In University of Massachusetts Medical School et al v. L’Oreal SA et al, 1-17-cv-00868 (DED 2018-11-13, Order) (Sherry R. Fallon), the magistrate judge recommended granting a foreign parent company defendant’s motion to dismiss plaintiffs’ patent infringement action for lack of personal jurisdiction where its American subsidiary introduced the alleged accused products into the stream of commerce and the foreign defendant’s corporate structure is not sufficient to establish personal jurisdiction because “mere ownership of a subsidiary does not justify the imposition of liability on the parent.”

The primary plaintiff in the case is the University of Massachusetts Medical School, a public institution of higher education in Massachusetts.  The University of Massachusetts is the assignee of the two patents-in-suit: U.S Patent Nos. 6,423,327 (the ‘327 patent) and 6,645,513 (the ‘513 patent).  Defendant L’Oreal USA is a wholly-owned subsidiary of Defendant L’Oreal S.A., a French corporation headquartered in France.  L’Oreal USA is Delaware Corporation with its principal place of business in New York, New York.  L’Oreal USA develops and manufactures hair care, skin care, cosmetics, and fragrances distributed globally.  L’Oreal S.A. filed a motion to dismiss for lack of personal jurisdiction, amongst other issues considered by the court.

Plaintiffs asserted that the court’s exercise of personal jurisdiction over L’Oreal S.A. comports with constitutional due process requirements under the stream of commerce and agency theories.  Under the stream of commerce theory, a foreign defendant can be subjected to a forum state’s jurisdiction if it “purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its law.”  Plaintiffs argue that personal jurisdiction is appropriate under this theory because L’Oreal S.A. intends for its products to be sold in the United States through its subsidiary L’Oreal USA.  L’Oreal S.A. does not dispute that the Accused Products are sold in Delaware and throughout the United States, but contends that it is not responsible for introducing the Accused Products, which are made and sold by L’Oreal USA in the United States, into the stream of commerce.

The Magistrate found the record does not support plaintiffs’ argument that L’Oreal S.A. introduced the Accused Products into the stream of commerce.  Instead, the court found that L’Oreal USA introduced the Accused Products into the stream of commerce, and L’Oreal S.A.’s corporate structure is not sufficient to establish personal jurisdiction under the stream of commerce theory because “mere ownership of a subsidiary does not justify the imposition of liability on the parent.”  The Magistrate reasoned Plaintiffs must present evidence showing that the parent company is responsible for introducing the Accused Products into the U.S. or Delaware markets.  And, here, the record does not indicate that L’Oreal S.A. had a role in the design, manufacture, marketing, or sale of the Accused Products.  Further, Plaintiffs do not specifically tie the development or sale of the Accused Products to L’Oreal S.A.  As such, the Magistrate found Plaintiffs cannot show that L’Oreal S.A. “placed–or otherwise influenced the placement of-the [ accused products] into either the United States market generally or the Delaware market specifically.”

Plaintiffs also contend that, by owning United States patents and suing to enforce its patents in this and other United States courts, L’Oreal S.A. has purposefully availed itself of the privilege of conducting activities in the forum state.  However, the Magistrate held that “ownership of a United States patent, without more, cannot support the assertion of personal jurisdiction over a foreign patentee in any state.” As such, the Magistrate found plaintiffs cannot prevail on their stream of commerce theory.

Plaintiffs also argued that L’Oreal S.A. is subject to the court’s jurisdiction under the agency theory as well.  Under this theory, a subsidiary corporation’s specific jurisdictional acts are imputed to its parent corporation to satisfy the jurisdictional requirements “where the subsidiary acts on the parent’s behalf or at the parent’s direction.”  The existence of an agency relationship depends on “the degree of control [ ] the parent exercises over the subsidiary.”  To determine whether the parent has the requisite control over the subsidiary to establish an agency relationship, a court will consider the following factors: “the extent of overlap of officers and directors, methods of financing, the division of responsibility for day-to-day management, and the process by which each corporation obtains its business.”

First, Plaintiffs contend that L’Oreal S.A. and its subsidiaries act as a “unified entity” because L’Oreal Group (the overarching entity consisting of L’Oreal S.A. and its subsidiaries) discloses the financial results of the entire Group in a consolidated report, which includes L’Oreal USA’s financial results. However, the Magistrate found “filings [by a parent corporation] presenting the assets, liabilities, and financial earnings of its subsidiaries as one indistinguishable whole do not prove agency.”

Next, Plaintiffs also argue that L’Oreal S.A. and L’Oreal USA “operate as a single entity, particularly for the purposes of designing, manufacturing, and selling the Accused Adenosine Products in the United States.”  However, the Magistrate found Plaintiffs failed to establish that L’Oreal S.A. had control over L’Oreal USA’s day-to-day management and matters of patent infringement.  Specifically, “L’Oreal USA maintains separate licensing and distribution contracts, manufactures and distributes its own products, has its own board of directors, issues separate financial statements, files separate tax returns, and maintains its own workforce from L’Oreal S.A.”  Moreover, L’Oreal USA’s marketing, advertising, customer relations, and “Research and Innovation” departments are separate from L’Oreal S.A.  Because plaintiffs’ allegation that L’Oreal S.A. and L’Oreal USA operate as a single entity controlled by L’Oreal S.A. is not supported by the record, the Magistrate found Plaintiffs’ agency theory also fails.  Thus, the Magistrate found Plaintiffs have failed to establish personal jurisdiction over L’Oreal S.A.

Finally, the Magistrate also found Plaintiffs have also failed to present sufficient factual allegations to justify jurisdictional discovery.  In order to justify jurisdictional discovery, the plaintiff must present “factual allegations that suggest with reasonable particularity the possible existence of the requisite contacts between [the defendant] and the forum state.”  Plaintiffs assert that jurisdiction over L’Oreal S.A. is proper under the stream of commerce and agency theories and based on L’Oreal S.A.’s own contacts with the forum.  But, the Magistrate already found Plaintiffs’ allegations fail to assert with reasonable particularity facts showing that L’Oreal S.A. might be subject to personal jurisdiction.  Therefore, the Magistrate recommended plaintiffs’ request for jurisdictional discovery also be denied.

The San Diego Padres recently took control of the Amarillo minor league baseball organization. The organization will serve at the Padres’ Double A affiliate. In the spirit of new beginnings, the organization recently held a public naming contest to determine its new mascot. After the contest had concluded, the Sod Poodles were selected as the new mascot.

Unfortunately, it appears that Panhandle Baseball Club, Inc., the entity that owns and operates the Amarillo Sod Poodles, will not be able to obtain the exclusive right to use Amarillo Sod Poodles or Sod Poodles in commerce without a fight. It turns out that two Amarillo natives, Dusty and Nikki Green, both of whom had been critical of the team’s ownership, filed an intent-to-use (“ITU”) application with the United State Patent and Trademark Office on June 2, 2018, two days after the team name was announced and three days before Panhandle Baseball Club filed its ITU application for Sod Poodles on June 5, 2018, and over five months before Panhandle Baseball Club filed its ITU application for Amarillo Sod Poodles. So as far as filing prior is concerned, the Greens beat Panhandle Baseball Club to the punch.

According to Dusty Green, the team has made three offers to purchase the putative mark, but Green has rejected each of the offers and does not have an intent to sell. Truth be told, although Green seemingly has priority pursuant to his filing date, he does not have a federally registered trademark at this time. Although one must simply have a good faith intent to use the mark in commerce, an opposing party is free to challenge registration of the mark, and in doing so, challenge the initial registrant’s good faith intent to use the mark. Based upon statements issued by the Amarillo general manager Tony Ensor, it seems Panhandle Baseball Club will do exactly that.

“We are aware of this individual and we are following the trademark processes and procedures. We are not at all concerned and will let the process play out,” said Mr. Ensor to MyHighPlains.com. “We could not be more excited and confident about our name, this brand, and our logo! Sod Poodles is our brand and identity. We created it, and our community brought it to life. There is no way we are going to allow an outside individual who has nothing to do with our team try to take advantage of our team and this community.” I could be mistaken, but those sound like fighting words, and as a trademark practitioner, it is my belief that Panhandle Baseball Club will challenge the registration of Greens’ mark on the basis described above.

Practically speaking, it is likely that Panhandle Baseball Club will continue trying to acquire the Greens’ putative rights in the mark in order to avoid protracted and costly litigation. However, if the Greens are set on maintaining ownership of the mark, it seems that Panhandle Baseball Club is prepared for a fight. If I had to guess, I would say that the Greens will eventually sell their putative rights to Panhandle Baseball Club once they realize how expensive this nonsensical proceeding is. But for all I know, the Greens truly intend to utilize the mark in commerce and will stand their ground. Only time will tell, so stay tuned.

The Trademark Trial and Appeals Board’s recent ruling in In re Productos Verde Valle, S.A. de C.V. upholding a trademark examiner’s refusal to register the mark SONIA for “sauces; chili sauce; hot sauce” holds a lesson for those of us that regularly advise clients on the registrability (and usability) of trademarks.  Assuming Verde Valle conducted a trademark search, it’s very likely (if not certain) that the word mark SONIA SONI LIFE IS A RECIPE for “spices, spice blends; spice rubs” would have come up.  If you were representing Verde Valle, would you advise them that this mark will absolutely prevent the registration of their mark?  Or, would you advise that SONIA SONI LIFE IS A RECIPE is likely to be raised by the trademark examiner, but based on the differences in appearance, sound and commercial impression between the two marks, and the difference in the goods covered by the two marks, registration should be possible?  These were the exact same arguments raised by Verde Valle in its appeal to the TTAB.  The Board affirmed the examiner’s refusal to register.

It is understandable that the TTAB found the goods covered by the two marks to be similar.  Both are food flavorings, sold in the same channels of trade (grocery stores) to the same group of consumers.  Plus, the trademark examiner had submitted a number of third-party registrations covering both spices and sauces.  And while Verde Valle argued that its spices were sold as Mexican food while the goods covered by the registered mark were sold as Indian spices, the TTAB pointed out (1) that no such restriction on the scope of the goods, channels of trade or classes of purchasers was included in either the registration or Verde Valle’s application; and (2) certain spices may be used in both Mexican and Indian cuisine.

The interesting part of the decision is the TTAB’s analysis of the two marks.  In support of its argument that the marks are different, Verde Valle relied on standard, well-established holdings:  that marks must be considered in their entireties and not dissected; that the determination of likelihood of confusion cannot be predicated on only part of a mark; that the commercial impression of a trademark is derived from it as a whole, not from its elements separated and considered in detail.   In reliance on these principals, Verde Valle argued the shared term SONI is not sufficient grounds on which to deny registration, and that the two marks are distinct in light of the additional terms.

In considering Verde Valle’s arguments, the TTAB acknowledged its obligation to consider the marks in their entireties but also noted that there is nothing “improper in stating that, for rational reasons, more or less weight has been given to a particular feature of the mark, provided the ultimate conclusion rests on a consideration of the marks in their entireties.”  The TTAB noted that the proper focus of any inquiry into likelihood of confusion “is on the recollection of the average customer, who retains a general rather than specific impression of the marks”  and here, “the average customer includes ordinary consumers seeking food flavorings in the nature of sauces and spices.”

In examining the two marks, the TTAB found the term SONIA to be the most prominent portion of the registered mark.  This should have been no surprise to Verde Valle as the first part of a mark – as long as it is distinctive — is most often (if not always) deemed to be the most prominent part of the mark.  The rationale behind this is that it is often the first part of a mark which is most likely to be impressed upon the mind of a purchaser and remembered.  What likely was a surprise to Verde Valle was the treatment given to the rest of the mark.  In examining its effect on the overall comparison of the marks, the TTAB said that the words LIFE IS A RECIPE “imparts a connotation that simply highlights use of the spices” and contends that consumers would simply ignore them (as well as the other distinctive word, SONI) and believe that Verde Valle’s mark is simply a shortened version of the registered mark, because of “the penchant of consumers to shorten marks.”  (In addressing the TTAB’s treatment of SONI, it stated “likelihood of confusion is not necessarily avoided between otherwise confusingly similar marks merely by adding or deleting other distinctive matter. If an important portion of both marks is the same, then the marks may be confusingly similar notwithstanding some differences.”)

The important lesson here for trademark attorneys who regularly review trademark search reports is to apply an even greater degree of caution when a report reveals a mark that shares an important portion of the searched mark.  In cases where the searched mark and a mark in a report share an exact same word, where this shared word in the first word in each mark, and where the goods are highly similar, it may be wise to caution the client that there is a good chance that registration may not be possible.

Intellectual property disputes will again take their place on stage at the U.S. Supreme Court this term when the court addresses at least two IP questions.  1.  Can the government challenge patents under the America Invents Act (“AIA”)?  2. Do trademark licenses survive Chapter 11 bankruptcy?  These questions are presented in two cases in which the U.S. Supreme Court just granted certiorari:  Return Mail, Inc. v. U.S. Postal Service, et al. and Mission Product Holdings, Inc. v. Tempnology, LLC.  In Return Mail, the Supreme Court is addressing whether the government is a “person” eligible to challenge the validity of patents under the AIA.  In Mission Products, the Court will determine the effect of bankruptcy on trademark licenses.

First, let’s look at the patent issue raised in Return Mail.  Patents are issued by the U.S. government and upon issuance are presumed valid and enforceable.  Return Mail essentially raises the question as to whether the U.S. government can challenge the validity of a patent it issued.  That is exactly what the U.S. government has done in Return Mail after the government was essentially accused of infringing a patent it issued.

Under the AIA, any “person” can petition the Patent Trial and Appeal Board (“PTAB”) for review of the validity of a patent.  Specifically, the AIA states that “a person who is not the owner of a patent” may petition for inter partes review (“IPR”), and any person sued for infringement may petition for covered business method (“CBM”) review.  Everyone from individuals to trade associations, nonprofits, and corporations have availed themselves of this right to challenge the validity of patents.  On a few prior occasions, even the U.S. government has petitioned for review of the validity of patents.

Return Mail, Inc., is the assignee, or owner, of U.S. Patent No. 6,826,548, which is a patent for more efficiently processing mail that is undeliverable and returned due to an inaccurate or obsolete address for the intended recipient.   After unsuccessfully trying to license its patent to the U.S. Postal Service, Return Mail brought suit against the U.S. Postal Service in the Court of Federal Claims under 28 U.S.C. §1498(a) alleging the Postal Service had “engage[d] in the unlicensed and unlawful use and infringement of the invention claimed in the ’548 patent.”  In response, the U.S. Postal Service challenged the validity of claims 39–44 of the patent under the AIA by filing a petition with the PTAB for CBM review.  The PTAB granted the petition and ultimately invalidated the challenged patent claims.

On appeal to the Federal Circuit, Judge Newman concluded in her dissent that the PTAB did not have jurisdiction to consider the government’s CBM petition because “[t]he general statutory definition is that a ‘person’ does not include the United States and its agencies unless expressly provided.”  In other words, Judge Newman concluded the government is not a “person” and therefore is not allowed to challenge the validity of patents under the AIA.  In contrast, Chief Judge Prost stated the majority was not persuaded that the government was excluded from bringing petitions under the AIA.  In support of the majority’s opinion, Judge Prost stated “[t]he AIA does not appear to use the term ‘person’ to exclude the government in other provisions.”

Capitalizing on Judge Newman’s argument in dissent, Return Mail took this dispute to the U.S. Supreme Court.  Return Mail relies on the argument that there is a “longstanding interpretative presumption that ‘person’ does not include the sovereign.”  In fact, Justice Scalia wrote that this presumption is overcome “only upon some affirmative showing of statutory intent to the contrary.”  Return Mail argues “the case is but the latest example of patent-law exceptionalism by the Federal Circuit” and that the Supreme Court has repeatedly reversed the Federal Circuit when it fails to heed the rule that “patent law is governed by the same common-law principles, methods of statutory interpretation, and procedural rules as other areas of civil litigation.”  Return Mail further argues the Federal Circuit’s ruling “jeopardizes billions of dollars in investments in every sector of the economy” by “expand[ing] the [PTAB]’s authority to invalidate issued patents—property protected by the Due Process and Takings Clauses.”

In rebuttal, the U.S. government argues the statute itself demonstrates affirmative intent to include the government in the definition of “person” because Congress used “person” in other parts of the statute in such an inclusive manner.  For example, the patent statute uses the term “person” when referring to those who can obtain and be assigned, or own, patents.  Under §102, the statute states “[a] person shall be entitled to a patent,” and under §118, it states a “person to whom an inventor has assigned” an invention may apply for a patent.  Then under 35 U.S.C. §207(a)(1), Congress has authorized “[e]ach Federal agency” to “apply for, obtain, and maintain patents,” but the government is still subject to §102 and §118 in doing so. Thus, the government argues, it is a “person” in the context of patents and challenges of patents under the AIA.  In fact, the government has a vast portfolio of patents.  In addition, the government points out that when the same words are used in different parts of a statute, they are presumed to have the same meaning.

The government goes on to argue that public policy favors allowing the government to challenge weak patents asserted against it, stating “Congress’s interest in providing an efficient non-judicial mechanism for reconsidering the patent’s validity is no less implicated than when the patent is asserted against a private party.”

Not only does this case raise the question of whether the government can take on the roles of both the sovereign power (i.e., the United States Patent and Trademark Office as issuer of the patent and the USPTO’s PTAB as the tribunal for evaluating the validity of the challenged patent) and essentially a private party (i.e., the U.S. government and its U.S. Postal Service as patent challenger before the PTAB) in the same proceeding, but it also raises questions as to where the boundaries of the government will be drawn in such proceedings.  For example, in arguing that Return Mail is the wrong vehicle for the Court to decide this issue, the government has argued that the Postal Service is fundamentally different than other Federal agencies because it is more like a business than the other governmental agencies.  But the government did not distance itself from the Postal Service in the CBM petition challenging Return Mail’s patent.  In fact, the government specifically names both entities in the petition, captioning it The United States Postal Service (USPS) and The United States of America v. Return Mail, Inc.  Further, while the U.S. government has only filed a few petitions under the AIA, a ruling that the government is not eligible to file such petitions may raise further questions as to whether foreign governments, states, and/or entities affiliated with federal, state, or foreign governments are eligible to file petitions challenging the validity of patents.

In the second IP case currently before the Supreme Court, the Court will address trademark licensing issues in the context of bankruptcy in Mission Products.  In that case, Tempnology filed for bankruptcy protection and cancelled its licensing agreement with Mission Product Holdings (“MPH”).  MPH contested the cancellation arguing that under Bankruptcy Code §365(n), MPH was allowed to continue its use of the licensed trademark.  The Court of Appeals for the First Circuit, however, found that the trademark license did not survive Tempnology’s cancellation.  However, there is currently a split among the circuits on this issue.  While the Fourth Circuit has followed the First Circuit’s approach, the Seventh Circuit has taken the opposite approach.  Instead, the Seventh Circuit has found that a licensor’s cancellation of a trademark license in bankruptcy proceedings is a breach of contract by the licensor, rather than a termination of the licensee’s rights.  In its upcoming decision in Mission Products, we will soon know how the Supreme Court resolves this split among the circuits.

The U.S. Court of Appeals for the Federal Circuit was recently tasked with reviewing determinations made by the International Trade Commission (“ITC”) relating to trade infringement claims brought by Converse, Inc. with regard to a number of imported shoes that it alleged infringed on one of its trademarks. Although Converse sneakers have had largely the same appearance since the 1930s, Converse registered a trademark in 2013 relating to the design of its midsole and the toe cap/bumpers on its shoes.  The primary issue before the Federal Circuit was the timing of a second meaning inquiry in connection with the trademark infringement claim in light of the actual trademark registration in 2013.    

Section 337 of the Tariff Act of 1930 provides for remedies at the ITC for holders of trademarks against companies and people who import goods that infringe on a valid and enforceable trademark.  Converse brought claims against a number of respondents for trademark violations regarding the importing of various footwear products in 2014.  Although some of the entities defaulted as to the claims, a number contested Converse’s claims to the ITC and received a favorable ruling that they either did not infringe on Converse’s mark, or that the mark was invalid.  Converse appealed that finding to the Federal Circuit which recognized that the primary issue was “whether the mark had acquired secondary meaning” and the timing issues surrounding that determination.

Converse argued that its mark had long ago acquired secondary meaning in that it had been in use since 1932.  The respondents on the other hand contended that Converse did not exclusively use the mark during that time and provided evidence by way of a survey showing that consumers did not necessarily associate the Converse mark with a single source.  The Federal Circuit concluded that the ITC had made several errors in findings against Converse on its trademark infringement claims.

First, the Federal Circuit held that the ITC erred in failing to distinguish those respondents who were alleged to have infringed before Converse obtained its trademark registration in 2013 and those who began afterward.  The Federal Circuit noted that while the Lanham Act does not create trademarks, “it may create some new substantive rights in trademarks unless the trademarks preexist [and] there is nothing to be registered.” Although Converse had secured its trademark registration in September 2013, it claimed that both before registration and after registration acts of infringement violated its rights in the trademark.  The Federal Circuit noted that to establish infringement Converse had to show: “(1) it has a valid and legally protectable mark; (2) it owns the mark; and (3) the defendant’s use of the mark to identify goods or services causes a likelihood of confusion.”  Because Converse was seeking protection for its mark in the form of unregistered product design trade dress, it had to show “that its mark has acquired distinctiveness, i.e., secondary meaning.”  The problem with the ITC’s decision the Federal Circuit found was that it had not determined the relevant date for determining whether secondary meaning existed.  In essence, the ITC was urging an interpretation that the secondary meaning had not attached at any time.  The Federal Circuit disagreed with this approach and found that it needed, “a specific determination of secondary meaning as of the relevant date” so that a court could determine whether or not there had been infringing activity.

The statutory effect of Converse’s registration of its mark in 2013 was to create a “presumption of secondary meaning which would operate only prospectively from the date of registration.”  While Converse argued that this presumption should apply to the use of its mark since its first use in the 1930s, the Federal Circuit rejected this and held that the statute made clear that the presumption only applies to post-registration conduct.  With regard to any possible infringement that predated the registration of the mark, Converse would be required to establish “that its mark had acquired secondary meaning before the first infringing use by each respondent” without any benefit of the statutory presumption.

The Federal Circuit then turned its attention to the standards that the ITC should have applied in determining whether the mark had acquired secondary meaning.  The Federal Circuit then found that the ITC had applied incorrect legal standards in rendering a finding that the mark had not acquired secondary meaning. In clarifying the standard that the ITC should have used in determining whether secondary meaning had been acquired in the mark, the Court held that the following six factors should be considered: “(1) association of the trade dress of the particular source by actual purchasers (typically measured by customer surveys); (2) the length, degree and exclusivity of use; (3) amount and manner of advertising; (4) amount of sales and number of customers; (5) intentionally copying; and (6) unsolicited media coverage of the product embodying the mark.”  The Federal Circuit cautioned that the ITC should consider each of these six factors together in determining the existence of secondary meaning.

The Federal Circuit then turned to the issue of the prior use of the mark by Converse and the alleged infringers.  In reviewing the Lanham Act, the Court found that the most relevant evidence would be the prior use in the five years immediately preceding first use or infringement. Thus, given the importance of looking to a five year period, the Federal Circuit instructed the ITC to “rely principally on uses within the last five years.”  This was because the “critical issue for this factor is whether prior use has impacted the perceptions of the consuming public as of the relevant date.”  The Federal Circuit reasoned that “consumers are more likely to remember and be impacted in their perceptions by third party uses within five years and less likely with respect to older uses.”  Thus, uses that predate the five year period should only be considered if they were likely to have impacted a consumer’s perception of the market as of the relevant date.

The Federal Circuit noted a further error in the ITC’s findings in that in determining prior uses by other third parties, it had considered several instances of shoes that had “at most a passing resemblance to the [Converse] trademark.”  The Court noted that many of these examples were missing at least one of the elements of the trademark and that others had been reproduced in poor resolution that prevented any reasonable comparison. Thus, the Federal Circuit instructed the ITC to limit its analysis only to those uses by Converse and its competitors of the “marks substantially similar to Converse’s registered mark.”  The Federal Circuit noted that there was a similar error by the ITC in applying the similarity in its likelihood of confusion analysis.  The Federal Circuit concluded by vacating the ITC’s findings and remanding it for further proceeding.

The Converse decision reiterates the importance of determining the impact of a mark registration date and whether a presumption of secondary meaning attached when dealing with products that have been in use for years.

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.