The IP Law Blog

Focusing on legal trends in data security, cloud computing, data privacy, and anything E

Goodbye Majestic Yosemite Hotel, Welcome Back Ahwahnee Hotel

Posted in Intellectual Property Litigation, IP

A few years ago, when the concessionaire for Yosemite National Park (the “Park”), Delaware North, was informed that the Park planned to consider other concessionaires, such as Aramark, Delaware North responded in shocking fashion. Delaware North responded that if it was going to be replaced as the concessionaire, it intended to take the Park’s intellectual property (the “IP”), such as the Ahwahnee Hotel and Curry Village, with it unless it was paid $51 million for the IP. Although the Park disputed Delaware’s claim to the IP, it changed the names of certain venues such as the Ahwahnee Hotel, Curry Village, Badger Pass Skin Run, and the Wawona Hotel. The sites were renamed the Majestic Yosemite Hotel, Half Dome Village, Yosemite Ski and Snowboard Area, and Big Trees Lodge.

When Park Services decided to award the contract to Aramark instead of Delaware North, Delaware North sued Park Services in federal court. Since that time, the matter has been pending in the United States District Court for the Eastern District of California, and the names have been changed as identified above. But it appears that the litigation has finally concluded, with the parties having entered into a $12 million deal between Delaware North, the federal government, and Aramark. The federal government will pay Delaware North $3.8 million and Aramark will pay Delaware North $8.2 million. When Aramark’s contract with Yosemite expires in 2031, the intellectual property assets will transfer to the National Park Service, who will license the IP to the next concessionaire.

This result will bring much joy to those who frequent Yosemite National Park. Those individuals, with some exceptions of course, continued to use the historic monikers such as the Ahwahnee Hotel and Badger Pass to refer to those venues. The name change was viewed with much disdain by lifelong attendees of the Park and others who had developed sentimental attachment to the old names. Although I grew up in Fresno, I never spent much time in Yosemite, but even with my limited exposure, I had trouble accepting the change from Ahwahnee Hotel to Majestic Yosemite Hotel. No offense to the latter name, it just represents an undesirable change to tradition. So if I feel that way, and I was never much of a Yosemite attendee, I can only imagine how frustrated the forced change must have been for Yosemite aficionados.

But the Yosemite and nature aficionados don’t need to concern themselves anymore. With the deal reached by the federal government, Delaware North, and Aramark, the traditional names for the Yosemite venues will return. Now those who frequent Yosemite National Park can put those new names in the rearview mirror and never look back. Tradition is here to stay.

Supreme Court Decision Will Have Huge Economic Impact on Trademark Infringement Damages

Posted in Intellectual Property Litigation, IP, Trademark Law

The Supreme Court has agreed to resolve a circuit split over when a court can order the payment of an infringer’s profits to a successful plaintiff as a measure of damages.  The matter comes to the Supreme Court as an appeal from the Second Circuit decision in Romag Fasteners Inc. v. Fossil Inc. et al.  In that case, the jury at the lower court found that Fossil had infringed Romag’s patent and trademark rights in a magnetic snap closure and made an advisory award that included an award of $6.7 million of Fossil’s profits for trademark infringement.

The judge rejected the jury’s advisory award of Fossil’s profits for trademark infringement based on the lack of a finding of willful infringement.  The lower court’s rejection was affirmed by the Second Circuit.

The determination of when an infringer’s profits are a proper measure of damages depends on the interpretation of 25 USC 1117(a) that was amended in 1999.  The amended Section 1117(a) provides as follows:

When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office, a violation under section 1125(a) or (d) of this title, or a willful violation under section 1125(c) of this title, shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled . . . subject to the principles of equity, to recover (1) defendant’s profits . . .

Under Second Circuit precedent in existence prior to the 1999 amendment, a plaintiff had to establish willful infringement in order to recover an award of the defendant’s profits in a trademark action. In Romtag, the plaintiff argued that the 1999 amendment, which added the language “or a willful violation under section 1125(c),” effectively negated the requirement of finding of willful infringement before profits could be awarded for a violation under section 1125(a) because Congress failed to insert the word “willful” in the phrase “a violation under section 1125(a) or (d) of this title.” The trial court and the Second Circuit refused to adopt the plaintiff’s interpretation of the amended provision.

The following Circuit Courts are in agreement with the Second Circuit that a finding of willfulness is required before an award of the defendant’s profits can be made:  the First Circuit, the Eight Circuit, the Ninth Circuit, the Tenth Circuit and the D.C. Circuit.  Of those, only the Tenth Circuit affirmatively maintained its prior willfulness requirement after the 1999 amendment.  In the Tenth Circuit case, Western Diversified Services., Inc. v. Hyundai Motor America, Inc., the court held, because an award of profits is “subject to the principles of equity” and “in light of the punitive nature of such an award and the increased risk of granting plaintiff a windfall, it was appropriate under the statute to require a showing that Defendant’s actions were willful to support an award of profits under 15 U.S.C. § 1117(a).”   Compare that to the Ninth Circuit which characterized the argument that the 1999 amendments abrogated prior case law as a “shaky assumption” but did not affirmatively decide the question.

On the other side of the split are the Third, Fourth, Fifth, Sixth, Seventh and Eleventh Circuits, each of which have interpreted the 1999 amendment to permit an award of the defendant’s profits absent a finding of willful infringement.  In Banjo Buddies, Inc. v. Renosky, the Third Circuit reasoned that in enacting the 1999 amendment, Congress was aware of the large body of case law requiring a finding of willfulness for an award of profits for a violation of section 1125(a), and its failure to add the word “willfulness” to that section of the statute indicated a desire to supersede the judicially created doctrine of requiring willfulness.

Romag petitioned the Supreme Court to hear the case in March 2019.  Romag argued that “a plaintiff’s actual damages are often difficult to measure” and “an award of an infringer’s profits is often the only meaningful monetary relief that trademark owners can secure.”  Romag contends that the willfulness requirement “sets the bar too high, depriving mark holders of an important remedy and failing adequately to deter infringement.”

Federal Circuit Sets Higher Standard for Early Alice Motions

Posted in Intellectual Property Litigation, IP, Web/Tech

In Cellspin Soft, Inc. v. Fitbit, Inc. et. al., the Federal Circuit recently held that a lower court wrongly invalidated four patents under Alice because they contain an inventive concept.  The four patents at issue share the same specification and generally relate to connecting a data capture device, e.g., a digital camera, to a mobile device so that a user can automatically publish content from the data capture device to a website.  Defendants had moved to dismiss the case, arguing that the patents are ineligible for patent protection under 35 U.S.C. § 101.  The district court granted these motions and subsequently awarded attorney fees.  However, the Federal Circuit concluded that the district court misapplied Federal Circuit precedent in granting Defendants’ motions to dismiss, and vacated the district court’s ruling.

The district court had granted Defendants’ motions based on the Supreme Court’s two-step framework for analyzing patent eligibility under Alice.  Step one asks whether the claim at issue is “directed to . . . [a] patent-ineligible concept[],” such as an abstract idea.  If so, a court then proceeds to step two, which the Supreme Court has described as “a search for an ‘inventive concept’—i.e., an element or combination of elements that is ‘sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself,” or put another way, something more than “well-understood, routine, conventional activities previously known to the industry.”

As to step one, the district court in this case concluded that the asserted claims are directed to the abstract idea of “acquiring, transferring, and publishing data and multimedia content on one or more websites.”  The district court explained that the asserted claims use “generic computer hardware and software components” to automate the conventional, manual process of transferring data from one device to another.  It therefore concluded that Plaintiff failed to show that the data acquisition, transfer, and publication described in the patents represents something more than a simple automation of a conventional (manual) process, i.e., an abstract idea.

As to step two, the district court found that the asserted claims do not recite an “inventive concept.” In particular, the district court concluded that the various claim elements, e.g., the data capture device and Bluetooth enabled mobile device, represent generic computer components performing “as expected according to their ordinary use.” The district court therefore concluded that none of the asserted claims, from any of the asserted patents, were patent eligible.

The Federal Circuit applying this same two-step framework, agreed with the district court that the asserted claims are directed to an abstract idea.  However, the Federal Circuit also found the district court erred with respect to the inventive concept inquiry by ignoring allegations that, when properly accepted as true, preclude the grant of a motion to dismiss.

In regards to step one, the Federal Circuit found the asserted claims are drawn to the idea of capturing and transmitting data from one device to another.  Agreeing with the district court, the Federal Circuit reasoned it has consistently held that similar claims reciting the collection, transfer, and publishing of data are have been found to be directed to an abstract idea. The Federal Circuit then concluded that these cases therefore compel the conclusion that the asserted claims are directed to an abstract idea as well.

Moving on to step two, the Federal Circuit first reasoned that plausible and specific factual allegations that aspects of the claims are inventive can be sufficient to defeat a motion to dismiss when not wholly divorced from the claims or the specification.  Specifically, “[a]s long as what makes the claims inventive is recited by the claims, the specification need not expressly list all the reasons why this claimed structure is unconventional.”  The Federal Circuit then found in this case the Plaintiff made specific, plausible factual allegations about why aspects of its claimed inventions were not conventional, e.g., its two-step, two-device structure requiring a connection before data is transmitted.  The district court erred by not accepting those allegations as true.

Next, the Federal Circuit also reasoned that factual disputes about whether an aspect of the claims is inventive may preclude dismissal at the pleadings stage under § 101.  Here, accepting Plaintiff’s allegations as true, the Federal Circuit could not conclude that the asserted claims lack an inventive concept.  Plaintiff specifically alleged that using HTTP at a specific location, here at the intermediary mobile device, was inventive.  It further alleged that establishing a paired connection before transmitting data was also inventive.  The Federal Cicuit held it had no basis, at the pleadings stage, to say that these claimed techniques, among others, were well-known or conventional as a matter of law.

Moreover, even assuming that Bluetooth was conventional at the time of these inventions, implementing a well-known technique with particular devices in a specific combination, like the two-device structure here, can be inventive.  Plaintiff specifically alleged that its implementation of Bluetooth, using a two-step, two-device structure, was inventive. The same is true for the claimed combination of steps—sharing data only after a certain step is performed, using HTTP at another particular step, etc.  Furthermore, Plaintiff did more than simply label these techniques as inventive.  It pointed to evidence suggesting that these techniques had not been implemented in a similar way.  This sufficiently alleges that Plaintiff has claimed significantly more than the idea of capturing, transferring, or publishing data.  Thus, accepting Plaintiff’s allegations as true, the asserted claims recite a specific, plausibly inventive way of arranging devices and using protocols rather than the general idea of capturing, transferring, and publishing data.

Therefore, the Federal Circuit found the district court erred by not accepting these well-pleaded allegations as true with respect to whether the asserted patents capture, transfer, and publish data in a way that is plausibly inventive.  And, accepting those allegations as true, the Federal Circuit could not say that the asserted claims are ineligible under § 101 as a matter of law. The Federal Circuit therefore vacated the district court’s dismissal and its subsequent award of attorney fees.

This case continues a recent trend of making Section 101 challenges under Alice more difficult to win early in a case.  It also broadens the type of evidence that can be used by patent owners to defeat a patent eligibility motion to dismiss.  Specifically, “plausible and specific factual allegations that aspects of the claims are inventive are sufficient.”  And, “as long as what makes the claims inventive is recited by the claims, the specification need not expressly list all the reasons why this claimed structure is unconventional.”  Finally, this case shows that even five years out from Alice, patent eligibility will still continue to be an evolving body of law.

Web Domains and The Forgotten Tort of Trespass to Chattels

Posted in Intellectual Property Litigation, IP, Web/Tech

California case law over the last few years is replete with instances where a new and/or small business has one of their employees take responsibility for various IT activities such as setting up the company website and/or email domains.  Disputes arise when that employee leaves for other employment and refuses to give the former employer access to the business domain and/or emails.  This is what happened in the recent case, Pneuma International, Inc. v. Cho, which made its way to the California First Appellate District.   The Court was required to analyze an old, but largely forgotten, theory of tort liability, trespass to chattels, in connection with a defendant’s “control” over his former employer’s website domain.

Pneuma supplies paper goods to various distributors and is known for selling a 10-ounce “ripple soup cup” that is used in Kaiser hospitals.  Pneuma employed Yong Kwon Cho and he set up the company’s website domain (www.egpak.com) using his personal yahoo email address and became the registered owner of that domain.  During his employment, the website domain was used as a repository for the company’s business records, including its financial books, contact information for vendors and customers, and purchase orders.

Mr. Cho left Pneuma’s employ approximately one year after creating the website and went to work for a competitor, Central United Packaging, Inc. (“CUP”).  A dispute later arose between Pneuma and CUP, which apparently began after one of Pneuma’s primary customers switched to CUP.  Pneuma demanded that Mr. Cho transfer ownership of the company domain over to Pneuma but the transfer apparently would require Pneuma to shut down its computer system for a period of time with the risk of potential loss of information or data.  While Mr. Cho was willing to have Pneuma substituted in his place as the registered owner of the domain, he did not want to allow Pneuma to have complete access to his personal email account associated with the domain.  As the negotiations between Pneuma and CUP and Pneuma and Cho broke down, Pneuma filed a lawsuit in October 2014 alleging 15 causes of action, including one for recovery of personal property related to the company domain, which the Court later construed as a claim for trespass to chattel.  When the trial began approximately 18 months later, Mr. Cho remained the registered owner of the egpak.com domain.  After a bench trial, the Court found in favor of Pneuma against Mr. Cho on the claim of trespass to chattel and ordered Mr. Cho to transfer the contents of the domain to Pneuma (with the exception of his personal emails). Pneuma lost on other related claims from which it appealed, claiming the trial court had committed error.

In considering Pneuma’s appeal, the First Appellate District Court began by examining the tort of trespass to chattel, which had long been described as the “little brother of conversion.”  In essence, a trespass to chattels occurs when there have been “interferences with possession of personal property ‘not sufficiently important to be classed as conversion, and so to compel the defendant to pay the full value of the thing with which he has interfered.’”  That is, the plaintiff must show a defendant’s interference with the possession of personal property has resulted in injury to plaintiff and the plaintiff “may recover only the actual damages suffered by reason of the impairment of the property or the loss of its use.”  Legal commentators have long recognized that “`trespass remains as an occasional remedy for minor interferences, resulting in some damage, but not sufficiently serious or sufficiently important to amount to the greater tort’ of conversion.”

The appellate court began by reviewing the trial court’s findings as to the trespass of chattels cause of action and concluded that it properly found that: (1) Pneuma owned or had a right to possess the egpak.com domain and its contents; (2) Cho had intentionally interfered with its use or possession of that property by declining to transfer ownership of the domain and its contents to Pneuma; (3) Pneuma did not consent to this interference; (4) Pneuma was harmed by being denied access; and (5) Mr. Cho’s conduct was a substantial factor in causing Pneuma’s harm.  The trial court analogized Mr. Cho’s conduct to someone taking and holding a key to a storage locker, thereby depriving the owner of the property inside the locker from accessing it. Although Pneuma owned the business records that had been loaded onto the egpak.com domain, it was unable to prevent Mr. Cho or anyone else from accessing and viewing its business records since Mr. Cho was the “registered owner” of the domain.  Nevertheless, because Pneuma was still able to access the records in its possession, and Mr. Cho had generally cooperated in keeping the site active, the court found that Mr. Cho’s interference was not substantial and did not amount to conversion.  Because Pneuma could not totally control and protect its business records, the trial court concluded that equitable relief was merited since it would be hard to show or determine what monetary damages should be awarded.

Pneuma argued that the trial court erred in not finding in its favor on its conversion cause of action, which related to Mr. Cho’s exercise of control over the egpak.com domain.  The First Appellate District Court rejected this claim on two grounds.  First, it has long been recognized that conversion does not apply to “’the unauthorized taking of intangible interests that are not merged with or reflected in something tangible.’”  The appellate court affirmed the trial court’s finding that because Pneuma had alleged that its “intangible property,” such as the domain and its computer records had been converted, it could not prevail on a conversion theory.  Furthermore, the trial court had properly found that any interference with the website domain was not substantial, which the appellate court found was also fatal to a conversion cause of action.  Again, because trespass to chattel occurs where there has only been a “minor interference” that does not amount to conversion, the appellate court found that Pneuma’s conversion claim was properly rejected.

Pneuma also appealed the trial court’s ruling against it on its unfair business practices claim under section 17200 of the California Business and Professions Code.  The trial court concluded that because Mr. Cho’s only wrongful conduct was in not transferring ownership of the egpak.com domain to Pneuma, it did not rise to a fraudulent or unfair business practice within the meaning of section 17200.  The appellate court agreed with this conclusion.  First, the Court noted that there had been no legal authority in California that trespass to chattels could give rise to an unfair business practice under section 17200.  Furthermore, Pneuma could not point to any specific California law that the legislature may have “borrowed” for purposes of establishing an unlawful act in violation of section 17200.  Rather, the doctrine of trespass to chattels is an old common law concept.  Finally, the appellate court affirmed the finding that there had been no showing of an unfair or fraudulent conduct in connection with Mr. Cho’s control over the egpak.com domain that would also violate section 17200.  In essence, Pneuma had not established that there had been any unlawful business practice.

To further buttress this finding, the appellate court found that because section 17200 only provides for equitable relief (instead of monetary damages), Pneuma would not have been entitled to anything in addition to what it was already awarded in connection with its trespass to chattel cause of action, i.e., return of the domain to its control.  Thus, the First Appellate District Court affirmed the finding in Pneuma’s favor as to its trespass to chattels cause of action and rejected Pneuma’s appeal as to the other related claims.

The Pneuma case is a good reminder to businesses that they should take the time to review and/or audit their current IT structures, including identifying the registered owners of its domains and who controls access so that it can work with current employees to ensure that control and/or ownership of its web-based assets are transferred back to the company.  Waiting until after an employee has been terminated to try to negotiate the return of such assets can be complicated and pose risk that the company’s web presence could be interfered with and customers shut out and/or redirected.

When is an Invention Obvious?

Posted in IP, Patent Law

To be patentable, an invention must satisfy two key requirements, as determined by the U.S. Patent and Trademark Office (PTO).  First, the invention must be novel.  This means that the same invention cannot have been disclosed in a single prior art reference.  The prior art is all of the publicly available information that existed before the date the patent application was filed.  Second, the invention must not have been obvious to a (hypothetical) person skilled in the art (the field of the invention) based on the prior art.

When a patent application is filed, it is assigned the technical area in the PTO that is closest to the technology of the invention as set forth in the claims.  A patent examiner in that technical conducts a search of the prior art, and examines the claims to determine whether the requirements for patent ability (novelty, nonobviousness, and others) are met.  If requirements are met, the examiner allows the claims.  If the requirements are not met, the examiner rejects the claims.  The patent applicant may then amend the claims and/or argue with the examiner about the merits of the rejections.

To determine whether an invention is obvious, the examiner must analyze and make factual findings on four questions:  (1) what is the scope and content of the prior art? (2) what are the differences between the prior art and the claims? (3) what is the level of ordinary skill in the art? and (4) what, if any, is the evidence of secondary considerations?  In other words, the examiner must decide what the prior is and whether a person skilled in the art would have achieved the claimed invention based on the prior art.

There are several different rationales that the examiner may rely on in making an obviousness rejection.  One of the rationales is that a person skilled in the art would have modified the prior art, based on some motivation or teaching in the reference, to achieve the claimed invention.  When this is the rationale relied upon by the examiner, the examiner must make two additional factual findings: (1) that a person skilled in the art would have had a motivation to combine the prior art references to achieve the claimed invention; and (2) that a person skilled in the art would have had a reasonable expectation of success in doing so.

There are several additional rules established by the PTO or the courts that govern the examiner’s process in determining obviousness based on modifying the prior art.

The examiner cannot use hindsight in determining obviousness.  This means that the examiner cannot use the applicant’s own patent application as a roadmap or template to work backwards to find each element of the claims somewhere in the prior art.

The examiner cannot choose parts of a prior art reference and ignore other parts in the same reference that teach away from the invention (i.e., that suggest the modification would not work).  A prior art reference must be considered as a whole, in its entirety including the parts of the references that teach away from the modification as well as the parts that suggest the modification.

All of the prior art must be considered.  The hypothetical person skilled in the art is deemed to have knowledge of all the references that became public before the date the patent application was filed.  The examiner cannot ignore the references that teach away from modifying the prior as the examiner proposes or teach away from the invention itself.

If the examiner’s rejection is based on a modification that changes the principle of operation of the primary prior art reference, the rejection is improper.  Similarly, if the examiner’s proposed modification would result in the primary reference being unsatisfactory or inoperable for its intended purpose, the rejection is improper.

These are just some of the arguments that a patent applicant can make to overcome an obviousness rejection.  If the arguments don’t work, the applicant can amend the claims to try to overcome the rejection.  Ultimately, the applicant can appeal to the Patent Trial and Appeal Board, and then to the Federal Circuit Court of Appeals, for a court to decide the issue.

Supreme Court: Federal Government Cannot Challenge Patents in PTAB

Posted in Intellectual Property Litigation, IP, Patent Law

The validity of a patent can be challenged in four different types of proceedings: ex parte reexamination, inter partes review, post grant review, and covered business method review. An ex parte reexamination is initiated by any person or by the PTO’s director to request that the PTO internally reexamine the claims of the patent based on prior art.

The other three proceedings were established by the America Invents Act. These proceedings are conducted by the Patent Trial and Appeal Board (PTAB) before a panel of three judges. The proceedings are adversarial; both the patent owner and the party challenging the patent participate in the proceeding.

An inter partes review is a proceeding in which any person other than the patent owner can petition the PTAB to invalidate the patent on grounds of novelty or non-obviousness based on prior art consisting of patents and printed publications.

A post grant review is a proceeding in which any person other than the patent owner can petition the PTAB to invalidate the patent on any grounds. The petition must be filed within nine months of the date the patent issues.

A covered business method review is a proceeding in which any person who has been accused of, or sued for, infringing a business method patent can petition the PTAB to invalidate the patent.

In a 6-3 decision, the Supreme Court decided this past Monday that the U.S. Government cannot utilize the three PTAB proceedings to challenge a patent because the Government is not a “person.” Return Mail, Inc. v United States Postal Service, 2019 U.S. LEXIS 4028(June 10, 2019).

The plaintiff, Return Mail, Inc., owned a patent for a method of processing undeliverable U.S. mail. In 2003, the U.S. Postal Service started to negotiate a license under the patent, but never completed a deal with Return Mail. In 2006, the Postal Service began using a new method to process undeliverable mail, and Return Mail again offered a license. The Postal Service did not take a license, but instead filed a request for ex parte reexamination. The PTO granted the request, but confirmed the patent’s validity.

Return Mail then sued the Postal Service in the Court of Federal Claims to obtain compensation for the Postal Service’s use of its patented method. The Postal Service filed a petition for covered business method review of the patent in the PTAB. The PTAB invalidated the patent on the grounds that it was directed to patent-ineligible subject matter. Return Mail appealed to the Federal Circuit Court of Appeals and the court affirmed the PTAB’s decision. The court held that the Government is a “person” within the meaning of the America Invents Act entitled to file for covered business method review, and that the patent was invalid for the PTAB’s reasons. Return Mail appealed to the Supreme Court.

The issue before the Supreme Court was whether the Government is a “person” within the meaning of the America Invents Act, and therefore entitled to file the three types of proceedings to challenge a patent in the PTAB.

The Court explained that the America Invents Act and the patent statutes do not define a “person.” Without such a statutory definition, the Court relied on the presumption that the term “person” excludes the sovereign (e.g. the Government and its agencies). Given this presumption, the Government had the burden to show that Congress intended to permit the Government to utilize the America Invents Act proceedings to challenge a patent.

The Postal Service argued that the word “person” in the America Invents Act includes the Government because other patent statutes suggest that the Government is a person.
The Court rejected this argument because there was no consistency in the statutes’ useage of “person” to include the Government. The Court said that the fact that the Government or a Federal agency can apply for and own a patent is irrelevant to the issue of whether the Government can utilize the America Invents Act proceedings.

The Postal Service also argued that the Government should be able to utilize the America Invents Act proceedings because the Government is inherently involved in the patent system. In particular, the Postal Service contended that the PTO rules permit federal agencies to challenge patents in ex parte reexaminations before the PTO. The Court was not persuaded by this argument. Without directly addressing the propriety of that conclusion, the Court explained that the PTAB did not exist at the time the patent rules were written, and that the America Invents Act proceedings in the PTAB are significantly different from the PTO’s internal reexamination procedure.

Lastly, the Postal Service argued that it had to be permitted to utilize in the America Invents Act proceedings because it was subject to a civil lawsuit by the patent owner for patent infringement and should have the same rights to challenge the patent as other accused infringers. The Court did not accept this argument, however, finding that the Government had the same rights as patent infringement defendants in litigation, and that America Invents Act proceedings were separate and unrelated.

The Court noted that its holding that the Government was not a “person” entitled to utilize the American Invents Act proceedings provided an additional benefit: a patent owner would not be subject to being challenged by one federal agency in proceedings before another Federal agency.

The effect of this case is that a Government agency, when sued for patent infringement, will have to challenge the patent in the litigation and prove invalidity by clear and convincing evidence. The Government agency will not be able to challenge the patent in the PTAB, where the burden of proof is the lesser standard of a preponderance of the evidence.

Potential Copyright Owners Beware: Make Sure Your Copyright Registrations Are Accurate!

Posted in Copyright Law, IP

Normally, a copyright registration certificate constitutes “prima facie evidence of the validity of a copyright and of the facts stated in the certificate.”  17 U.S.C. §410(c).  But what happens if that certificate contains knowingly inaccurate information? The purported copyright owner could face not only invalidation of the copyright, but the inability to pursue copyright infringement claims or risk an award of attorney’s fees against them if they do so. This was the result in a case recently decided by the Ninth Circuit Court of Appeals titled: Gold Value International Textile, Inc. v. Sanctuary Clothing, LLC, et al., decided June 4, 2019.

Gold Value International Textile, Inc., which does business as Fiesta Fabric (“Fiesta”), designs textile patterns which it sells to customers who use the fabric to make clothing.  In October 2013, Fiesta registered what it called its Spring/Summer 2014 collection in a single registration with the Copyright Office. As part of this “collection,” Fiesta’s registration included a two-dimensional textile design known as the “1461 Design”.  In the copyright registration application, Fiesta’s president certified that none of the works in the collection had been “published” as of the filing of the registration, and thus, the Spring/Summer 2014 collection was registered as a group of “unpublished” works.

However, during the six months prior to the October 2013 registration, Fiesta apparently sold 190 yards of the fabric bearing the 1461 Design to a limited group of existing and potential customers.  Fiesta’s president would later testify that he knew about the sample sales prior to certifying the copyright registration in October 2013; although he claimed that he did not consider these sales of samples to be “publication.”

Sanctuary Clothing, LLC (“Sanctuary”) is a clothing manufacturer who Fiesta later sued claiming that its copyright in the 1461 Design had been infringed by Sanctuary’s selling of clothing that featured a design substantially similar to Fiesta’s 1461 Design. Fiesta also named several clothing retailers such as Nordstrom and Amazon as defendants in its lawsuit.

Fiesta and Sanctuary filed cross motions for summary judgment before the district court. The court granted the defendants’ summary judgment motion on the grounds that it found that Fiesta had knowingly put inaccurate information into its copyright registration and therefore the registration was invalid.  In reaching this ruling, the district court had inquired to the Copyright Office to determine whether Fiesta’s copyright registration would have been rejected if the Office had known that information had been knowingly included despite it being inaccurate. The Copyright Office responded in the affirmative.  After granting summary judgment to the defendants, the court granted their motion for attorney’s fees and awarded them attorney’s fees of more than $120,000 against Fiesta.  Fiesta appealed both of these determinations to the Ninth Circuit Court of Appeal.

The Ninth Circuit began by noting that although copyright registration is not necessarily required for copyright protection, it is “a precondition to filing an action for copyright infringement.”  In fact, a copyright registration certificate normally constitutes “prima facie evidence of the validity of the copyright and of the facts stated in the certificate.”

Prior to 2008, the Ninth Circuit had held that “inadvertent mistakes on registration certificates do not invalidate a copyright and thus do not bar infringement actions, unless the alleged infringer has relied to its detriment on the mistake, or the claimant intended to defraud the Copyright Office by making the misstatement.” However, in 2008, Congress passed the “PRO IP Act” that supplanted this Ninth Circuit precedence and provided that a registration certificate can satisfy the registration requirement regardless of whether it contains any inaccurate information, unless: (1) “the inaccurate information was included on the application for copyright registration with knowledge that it was inaccurate;” and (2) “the inaccuracy of the information if known would have caused the register of copyrights to refuse registration.”  17 U.S.C. §411(b)(1).  The Copyright Act also allows works to be registered as part of a group provided that the works in the group are either all published or all unpublished, i.e., there can be no group registration for works that are both published and unpublished.  The Ninth Circuit finally recognized that under the Copyright Act, “when copies are distributed `to the public by sale or other transfer of ownership or by rental lease or lending,’” or “offered to be distributed `to a group of persons for purposes of further distribution, public performance, or public display’”; than that particular work is considered ‘published’.

  1. Inaccurate Information

Fiesta began by arguing that the trial court erred in finding that its registration included inaccurate information. Essentially, Fiesta argued that it made an error by failing to put the publication date as to the 1461 Design in its registration and that this could be corrected by a supplemental registration. However, the Ninth Circuit rejected this argument because, to the extent that 1461 Design had been published, it could not be included in the Spring/Summer 2014 collection group, which contained unpublished works. Fiesta also argued that the Spring/Summary 2014 collection was essentially “unpublished,” including the 1461 Design, because the collection as a whole had never been “published together as a collection.”  The Ninth Circuit rejected this argument finding that there was no legal authority for it, nor did Fiesta offer any such authority.

Finally, Fiesta argued that the 1461 Design had not been published because it had only been distributed for the limited purpose of promotional activities. The problem with this argument, however, was that as a precaution, Fiesta later filed a second copyright application for the 1461 Design and stated in that application that the date of first publication of the 1461 Design was in March 2013 when it began selling sample fabrics containing the 1461 Design to its customers. Furthermore, the Ninth Circuit found it significant that Fiesta, in doing this limited distribution of the 1461 Design prior to October 2013, did not prohibit customers from distributing or reselling the fabric to others. Thus, the Ninth Circuit concluded that the 1461 Design had in fact been published prior to the October 2013 copyright registration and therefore the statements in the registration that all of the works were “unpublished” was inaccurate.

  1. Knowingly Inaccurate

Fiesta next argued that even if the Court was to conclude that the statement regarding publication was inaccurate, Fiesta did not make those statements “knowingly.”  In essence, Fiesta argued that it did not know that the limited distribution of the 1461 Design prior to October 2013 would be considered publication for purposes of copyright registration. The Ninth Circuit again rejected this argument, seeming to agree with the district court that “ignorance of the law” is “no excuse.” The Ninth Circuit also concluded that the use of the word “knowingly” in the PRO IP Act did not contain any reference to a culpable state of mind, i.e., knowing that one is doing something illegal, but rather only that the person knows that the statements are inaccurate.  Thus, there was no requirement that Fiesta had to be shown to have defrauded the Copyright Office which was the earlier Ninth Circuit standard that had supplanted by the PRO IP Act.

  1. Likely Registration Rejection

Finally, the Ninth Circuit had no trouble reaching the second prong of the PRO IP Act that the Registrar of Copyrights would have refused the registration had it known that the statements regarding the 1461 Design were inaccurate. Specifically, had the Copyright Office known that the 1461 Design had been “published” prior to the October 2013 registration, it would not have registered the copyright for Fiesta’s Summer/Spring 2014 collection because of the mixture of published and unpublished works. In conclusion, the Ninth Circuit found that because “a valid registration is a precondition to bringing an action for infringement, we affirmed the district court’s grant of summary judgment in favor of defendants” because of the invalidity of Fiesta’s copyright registration.

The Ninth Circuit also concluded that the trial court properly awarded attorney’s fees to the defendants. The Ninth Circuit found that the district court did not error in considering the various factors in favor of a fee award such as: (1) defendants were the prevailing parties; (2) they had obtained success in getting the infringement claims dismissed; (3) the purposes of the Copyright Act would be promoted by encouraging defendants to advance meritorious defenses like the defendants did here; (4) there would be no chilling effect on other plaintiffs bringing copyright infringement claims; and (5) the goal of compensating defendants and deterring plaintiffs from pursuing similar claims based upon invalid registrations.

The Gold Value International Textile case is a reminder that copyright registrants should review their registration applications carefully to make sure that they do not include any inaccurate information.  Otherwise, a copyright registrant risks having its copyright invalidated and being unable to pursue any claims for infringement.

Although the Battle of King’s Landing is Over and the Game of Thrones has Ended, the War to Protect HBO’s Intellectual Property Rages on

Posted in IP, Trademark Law

If your heart is beating and your lungs are taking in oxygen, you know that Game of Thrones recently reached its epic conclusion. It’s sad, but true. After eight glorious seasons, the most watched television series in history has ended. Even as I put the words to paper, or rather, this Word document, it doesn’t seem real. For those of you who haven’t watched the series, you probably think I’m being melodramatic. But loyal Thrones supporters know the agony I felt and can mostly likely empathize. Now, at this point you’re probably wondering what this has to do with intellectual property, and I promise, I’m getting there, but without a full comprehension of the Beatlemania-style obsession Game of Thrones has afflicted its fans with, you can never understand the value of the brand and its various marks. And to paraphrase Arya Stark’s mentor Syrio Forel, “[t]here is only one thing we say to [infringement]: Not today.”

As I’ve said in the past, when a company builds value in its trademarks, it’s imperative that the company take the necessary steps to protect its intellectual property. This is true regardless of the industry, but it is especially important in the entertainment industry where the trademarks are likely to be exposed to a substantial number of consumers, and would-be infringers, and more importantly, where the marks are likely to be used in conjunction with highly desirable merchandise. And of course, after producing blockbusters like The Sopranos, Band of Brothers, The Wire, Entourage, and Boardwalk Empire, HBO knows the name of the game, and certainly knows how to protect its intellectual property.

To that end, in 2009, two years after acquiring the rights to George R.R. Martin’s epic fantasy series, A Song of Ice and Fire, HBO filed a trademark application with the United States Patent and Trademark Office to register GAME OF THRONES for “[e]ntertainment services in the nature of an ongoing television series[.]” And that was just the start. Since that time, HBO has registered over 100 applications for different Game of Thrones trademarks, including without limitation WINTER IS COMING, WHITE WALKER, HOUSE TARGARYEN, HOUSE STARK, the THREE-EYED RAVEN, HODOR, and my personal favorite, DRACARYS, which is High Valyrian for “dragonfire.” For you non-Thrones fans, High Valyrian is the language often used by the show’s female lead, Daenerys Targaryen.

In an article on Law 360, Catherine M.C. Farrelly, the co-chair of Frankfurt, Kurnit, Klein & Selz, P.C.’s trademark group recognized, “Fans love to buy merchandise celebrating their favorite shows.” Later, she rhetorically stated, “Can’t you just imagine a die-hard fan buying a replica of the Iron Throne for his man cave, or sporting a recreation of Melisandre’s necklace, made with precious metals and gemstones?” As Ms. Farrelly’s statement implies, you could certainly imagine a fan having such a desire.

With that information in hand, it’s important for companies to get their application to the USPTO sooner rather than later. HBO understands this, and as such, has regularly submitted trademark applications before it began using the respective mark, or just before it anticipated the popularity of a certain mark rising. There are, of course, some exceptions. For example, HBO registered HODOR two days after it aired the iconic episode titled “The Door,” which discussed the character Hodor’s backstory just before he selflessly met his demise. This shows that even the world’s most sophisticated entities can’t always preemptively protect their IP. Things happen, and we can’t always predict what’s worth protecting in advance. And the conservative approach is to protect anything that has even a slight possibility of becoming valuable; that approach isn’t practical, or realistic for that matter.

HBO has vigorously protected its Game of Thrones intellectual property. It has proactively registered various marks, opposed the registration of numerous confusingly similar marks, and issued some strongly worded press releases when its IP was utilized by President Trump on Twitter. But although the show has ended, the IP battle isn’t over. Television series like Game of Thrones, and related intellectual property, don’t lose value overnight. You have to imagine that is especially true for the most popular television show of all time, and even more so when there are already five spinoffs in development.

Although HBO has won many Game of Thrones trademark battles to date, the war is far from over. Game of Thrones will be relevant for the foreseeable future, and as long as there are fans and a demand for merchandise, the potential for infringement will exist. How do I know this? Well, to paraphrase the Hand of the King, Tyrion Lannister, “[t]hat’s what I do … I [write] … and I know things.”

If You Can’t Describe It, You Can’t Patent It!

Posted in IP, Patent Law

One of the requirements for obtaining a patent is the written description requirement – the specification must include a written description of the invention. 35 U.S.C §112(a).  This requirement means that the specification must fully disclose what the invention is.  The purpose of the written description requirement is to demonstrate to persons skilled in the art of the invention that the inventor had possession of the invention at the time the application was filed, i.e., that the inventor actually invented the invention.  In exchange for the limited “monopoly” that a patent provides to its owner, the public is entitled to know the scope of the patent.  The public must know what the patent owner can protect with the patent.

Another requirement of a patent is that it must be enabled – the patent must describe to a person skilled in the art of the invention how to make and use the invention.

Patents are not frequently invalidated for failure to satisfy the written description requirement or for lack of enablement.  Instead, patents are most commonly invalidated on the grounds that they lack novelty or are obvious over the prior art, and most of the cases deal with these requirements.

The written description requirement is an important one, however, as demonstrated by the Federal Circuit Court of Appeals’ recent invalidation of two pharmaceutical patents on that ground.

In Nuvo Pharmaceuticals Designated Activity Co. v Reddy’s Laboratories Inc., 2019 U.S. App. LEXIS 14345 (May 15, 2019), Nuvo sued several defendants for infringing two patents for a drug called Vimovo.  Vimovo was a combination drug which included a non-steroidal anti-inflammatory drug (NSAID) to treat pain, a coating around the NSAID to prevent its release until the pH had increased to about 3.5, and a proton pump inhibitor (PPI) (which was coated to prevent its degradation) to raise the pH and to reduce acid in the stomach.  The defendants were pharmaceutical companies who planned to market generic versions of Vimovo.

The defendants stipulated to infringement of the patents, but contended that the patents were invalid for several reasons, including for failure to satisfy the written description requirement.  At a bench trial, the district court held that the patents were valid.

On appeal to the Federal Circuit, the defendants argued that the patents’ claims for an effective drug that included an uncoated PPI were invalid because the patents did not describe the efficacy of the drug with the uncoated PPI.  Nuvo raised several arguments, primarily contending that the specification did not need to show the effective amount of the uncoated PPI.  Nuvo also presented expert testimony that its specification satisfied the written description requirement.

The Federal Circuit rejected all of Nuvo’s arguments.  The court explained that the written description requirement is not met by simply including the claim verbatim in the specification.  The court noted that the inventor does not need to include experimental data in the specification to show efficacy, or even conduct any testing; does not need to explain why the drug works; and does not need to reduce the invention to practice.  However, the specification must include a written description adequate to show that the inventor was in possession of the invention (a constructive reduction to practice).  The court stated:

“Patents are not rewarded for mere searches, but are intended to compensate their successful completion…That is why the written description requirement incentivizes ‘actual invention,’…and thus ‘a mere wish or plan for obtaining the claimed invention is not adequate written description’…[citations omitted].”

The court held that Nuvo’s patents were “fatally flawed.”  The specifications were nothing more “than a mere wish or hope that uncoated PPI would work…”

The court further rejected Nuvo’s argument that the patents satisfied the enablement requirement and therefore also satisfied the written description requirement.  The two requirements are “separate and distinct;” both requirements must be met.  The court explained:

“The purpose of the written description requirement is broader than to merely explain how to ‘make and use the invention’…The focus of the written description requirement is instead on whether the specification notifies the public about the boundaries and scope of the claimed invention and shows that the inventor possessed all the aspects of the claimed invention.”

The written description requirement is a key requirement for obtaining a patent.  In essence, it is the first requirement: the inventor must be able to state what it is they invented, and be able to describe the invention itself.  The requirement should not be assumed, overlooked, or minimized, at the risk of the losing the patent later on.

U.S. Supreme Court Allows App Store Anti-Trust Class Action to Proceed Against Apple

Posted in IP, Web/Tech

In APPLE INC. v. PEPPER ET AL., case number 17-204, the United States Supreme Court considered a case alleging Apple has monopolized the retail market for the sale of apps and has unlawfully used its monopolistic power to charge consumers higher-than competitive prices. As an early defense in the case, Apple asserted that the consumer plaintiffs could not sue Apple because they supposedly were not “direct purchasers” from Apple under Illinois Brick Co. v. Illinois, 431 U. S. 720, 745–746 (1977). The Supreme Court disagreed, reasoning the plaintiffs purchased apps directly from Apple and therefore are direct purchasers under Illinois Brick. However, the Court did note that this case was still at the early pleadings stage of the litigation, so the Court did not assess the merits of the plaintiffs’ substantive antitrust claims against Apple, nor did the Court consider any other defenses Apple might have. In other words, the Court’s holding was limited to determining whether the Illinois Brick direct-purchaser rule barred these plaintiffs from suing Apple under the antitrust laws.

As some background on the matter, in 2007, Apple began selling iPhones, and in July 2008, Apple started the App Store. The App Store now contains about 2 million apps that iPhone owners can download. By contract and through technological limitations, the App Store is the only place where iPhone owners may lawfully buy apps. For the most part, Apple does not itself create apps. Rather, independent app developers create apps. Those independent app developers then contract with Apple to make the apps available to iPhone owners in the App Store. Through the App Store, Apple then sells the apps directly to iPhone owners. To sell an app in the App Store, app developers must pay Apple a $99 annual membership fee. Apple requires that the retail sales price end in $0.99, but otherwise allows the app developers to set the retail price. Apple also keeps 30 percent of the sales price, no matter what the sales price might be. In other words, Apple pockets a 30 percent commission on every app sale.

In response, in 2011, four iPhone owners sued Apple, alleging that Apple has unlawfully monopolized “the iPhone apps aftermarket.” The plaintiffs allege that, via the App Store, Apple locks iPhone owners “into buying apps only from Apple and paying Apple’s 30% fee, even if” the iPhone owners wish “to buy apps elsewhere or pay less.” Plaintiffs further allege that the 30 percent commission is “pure profit” for Apple and, in a competitive environment with other retailers, “Apple would be under considerable pressure to substantially lower its 30% profit margin.” The plaintiffs then allege that in a competitive market, they would be able to “choose between Apple’s high-priced App Store and less costly alternatives.” And they allege that they have “paid more for their iPhone apps than they would have paid in a competitive market.”

In response to the plaintiffs’ allegations, Apple moved to dismiss the complaint at the pleading stage, arguing that the iPhone owners were not direct purchasers from Apple and therefore may not sue. Apple cited the Illinois Brick case as authority, which held that direct purchasers may sue antitrust violators, but also ruled that indirect purchasers may not sue. The District Court agreed with Apple and dismissed the complaint. According to the District Court, the iPhone owners were not direct purchasers from Apple because the app developers, not Apple, set the consumers’ purchase price. The Ninth Circuit reversed. The Ninth Circuit concluded that the iPhone owners were direct purchasers under Illinois Brick because the iPhone owners purchased apps directly from Apple. According to the Ninth Circuit, Illinois Brick means that a consumer may not sue an alleged monopolist who is two or more steps removed from the consumer in a vertical distribution chain. Here, however, the consumers purchased directly from Apple, the alleged monopolist. Therefore, the Ninth Circuit held that the iPhone owners could sue Apple for allegedly monopolizing the sale of iPhone apps and charging higher than-competitive prices.

In then analyzing the issue, the U.S. Supreme Court held that under Illinois Brick, the iPhone owners were direct purchasers who may sue Apple for alleged monopolization, thus agreeing with the holding of the Ninth Circuit.  The Supreme Court reasoned that Section 4 of the Clayton Act provides that “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue.” That broad text readily covers consumers who purchase goods or services at higher-than-competitive prices from an allegedly monopolistic retailer. The Court also reasoned that it has previously held that “the immediate buyers from the alleged antitrust violators” may maintain a suit against the antitrust violators, but has also ruled that indirect purchasers who are two or more steps removed from the violator in a distribution chain may not sue.

Applying that reasoning here, and unlike the consumer in Illinois Brick, the iPhone owners are not consumers at the bottom of a vertical distribution chain who are attempting to sue manufacturers at the top of the chain. Thus, the Court determined the absence of an intermediary in the distribution chain between Apple and the consumer is dispositive.

Apple argued that Illinois Brick allows consumers to sue only the party who sets the retail price, whether or not the party sells the good or service directly to the complaining party. But the Court found three main problems with Apple’s argument. First, Apple argued it contradicts statutory text and precedent by requiring the Court to rewrite the rationale of Illinois Brick and to gut its longstanding bright-line rule. However, the Court reasoned any ambiguity in Illinois Brick should be resolved in the direction of the statutory text, which states that “any person” injured by an antitrust violation may sue to recover damages. Second, Apple’s theory is not persuasive economically or legally. It would draw an arbitrary and unprincipled line among retailers based on their financial arrangements with their manufacturers or suppliers. And it would permit a consumer to sue a monopolistic retailer when the retailer set the retail price by marking up the price it had paid the manufacturer or supplier for the good or service but not when the manufacturer or supplier set the retail price and the retailer took a commission on each sale. Third, Apple’s theory would provide a roadmap for monopolistic retailers to structure transactions with manufacturers or suppliers so as to evade antitrust claims by consumers and thereby thwart effective antitrust enforcement.

Next, contrary to Apple’s argument, the Court found the three Illinois Brick rationales for adopting the direct-purchaser rule cut strongly in plaintiffs’ favor. First, it promoted the longstanding goal of effective private enforcement and consumer protection in antitrust cases. Second, Illinois Brick should not be treated as a “get-out-of-court-free card” for monopolistic retailers to play any time that a damages calculation might be complicated. Third, this is a case where multiple parties at different levels of a distribution chain are trying to recover the same passed-through overcharge initially levied by the manufacturer at the top of the chain.

Therefore, in sum, the Court found Illinois Brick does not bar the consumers from suing Apple for Apple’s allegedly monopolistic conduct, and affirmed the judgment of the U. S. Court of Appeals for the Ninth Circuit. However, as noted above, this ruling only considered whether plaintiffs could proceed through the pleadings stage, and did not consider the full merits of the substantive antitrust claims against Apple.