James-Kachmar-08_webCrazy Horse was a legendary Native American chief of the Oglala Lakota tribe who lived during the second half of the 1800s.  Unfortunately today, his name may be more familiar as a brand for various products, such as motorcycle gear, whiskey, rifles and strip clubs.  In Russell Road Food & Beverage, LLC v. Spencer, et al., the Ninth Circuit was faced with the issue of the assignability of the trademark “Crazy Horse” in a lawsuit between two strip club operators in Las Vegas, Nevada.

In Paris in 1951, Alain Bernardin, opened the infamous “Crazy Horse Saloon.”  Since that time, the “Crazy Horse” mark has seen numerous trademark battles beginning in 1967 London.  During the 1970’s, Crazy Horse night clubs opened throughout the United States, from Alaska to Florida.

In January 2006, a strip club owner from the Carolinas, Carl Reid, successfully registered the “Crazy Horse” and “Pure Gold’s Crazy Horse” marks with the USPTO for “entertainment services, namely, exotic dance performances.”  Years later, Russell Road and Spencer each attempted to register their respective “Crazy Horse” marks for their strip clubs but the USPTO rejected both of them on the grounds of “a likelihood of confusion with the Reid’s previously registered marks.”  Russell Road and Spencer then pursued different methods to secure the right to use the “Crazy Horse” mark.

Russell Roads obtained the right to use the “Crazy Horse” mark through an agreement with another strip club operator of the “Crazy Horse Too” clubs in Las Vegas.  In September 2007, the owner of that club sought to register the mark “Crazy Horse Too” but like the other “Crazy Horse” marks, the USPTO rejected it. Crazy Horse Too initiated a cancellation proceeding to which Reid, the original owner of the “Crazy Horse” mark, failed to timely respond.  A default was entered but before a default judgment could be rendered in favor of Crazy Horse Too, Reid and the owner of Crazy Horse Too agreed to resolve the dispute through a trademark co-existence agreement.  Under that agreement, Crazy Horse Too agreed to withdraw its challenge to the “Crazy Horse” mark and Reid consented to Crazy Horse Too’s “use and registration” of “any mark that includes the phrase Crazy Horse provided the mark does not contain the phrase pure gold.”  In 2011, Crazy Horse Too encountered financial difficulties and was dissolved.  A year later, Russell Road bought Crazy Horse Too’s rights under the trademark co-existence agreement for $2,500.

Spencer, on the other hand, went straight to the source. In August 201, Spencer formed Crazy Horse Consulting, Inc. (“CHC”) for the purpose of expanding the “Crazy Horse” brand. Later that year, Reid assigned his rights in the “Crazy Horse” trademark to CHC and the assignment was registered with the USPTO.

Following the registration, Spencer learned that Russell Road had a strip club in Las Vegas called Crazy Horse III.  Spencer notified Russell Road that its use of the “Crazy Horse” mark infringed on his trademark rights.  Rather than seeking a license from Spencer, Russell Road entered into a further assignment agreement with the former owner of Crazy Horse Too whereby Crazy Horse Too assigned all of its rights to Russell Road under the September 2009 trademark co-existence agreement.

Russell Road then filed suit against Spencer seeking a declaratory judgment that its use of the “Crazy Horse” mark did not infringe on Spencer’s trademark.  The lower court granted summary judgment to Russell Road finding that it had the right to use the “Crazy Horse” mark under a valid trademark co-existence agreement.  Spencer and CHC appealed that decision to the Ninth Circuit.

The Ninth Circuit began by recognizing that it was undisputed that a trademark owner could assign his or her trademark citing 15 U.S.C. §1060(a)(1).  Furthermore, when a trademark is assigned, the assignee “steps into the shoes of the assignor.”  This means that the assignee not only acquires all of the assignor’s rights, but also assumes any “burdens or limitations” on the use of the mark.  In addition to recognizing the assignability of trademarks, the Ninth Circuit observed that trademark co-existence agreements have long been enforceable.  Furthermore, like other contracts, trademark co-existence agreements could be assignable.

The Ninth Circuit found that the facts showed that it was undisputed that there was a valid trademark co-existence agreement between Reid and Crazy Horse Too.  The Court found that the undisputed evidence showed that Crazy Horse Too had lawfully assigned its rights under that co-existence agreement to Russell Road. Given that Russell Road had obtained the rights that Crazy Horse Too owned, Spencer and CHC had a duty to Russell Road by way of its obligations to Crazy Horse Too “not to oppose each other’s use of the Crazy Horse mark, to make reasonable steps to reduce the likelihood of confusion and so on.” The Ninth Circuit found it significant that the trademark co-existence agreement made it explicit that it would “be binding upon and shall inure to the benefit of the parties hereto, their respective successors, assigns, and licensees.

The Ninth Circuit then turned to various arguments raised by Spencer and rejected each of them in turn.  First, the Ninth Circuit found that the assignment of the trademark rights from Crazy Horse Too to Russell Road was supported by adequate consideration in that Russell Road had paid $2,500 for the assignment.  Next, Spencer argued that because Crazy Horse Too was not using the mark it had essentially “abandoned” it.   The Ninth Circuit found that even if Crazy Horse Too was not using the mark, this did not invalidate the trademark co-existence agreement.  That agreement had no requirement that Crazy Horse Too actually use the mark and therefore the “trademark abandonment” doctrine did not apply.  Spencer also argued that Crazy Horse Too could not assign its rights to Russell Road without Spencer’s consent but the Ninth Circuit rejected this argument finding that Spencer had not raised it with the lower court.

The Ninth Circuit affirmed the lower court’s summary judgment in favor of Russell Road and found that it had properly concluded that there had been a valid assignment of the rights under the trademark co-existence agreement between Reid and Crazy Horse Too.  The Russell Road case is a reminder that parties facing claims of trademark infringement should determine whether there is any basis for their use of a mark, such as through a valid assignment or trademark co-existence agreement.

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.

In Warsaw Orthopedic, Inc. v. NuVasive, Inc. (June 3, 2016) 2016 U.S. App. LEXIS 10092, the Federal Circuit Court of Appeals broadly interpreted the Supreme Court’s test for induced infringement, finding irrelevant the defendant’s belief that there was no infringement.

Warsaw and a related company, Medtronic, sued NuVasive for patent infringement.  NuVasive counterclaimed against Warsaw and Medtronic for infringement of its patent.  NuVasive’s patent covered methods used during surgery to detect a nerve and determine the distance to the nerve.  NuVasive alleged that Medtronic manufactured a device that surgeons used to directly infringe the method claims of NuVasive’s patent, and that Medtronic induced the surgeons’ infringement.  Medtronic contended that it had not induced infringement because it had a reasonable belief, under Medtronic’s narrow construction of the claims, that the device did not perform the claimed method.Audrey Millemann 03_web

The case was tried in the district court for the Southern District of California.  The court instructed the jury on the requirements for proving induced infringement, under 35 U.S.C. section 271(b), as set forth by the Supreme Court in Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754 (2011). Under Global-Tech, induced infringement requires proof that the defendant knew of the plaintiff’s patent and knew that the acts it induced were infringing.  Global-Tech also held that a plaintiff can prove the defendant’s knowledge that the induced acts were infringing by proof of the defendant’s willful blindness, which can be proved by circumstantial evidence.

At trial, the jury found that Medtronic had induced infringement of NuVasive’s patent by instructing the surgeons on the use of Medtronic’s device.  On appeal, the Federal Circuit affirmed the jury’s verdict.  The Supreme Court then decided Commil USA, LLC v. Cisco Systems, Inc., 191 L. Ed. 2d 883 (2015), which confirmed the Global-Tech test for induced infringement.

Medtronic filed a petition for certiorari in the Supreme Court, seeking an order vacating the Federal Circuit’s decision and remanding the case for further consideration under Commil.  In particular, Medtronic argued that NuVasive had not proved that Medtronic knew that the surgeons’ acts it induced were infringing.

The Supreme Court granted certiorari and remanded the case to the Federal Circuit.  On remand, the sole question before the Federal Circuit was whether NuVasive had produced substantial evidence that Medtronic knew, or was willfully blind to the fact, that the surgeons using their device infringed NuVasive’s patent.  Medtronic argued that it did not believe its device infringed the patent and that this belief negated the specific intent required for a finding of knowledge.

The Federal Circuit disagreed and affirmed its original decision.  The court held that Medtronic’s belief was objectively unreasonable, and that there was substantial evidence that Medtronic knew (or was willfully blind to the fact) that the surgeons infringed NuVasive’s patent.  In a concurring opinion, however, one of the judges pointed out that the majority based its conclusion solely on the evidence of direct infringement (that the surgeons’ use of the device performed the claimed method), not on any evidence of Medtronic’s knowledge or willful blindness.

This case appears to be a warning – if you think you may be inducing infringement of a patent, relying on your “reasonable” belief that there is no underlying direct infringement is a bad idea!

 

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Star award against curtain background

By:  Eric Caligiuri

On July 11, 2016, the U.S. Court of Appeals for the Federal Circuit ruled in a unanimous en banc decision in The Medicines Co. v. Hospira Inc., Federal Circuit case number 2014-1469, that to be “on sale” under pre-AIA 35 U.S.C. § 102(b), a product must be the subject of a commercial sale or offer for sale, and that a commercial sale is one that bears the general hallmarks of a sale pursuant to Section 2-106 of the Uniform Commercial Code.   If the product is “on sale” more than one year before the filing of an application for a patent, any issued patent is invalid and patent protection is lost.  The issue before the Court in Medicines Co. was whether a product is “on sale” under 35 U.S.C. § 102(b) when the product is produced by a third-party contract manufacturer. 01-Caliguri-Er-15EX-web

The two patents at issue, U.S. Patent Nos. 7,582,727 (“the ’727 patent”) and 7,598,343 (“the ’343 patent”), are FDA Orange Book listed as covering Angiomax, which is the trade name of a form of bivalirudin.  Bivalirudin is a synthetic peptide comprised of twenty amino acid residues. Bivalirudin drug products are used to prevent blood from clotting and are regarded as highly effective anticoagulants for use during coronary surgery.  However, the bivalirudin active pharmaceutical ingredient is too acidic for human injection without further processing.  Thus, the patented compounding process produces Angiomax by creating a bivalirudin solution and then adjusting the solution’s pH with a base while controlling the creation of impurities.  The ’727 patent and ’343 patent contain product and product-by-process claims for pharmaceutical batches of the improved bivalirudin drug product.

Critically, plaintiff Medicines Co. (“MedCo”) did not sell Angiomax to the public before filing for the patents, but instead used a third-party contract manufacturing organization, Ben Venue Laboratories (“Ben Venue”), to ensure the drug met U.S. Food and Drug Administration requirements.  Thus, the Federal Circuit’s opinion touched on an important issue in the patenting of pharmaceuticals and other products, such as semiconductors: the use of contract manufacturers and the manufacturing processes necessary to produce these products.

The dispute at issue here traces back to August 2010, when MedCo sued Hospira in the United States District Court for the District of Delaware, alleging that two of Hospira’s ANDA filings infringed certain claims of the ’727 patent the ’343 patent.  After a three-day bench trial in September 2013, the district court found the patents not invalid and not infringed.  In considering invalidity, the court had to determine whether the invention was sold or offered for sale before the critical date under § 102(b), i.e. was it subject to the on-sale bar.

Applying the two-step framework of Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998), the district court found that the three batches Ben Venue manufactured for MedCo did not trigger the on-sale bar.  Pfaff’s two-step framework requires that the claimed invention was (1) the subject of a commercial offer for sale; and (2) ready for patenting.  The district court concluded that the first prong of Pfaff was not met because the claimed invention was not commercially offered for sale prior to the critical date.  The court reasoned that the transactions between MedCo and Ben Venue were sales of contract manufacturing services in which title to Angiomax always resided with MedCo.  The court also found that because the batches were for FDA “validation purposes,” the batches were not made for commercial profit, but were for experimental purposes, thus avoiding the on-sale bar.

On appeal, a panel of the Federal Circuit reversed the district court’s ruling regarding the applicability of the on-sale bar, finding MedCo “commercially exploited” the invention before the critical date, even if it did not transfer title to Angiomax.  The panel also found the experimental use exemption did not apply because the invention had already been reduced to practice, so MedCo could not have been experimenting.  At the request of MedCo, the Federal Circuit vacated the panel’s ruling to consider the case en banc.

Applying § 102(b) in light of Pfaff, the Federal Circuit en banc concluded that the transactions between MedCo and Ben Venue did not constitute a commercial sale of the patented product.  The full Court affirmed the district court’s conclusion that those transactions were not invalidating under § 102(b), and reversed the panel’s determination.  The Court reasoned that the sale of manufacturing services by a contract manufacturer to an inventor to create embodiments of a patented product for the inventor does not constitute a “commercial sale” of the invention.  MedCo did not market or release its invention by contracting with Ben Venue, but only paid the company to make batches of the drug because it did not have the manufacturing capabilities to do it in-house.  The Court saw no reason to treat MedCo differently than a company with in-house manufacturing capabilities.  “There is no room in the statute and no principled reason…to apply a different set of on-sale bar rules…depending on whether [a company] outsources manufacturing or manufactures in-house.”  Instead, the focus of the on-sale bar analysis should be on what makes a sale “commercial” in “the most well-understood sense of that term…as distinct from merely obtaining some commercial benefit from a transaction.”

More broadly, the Court explained that a commercial benefit alone is not enough to trigger the on-sale bar of § 102(b); the transaction must be one in which the product is “on sale” in the sense that it is “commercially marketed.”  As a general proposition, the Court instructed that one should look to the Uniform Commercial Code (“UCC”) to define whether a communication or series of communications rises to the level of a commercial offer for sale.  However, the Court also cautioned that while “[t]he UCC has been recognized as the general law governing the sale of goods, [it] is another useful, though not authoritative, source in determining the ordinary commercial meaning of” terms used by the parties.

Given that the en banc Federal Circuit had found that there was no commercial sale of the inventions in the ’727 and ’343 patents, the Court declined to reach a ruling on the experimental use finding.  However, the Court did make clear that the panel’s statement that there can be no experimental use after a reduction to practice is inaccurate.  Finally, the Court addressed the issue of “stockpiling” by an inventor and clarified that “stockpiling” by the purchaser of manufacturing services is not improper commercialization under § 102(b).

Both the panel and en banc Federal Circuit only considered whether the patents were invalid under the on-sale bar, and did not consider other issues related to claim construction, infringement, and invalidity on other grounds.  Thus, the case has been remanded back to the original Federal Circuit panel for further proceedings on these issues and is still far from over.

Scott-Hervey-10-web6/25/16-  At the 7th Annual  VidCon in Anaheim, CA , Weintraub Tobin Shareholder Scott M. Hervey and Rian Bosak, Head of Network Operations Full Screen, presented  “Fair Use and Youtube- A Creator’s Take” to a standing room only audience of digital media creators and industry professionals.  Check out their presentation below: