In Eolas Technologies Incorporated v. Amazon.com, Inc., 3-17-cv-03022 (CAND August 24, 2017, Order) (Tigar, USDJ) the United States District Court for the Northern District of California recently denied plaintiff Eolas Technologies Incorporated’s (“Eolas”) motion to disqualify its former counsel, Latham and Watkins (“Latham”), as counsel for defendant Amazon.com (“Amazon”) because Eolas delayed filing its disqualification motion for over a year after it learned of the potentially conflicting representation.  The Court further found Eolas waived its disqualification argument because the delay substantially prejudiced Amazon in its defense of Eolas’ patent infringement action against Amazon. 

On November 24, 2015, Eolas filed a patent infringement action in the Eastern District of Texas against Amazon, asserting infringement by Amazon of U.S. Patent No. 9,195,507 (the “’507 patent”).  The ‘507 Patent relates generally to manipulating data in a computer network, and specifically to retrieving, presenting and manipulating embedded program objects in distributed hypermedia systems.  After the case was filed, Amazon moved to transfer the case to the Northern District of California, and, on April 28, 2017, that case was transferred.

At some point between 1998 and 2006, Latham attorneys represented Eolas in some capacity, and although the exact scope and duration of that representation is contested, Eolas claimed that “Latham was privy to all of Eolas’ proprietary and confidential information relating to its technology, patents, patent applications, business, litigation and licensing strategies, particularly those relating to the ‘906” patent, which is the parent to the ‘507 patent-in-suit.  As a result, Eolas argued Latham must be disqualified from representing Amazon because “Amazon’s defense is predicated on attacking [the ‘906 patent,] the very patent that Latham once competed to assert and later defended, and about which Latham has acquired substantial confidential and strategic information.”

As a preliminary matter, the Court first had to decide whether Texas or California law governed.  As noted, the case was originally filed in the Eastern District of Texas, as was the motion to disqualify, but the case was transferred to the Northern District of California before a decision on the motion issued.  Amazon argued that Texas law still governed.  Eolas argued that California law now applies.  The Court held that it should apply Texas law when analyzing the motion to disqualify because when Latham agreed to represent Amazon, the case was pending in the Eastern District of Texas and Latham would have been correct to expect that Texas ethical codes would apply to any motion to disqualify.  The Court then reasoned that the same law should apply now because “[a] change of venue under § 1404(a) generally should be, with respect to state law, but a change of courtrooms.”  Thus, the Court applied Texas law to the motion to disqualify.

Moving on to the substance of the motion, the Court first noted that under Texas law, “[w]aiver of a motion for disqualification of counsel is proper where the delay in moving for a disqualification is for an extended period of time, or where it is done on the eve of trial.”  However, there was a factual disagreement about when Eolas discovered Latham’s alleged conflict.  Eolas claimed that, until January 6, 2017, “nobody at Eolas knew that Latham was representing Amazon.”  Amazon, on the other hand, asserted that Eolas had known that Latham represented Amazon a year earlier, by January 2016.

The Court sided with Amazon.  Specifically, the Court noted that Latham had appeared in the case for Amazon in January 2016, and that this appearance was recognized by Eolas’ counsel.  Under Texas law, an attorney’s knowledge is imputed to a client, in this case Eolas.  The Court also noted that Eolas knew that it had previously retained Latham, including for work related to the ‘906 patent.  Therefore, the Court found Eolas knew about the Latham conflict for a year before it decided to file its motion to disqualify, and that one year qualifies as an extended delay.

The Court also found that Amazon would face substantial prejudice from Latham’s disqualification.  The Court noted that in 2016 – the year during which Eolas knew of the alleged conflict but took no action – Latham billed over 3,400 hours to defend that action and prepare the matter for trial.  The Court found this large expenditure of time and resources weighed in favor of waiver.  Thus, the Court concluded that Eolas waived its right to seek disqualification by waiting one year after discovering Latham’s conflict to file its motion, and denied the motion to disqualify Amazon’s counsel.

This case is a good reminder to timely raise all issues and potential challenges.  Otherwise, if clients and their counsel delay to long after having been found to be aware of the issue or potential challenge, a court may find it to have been waived and/or unfairly prejudicial to the other party given the delay.

My last column was the first of two columns discussing some of the most common misconceptions or myths about patents.  Here is the second part, starting with number five on my list. 

  1. A Patent Does Not Give the Patent Owner the Right to Practice the Invention.

Inventors and patent owners often assume that a patent gives them rights to practice the patented invention, i.e., freedom from infringement.  Not true.

A patent is a grant to its owner of the right to exclude others from making, using, offering to sell, and selling the patented invention in the United States, or importing the invention into the United States.  These rights are called exclusionary rights.  A patent does not provide its owner with the rights to do these things.  An invention may be patentable but still infringe another person’s patent.  In such a case, the patent owner may have a patent on the invention but cannot make or use the invention unless they obtain a license from the owner of the patent that is infringed.

  1. Patents Do Not Infringe Other Patents.

A patent cannot infringe another patent.  Only a machine, article of manufacture, composition of matter, or process can infringe a patent.

As stated above, a patent gives its owner the right to exclude others from making, using, offering to sell, selling, or importing the patented invention.  The patent is infringed if any of these acts are committed in the United States without the patent owner’s permission.  Thus, there is no infringement unless someone makes, uses, offers to sell, or sells the invention in the United States, or imports the invention into the United States.  An invention described in a patent may infringe another patent, but only if it is made, used, offered for sale, sold, or imported in the United States.  The patent itself is not an act of infringement.

  1. Patentability and Patent Infringement are Not the Same Thing.

Inventors often think that if their invention is patentable, then it cannot infringe other patents.  Not so.  Patentability and patent infringement are two different things.  An invention may be both patentable and infringe an existing patent.  In both cases, the starting point of the analysis is the claims.

To determine if an invention is patentable, the invention, as it is claimed, is compared to what is known in the field (the prior art).  In general, prior art includes written documents (such as other patents, published articles, catalogs, and websites), as well as actions by the inventor and third parties, that exist before the patent application is filed.

The first requirement of patentability is that the claims must be novel (new or different) over the prior art.  The test for novelty is performed by looking at each element of the invention as claimed.  If all of the elements of the claimed invention are present in a single prior art reference, then the invention is not novel and is said to be anticipated by the prior art.  The invention is not patentable.

The second requirement of patentability is that the claims must be nonobvious over the prior art.  The invention is obvious if the differences between the invention and the prior art are such that the invention, as a whole, would have been obvious at the time it was made to a person with ordinary skill in the art.  Unlike the test for novelty, the test for obviousness is not limited to a single prior art reference – any number of references can be combined to render an invention obvious.  For obviousness to be found, every element of the claimed invention must be present or suggested in the prior art, although not necessarily in the same reference.

To determine if an invention infringes an existing, in force (not expired) patent, the claims of the patent in question are compared to the invention (in a patent infringement action, the district court first interprets or construes the claims to determine their meaning and scope).  If each element of a claim is present in the invention (literally, or in some cases, by an equivalent), that claim is infringed.  Only one claim need be infringed for the patent to be infringed.

Thus, although it sounds counter-intuitive, an invention can be patentable over a prior art patent and, at the same time, infringe the same patent.

California was the first state to legalize marijuana for medical use.  In 1996, California approved Proposition 215, the California Compassionate Use Act.  Two decades later, California voters approved  Proposition 64, the Control, Regulate and Tax Adult Use of Marijuana Act (AUMA).  Despite the fact that cannabis has been legal in California since 1996, you still can’t get a trademark in California for marijuana, medical or otherwise.  Why is that.

The problem results from a disconnect between California’s trademark statutes and the California laws governing legal cannabis use.  California Business and Professions Code Section 14272 provides as follows:

The intent of this chapter is to provide a system of state trademark registration and protection substantially consistent with the federal system of trademark registration and protection under the Trademark Act of 1946 (15 U.S.C. Sec. 1051 et seq.), as amended. To that end, the construction given the federal act should be examined as nonbinding authority for interpreting and construing this chapter.

The USPTO regularly rejects applications to register trademarks related to cannabis on the grounds that such use would not constitute “lawful use in commerce”.  The legal reasoning underlying such rejection goes as follows:  Under federal trademark law, the registration of a trademark requires use of that mark in connection with the goods or services in commerce.  Federal trademark law defines “commerce” as all commerce which may lawfully be regulated by Congress.  If the goods or services covered by a mark are unlawful, actual lawful use in commerce is not possible.  And in those situations, a mark covering such unlawful goods or services cannot be federally registered.

Cannabis and products that are primarily intended or designed for use in connection with cannabis are federally illegal under the Controlled Substances Act.  The federal trademark office has taken the position that if a mark covers a good or services that would be illegal under the CSA, lawful use in commerce is not possible, and as such, the mark cannot be federally registered.

The trademark examiners in Sacramento have gone further than taking USPTO reasoning as nonbinding authority; they have taken the USPTO reasoning as gospel in  rejecting state applications for cannabis.  However, California’s lawmakers are proposing an amendment to California’s trademark laws that will address this inconsistency.

AB 64 proposes to, notwithstanding those provisions, authorize the use of specified classifications for marks related to medical cannabis and nonmedical cannabis, including medicinal cannabis, goods and services that are lawfully in commerce under state law in the State of California

AB 64 intends to provide a statutory mechanism for allowing the registration of a California trademark for cannabis products.  The bill proposes two new classifications of goods and services may be used for trademark marks related to cannabis, including medicinal cannabis that are lawfully in commerce under state law in the State of California.  The proposed classes are:

(1) 500 for goods that are cannabis or cannabis products, including medicinal cannabis or medicinal cannabis products.

(2) 501 for services related to cannabis or cannabis products, including medicinal cannabis or medicinal cannabis products.

While AB 64 would appear to solve conflict at the California Secretary of State’s trademark department, the down side is that California state trademark registrations for cannabis products will not be available until January 1, 2018.

 

Patent law is a complicated area of law governed by a confusing set of statutes and regulations that are interpreted by the United States Patent and Trademark Office (PTO) and the federal courts.  Patents themselves are sometimes almost unintelligible and, if intelligible, may require many hours of reading to understand.  It is no wonder that there are a lot of misconceptions or myths about patents.

This is the first of two columns in which I will discuss a few of the most common aspects of patent law that are misunderstood.

  1. Ideas Are Not Patentable.

Clients often want to patent an idea.  Ideas are not patentable – inventions are patentable.

To be patentable, an invention must fall within one of four categories, referred to as statutory subject matter.  Those categories are:  processes (also referred to as methods), machines, articles of manufacture, and compositions of matter.

Process patents include patents for methods of doing just about anything, including some computer software and some methods of doing business (although business method patents are now under increasing scrutiny both in the PTO and in the courts).  Machine or apparatus patents include traditional types of machines as well as computer systems.  Articles of manufacture are devices such as tools or just about any non-machine.  Compositions of matter include chemical compositions, genes, and genetically engineered (non-natural) living organisms, including bacteria, plants, and animals.

The above four categories are the categories of inventions for which a utility patent can be obtained.  There are two additional types of patents:  design patents and plant patents.

Design patents protect ornamental designs for articles of manufacture, such as chairs, dishes, and glassware.  A design patent protects only the appearance of the article, not any aspect of its functionality.  An article may be the subject of both a design patent and a utility patent, however, if it has both ornamental design and function.

Plant patents protect distinct, new varieties of asexually reproducible plants (i.e., plants that can be reproduced without seeds, such as by budding or grafting).  They include such plants as certain types of roses, nuts, flowering plants, and fruit trees.

There are several things that are specifically not patentable.  They are:  abstract ideas and mental processes, laws of nature, natural phenomena, and mathematical algorithms.

Even if a client’s idea fits within one of the four categories of statutory subject matter, it still is not patentable if it is in its infancy.  The idea must be an invention.  The inventor need not have actually made the invention (reduced it to practice), but must have a complete and operative understanding of the invention.  The patent application must contain a detailed written description of the invention and must describe how to make and use the invention without undue experimentation.  Thus, an idea that is not fully fleshed out, even if it is patentable subject matter, is not ready to patent.  The inventor must be able to describe what the invention actually is.

 

  1. The Inventor Cannot Withhold Details of the Invention to Prevent the Public from Copying.

In addition to a detailed description of how to make and use the invention, a patent application must also include the “best mode” of carrying out the invention.  The best mode is the best way of using the invention known to the inventor at the time the application is filed.

This requirement prevents the inventor from keeping the best way of using the invention a secret.  A patent is a trade-off:  in exchange for the Government giving the inventor the rights to exclude others from making, using, selling, or offering to sell the invention, the inventor must fully disclose the invention to the public in the patent.  This is so that the public may practice the invention after the patent expires.

If an invention is easy to reverse-engineer, trade secret protection is essentially useless and patent protection is the better choice.  This is because patents, unlike a trade secret, protect against reverse engineering.  On the other hand, if an invention is difficult to reverse-engineer, trade secret protection may be preferable to obtaining a patent because, unlike a patent, a trade secret does not expire.

 

  1. You Cannot Tell What a Patent Protects by Looking Only at the Text or the Drawings.

A utility patent contains several parts:  a specification or disclosure, a drawing if necessary, and at least one claim.  The specification is a detailed description of the invention that tells a person of ordinary skill in the art how to make and use the invention and describes the best mode of carrying out the invention.  The drawings (which may include flow charts) must illustrate all essential elements of the invention.  Drawings are typically necessary for inventions that fall within the subject matter categories of machines, articles of manufacture, and processes; drawings are usually not necessary for compositions of matter.

The specification and drawings describe the different versions (embodiments) of the invention or examples of the invention.  They do not define what the patent owner may enforce with the patent.  This is determined by the claims.

The claims must contain the patentable elements of the invention.  It is the claims that are used to determine whether there is infringement.  The claims must be read in light of the specification and the drawings, but the claims define what the patent protects.  Sometimes, the claims are broader than what is described in the specification and the drawings, so one must read and interpret the claims to know what the patent protects.

 

  1. A Provisional Patent Application is Not a Quicker, Cheaper Way of Getting a Patent.

A provisional patent application cannot become a patent.  Despite its name, a provisional patent application is not really a patent application at all because it cannot mature into a patent.  Rather, a provisional patent application acts as a placeholder for a utility application – it is a mechanism for allowing an inventor to obtain an earlier filing date for a utility application.

A provisional patent application requires a specification and a drawing if necessary, and should contain at least one claim.  It must satisfy the same requirements as a utility application (written description, enablement, and best mode).  A provisional application is not ever examined by the PTO and no patent ever issues directly from it.  An inventor has one year from the filing date of the provisional application in which to file a non-provisional utility patent application for the same invention, claiming the benefit of the filing date of the provisional application.    Because a provisional application requires the same level of detail as a utility application, it is typically not much quicker or less costly than a utility application.

If a client has limited time or funds, however, filing a provisional application may be better than filing no patent application.  For example, a provisional application may be advantageous if the inventor needs to disclose the invention on short notice and does not have enough time to have a utility application prepared.  In that situation, the provisional application may provide the inventor with an earlier filing date than might otherwise be obtained, as long as what is later claimed in the utility application was disclosed in the provisional application.

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

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

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

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

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

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

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

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

 

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