The U.S. Supreme Court’s in TC Heartland v. Kraft Food,  and subsequently the Court of Appeals for the Federal Circuit in In re Cray Inc., addressed where patent litigation can be filed under the patent venue statute, 28 U.S.C. §1400(b).  Specifically, the patent venue statute provides that “[a]ny civil action for patent infringement may be brought in either 1) “the judicial district where the defendant resides” or 2) “where the defendant has committed acts of infringement and has a regular and established place of business.”

In TC Heartland, the Supreme Court limited venue under the first prong explaining a corporation only resides in its state of incorporation.  For plaintiffs wishing to sue corporations in judicial districts outside the defendant’s state of incorporation, the TC Heartland ruling shifted the focus to the second prong of the patent venue statute.  The second prong states a domestic corporation can be sued for patent infringement “where the defendant has committed acts of infringement and has a regular and established place of business.” 

Following TC Heartland, corporations have routinely argued they have been improperly sued in venues where they have no “regular and established place of business.”  For example, in Seven Networks v. Google, Google recently argued it does not have a  “regular and established place of business” in the eastern district of Texas.  Judge Gilstrap, however, disagreed in a 43-page opinion.  Judge Gilstrap found Google’s server and the computer rack where it is housed by a third-party internet service provider (“ISP”) to be Google’s “regular and established place of business” in that judicial district.

But one could easily ask, how is that a “place of business”?  In In re Cray Inc., the Federal Circuit explained that its “analysis of the case law and statute reveal three general requirements” for whether a corporation has a “regular and established place of business” in a judicial district.  These requirements include:  “(1) there must be a physical place in the district; (2) it must be a regular and established place of business; and (3) it must be the place of the defendant.

The Federal Circuit further explained that while the “‘place’ need not be a ‘fixed physical presence in the sense of a formal office or store,” “there must still be a physical, geographical location in the district from which the business of the defendant is carried out.”  The Federal Circuit further explained a “place” is defined as “a building or a part of a building set apart from any purpose or quarters of any kind from which business is conducted.”  The mere fact that a defendant has advertised it has a place of business in the judicial district is not sufficient.  “[T]he defendant must actually engage in business from that location.”  Further, the statute “cannot be read to refer merely to a virtual space or to electronic communications from one person to another.”  A test that encompasses virtual spaces or electronic communications would improperly expand the venue statute.

In Seven Networks, Judge Gilstrap found Google has a physical server occupying a physical space in the judicial district and that Google exercises exclusive control over not only the digital aspects of the server but also “the physical server and the physical space within which the server is located and maintained.”   As a result, Judge Gilstrap found the “server itself and the place of the [] server, both independently, and together, meet the statutory requirement of a ‘physical place.’”

Google argued the servers were not places of business much less a regular and established places of business of Google.  The Court disagreed.  The Court reiterated its prior conclusion stating “The only relevant difference between a warehouse that stores a company’s tangible products and Google’s [] servers is the nature of the products being stored—physical merchandise versus digital content.  Regardless of what the products may be, if the physical structure that stores them is ‘a physical, geographical location in the district from which the business of the defendant is carried out,’ that structure is a place of business under §1400(b).”  “Here, the []servers are best characterized as local data warehouses, storing information in local districts to provide Google’s users with quick access to the cached data, avoiding the delays associated with distant data retrieval from Google Data Centers.”

Some courts, however, have found §1400(b) “requires some employee or agent of the defendant to be conducting business at the location in question” for the location to be a place of business.  See, for example, Peerless Network, Inc. v. Blitz Telecom Consulting, LLC.  Judge Gilstrap disagreed with that reasoning because he found no basis in the language of the statute for such a requirement.  Therefore, he found venue proper in the eastern district of Texas in Seven Networks irrespective of whether Google had an employee or agent conducting business at the server’s location.

Given the difference of opinion on the minimum requirements for a place of business under the patent venue statute, we can expect this issue to be raised again at the Federal Circuit.

Christopher Gordon is a comedian who created a viral video about the honey badger with the notable catch phrase, “Honey Badger Don’t Care,” among others.  He later trademarked that phrase and sued greeting card companies for trademark infringement for using that phrase, or a variation thereof, without his permission.  As a result, the Ninth Circuit was recently asked to revisit the test set forth in Rogers v. Gramaldi, 875 F.2d 994 (2d Cir. 1989), to determine whether the greeting card companies could use Gordon’s catch phrase without infringing on his trademark.

Gordon originally created his Honey Badger video and posted it to YouTube in 2011.  It quickly generated millions of views on YouTube and he began selling goods with the Honey Badger catch phrases.  In June 2011, Gordon copyrighted his video and shortly thereafter registered the “Honey Badger Don’t Care” mark with the Patent and Trademark Office, including for goods such as greeting cards.  Gordon’s Honey Badger brand received a boost when notable celebrities used it and in late 2011, the “Honey Badger” brand was identified as one of ‘America’s hottest brands” by Advertising Age.

In early 2012, Gordon hired a licensing agent to begin licensing Honey Badger themed products, including greeting cards.  That agent met with representatives of American Greetings but no licensing agreement was ever entered into.  Gordon was successful, however, in entering into licensing agreements with various other greeting card companies.  In mid-2012, American Greetings and Papyrus Recycled Greetings began marketing seven different greeting cards using small variations on the “Honey Badger” catch phrases.  The president of one of the defendant greeting card companies testified that he created all of the greeting cards in question and while he did not recall what had inspired their designs, he claimed never to have heard of Gordon’s “Honey Badger” video.

Gordon filed a lawsuit against the two greeting card companies for trademark infringement in June 2015.  However, the district court granted summary judgment to the defendants and found that the “Rogers” test applied to bar all of Gordon’s infringement claims.  Gordon then appealed to the Ninth Circuit.

The Ninth Circuit began by recognizing that the purpose of the Lanham Act is to ensure that “(1) `owners of trademarks can benefit from the goodwill associated with their marks,’ and (2) `consumers can distinguish among competing producers.’”  To establish a trademark infringement claim, a plaintiff normally has to show that it: (1) “has a valid protectable trademark;” and (2) “the defendant’s use of the mark is likely to cause confusion.”   In this case it was undisputed that Gordon had a viable registered trademark so this first prong was satisfied.  The Ninth Circuit cautioned; however, that the likelihood of confusion test is meant to strike “a comfortable balance” between the Lanham Act and the First Amendment.

Thus, in order to protect the public’s interest and free expression, the Ninth Circuit had adopted the Rogers test from the Second Circuit to ensure that these competing interests are appropriately balanced.  In essence, the Ninth Circuit adopted the Rogers test so that it would limit the Lanham Act “to apply to artistic works only where the public interest in avoiding consumer confusion outweighs the public interest and free expression.”  Thus, under the Rogers test, a defendant accused of trademark infringement must “come forward and make a threshold legal showing that its allegedly infringing use is part of an expressive work protected by the First Amendment.”  If a defendant can make that showing, “then the plaintiff claiming trademark infringement bears a heightened burden … the plaintiff must satisfy not only the likelihood of confusion test but also at least one of Rogers’ two prongs.”  That is, the plaintiff must then show that his or her mark is “either not artistically relevant to the underlying work or explicitly misleads consumers as to the source or content of the work.”

The Ninth Circuit then began by reviewing the Rogers case and several Ninth Circuit decisions that subsequently applied it.  In Rogers, at issue was an Italian movie about two fictional Italian cabaret performers who imitated Ginger Rogers and Fred Astaire in a film titled, “Ginger and Fred.”  Ginger Rogers sued the film’s producers for trademark infringement alleging that the title gave the false impression to filmgoers that the movie was either about her or sponsored by her.  The Second Circuit rejected her claim and found that the names Ginger and Fred were “not arbitrarily chosen just to exploit the publicity value of their real life counterparts” but rather, because they had “genuine relevance to the film’s story.”  Following the Rogers decision, the Ninth Circuit applied it to dispose of trademark infringement claims involving Barbie dolls (Matel, Inc. v. MCA Records, Inc.), a hip hop record label (20th Century Fox Television v. Empire Distribution, Inc.), and the videogame Grand Theft Auto (ESS Entertainment 2000, Inc. v. Rockstar Videos, Inc.).

The Ninth Circuit found, however, that the instant Honey Badger case showed the limits of the Rogers decision. It reasoned that although the Defendant’s greeting cards “are expressive works to which Rogers applies in,” there remained the factual issue as to whether their use of the “Honey Badger” catch phrase was artistically relevant.

The Ninth Circuit recognized that the Defendants had met their initial burden of showing that the greeting cards are “expressive works protected under the First Amendment” since a greeting card is intended to “convey a particularized message.”  However, as to the artistic relevance inquiry, the question is not only whether the mark is relevant to the rest of the work, but rather, “whether the mark is relevant to the Defendants’ own artistry.” That is, whether the Defendant uses it for artistic reasons.  On the other the hand, the Ninth Circuit reasoned that “the use of a mark is not artistically relevant if the defendant uses it merely to appropriate the goodwill inhering in the mark or for no reason at all.”

The Court concluded that a jury could look at the facts and determine that Defendants had used the “Honey Badger” catch phrase merely to use the goodwill that Gordon had established in his mark “without adding any creativity of their own.”  The Ninth Circuit concluded that the jury should decide “whether Defendants added their own artistic expression as opposed to just copying Gordon’s artistic expression.”

The Ninth Circuit found it significant that Plaintiff had presented evidence that he had sold various products bearing his mark, had discussed a licensing deal with representatives of at least Defendants’ parent corporation, and that Defendants started developing their product lines only after that meeting had occurred.  In sum, the Ninth Circuit concluded that there was evidence “that Defendants simply used Gordon’s mark in the same way that Gordon was using it.  To make humorous greeting cards in which the bottom line is `Honey Badger Don’t Care.’”  Thus, the Court ordered that the summary judgment in Defendants’ favor be reversed.

Defendants in trademark infringement cases should explore whether the Rogers test can provide them some immunity from a trademark infringement claim. However, to do so, they should be prepared to establish that they did more than merely use the Plaintiff’s mark in an identical or similar manner to the plaintiff.

 

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. 

 

The Federal Circuit Court of Appeals has taken aim at sky-high patent infringement damages. In Power Integrations, Inc. v. Fairchild Semiconductor International, Inc., 2018 U.S. App. LEXIS 18177 (July 3, 2018), the court limited the use of the rule that allowed patent owners to recover damages based on the total sales of the infringing product, even if the patent covered only a part of the product.

Power Integrations owned two patents covering switching regulators in power supply controller chips. Power Integrations sued Fairchild for patent infringement in the Northern District of California. At trail in 2014, the jury found for Power Integrations and awarded it damages of $105 million for a reasonable royalty. Fairchild moved for judgement as a matter of law or for a new trial. The district court denied the motions.

After the Federal Circuit, decided another case involving damages for a product that contained both patented and unpatented features, the district court ordered a second trial on damages. After that trail, the jury awarded Power Integrations $140 million in damages as a reasonable royalty, based on the entire market value rule. Under that rule, a patent owner can recover damages for the sales of the entire infringing product, even though the product has unpatented features in addition to patented features.

Again, Fairchild moved for judgement as a matter of law or a new trail, and the district court denied the motions. On appeal, the Federal Circuit vacated the damages award and remanded the case. The court held, at *22:

“A patentee is only entitled to a reasonable royalty attributable to the infringing features. The patentee ‘must in every case give evidence tending to separate or apportion the defendant’s profits and the patentee’s damages between the patented feature and the unpatented features.”

The reasonable royalty must be based on the “value of what was taken,” which is only the value of the patented features, not the value of the whole product. Id. at *23.

The court explained that the determination of a reasonable royalty must start with a royalty base. The royalty base “should not be larger than the smallest salable unit embodying the patented invention.”  Id.

The court cautioned against the application of the entire market value rule, finding that its application could result in an improper damage award because it is likely to overstate the amount that is attributable to the patented features of an infringing product. Id. at *24. The court said that the entire market value rule is only appropriate when the patented feature is the basis for the defendant’s sales. Id. at *25.

The court found that Fairchild’s products contained unpatented features of significance, as well as the patented features. Because Power Integrations has not met its burden of proof to show that the patented features were the “sole driver of customer demand,” the application of the entire market value rule was improper and the damages award had to be vacated. Id. at *28.     

In Saint Regis Mohawk Tribe et al. v. Mylan Pharmaceuticals Inc. et al., the U.S. Court of Appeals for the Federal Circuit held that Native American tribal sovereign immunity does not apply in Inter Partes Review (“IPR”) proceedings at the Patent Trial and Appeal Board (“PTAB”) arm of the USPTO.  In do so, the Federal Circuit affirmed the PTAB’s ruling that it has the authority to decide the validity of patents transferred to the St. Regis Mohawk tribe, and rejected an attempt from Allergan to shield its patents covering dry-eye medication Restasis by transferring the patents to a Native American tribe.

In 2015, Allergan sued various generic drug manufactures in the Eastern District of Texas alleging infringement of its Restasis patents.  Mylan, one of the generic manufactures sued by Allergan, petitioned the PTAB for IPRs of the Restasis patents.  The PTAB instituted the IPRs, which were later joined by other defendants.  However, before the IPR hearings, Allergan and the tribe entered into an agreement to transfer ownership of the Restasis patents to the tribe, and license them back to Allergan.  The tribe moved to terminate the IPRs, arguing it is entitled to assert tribal sovereign immunity, and Allergan moved to withdraw.  The PTAB denied the motions, which Allergan and the tribe now appeal.

In considering the issue of tribal immunity in an IPR proceeding before the PTAB, the Federal Circuit first noted that as “domestic dependent nations,” Indian tribes possess “inherent sovereign immunity,” and suits against them are generally barred “absent a clear waiver by the tribe or congressional abrogation.”  However, that immunity generally does not apply where the federal government acting through an agency engages in an investigative action or pursues an adjudicatory agency action.  But, there is not a blanket rule that immunity does not apply in federal agency proceedings.

Ultimately, four factors convinced the Federal Circuit that an IPR is more like an agency enforcement action than a civil suit brought by a private party, and that tribal immunity is not implicated.  First, the Federal Circuit reasoned the PTAB possesses broad discretion in deciding whether to institute review.  If the PTAB decides to institute, review occurs. If the PTAB decides not to institute, for whatever reason, there is no review. In making this decision, the PTAB has complete discretion to decide whether or not to institute review.  Therefore, if IPRs proceed on patents owned by a tribe, it is because a politically accountable, federal official has authorized the institution of that proceeding.  In this way, an IPR is more like cases in which an agency chooses whether to institute a proceeding on information supplied by a private party.

Second, the role of the parties in an IPR suggests immunity does not apply in these proceedings.  Once IPR has been initiated, the PTAB may choose to continue review even if the petitioner chooses not to participate.  The PTAB has construed its rules to allow it to continue review even in the absence of patent owner participation, and to participate in appeals “even if the private challengers drop out.”  This reinforces the view that IPR is an act by the agency in reconsidering its own grant of a public franchise.

Third, the USPTO procedures in an IPR do not mirror the Federal Rules of Civil Procedure.  Although there are certain similarities, the differences are substantial.  The Federal Circuit noted the differences and breadth of discovery in civil litigation, ability to amend pleadings in civil litigation, ability to amend patent claims during an IPR, and the length and scope of a civil court trial versus an IPR hearing.  In short, in an IPR, the agency proceedings are both functionally and procedurally different from district court litigation.

Finally, while the USPTO has the authority to conduct reexamination proceedings that are more inquisitorial and less adjudicatory than IPR, this does not mean that an IPR is thus necessarily a proceeding in which Congress contemplated tribal immunity to apply.  The tribe acknowledged that sovereign immunity would not apply in ex parte reexamination proceedings because of their inquisitorial nature.  The mere existence of more inquisitorial proceedings in which immunity does not apply does not mean that immunity applies in a different type of proceeding before the same agency.  While IPR presents a closer case for the application of tribal immunity than ex parte reexamination, the Federal Circuit nonetheless concluded that tribal immunity does not extend to these administrative agency reconsideration decisions.

Thus, the Federal Circuit held that tribal sovereign immunity cannot be asserted in IPR, and affirmed the underlying decision of the PTAB.  However, the Federal Circuit was careful to note that it was not deciding the issue of state sovereign immunity.  The Federal Circuit specifically pointed out it was only deciding whether tribal immunity applies in IPR.  It left for another day the question of whether there is any reason to treat state sovereign immunity differently.

Conor McGregor doesn’t back down to anyone. He knocked out the once unbeatable Jose Aldo in 13 seconds. He was the first UFC fighter to simultaneously hold titles in two different weight divisions. He crossed over to boxing to fight the greatest boxer of all time, Floyd “Money” Mayweather. You get the point: Conor McGregor takes on all competitors—anywhere, anytime.

Although McGregor’s fights usually occur inside the octagon, or most recently, the boxing ring, McGregor will now be forced to take on new opponents in a new arena: the intellectual property arena. Specifically, as a result of McGregor’s attempt to register the mark THE CHAMP CHAMP through a European Union trademark application, McGregor will have to take on sporting apparel giant, Champion, which has filed an opposition to McGregor’s application. The opposition covers McGregor’s word marks and his design marks.

Although I am not familiar with this process as it relates to European Union registrations, my research indicates that the process can last approximately one year, which is not all that different from opposition proceedings in the United States. In the interim, McGregor may choose to forego use of the mark in commerce as it could open him up to damages for trademark infringement if Champion succeeds in its opposition proceedings. However, if McGregor’s actions outside of the business and intellectual property arenas are any indication of his actions inside those arenas, he may choose to move forward with use of the mark in commerce, in the absence of a preliminary injunction, just assuming he will prevail in the opposition proceeding.

In addition to this dispute with Champion, McGregor is also entangled in opposition proceedings relating to applications to register MYSTIC MAC and I AM BOXING. The MYSTIC MAC mark was opposed by cosmetic giant, Make Up Cosmetics, commonly known as MAC, as well as Mac Jeans. I AM BOXING was opposed by Switzerland’s largest retail company Migros. Although the merit of these oppositions remain in dispute, one thing is clear: McGregor’s presence in the business world is just as polarizing as his presence in the sports and entertainment world.