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Ninth Circuit Holds that “Reverse Confusion” Need Not Be Pled with Specificity

Posted in Trademark Law

A plaintiff seeking to prevail on a trademark infringement claim needs to establish that there is some likelihood of confusion between its mark and that of the defendant.  Generally, a plaintiff establishes that there is “forward” confusion by showing that customers believed they were doing business with plaintiff but because of a confusion in their respective marks, were actually doing business with the defendant.  Sometimes, however, a plaintiff will seek to establish “reverse confusion” in that a customer believing they were doing business with a defendant actually ends up doing business with the plaintiff.  The Ninth Circuit, in the case Marketquest Group v. BIC Corp. (decided July 7, 2017), was faced with the issue as to whether a plaintiff seeking to prevail under a theory of “reverse confusion” is required to plead that theory with specificity.

For nearly 20 years, Marketquest produced and sold promotional products utilizing its registered trademarks “All-in-One” and “The Write Choice.”  In 2009, BIC Corporation acquired a competitor in the promotional products field and began publishing promotional product catalogs featuring the phase “All-in-One” and in other advertising, using the phrase “The WRITE Pen Choice for 30 Years.”  Marketquest sued BIC for trademark infringement.  After the District Court granted summary judgment to BIC, Marketquest appealed to the Ninth Circuit.  (This article does not address the other issues decided by the Ninth Circuity other than the pleading requirement.)

In seeking to have the Ninth Circuit reject the appeal, BIC argued that Marketquest could not proceed under a “reverse confusion” theory because it had not specifically pled such a theory in its complaint. The Ninth Circuit began by recognizing that the Lanham Act allows a trademark owner to pursue a cause of action against someone who uses the trademark in commerce “when such use is likely to cause confusion.”  Given that neither party questioned the validity of Marketquest’s trademarks, the Ninth Circuit recognized that the main issue before the lower court was “whether there is a likelihood of confusion: that is, whether Defendants’ `actual practice[s were] likely to produce confusion in the minds of consumers about the origin of the goods … in question.’”  Since at least 2005, the Ninth Circuit has recognized two theories of consumer confusion: “forward confusion” and “reverse confusion”.  See Surfvivor Media, Inc. v. Survivor Prods., 406 F.32 625 (9th Cir. 2005).  Because Marketquest was attempting to establish trademark infringement under a theory of “reverse confusion,” BIC argued that it was required to plead such a theory with specificity in its complaint and that having failed to do so, the lower court properly granted judgment against it.

The Ninth Circuit recognized that it had not addressed this issue before, but that the First Circuit, in Dorpan, S.L. v. Hotel Melia, Inc. 728 F.3d 55 (1st Cir. 2013), had.  In that case the First Circuit ruled that “`reverse confusion’ is not a separate legal claim requiring separate pleading.  Rather, it is a descriptive term referring to certain circumstances that can give rise to a likelihood of confusion.”  The Ninth Circuit adopted this approach and ruled in Marketquest’s favor “when reverse confusion is compatible with the theory of infringement alleged in the complaint, a  Plaintiff need not specifically plead it.”

BIC argued that at least two prior Ninth Circuit cases required a different result.  BIC first cited the Ninth Circuit’s decision in Surfvivor to support its argument that strict pleading is required. However, the Ninth Circuit rejected this argument and held that the only the thing that the Surfvivor case held was that when reverse confusion is the only plausible theory in a trademark infringement complaint, a plaintiff cannot establish a viable trademark infringement claim based on “forward confusion.”

BIC also cited Murray v. Cable National Broadcasting Co., 86 F.3d 858 (9th Cir. 1996) in support of its proposition that in order to plead a “reverse confusion” theory, “a plaintiff must allege that the defendant `saturated the market with advertising’ or alleged actual reverse confusion from customers.”  The Ninth Circuit likewise rejected this argument recognizing that its Murray decision was decided before it had even recognized a theory of infringement based on “reverse confusion.”  More importantly, the Ninth Circuit concluded that the plaintiff in Murray had not alleged any cognizable trademark infringement claim regardless of whether it was based on “forward confusion” or “reverse confusion.”

The Ninth Circuit concluded that although Marketquest did not use the words “reverse confusion” in its complaint, nor did it allege that the defendants had saturated the market, it had alleged generally that customers “were confused `as to whether some affiliation, connection or association existed’ among defendants and Marketplace and specifically alleged that there were actual instances of forward confusion (i.e., that consumers that that defendant’s goods came from Marketquest).”  Although Marketquest did not raise issues of ”reverse confusion” until its motion for preliminary injunction and later on summary judgment, the lower court’s order did recognize that Marketquest was asserting infringement based on “reverse confusion.”  Although it had not pled such a theory with specificity in its complaint, the Ninth Circuit concluded that the lower court properly allowed Marketquest to proceed under a “reverse confusion” theory and held that Marketquest was not required to plead such a theory with specificity in its complaint.

The Ninth Circuit’s opinion in Marketquest will give plaintiffs some leeway in pleading their theory of trademark infringement. However, plaintiffs will still be required to allege some likelihood of confusion between its mark and that of the defendant in order to avoid a dismissal of their infringement claim.

 

James Kachmar is a shareholder in Weintraub Tobin Chediak Coleman Grodin’s litigation section.  He represents corporate and individual clients in both state and federal courts in various business litigation matters, including trade secret misappropriation, unfair business competition, stockholder disputes, and intellectual property disputes.  For additional articles on intellectual property issues, please visit Weintraub’s law blog at www.theiplawblog.com

Repeated Discovery Failures and Abusive Litigation Tactics Warrant Terminating Sanctions, Treble Damages, Attorney Fees and Permanent Injunction Against Defendant In Patent Litigation Case.

Posted in Trademark Law

By:  Eric Caligiuri

In TASER International, Inc. v. PhaZZer Electronics, Inc. et al, 6-16-cv-00366 (FLMD July 21, 2017, Order), a Florida District Court took the drastic step of entering a default judgment in favor of Plaintiff Taser, along with an award of compensatory and treble damages, an award of reasonable attorneys’ fees and costs, and injunctive relief because of Defendant Phazzer’s discovery failures and abusive litigation tactics.  According to the Court, since the outset of the litigation, Phazzer had engaged in a pattern of bad faith conduct designed and intended to delay, stall, and increase the cost of the litigation.  The Court determined no relief other than terminating sanctions would be adequate to address Phazzer’s repeated violations.  In the case, Plaintiff Taser filed a complaint against Defendant Phazzer for patent and trademark infringement, false advertising, and unfair competition. 

In the order granting the terminating sanctions, the Court began by summarizing the “abusive litigation and discovery practices” it found the Defendant undertook during the litigation.  Specifically, the Court noted that after three motions to compel, and after the case had been ongoing for nearly a year, plaintiff “TASER still has not received the most basic information regarding the details and relationships between Phazzer and its manufacturer/suppliers/distributors of the accused . . .[infringing] product.”  In addition, the Court noted that while Taser had been attempting to schedule depositions for five months, Phazzer continued to assert that “[e]very one of the handful of critical witnesses associated with Phazzer, a small, closely-held company, are represented to be on vacation, out of the country, in surgery, or convalescing.”

Furthermore, after multiple failures by corporate representative for Phazzer to appear when required, the Court order that a representative of Phazzer must attend a hearing on their counsel’s request to withdraw, cautioning that “[f]ailure to comply with this Order may result in imposition of sanctions, including entry of a default or default judgment against the offending party or counsel.”  However, the Court noted that no representative from Phazzer Electronics attended the hearing in clear violation of the Court’s Order.  Moreover, in addition to the “flagrant discovery abuse and contemptuous behavior exhibited by Phazzer,” the Court also cited to numerous attempts by Phazzer to derail the litigation by repeatedly attempting to stay the proceedings, and by filing a last minute emergency motion for a protective order.

As for legal authority for its terminating and others sanctions ordered against Phazzer, the Court stated Rule 37 of the Federal Rules of Civil Procedure “allows district court judges broad discretion to fashion appropriate sanctions for the violation of discovery orders.”  The Court then noted Rule 37 “authorizes a variety of sanctions, such as, striking pleadings, rendering a default judgment, and holding the disobeying party in contempt of court.”  Furthermore, Rule 37 provides that “the court must order the disobedient party, attorney advising that party, or both to pay the reasonable expenses, including attorney’s fees, caused by the failure, unless the failure was substantially justified or other circumstances make an award of expenses unjust.”

Although the sanction of default is seen as a “last resort,” the Court reasoned a party’s “willfull or bad faith disregard” for discovery orders may call for this type of sanction when the party failed to comply with a court order compelling discovery and warning that the failure to comply might result in a default judgment.  The Court also noted bad faith may be found through “delaying or disrupting the litigation or hampering enforcement of a court order.”  The Court then found that Defendant Phazzer engaged in the above-described misconduct with the subjective intent to abuse the judicial process.  Thus, the Court found the imposition of terminating sanctions, along with compensatory and treble damages, attorneys’ fees and costs, and a permanent injunction to be “necessary to adequately punish Phazzer for its wanton and repetitive disregard of this Court’s orders and as a consequence of its willful abuse of the discovery process. The imposition of lesser sanctions would underrepresent the seriousness of the offensive conduct.”

Although an extreme example, this case is a good reminder to parties and attorneys alike that all litigation must be taken seriously and that the discovery process must be respected.  Failure to do so can lead to sanctions, up to and including terminating sanctions in particularly egregious cases.

Amazon Tips its Hand with New Trademark Application

Posted in Copyright Law, Patent Law, Trademark Law

As you likely know, Amazon is taking the world by storm. Whether it is through its convenient offering of household goods, and pretty much anything else you can imagine, to your door, or through its expansive selection of movies and television shows provided through its Amazon Prime streaming service, Amazon is a major player in multiple industries. Recently, Amazon surprised the general public when it agreed to purchase Whole Foods Market for $13.7 billion and judging from its recently trademark application, Amazon is nowhere near done with its expansion. 

On July 6, 2017, Amazon filed a trademark application for “prepared food kits composed of meat, poultry, fish, seafood, fruit and/or vegetable.” The trademark that Amazon seeks to register is WE DO THE PREP.  YOU BE THE CHEF. Does this concept sound familiar? Perhaps even a bit like Blue Apron? If so, that’s probably because it is exactly like Blue Apron. If you aren’t familiar with Blue Apron, it is a meal-kit delivery service backed by major venture capital groups, including Fidelity and Bessemer Venture Partners. It was founded in August 2012 and has enjoyed major success to date. According to the Times Herald, as of September 2016, Blue Apron had shipped 8 million meal servings. This success led to the company going public last month.

Since that time, the value of Blue Apron’s stock has declined steadily, but it recently took its hardest hit when Amazon’s trademark application hit the public sphere, resulting in more than a ten percent drop in price per share. But what does this mean? And more importantly for purposes of this article, how is it related to intellectual property? Well, although there are likely various factors involved in the further decline of Blue Apron’s stock price, such as overvaluation, the most recent drop in stock price is likely caused by Amazon’s extraordinary goodwill.

Usually, when we discuss a mark’s goodwill, it is the product of the owner building goodwill in the mark through its use in commerce. But here, we have an instance where the mark has never been used in commerce and it already has substantial goodwill. The reason is that WE DO THE PREP. YOU BE THE CHEF. is inherently imbued with Amazon’s sizable goodwill. Not to mention, in light of the pending Whole Foods buyout, the mark is likely benefitting from Whole Foods’s goodwill, as consumers likely anticipate that Amazon will utilize Whole Foods products in its food kits. Although I don’t think that has been confirmed or even mentioned by anyone in the know, it is a reasonable assumption. Either way, it is clear that the mark is riding the coattails of its parent company and its parent company’s soon-to-be acquired subsidiary to give itself a head start into the food delivery marketplace. Whether that is indicative of future success in the marketplace remains to be seen.

Diddy’s @Infringement Instagram Post

Posted in Cyberspace Law, Entertainment Law, Web/Tech

In today’s age of rapid fire social media, posting to feed the ever growing hunger of a digitally connected audience has become second nature to celebrities and other influencers.  In fact, the larger the number of followers, the greater the compulsion to constantly connect.  And that’s where the problems can arise.

The facts underlying the claim seemed innocuous enough.  Hip hop celebrity Sean “Diddy” Combs was delivering an inspirational speech to young students at a new charter school he founded in Harlem.  Professional photographer Matthew McDermott took a picture of Combs surrounded by students; the picture eventually accompanied an online article in the New York Post.  McDermott’s name was featured in the credits identifying him as the photographer.  A few weeks later, Combs posts the picture on his Instagram account with comments about the charter school.  The result, a copyright infringement lawsuit for Combs.

Taking issue with Combs’ posting of the photo (and not including his credit), McDermott filed a lawsuit.  In the lawsuit, McDermott claimed that Combs did not license the photograph from him, that Combs removed his photography credit and that the page with the photograph received over 40,000 likes.  McDermott alleged that by publishing the photograph on his Instagram page, Combs infringed his copyright,  Technically, McDermott’s claim is accurate.  Under Section 106 of the Copyright Act, the owner of a copyright has the exclusive rights to (a)  reproduce the copyrighted work in copies, and (b) in the case of a picture, display the copyrighted work publicly.  Combs allegedly violated both of these rights by copying the picture from the New York Post and then posting it on his Instagram page.

McDermott’s second claim was one not regularly seen: a claim that Combs had violated Section 1202 of the Copyright, enacted pursuant to the Digital Millennium Copyright Act.  Section 1202 provides that no one shall, without the permission of the copyright owner (1) intentionally remove or alter any copyright management information; or (2) distribute, or publicly perform works knowing that copyright management information has been removed without the permission of the copyright owner knowing or having reasonable grounds to know, that it will induce, enable, facilitate, or conceal an infringement.  The term “copyright management information” is defined in the section as any of the following information conveyed in connection with copies of a work: (1) the name of, and other identifying information about, the author of a work; and (2) the name of, and other identifying information about, the copyright owner of the work, including the information set forth in a notice of copyright.

McDermott claimed that by removing the credit that was included with the photograph as it was displayed in the New York Post, Combs violated both of the above provisions of the DMCA.

Since McDermott had registered his copyright in the photograph, if found liable for infringement, Combs could face liability for statutory damages up to $150,000 and attorney fees; add to that another potential $25,000 in liability for the DMCA violation.  According to a filing with the court, Combs and McDermott have settled the dispute.  As such, we will never know whether Combs could have defeated the infringement claim with a fair use argument.  Additionally, we will never know whether the court would have accepted McDermott’s claim that his photo credit qualified as “copyright management information.” (Certain courts read Section 1202 as applicable only to technological copyright protection methods and digital methods of conveying copyright management information.)  One thing is for certain:  this most likely ended up being one expensive Instagram post for Combs.

Offensive Trademarks Are Protected Free Speech Under the First Amendment

Posted in Trademark Law

Simon Tam is the lead singer of the rock group call “The Slants’, which is composed of Asian-Americans.  Tam applied for federal trademark registration of the band’s name.  While the term “slants” is a derogatory term for persons of Asian descent, Tam adopted the name “to ‘reclaim’ and ‘take ownership’ of stereotypes about people of Asian ethnicity,” thereby hopefully removing the term’s denigrating effect.  Despite the positive intention, the United States Patent and Trademark Office (“USPTO”) denied the trademark application for “The Slants” under a law prohibiting registration of trademarks that may “disparage … or bring … into contemp[t] or disrepute” any “persons, living or dead.”  15 U.S.C. §1052(a).  However, in its recent decision in Matal v. Tam, the United States Supreme Court found that this law violates the Free Speech Clause of the First Amendment of the U.S. Constitution.  As the Supreme Court opines, it is a bedrock principle of the First Amendment that “[s]peech may not be banned on the ground that it expresses ideas that offend.” 

The Lanham Act, enacted in 1946, serves as the foundation of our current federal trademark law.  A goal of this Act is to provide federal “protection of trademarks in order to secure to the owner of the mark the goodwill of his business and to protect the ability of consumers to distinguish among competing producers.”  The Lanham Act, however, excludes registration of certain trademarks.  For example, under 15 U.S.C. §1052(e)(1), “a trademark cannot be registered if it is ‘merely descriptive or deceptively misdescriptive’ of goods.”  Further, under 15 U.S.C. §1052(d), a trademark cannot be registered “if it is so similar to an already registered trademark or trade name that it is ‘likely … to cause confusion, or cause mistake, or to deceive.’”  In the case of the trademark “The Slants”, the USPTO invoked another exclusion, the disparagement clause of 15 U.S.C. §1052(a), to deny registration of the trademark.  The disparagement clause prohibits registration of a trademark that “may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute …”

Ultimately, the Supreme Court determined that the disparagement clause of 15 U.S.C. §1052(a) is unconstitutional “viewpoint” discrimination.  The Court noted that the law “applies equally to marks that damn Democrats and Republicans, capitalists and socialists, and those arrayed on both sides of every possible issue.” But even though “the clause evenhandedly prohibits disparagement of all groups,” it is still viewpoint discrimination because it “denies registration to any mark that is offensive to a substantial percentage of the members of any group.”  As the Supreme Court has previously stated, “the public expression of ideas may not be prohibited merely because the ideas are themselves offensive to some of their hearers.”

The Court next had to determine whether the Government’s action and this statute could survive constitutional scrutiny given that it amounted to viewpoint discrimination.  The Court considered whether trademarks are commercial speech because at least some of the justices held the opinion that the Government’s regulation of trademarks would be subject to the more relaxed scrutiny described in Central Hudson Gas & Elec. Corp. v. Public Serv. Comm’n of N.Y. rather than strict scrutiny.  In concurring opinions, other justices asserted that whenever the government creates regulations of speech because of the ideas it conveys, the regulations are subject to strict scrutiny regardless of whether the speech can be characterized as commercial in nature.  Despite this disagreement between the justices, they all concurred in the finding that “the disparagement clause violates the Free Speech Clause of the First Amendment” because it was determined that the law could not even survive the relaxed standard of scrutiny.    Therefore, Tam has the right to register his trademark “The Slants”.

As a result of this Supreme Court decision, another longstanding dispute was resolved almost immediately.  The Justice Department and five Native Americans fighting the NFL’s Washington Redskins’ trademark dropped their opposition.  While the opponents find the Redskins’ trademark to be an offensive slur, in light of the ruling in Tam, the basis for their challenge to the Redskins’ trademark evaporated, bringing an end to legal fights that date back almost 25 years.

In early 2016, pending resolution of the Tam matter and related cases, the USPTO informally suspended processing of applications for trademarks that potentially violate any aspect of 15 U.S.C. §1052(a), including not just potentially disparaging marks but also those that could fall under another clause of §1052(a) prohibiting a trademark that “[c]onsists of or comprises immoral, deceptive, or scandalous matter.”  What happens now?  While the Supreme Court did not specifically address the “immoral, deceptive, or scandalous” language in Tam, does the reasoning apply equally to immoral and scandalous trademarks?  For example, will the USPTO now allow Erik Brunetti’s trademark for his brand “Fuct”?   It seems likely.

Will this ruling impact patents as well?  As others have pointed out, the Manual of Patent Examining Procedure (“MPEP”) currently instructs patent examiners to reject or object to offensive subject matter and drawings.  For example, MPEP Section 1504.01(e) entitled “Offensive Subject Matter” instructs that “[d]esign applications which disclose subject matter which could be deemed offensive to any race, religion, sex, ethnic group, or nationality, such as those which include caricatures or depictions, should be rejected as nonstatutory subject matter under 35 U.S.C. 171.”  Further, MPEP Section 608 states entitled “Disclosure” states that

[i]f during the course of examination of a patent application, an examiner notes the use of language that could be deemed offensive to any race, religion, sex, ethnic group, or nationality, he or she should object to the use of the language as failing to comply with 37 CFR 1.3 which proscribes the presentation of papers which are lacking in decorum and courtesy. The inclusion of such proscribed language in a federal government publication would not be in the public interest. Also, the inclusion in application drawings of any depictions or caricatures that might reasonably be considered offensive to any group should be similarly objected to.

An application should not be classified for publication under 35 U.S.C. 122(b) and an examiner should not pass the application to issue until such language or drawings have been deleted, or questions relating to the propriety thereof fully resolved.

 

While it is not clear how often these MPEP procedures are applied in practice and even though they are procedural rather than statutory in nature, they represent Government “regulation” of expression of an invention.  Wouldn’t one expect rejection of patent applications under these sections of the MPEP to be unconstitutional under the reasoning in Tam?  Only time will tell just how far the Tam ruling opens the door for intellectual property protection for what many may find offensive.  But the First Amendment protects our right free speech whether or not others find it offensive.

When is Making a Movie Not an Act of Free Speech?

Posted in Copyright Law, Entertainment Law, Legal Info, Trademark Law

I admit that the title of this article may be a bit deceiving.  Making films, like any other production of art, is almost always an act of free speech.  However, the Ninth Circuit was recently faced with a dilemma of determining this issue in connection with an anti-SLAPP motion brought against a screen writer who claimed that the defendants had failed to pay him for using his idea to make the film, The PurgeJames Kachmar 08_web

Douglas Jordan-Benel, a writer, wrote a screenplay he titled, Settlers Day, which described an annual, state-sponsored 24-hour period in which citizens were allowed to commit any crime without legal ramifications.  Jordan-Benel registered his screenplay with the Writers Guild of America and the U.S. Copyright Office.  Shortly after writing the screenplay, his manager emailed the United Talent Agency (“UTA”) about the screenplay.  After receiving permission, the screenplay was submitted to UTA for review.  A few days later, UTA notified Jordan-Benel’s manager that they had read the screenplay and were going to “pass.”  However, someone at UTA apparently forwarded the screenplay to another client and he and a partner later wrote a screenplay that they called, The Purge; which Jordan-Benel later alleged stole ideas from his screenplay.  The Purge movie was released in 2013 and produced by Universal City Studios, LLC.

Jordan-Benel later sued and alleged copyright infringement and that certain defendants were liable for breach of an implied in fact contract based on his submission of his Settlers Day script.  The defendants filed an anti-SLAPP motion seeking to have the breach of contract claim dismissed claiming that it arose “from an act in furtherance of [their] rights of petition or free speech …”.  The District Court denied the motion finding that Jordan-Benel’s breach of the implied contract claim was not based on the making of the film per se; but rather, on defendants’ failure to pay for the use of his ideas in making the film.  Therefore, the anti-SLAPP statute did not apply because the claim was not based on protected activity.  The defendants appealed this decision to the Ninth Circuit.

In Jordan-Benel v. Universal City Studios, et al., (June 20, 2017), the Ninth Circuit began by recognizing that California’s anti-SLAPP statute only applies to “a cause of action against a person arising from any act of that person in furtherance of the person’s right of petition or free speech“ under the California and/or U.S. Constitutions.  It noted that California had enacted the anti-SLAPP statute “to deter lawsuits [intended to]`primarily to chill the valid exercise of the constitutional rights of freedom of speech’.”  In essence, a defendant must first show that the plaintiff’s claim arises from an act in furtherance of the defendant’s free speech rights and if such showing is made, then the burden shifts to the plaintiff to show that they have probability of prevailing on their claim.  Here, the defendants claimed in their anti-SLAPP motion that Jordan-Benel’s claim for breach of contract arose from the creation, production, distribution and content of The Purge film. Thus, since such conduct was protected under anti-SLAPP, the Court should have dismissed Jordan-Benel’s contract claim.

The Ninth Circuit concluded that the district court properly denied the anti-SLAPP motion.  It focused its inquiry on two related questions: “(1) From what conduct does the claim arise? and (2) Is that conduct in furtherance of the rights of petition or free speech?”  The Ninth Circuit noted that the California Supreme Court has explained: “that a cause of action arguably may have been `triggered’ by protected activity does not entail that it is one arising from such … [T]he critical consideration is whether the cause of action is based on the defendant’s protected free speech or petitioning activity.”  That is, even though engaging in a protected activity may be related to plaintiff’s complaint that does not necessarily mean that the complaint is arising from such protected activity thereby triggering the anti-SLAPP statute.

The Ninth Circuit continued by stating that it would focus on the specific act of wrongdoing” that was challenged by the plaintiff.  It recognized that California has allowed breach of implied in fact contract claims like Jordan-Benel’s and requires a plaintiff to allege the following: “(1) He submitted the screenplay for sale to the defendants; (2) he conditioned the use of the screenplay on payment; (3) the defendants knew or should have known of the condition; (4) the defendants voluntarily accepted the screenplay; (5) the defendants actually used the screenplay; and (6) the screenplay had value.”  In essence, this claim is not necessarily an “idea theft” cause of action but rather one of an “implied promise to pay the reasonable value of the material disclosed.”  In applying this analysis to Jordan-Benel’s claims, it concluded that he was not suing due solely to the fact that defendants made The Purge film; but rather, that they failed to pay him for the use of his screenplay ideas.  Thus, the Ninth Circuit concluded that the district court properly held that he anti-SLAPP statute did not apply to Jordan-Benel’s contract claim.

The Ninth Circuit went further and rejected the defendants’ claim that the Court should apply a broader “but for” analysis.  In essence, the defendants urged the Court to apply the anti-SLAPP statute by arguing that Jordan-Benel would have no claim against them “but for” their making of The Purge film.  Although the Ninth Circuit recognized that the anti-SLAPP statute is to be construed broadly, it could find no legal authority for the proposition that it was intended to apply when protected activity is not the target of the claim as here.

The Ninth Circuit concluded that the defendants’ alleged failure to pay for the use of the plaintiff’s ideas in making of The Purge film was not conduct that was in furtherance of their right of free speech.  Thus, it affirmed the district court’s denial of the anti-SLAPP motion.

 

James Kachmar is a shareholder in Weintraub Tobin Chediak Coleman Grodin’s litigation section.  He represents corporate and individual clients in both state and federal courts in various business litigation matters, including trade secret misappropriation, unfair business competition, stockholder disputes, and intellectual property disputes.  For additional articles on intellectual property issues, please visit Weintraub’s law blog at www.theiplawblog.com

Supreme Court Cuts Back Patent Owners’ Post-Sale Rights

Posted in Patent Law, Trademark Law

Patent owners can no longer restrict the use of their patented products after the products are sold.  Under the doctrine of patent exhaustion, a patent owner’s rights are “exhausted” once the patent owner sells the product.  In Impression Products v. Lexmark International, Inc., 2017 U.S. LEXIS 3397 (May 30, 2017), the Supreme Court expanded the scope of patent exhaustion, reversing a long-standing rule that a patent owner can control the use of its patented product after the product is sold.  The Supreme Court held that the sale (or license) of a patented product exhausts all of the patent owner’s rights.  The Court also held that exhaustion applies regardless of whether the sale is inside or outside the U.S.

Lexmark owned several patents for toner cartridges for laser printers.  When the toner in the cartridge was used up, the cartridge could be refilled and reused.  Lexmark gave consumers two choices in purchasing its cartridges: the consumer could either pay full price for the cartridges with no restrictions or pay a discounted price with a contract to use the cartridge only once and return the empty cartridge only to Lexmark.  Lexmark installed microchips on the refundable cartridges to prevent their reuse.

Impression Products and other companies bought the used Lexmark cartridges and solved the microchip problem, refilling the cartridges with toner and selling the refilled cartridges at a price  lower than Lexmark’s price.

Lexmark sued Impression Products for patent infringement.  Lexmark claimed that Impression Products infringed Lexmark’s patents by purchasing the used returnable cartridges and reselling them, in violation of the contract Lexmark had with the original purchasers.  Lexmark also claimed that Impression Products infringed Lexmark’s patents by purchasing Lexmark cartridges that Lexmark had sold outside the U.S. and importing them into the U.S. for sale

Impression Products argued that it had not infringed the patents because Lexmark’s sales of the cartridges, in the U.S. or abroad, exhausted Lexmark’s patent rights.  Impression Products moved to dismiss both of Lexmark’s claims.  The district court granted the motion as to the returnable cartridges, but denied it as to the cartridges that were sold abroad.

The Federal Circuit Court of Appeals ruled for Lexmark on both claims.  As to the returnable cartridges, the court held that patent exhaustion did not preclude the patent owner from imposing limits on post-sale use or resale, as long as the restrictions were clearly stated.  As to the cartridges sold abroad, the court held that the patent owner retained the right to sue those who imported into the U.S. the cartridges originally sold abroad.

The Supreme Court reversed the Federal Circuit on both claims.  First, the Court held that patent owners exhaust their rights when they sell the patented product, and it is irrelevant whether the post-sale limitations imposed by the patent owner are clearly stated.  The patent owner relinquishes all rights to the patent when it sells the product.  At that point, the product “becomes ‘the private individual property’ of the purchaser, with the rights and benefits that come along with ownership.”  Id. at *18.  The Court explained that the patent exhaustion doctrine means that “patent rights yield to the common law principle against restraints on alienation.”  Id.  According to the Court, “there is no basis [in the law] for restraining the use and enjoyment of things sold.”  Id. at *19.

The Court explained that sales through licensees are treated the same way as sales by the patent owner.  Such sales exhaust the patent owner’s rights.  Thus, a patent owner cannot impose limits on the ultimate purchaser’s use of the patented product through the use of a license to an intermediary.

Second, the Court held that Lexmark’s sales outside the U.S. are also subject to patent exhaustion.  If a patent owner sells its patented product abroad, it loses all patent rights, just as if it had sold the product in the U.S.  Others are free to import the product that they purchased outside the U.S. for sale in the U.S.

 

U.S. Supreme Court Allows Early Notice For Biosimilars

Posted in Patent Law

In SANDOZ INC. v. AMGEN INC. et al., the United States Supreme Court in a unanimous opinion ruled that biosimilar makers can give their required 180-day statutory notice of sales before their products win approval by the United States Food and Drug Administration (“FDA”).  In short, the Court held a biosimilar maker “may provide notice either before or after receiving FDA approval.”  If biosimilar makers had to await FDA approval before giving notice, this requirement would essentially delay the biosimilar’s lower priced offerings from reaching the market by six months.  In the case of major biologics, when the biosimilar discounted version of a brand-name reaches the market, this completion can significantly reduce sales that can run in the billions of dollars annually.

At issue in the case is 42 U. S. C. §262(l), which was enacted as part of the Biologics Price Competition and Innovation Act of 2009 (BPCIA).  The BPCIA governs a type of drug called a biosimilar, which is a biologicial product that is highly similar to a biologic product that has already been approved by the FDA.  A biologic is type of pharmaceutical drug product manufactured in, extracted from, or semisynthesized from biological sources.  Examples of commercial biologics include vaccines, blood, blood components, allergenics, somatic cells, gene therapies, tissues, recombinant therapeutic protein, and living cells used in cell therapy.  For example, the biologic at issue in this case is filgrastim, which is used to stimulate the production of white blood cells.  Amgen has marketed a filgrastim product called Neupogen since 1991 and claims to hold patents on methods of manufacturing and using filgrastim.eric_caliguiri_web

Most biologics are very large, complex molecules or mixtures of molecules.  Many biologics are produced using recombinant DNA technology.  In comparison, a standard synthetic drug is typically manufactured through chemical synthesis, which means that it is made by combining specific chemical ingredients in an ordered process.  Synthetic drugs generally have well-defined chemical structures, and a finished drug can usually be analyzed to determine all its various components.  By contrast, it is difficult, and sometimes impossible, to characterize a complex biologic by testing methods available in the laboratory, and some of the components of a finished biologic may be unknown.

Thus, to be approved as a biosimilar, a drug must have the same active ingredient, strength, dosage form, and route of administration as the reference drug, and it must also be “bioequivalent.”  This means that generic drugs are the same chemically as their innovator counterparts and that they act the same way in the body.  To gain FDA approval, an applicant must show that its product is “highly similar” to the reference product and that there are no “clinically meaningful differences” between the two in terms of “safety, purity, and potency.”  An applicant may not submit an application until 4 years after the reference product is first licensed, and the FDA may not license a biosimilar until 12 years after the reference product is first licensed.  As a result, the manufacturer of a new biologic enjoys a 12-year period when its biologic may be marketed without competition from biosimilars.

The manufacturer or sponsor may also hold multiple patents covering the biologic, its therapeutic uses, and the processes used to manufacture it.  Those patents may constrain an applicant’s ability to market its biosimilar even after the expiration of the 12-year exclusivity period.  However, the BPCIA facilitates patent litigation during the period preceding FDA approval so that the parties do not have to wait until commercial marketing to resolve their patent disputes.  The BPCIA sets forth a carefully calibrated scheme for preparing to adjudicate, and then adjudicating, claims of patent infringement.

When the FDA accepts a biosimilar application for review, it notifies the applicant, who within 20 days “shall provide” to the sponsor a copy of the application and information about how the biosimilar is manufactured.  The applicant also “may provide” the sponsor with any additional information that it requests.  These disclosures enable the sponsor to evaluate the biosimilar for possible infringement of patents it holds on the reference product (i.e., the corresponding biologic).

After the applicant makes the requisite disclosures, the parties exchange information to identify relevant patents and to flesh out the legal arguments that they might raise in future litigation.  For example, within 60 days of receiving the application and manufacturing information, the sponsor “shall provide” to the applicant “a list of patents” for which it believes it could assert an infringement claim if a person without a license made, used, offered to sell, sold, or imported “the biological product that is the subject of the [biosimilar] application.”  Next, within 60 days of receiving the sponsor’s list, the applicant may provide to the sponsor a list of patents that the applicant believes are relevant but that the sponsor omitted from its own list, and “shall provide” to the sponsor reasons why it could not be held liable for infringing the relevant patents and why the patents may be invalid.

Following this exchange, the BPCIA channels the parties into two phases of patent litigation.  In the first phase, the parties collaborate to identify patents that they would like to litigate immediately. The second phase is triggered by the applicant’s notice of commercial marketing and involves any patents that were included on the parties’ lists but not litigated in the first phase.

As to the issues in the case, the Court first had to decide whether the requirement that an applicant provide its application and manufacturing information to the manufacturer of the biologic is enforceable by injunction.  The Court concluded that an injunction is not available under federal law, but remanded for the court below to decide whether an injunction is available under state law.

The second issue the Court considered is whether the applicant must give notice to the manufacturer after, rather than before, obtaining a license from the FDA for its biosimilar.  In deciding the issue, the Court noted Section 262(l)(8)(A) states that the applicant “shall provide notice to the reference product sponsor not later than 180 days before the date of the first commercial marketing of the biological product licensed under subsection (k).” The Federal Circuit had held that an applicant’s biosimilar must already be “licensed” at the time the applicant gives notice. But, the Supreme Court disagreed.

The Court reasoned the applicant must give “notice” at least 180 days “before the date of the first commercial marketing.” “[C]ommercial marketing,” in turn, must be “of the biological product licensed under subsection (k).”  Because this latter phrase modifies “commercial marketing” rather than “notice,” “commercial marketing” is the point in time by which the biosimilar must be “licensed.”  The statute’s use of the word “licensed” merely reflects the fact that, on the “date of the first commercial marketing,” the product must be “licensed.”  Accordingly, the court held the applicant may provide notice either before or after receiving FDA approval.

 

Eagles Ltd. v. Hotel California Baja, LLC: Any Time of Year, You Can Find Infringement Here

Posted in Copyright Law, Patent Law, Trademark Law

Recently, Eagles Ltd. (the “Eagles”), the entity in control of legendary rock band The Eagles’ business affairs, filed a lawsuit against Hotel California Baja, LLC for trademark infringement. While I’m sure most of us are familiar with the Eagles’ song Hotel California, it may come as a surprise to most trademark aficionados that the Eagles have never registered HOTEL CALIFORNIA with the USPTO. Although this is shocking, and many intellectual property practitioners might even say reckless, those reactions beg the question: Is federal registration an absolute necessity to enforcement?

Federal registration is undoubtedly beneficial, and most practitioners would advise registration as the prudent course of action, but it is by no means an absolute necessity. The Lanham Act is protective of all trademarks that a proponent can establish having used in the United States, whether registered or not. While I wouldn’t personally advise my clients to proceed without a registration, as there is significant downside, this should come as relief to some entrepreneurs, particularly start-ups, who may not quite have the revenue needed to pursue trademark registration for their marks. But such an election should not be made without first consulting competent counsel to obtain a complete understanding of the disadvantages of proceeding with an unregistered trademark. For example, one such disadvantage is that unregistered trademarks are geographically restricted to the area where the mark is utilized. After all, we don’t all have national and international distribution like the Eagles, giving rise to trademark protection that is equally broad in scope.

In any event, the Eagles have filed their lawsuit in the United States District Court for the Central District of California, which is based in Los Angeles. Interestingly enough, the Hotel California Baja is based, as its name implies, in Baja California, Mexico. Although this could seemingly pose a jurisdictional problem, the Hotel California Baja is a registered California corporation, which, in this instance, makes it subject to the Central District’s jurisdiction. In the lawsuit, the Eagles allege that the Hotel California Baja has engaged in unfair competition and created a false designation of origin to consumers. More specifically, the Eagles allege that through the use of HOTEL CALIFORNIA, the playing of the Eagles’ music in the lobby, and the sale of merchandise self-proclaiming the hotel as “legendary,”[1] the Hotel California Baja has duped consumers into believing that the hotel is somehow associated or otherwise affiliated with the Eagles, or alternatively, that the Eagles sponsor or approve of the hotel’s services and commercial activity. Furthermore, the Eagles have alleged that the Hotel California Baja falsely claims to have served as inspiration for the song. As you might assume from the filing of this action, the Eagles have no such relationship with the Hotel California Baja, and they do not sponsor or approve its activities.

It is also worth noting that there is related litigation pending before the USPTO. Namely, in October 2016, the Eagles opposed the Hotel California Baja’s trademark registration, which was filed in November 2015, on the ground that it creates a likelihood of consumer confusion. Interestingly enough, shortly thereafter, the Eagles finally attempted to register HOTEL CALIFORNIA with the USPTO, but the examining attorney issued an office action refusing registration on the basis of Hotel California Baja’s previously filed application! However, in light of the recently filed federal litigation, both of these matters will likely be stayed.

It will be interesting to see how this dispute is ultimately resolved, whether through settlement or litigation. At this juncture, we do not have enough information to provide an informed analysis of how we believe it may come out, but we will keep an eye on the docket and provide updates when meaningful information becomes available.

[1] The Eagles contend that if the Hotel California is legendary, there can only be one source for that status: the Eagles. Thus, the Eagles contend that this characterization of the Hotel California Baja further exemplifies the false designation of origin.

The Jury Is Still Out on What “Registration” Means Under Section 411 of the Copyright Act.

Posted in Copyright Law

 

The Copyright Act provides that “Registration” of a copyright is a precondition to filing suit for copyright infringement.  17 U.S.C. § 411(a).  We are still trying to figure out exactly when registration occurs.

While copyright registration is voluntary, the Copyright Act provides several incentives for a copyright owner to register a copyright, one of which is the right to enforce a copyright in an infringement action:  17 USC 411(a) provides:

[N]o civil action for infringement of the copyright in any United States work shall be instituted until … registration of the copyright claim has been made in accordance with this title.  In any case, however, where the deposit, application, and fee required for registration have been delivered to the Copyright Office in proper form and registration has been refused, the applicant is entitled to institute a civil action for infringement .…”

There are two camps of thought splitting the Federal circuit courts on when “registration” takes place with regard to Section 411(a).  The first is that “registration” occurs when a copyright owner files all necessary application materials to the Copyright Office to register a copyright.  The 5th and 9th Circuits and various district courts in other circuits have adopted this perspective, relying on the fact that the Copyright Act prescribes that the effective date of a registration is the date on which a proper and complete application was filed.  Because an applicant may sue for infringement whether or not a registration is issued as long as a proper application was filed, courts following the application approach believe the “registration” approach is misguided.  Since an applicant can file suit either way, it is immaterial whether registration is ultimately granted. Scott Hervey 10 final

The second camp is that “registration” occurs when the Register of Copyrights registers the copyright or rejects the application.  The 10th Circuit follows the “registration“ approach.  Just this month, the 11th Circuit made clear that it too will follow the registration approach.

In its decision in Fourth Estate v. Wall Street.com, LLC, the 11th Circuit explained the rationale behind its support of the “registration” approach.  That case involved a copyright infringement lawsuit over articles appearing on WallStreet.com.  The Copyright Office had not yet processed the copyright applications and Wall-Street.com, LLC moved to dismiss.  The court stated that “the Copyright Act defines registration in Section 410(a) as a process that requires action by both the copyright owner and the Copyright Office; the filing of the application, the payment of the application fee, the examination of the application by the Register of Copyrights, and then either the issuance of the certificate of the notification of the refusal of registration.

Section 410(a) of the Copyright Act provides in pertinent part:

When, after examination, the Register of Copyrights determines that, in accordance with the provisions of this title, the material deposited constitutes copyrightable subject matter and that the other legal and formal requirements of this title have been met, the Register shall register the claim and issue to the applicant a certificate of registration under the seal of the Copyright Office.

The court argued that the use of the phrase “after examination” in section 410(a) makes explicit that an application alone is insufficient for registration.  Further, the court points out that Section 411(a) allows an applicant whose application has been refused to file an infringement suit.  If registration occurred as soon as an application was filed, how could the application ever be refused the court reasoned.

With two Federal circuits clearly split, it is time for the Supreme Court to resolve this issue.