response to a prior case holding an internet service provider liable under a defamation cause of action. The Ninth Circuit concluded, however, that “a law’s scope often differs from its genesis” and that section 230 was not limited in its application to defamation cases. Rather, the Ninth Circuit concluded that “what matters is whether the cause of action inherently requires the Court to treat the defendant as the `publisher or speaker’ of content provided by another.”

As to her negligent undertaking cause of action, plaintiff argued that it did not treat Yahoo as a publisher, but rather, Yahoo was one who undertook to perform a service and did it negligently. The Ninth Circuit rejected this argument and concluded “a plaintiff cannot sue someone for publishing third party contents simply by changing the name of the theory from defamation to negligence.” 

Barnes also attempted to distinguish Yahoo by claiming it was a “distributor” and not a “publisher” of the harmful content. The Ninth Circuit, however, declined to resolve the issue of this distinction and ruled “section 230(c)(1) precludes courts from treating internet service providers as publishers not just for the purposes of defamation law, with its particular distinction between primary and secondary publishers, but in general.” Thus, the Ninth Circuit concluded that the trial court properly dismissed plaintiff’s negligent undertaking cause of action.

The Ninth Circuit concluded differently, however, as to plaintiff’s other cause of action for promissory estoppel theory under contract law. The Ninth Circuit focused on whether this theory of recovery would treat Yahoo as a “publisher or speaker” under the CDA.

The Ninth Circuit recognized that “in a promissory estoppel case as in any other contract case, the duty that defendant allegedly violated springs from a contract – an enforceable promise – not from any noncontractual conduct or capacity of the defendant.” The Ninth Circuit recognized that plaintiff did not seek to hold Yahoo liable under this cause of action “as a publisher or speaker of third party content but rather as the counterparty to a contract as a promissory who has breached.” 

The Court distinguished plaintiff’s promissory estoppel claim from her negligent undertaking claim because “promising is different because it is not synonymous with the performance of the action promised.” The Court reasoned that “contract liability here would not come from Yahoo’s publishing conduct, but from Yahoo’s manifest intention to be legally obligated to do something which happens to be removal of material from publication.” The Ninth Circuit continued by recognizing that under a contract theory there must have been a clear and well defined promise and a meeting of the minds between the parties. Thus, Yahoo could have avoided liability by disclaiming any intention to be bound which it failed to do. The Ninth Circuit concluded “subsection 230(c)(1) creates a baseline rule. No liability for publishing or speaking the content of other information service providers. Insofar as Yahoo made a promise with the constructive intent that it may be enforceable, it has implicitly agreed to alteration in such baseline.” 

As a result, the Ninth Circuit concluded that plaintiff could state a breach of contract claim under the theory of promissory estoppel and that section 230(c)(1) of the CDA did not bar that cause of action. Therefore, the Ninth Circuit reversed the lower court’s granting of the motion to dismiss on that cause of action.

It’s been five years since the Trademark Trial and Appeal Board dramatically changed the way Untied States trademark registrations are handled. The case of Medinol Ltd. v. Neuro Vasx, Inc. reflected an analytical shift in the way in which the Trademark Trial and Appeal Board (TTAB) determines whether an applicant committed fraud on the trademark office. The holding also provided those seeking to cancel a trademark registration with a powerful weapon, and created substantial risk for trademark applicants and registrants who overstate the goods or services in their application. The facts of Medinol Ltd. v. Neuro Vasx, Inc. are as follows:

The undersigned being hereby warned that willful false statement and the like so made are punishable by fine or imprisonment or both,…and that such willful and false statements may jeopardize the validity of the application or any resulting registration, declares that…the mark is now in use in commerce; and all statements made of his own knowledge are true and all statements made on information and belief are believed to be true.

The Statement of Use was signed by Neuro Vasx’s president and accepted by the trademark examining attorney. In August 2000 Neuro Vasx’s application moved forward to registration. 

In May, 2002, Medinol filed a petition to cancel Neuro Vasx’s trademark registration alleging that at the time Neuro Vasx submitted its Statement of Use it had not used the mark on or in connection with stents and that it had not done so since. Medinol alleged that Neuro Vasx’s registration was procured by knowingly false or fraudulent statements and that “said false statement were made with the intent to induce authorized agents of the Patent and Trademark Office to grant registration, and reasonably relying upon the truth of said false statements, the PTO did, in fact, grant said registration to [Neuro Vasx].”

In answer to Medinol’s cancellation petition, Neuro Vasx responded by requesting partial cancellation of its own trademark registration by deleting the word “stents” from the list of goods. Neuro Vasx admitted that it had not used its mark in connection with stents; it claimed that upon the filing of its Statement of Use, the electronic check box for the goods and services identified in a Notice of Allowance was inadvertently checked and the fact that stents was still included was “apparently overlooked.” 

The TTAB did not accept Neuro Vasx’s excuses. The TTAB found the Statement of Use would not have been accepted, nor would registration have issued but for Neuro Vasx’s misrepresentation and that Neuro Vasx’s request to delete stents from its list of goods does not remedy an alleged fraud upon the USPTO. If fraud can be shown in the procurement of a registration, the entire resulting registration is void. 

The TTAB found that at the time Neuro Vasx filed its Statement of Use, it either knew or should have known that the mark was not being used in connection with stents. (“There were only two goods identified in the Notice of Allowance; the mark was either in use of both, or it was not.”) Further, when submitting its statement of use, Neuro Vasx’s president signed its statement under penalty of “fine or imprisonment…and that such willful false statements may jeopardize the validity of the application or any resulting registration.” The TTAB found that such statements should be investigated thoroughly prior to signature and submission to the USPTO. Based on such findings, the TTAB sua sponte entered summary judgment in favor of Medinol on the issue of fraud and indicated that it would cancel Neuro Vasx’s registration provided Medinol had proved that it had standing the petition for cancellation (which it later did). 

The Lessons of Medinol.

Subsequent to Medinol, the TTAB has made short work of cases in which similar fraud allegations were made; granting little to no relief to those who can not establish use in connection with each and every single item of good or service listed on the mark owner’s application. Further, the TTAB has been freely granting plaintiffs in Oppositions and Cancellation proceedings leave to amend to allege fraud.

Prior to Medinol, some applicants sought to register trademarks for the widest range of goods and services possible. This is particularly true for foreign applicants who follow the practice in numerous foreign jurisdiction of applying for as broad a range of goods or services that appear to cover the entire international class. The registration resulting from such applications may be subject to cancellation if the mark is not in use in the United States with each and every good or service listed in the application.

When filing an application, resist the impulse to be over-inclusive. If the application is based on actual use, only file for goods that are in use. If the application is based on intent to use, a broad scope is OK initially, as long as it has been narrowed to reflect the mark’s actual use by the time the Statement of Use is filed.

A mark owner should also keep good records of the mark’s use; knowing that a potential opposer may challenge the validity of your Statement of Use and supporting evidence.

Earlier this month, the Tenth Circuit court upheld a preliminary injunction granted in favor of a manufacturer of electronics equipment against a reseller of its goods in a trademark infringement action. (Beltronics v. Midwest Inventory Distribution (10th Cir. April 9, 2009)). The reseller argued that it was able to resell the manufacturer’s goods online 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 actions 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 is sold in the marketplace that causes confusion to the source of the 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.

Most everyone knows that federal copyright laws protect an author’s expression of an idea. When someone infringes a protected work, either by copying or distributing it without permission, the copyright owner is generally entitled to damages. In Dream Games of Arizona v. PC Onsite, --- F.3d --- (April 2, 2009), the Ninth Circuit addressed a question of first impression in the circuit: Whether illegal use or operation of a work by the copyright owner precludes the award of actual or statutory damages for copyright infringement. 

PC Onsite created a new version of Dream Game’s Fast Action Bingo, and cleverly called it Fast Action Bingo II. When PC Onsite presented it to Dream Games, however, negotiations for an agreement to go forward with the new game broke down. Immediately thereafter, PC Onsite created Quick Play Bingo I, a game remarkably similar to, and in fact based upon, Fast Action Bingo II. PC Onsite registered the copyright of the source code for its new game, and marketed it through City Entertainment. PC Onsite and City Entertainment agreed to install and operate Quick Play Bingo I in bingo parlors in Utah and Wyoming. Several of the bingo parlors with the Quick Play games already had Fast Action Bingo games, and the two games competed directly.

Dream Games discovered the Quick Play Bingo I games, and not surprisingly, filed suit for copyright infringement, breach of contract, and unjust enrichment. A complicating factor in the case was the fact that gambling is illegal in both Utah and Wyoming. In fact, the Wyoming Supreme Court specifically found that Fast Action Bingo machines were illegal in its state, and several machines had been seized in Utah. During the ensuing jury trial, the district court ruled that Dream Games could not recover actual damages for Fast Action Bingo’s lost profits because the game was offered illegally in Utah and Wyoming. The court did not preclude statutory damages, however, and the jury eventually awarded Dream Games $25,000 in statutory damages. PC Onsite appealed. Dream Games filed a cross-appeal, but apparently did not challenge the ruling that it was not entitled to actual damages.

On appeal PC Onsite first argued that the district court erred when it allowed evidence that included the unprotected elements of the Fast Action Bingo game along with the four elements that were protected by the copyright. The Ninth Circuit had no problem dispensing with this argument, citing case law that held copyright infringement can be based on infringement of a combination of unprotected elements. The court pointed out that in combination, the jury might find these elements protectable, and to allow the possibility of such a finding, the jury must be allowed to see the complete work. It is necessary for the unprotectable elements to be identified to the jury, and the district court did that in its jury instructions. Contrary to PC Onsite’s argument, the Ninth Circuit held that the district judge is not also required to specify the elements which are protectable.

The court then turned to the question of damages. PC Onsite argued, logically, that Dream Games should not be entitled to damages for copyright infringement because the use that it was infringing, bingo parlors in Utah and Wyoming, was illegal. The argument has some initial appeal. If the use by the copyright owner was illegal, then awarding damages for infringement allows the owner to be compensated because the infringer cut into its illegal revenue. This can’t be right, can it?

As it turns out, although it had never addressed the issue before, the Ninth Circuit held that it is right. With a closer look, perhaps that makes sense after all.

The court started by exploring the broad basis for copyright protection, and prior cases holding that fraudulent content of a work was not a basis for denying copyright protection. The court quoted Nimmer on Copyright for “the prevailing view [ ] that no works are excluded from copyright by reason of their content.” It went on to say that “there is nothing in the Copyright Act to suggest that the courts are to pass upon the truth or falsity, the soundness or unsoundness, of the views embodied in a copyrighted work.” Indeed, as the court noted, “the gravity and immensity of the problems, theological, philosophical, economic, and scientific, that would confront a court if this view were adopted are staggering to contemplate.” 

The court also pointed out that the Fast Action Bingo machine, while illegal in Wyoming or Utah, was not illegal in other geographical areas. In the court’s view, “it would be absurd to deny a work the protection of a federal copyright because it is capable of illegal use in one or more states, but capable of perfectly legal use in other states.” One of the purposes of copyright protection is to deter infringement. To preclude damages based on the content of the work would be contrary to this goal, and provide no incentive to avoid copying another’s work. 

The court held that “an award of either type of damages available under the Copyright Act – actual or statutory – is not precluded by evidence of illegal operation of the copyrighted work, at least where the illegality did not injure the infringer.” With this holding, it is interesting that Dream Games did not appeal the denial of actual damages. Had it done so, it is likely that a new trial on damages would be necessary given the ruling. Assuming more than $25,000 in actual damages was at issue, this seems like a costly mistake for Dream Games.

Finally, during the trial the court did not allow PC Onsite to present evidence of illegality to the jury. It ruled that the jury should focus on PC Onsite, and that any possible illegal activity by Dream Games was irrelevant to the willfulness or innocence of PC Onsite’s conduct. PC Onsite objected to the district court’s exclusion of evidence of the illegality of Dream Games’ activity in determining the amount of statutory damages to award, and appealed that ruling as well. The Ninth Circuit seemed to have little trouble dismissing this argument, also, holding that the evidence was properly excluded under Rule 403 due to the possibility of unfair prejudice. “Here, because of the district court’s familiarity with the details of the case and its greater experience in evidentiary matters, it was not an abuse of discretion to exclude evidence of illegal operations.” 

By Audrey Millemann

In Tokyo Keiso Company, v. SMC Corporation, 2009 WL 59769 (Fed. Cir. 2009)the Federal Circuit has again relied on the Supreme Court’s decision in KSR in invalidating a patent for obviousness.

The plaintiff, Tokyo Keiso, is the owner of a patent that covers a volume flow meter that measures the volume of a fluid flowing through a pipe or measuring line. The patent describes the prior art devices as having two measuring heads, one on each end of the measuring line, and using an acoustic signal transmitted through the metal measuring line. The problem with the prior art devices was that the sound travelled faster through the metal than through the fluid, resulting in inaccurate measurements. The invention in Tokyo Keiso’s patent used a measuring line made of plastic, instead of metal, which caused the acoustic signal to travel more slowly through the plastic than the fluid and made the flow meter more accurate. 

The district court granted SMC’s motion.  The court found that the prior art references rendered the patent obvious and that, because neither reference had been before the PTO during patent prosecution, the patent’s presumed validity was weakened. 

Tokyo Keiso appealed the decision to the Federal Circuit.  In affirming this district court’s decision, the appellate court quoted from the Supreme Court’s decision in KSR v. Teleflex, 127 S.Ct. 1727, 1745-46 (2007): “The ultimate judgment of obviousness is a legal determination.  Where … the content of the prior art, the scope of the patent claim, and the level of ordinary skill in the art are not in material dispute, and the obviousness of the claim is apparent in light of these factors, summary judgment is appropriate.”  Tokyo Keiso Company, supra, at *3. 

Tokyo Keiso asserted that the district court did not perform a claim-by-claim analysis.  Tokyo Keiso also argued that there were disputed questions of fact, including that the prior art references did not address the specific problem solved by the patented invention and that a person having ordinary skill in the art would not have utilized the prior art references to solve the problem.  Tokyo Keiso also contended that the prior art references did not teach all of the limitations of the patent, that the patent was entitled to a presumption of validity, that the references were cumulative, and that the district court did not give any weight to the secondary considerations of nonobviousness (long-felt need and commercial success).  SMC disagreed with each of Tokyo Keiso’s points and asserted that the district court had properly followed KSR.

The Federal Circuit affirmed the district court’s grant of summary judgment.  The court held that the patent was obvious based on the prior art article combined with the admissions in the patent’s specification that certain limitations were present in the prior art.  According to the court:

“Valid prior art may be created by the admissions of the parties…[A] statement by an applicant during prosecution identifying certain matter not the work of the inventor as ‘prior art’ is an admission that the matter is prior art.”

Id. at *5, quoting Riverwood International Corp. v. R.A. Jones & Co., 324 F.3d 1346, 1354 (Fed. Cir. 2003).  The court found that Tokyo Keiso had admitted that the only difference between its invention and the prior art was the material that the measuring line was made of (plastic).  The court concluded that the prior art article relied upon by SMC disclosed the use of plastic.

The court further found that a person having ordinary skill in the art would have combined the prior art article with the prior art admitted in the patent. 

“When a work is available in one field of endeavor, design incentives and another market forces can prompt variations of it, either in the same field or a different one.  If a person of ordinary skill can implement a predictable variation, § 103 likely bars its patentability.”

Id. at *6, quoting KSR, supra, 127 S.Ct. at 1740.

The court also held that there were no disputed material facts because the prior art article clearly disclosed the limitations not present in the admitted prior art.  Id. at *6.  Lastly, the court held that the secondary considerations of nonobviousness asserted by Tokyo Keiso did not overcome the strong evidence of obviousness.  Id. at *7.

By Dale C. Campbell

Most states have adopted some form of the Uniform Trade Secret Act (the “UTSA”). The USTA provides that “actual or threatened misappropriation may be enjoined.” (See Cal. Civ. Code § 3426.2(a).) However, neither the UTSA nor California’s version of the USTA defines the term “threatened” misappropriation. Unlike other areas of intellectual property law, the protectability of trade secrets is defined by state law. Despite almost nationwide adoption of the USTA, state law differs greatly concerning which acts may be enjoined as “threatened” misappropriations.

California courts have rejected the inevitable disclosure doctrine, finding that it is directly contrary to California’s public policy prohibiting an employer from entering into a noncompetition agreement with its employees. (Bus. and Prof. Code § 16600.) Courts applying California law have routinely found that the inevitable disclosure doctrine would “create an after-the-fact covenant not to compete restricting employee mobility.” (Ibid.)

New York is one of the leading jurisdictions that has adopted and is expanding the scope inevitable disclosure doctrine. The United States District Court for the Southern District of New York recently addressed the inevitable disclosure doctrine and seems willing to expand its scope even beyond other jurisdictions that have adopted the doctrine. (IBM v. Papermaster, 2008 WL 4974508 (S.D.N.Y.).) Many courts that have adopted the inevitable disclosure doctrine treat it as a subspecies of the statutory “threatened” disclosure. However, the Court in IBM v. Papermaster considered the inevitable disclosure doctrine as a third species of proof justifying the issuance of an injunction prohibiting a former employee from joining a competitor. The IBM court found that a former employee may be enjoined from joining a competitor “[e]ven where a trade secret has not yet been disclosed, irreparable harm may be found based upon a finding the trade secrets will inevitably disclosed, where . . . the movant competes directly with the prospective employer and the transient employee possesses highly confidential or technical knowledge concerning marketing strategies or the like.” (IBM v. Papermaster (2008) WL 1974508 at 7, citing Estee Lauder v. Batra, 430 F.Supp.2d 158, 174 (S.D.N.Y. 2006).) The IBM Court specifically found “because [defendant] has been inculcated with some of IBM’s most sensitive and closely-guarded technical and strategic secrets, it is no great leap for the Court to find that plaintiff has met its burden of showing a likelihood of irreparable harm.” (Id. at 8.) The IBM Court cited two additional factors that make the likelihood of irreparable harm more than mere speculation. First, the defendant had acknowledged in his employment agreement that IBM would suffer “irreparable harm” if he violated the noncompetition agreement and that it is inconceivable that the defendant would not draw upon his IBM experiences in making marketing decisions on behalf of his new employer. 

The inevitable disclosure doctrine, especially as adopted by New York, is contrary to California law. Nevertheless, the Fifth District Court of Appeal in Central Valley General Hospital v. Smith (2008) 162 Cal.App.4th 501, recently examined the distinction between “threatened” misappropriation and inevitable disclosure. The defendant in that case argued that California’s rejection of the inevitable disclosure doctrine effectively preempted a court’s ability to enjoin conduct that “threatened” the disclosure of a trade secret. The Court disagreed, stating, “The principle that threatened misappropriation of trade secrets may be enjoined is the law of California despite the rejection of the inevitable disclosure doctrine by California courts.” (Central Valley General Hospital, supra, 162 Cal.App.4th at 525.) The Court then outlined four alternative variations for attempting to prove threatened misappropriation. The first variant is proof that the former employer had protectable trade secrets, that those trade secrets remain in the knowledge of the former employee, and that the former employee has misused or disclosed some of those trade secrets in the past. (Id. at 527.) Evidence that a person has misappropriated trade secrets in the past is evidence sufficient to establish that that former employee may do it again.

The second variant of threatened misappropriation is evidence that the former employee “intends to improperly use of disclose some of those trade secrets.” This variant requires the moving party to establish the actual intent of the employee to misuse the trade secrets.

The third variant for proving threatened misappropriation occurs when the former employee and new employer wrongfully refuse to return the trade secrets after a demand for their return has been made. The Court did not formally adopt this variant as an acceptable means of proving threatened misappropriation; rather, it merely assumed that such evidence might be sufficient to support an injunction, but found no such facts in the record to support such a finding.

The last variant discussed by the Court was whether threatened misappropriation could be established if the only factual showing is the defendant was in actual possession of the trade secrets. The short answer is “no.” The Court expressly found that a claim of threatened misappropriation “requires a greater showing than mere possession by the defendant of trade secrets where the defendant acquired the trade secret by proper means.” (Central Valley General Hospital, supra, 162 Cal.App.4th at 528.)

California refuses to adopt the inevitable disclosure doctrine as contrary to its public policy. However, the doctrine of “threatened misappropriation” remains a viable alternative to enjoin the misuse or the misappropriation of trade secrets before the harm actually occurs. California courts require proof beyond mere possession of the trade secret. However, past misuse, evidence of actual intent, and possibly refusal to return the trade secrets can support an injunction. The sliding scale of evidence from inevitable disclosure to prohibited threatened misappropriation must be carefully considered in preparing supporting evidence and argument to enjoin a threatened misappropriation.

By Zachary Wadlé

The widely popular Guitar Hero videogame series created by Activision Publishing, Inc. allows players to emulate their favorite rock guitarists, without requiring any actual guitar playing skill. However, this virtual reality was endangered last year by a threatened patent infringement lawsuit by guitar company, Gibson, longtime maker of iconic rock guitars such as the Gibson “Les Paul,” “SG,” “ES-335,” and “Flying V,” to name a few.

 In January 2008, Gibson sent a letter to Activision, claiming that Guitar Hero infringed upon Gibson’s registered U.S. Patent No. 5,990,405 (the “‘405 Patent”). This patent covered "a system and method for generating and controlling a simulated musical concert experience." Gibson claimed that the Guitar Hero game controllers – miniature plastic replicas of Gibson guitars with no strings, and four buttons on the fret-board – infringed upon Gibson’s patent and required Activision to obtain a license from Gibson, or else halt sales of any version of the Guitar Hero game and controllers.    

On Feb. 26, 2009 the Court conclusively dismissed Gibson’s claims and held that Guitar Hero clearly does not infringe upon Gibson's patent because the guitar-shaped controllers are merely toys that do not actually create music. The Court stated: “As a general observation, no reasonable person of ordinary skill in the relevant arts would interpret the ‘405 Patent as covering interactive video games…[t]he Guitar Hero controllers do not infringe because they do not produce instrument audio signals within the meaning of the ’405 Patent.” The Court went on to specify that the Guitar Hero controllers are more like manipulating a virtual reality device than the "actual musical instrument" phrased in Gibson's patent.

The Court easily dismissed Gibson’s contention that the sound made by the Guitar Hero controller was potentially “musical,” because Gibson’s expansive interpretation of the term “musical” would extend coverage to a “button of a DVD remote…to a pencil tapping a table.” The Court concluded that musical sounds must have more definite “musical” characteristics than the “click” produced from striking the plastic buttons on a Guitar Hero controller. Although the Court’s ruling may call into question the “musical” talents of Guitar Hero enthusiasts, at least wannabe rockers are now assured that their inner Jimmy Page, Eric Clapton, Jimi Hendrix, Eddie Van Halen, Angus Young, and/or Slash can continue their World Tour.

By Scott Cameron

California Code of Civil Procedure Section 2019.210 requires a plaintiff in a trade secret case to identify “with reasonable particularity” the trade secret it claims was misappropriated before commencing discovery. This usually leads to the first dispute in such a lawsuit – whether the plaintiff has adequately identified the trade secret. In a recent case, Brescia v. Angelin, (2^nd Dist. Mar. 17, 2009) --- Cal.Rptr.3d ---, 2009 WL 684744, the California Court of Appeal provided additional guidance for settling this dispute. 

The California Uniform Trade Secrets Act (“CUTSA”), Civil Code Section 3426 et seq., creates statutory protection for a company’s trade secrets. The CUTSA defines a trade secret as information, including a formula, pattern, compilation, program, device, method, technique, or process, that (1) derives independent economic value from not being generally known, and (2) is protected from disclosure by reasonable means. The classic example of trade secret is the formula for Coke or Pepsi. 

The leading case construing section 2019.210 is Advanced Modular Sputtering, Inc. v. Superior Court (Sputtered Films, Inc.) (2^nd Dist. 2005) 132 Cal.App.4^th 826. The Advanced Modular court explained the four goals of section 2019.210: (1) to dissuade the filing of meritless trade secret complaints, (2) to prevent plaintiffs from using the discovery process as a means to obtain the defendant’s trade secrets, (3) to assist the court in framing the appropriate scope of discovery, and (4) to enable defendants to form complete and well-reasoned defenses before the eve of trial. As part of the challenge to the trade secret designation in Advanced Modular, the parties submitted expert declarations opining as to whether the designation was sufficient to distinguish the trade secret from information generally known in the trade. The court held that in order to satisfy the requirement of “sufficient particularity” a plaintiff must describe the trade secrets so as to distinguish the claimed trade secrets from matters of general knowledge in the trade or of special knowledge of those persons skilled in the trade. Courts since Advanced Modular have interpreted this requirement rather strictly. 

In Brescia v. Angelin, the Court of Appeal took the opportunity to examine Advanced Modular. Brescia concerned a plaintiff who claimed trade secrets in a formula for high-protein, low-carbohydrate pudding and a process for manufacturing the pudding. The defendant challenged the sufficiency of the designation, and citied a patent application he had filed with the US Patent and Trademark Office for the same formula. The USPTO denied the patent application because the formula was obvious to persons of ordinary skill in the food science industry when the formula was developed. The defendant argued, and the trial court agreed, that the plaintiff could not show that the claimed trade secret was anything other than information generally known to persons skilled in the field. 

The Brescia court explained that the court in Advanced Modular was not creating a requirement for all cases, divorced from the particularity requirement itself, of explaining how the trade secret differs from prior art. The court noted that section 2019.210 itself does not require such a showing, and stated that “the essential lesson of Advanced Modular is the flexibility of the reasonable particularity standard. It ‘means that the plaintiff must make some showing that is reasonable, i.e., fair, proper, just and rational, under all of the circumstances to identify its alleged trade secret in a manner that will allow the trial court to control the scope of subsequent discovery, protect all parties’ proprietary information, and allow them a fair opportunity to prepare and present their best case or defense at a trial on the merits.’ (Advanced Modular, supra, 132 Cal.App.4th at p. 836.) Further, the designation should be liberally construed, and reasonable doubts about its sufficiency resolved in favor of allowing discovery to go forward. Under this flexible standard, absent a showing that the identification of the alleged trade secret alone lacks the particularity necessary to serve the statutory purposes, the trade secret claimant need not specify how the secret or its elements are distinguishable from matters known to skilled persons in the field.” Indeed, the court found that section 2019.210 should not be read as requiring the trial court to litigate the ultimate merits of the case, specifically whether the claimed trade secret was actually a trade secret, at this early stage of the case. 

The court held that it was not required in every case for a trade secret plaintiff to specify how its claimed trade secrets are distinguished from matters of general knowledge in the trade. The court emphasize that when the nature of the alleged trade secret or the technical field in which it arises makes a detailed description alone inadequate to permit the defendant to learn the limits of the secret and develop defenses or to permit the court to understand the secret and fashion discovery, the court may require an explanation of how the alleged trade secret differs from matters known to skilled persons in the field as necessary to satisfy those needs.  But absent such necessity, requiring such an explanation in every case is unreasonable.

Scott Cameron is an associate with Weintraub Genshlea Chediak practicing in the Litigation section. Scott focuses his practice on general business and intellectual property litigation in both state and federal courts. His experience includes cases involving general tort and breach of contract, fraud, trademark and copyright infringement.

Trademark law is traditionally concerned with protecting consumers. Trademarks protect consumers by helping consumers identify the source of the goods or service. For example, when a consumer buys a product, she knows exactly what she is going to get with the product based on its mark. Trademark law was designed to protect these consumers by protecting these marks against copy-cats or products with confusingly similar marks. Cases based on consumer protection concern similar products with similar marks that may confuse consumers. 

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 McDonalds, the link and image between the word “McDonalds” and chocolate is weakened.  

Besides blurring, dilution can occur based on 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 his marijuana in packages that resembled Hershey products, the Hershey trademark was degraded by such a 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. 

Following up on his quote that he hoped for good sales of David's product, we are happy to report that initial sales have be far in excess of original expectations.  Congratulations to David and his entire team.