So what is a trade secret?  Generally, a trade secret is information that the owner has taken reasonable measures to keep secret, derives independent economic value from not being generally known, and cannot be readily ascertainable by proper means, such as reverse engineering or independent development.  Many businesses rely on trade secret protection rather than patent protection for confidential information such as product recipes (e.g., the recipe for Coca-Cola), software algorithms (e.g., Google’s search engine), customer lists, business plans, wholesale price lists, and manufacturing processes for semiconductor chips.  Trade secrets have the advantage that they are protected indefinitely as long as they remain a secret, unlike patents and copyrights that expire after a specific time period.  Of course, a disadvantage of trade secrets is that they can be lost instantly and forever if they are disclosed or independently developed by another.  But, unlike other forms of intellectual property, such as patents and copyrights, until now federal law applied only to criminal prosecution for trade secret misappropriation.  As a civil matter, trade secrets were only protected under state law.  That all changed on May 11, 2016, when President Obama signed the Defend Trade Secrets Act (“DTSA”), which amends the Economic Espionage Act to create a federal civil cause of action for trade secret misappropriation.  The DTSA, codified as 18 U.S.C. §1836(b), went into effect when it was signed and applies to any misappropriation that occurs on or after that date.

Trade secret misappropriation can occur in a variety of circumstances.  One of the most common is when an employee leaves one company to a join competitor or a start-up and impermissibly takes protected business or technical information belonging to their former employer to the new company.  As another example, hackers capitalizing on computer security weaknesses pose a threat for the misappropriation of a company’s trade secrets.  To protect against such misappropriation, 48 states (all except New York and Massachusetts, which still rely on common law) have adopted some version of the Uniform Trade Secrets Act (“UTSA”), providing some uniformity in trade secret law.  But there are still a number of significant differences between the states’ laws as adopted, and it can be difficult, if not impossible, to enforce state laws when misappropriators flee the state or country with the trade secrets.  For example, it can be difficult or impossible to effect service of process and obtain discovery to prove misappropriation outside of a state’s jurisdiction.  One goal of the DTSA, which in many aspects mirrors the UTSA, is to provide a harmonized federal trade secret law, which will allow businesses that operate across multiple states to have uniform policies for protection and enforcement of trade secrets.

It, however, is important to note that the DTSA does not preempt state laws, but instead it provides an additional layer of potential protection on top of the state laws.
This complication has led some to argue that the DTSA will increase legal costs and increase the number of trade secret lawsuits.  For example, we can expect plaintiffs to bring both state and federal claims because differences between the state and federal laws may make it possible for a plaintiff to win under one law but not the other.  More claims implicating differing state and federal laws will likely lead to higher costs for litigation.  Further, more plaintiffs may be willing to pursue trade secret claims because it will be easier to file the claims in federal court, and some plaintiffs prefer federal court for complex lawsuits such as trade secret cases.  The volume of trade secret lawsuits may also increase because plaintiffs will effectively be given two bites at the apple (state claims and federal claims in the same lawsuit), which likely gives them a higher probability of success.

Unlike the UTSA, the DTSA includes a seizure provision that allows a court to issue an order to seize the allegedly stolen trade secret items (e.g., hard drives and flash drives containing trade secrets, software, hardware, and lists) in the defendant’s possession.  The plaintiff can request and receive an order for this seizure ex parte, which means without having to inform the defendant.  The goal is to allow recovery of the misappropriated items before the defendant can move, hide or destroy them.  Early recovery also can minimize the harm caused by the misappropriation.  The DTSA has numerous safeguards designed to avoid abuses of this seizure provision.  It also provides a cause of action for wrongful or excessive seizure.

Once misappropriation is proven, the DTSA provides for damages.  The Court can grant an injunction.  But if exceptional circumstances render an injunction inequitable, a court can order a reasonable royalty for the continued use of the trade secret.  The DTSA also provides for compensatory damages for either 1) actual loss of the trade secret and any unjust enrichment not compensated as part of the actual loss or 2) a reasonable royalty.  Exemplary damages up to two times the actual damages can be awarded for willful and malicious misappropriation.  For cases involving bad faith or willful misappropriation, a party can also recover attorneys’ fees.  It is important to note that under the DTSA, injunctive relief cannot be used to prevent a person from entering into an employment relationship merely based on the information the person knows.  Rather, an injunction must be based on evidence of actual or threatened misappropriation.  Further, an injunction preventing or limiting employment cannot conflict with an applicable state law prohibiting restraints on the practice of a lawful profession, trade, or business.  This limitation appears to recognize that certain states place limits on the applicability of non-compete agreements.  It is interesting to note that the White House also recently released a report criticizing certain types of non-compete agreements and state laws that broadly enforce them.

The DTSA also provides whistleblower immunity from liability for confidential disclosure of a trade secret to the government for the purpose of reporting or investigating a suspected violation of law or in a sealed court filing in a lawsuit.  The DTSA places the burden on employers to notify employees, including any individuals such as contractors and consultants, of these whistleblower immunity provisions.  Failure to do so comes with a penalty.  If an employer sues an employee for trade secret misappropriation, unless the employer has provided the employee with notice of the whistleblower immunity, the employer is prohibited from recovering attorneys’ fees and exemplary damages.  The notice must be in writing in any agreement governing the employee’s use of trade secrets or confidential information.

The DTSA will have an immediate impact on all businesses.  Every new or modified employment agreement and contract with a non-disclosure or confidentiality clause will need to be revised.  Further, trade secret protection only exists to the extent that reasonable efforts have been made to keep the information secret.  Don’t risk losing valuable intellectual property because you didn’t take the time to enter into a non-disclosure agreement, password protect accounts, encrypt data, train employees, mark documents as confidential, etc.  Take this opportunity to evaluate whether your company’s trade secrets are adequately protected and put into place additional safeguards as necessary.  While trade secrets can be extremely valuable, that value can evaporate instantly if the secret is disclosed.

Scott-Hervey-10-web

This isn’t just another tattoo-copyright infringement case.  This case raises an important lesson for all copyright claimants.

The backstory: Solid Oak is a licensing firm that represents the go to tattoo artists for NBA royalty, including LeBron James.  Solid Oak filed a lawsuit against Take-Two Interactive Software, the game publisher behind the popular “NBA 2K” basketball video game.  The lawsuit alleges that Take-Two  infringes the copyrights in six tattoos appearing on LeBron and other NBA players by depicting those players – tattoos and all – in the video game.   Early commentators on the case questioned the validity of Solid Oak’s case and commented on the applicability of fair use and other defenses.  Interestingly, Take-Two’s motion to dismiss does not focus on the merits of Solid Oak’s case, but rather focuses on Solid Oak’s damages claim; the motion attacks Solid Oak’s claim that it is entitled to statutory damages and attorney fees.

Section 412 of the Copyright Act addresses how and where an award of statutory damages and attorney fees are applicable. The section provides as follows:

In any action under this title…. no award of statutory damages or of attorney’s fees, as provided by sections 504 and 505, shall be made for….any infringement of copyright commenced after first publication of the work and before the effective date of its registration, unless such registration is made within three months after the first publication of the work.

This means that where a work has been published, a copyright owner must have filed an application to register the work prior to an act of infringement or, if infringement occurs after publication,   within three months of its first publication in order to avail itself of statutory damages and attorney fees.   Where a work is infringed, if registration occurs later than three months after publication , the plaintiff may not collect statutory damages or attorney fees.

In the instant case, in its motion to dismiss Solid Oak’s damages and attorney fee claims, Take-Two claims that the alleged infringement occurred before the June/July 2015 registration dates. Take-Two notes that it depicted the NBA players and their tattoos in its NBA video games since at least 2013.   In opposing the motion, Solid Oak argues that its claims for statutory damages and attorney fees are properly pleaded since it filed its infringement claim within the three-year limitation period.  Solid Oak also contends that the infringement which occurred in Take-Two’s NBA 2K16 is a separate and discrete infringement.  Solid Oak alleges “Because Plaintiff is only suing for the wrong of the Defendants through their creation and release of the NBA 2K16 video game, well within the time afforded under the Copyright Act, and not for any earlier infringing acts, it is thus entirely proper for Plaintiff to seek statutory damages and/or attorneys’ fees based on Defendants’ infringement of properly registered copyrights”.

What Take-Two didn’t raise in its motion is that Solid Oak would still not be entitled to statutory damages or attorney fees because the infringement occurred after publication and registration was not made within 3 months of first publication.   The Copyright registration certificates attached to Solid Oak’s Complaint lists the date of first publication for each work.  These dates are years prior to the June/July 2015 registration dates.  Because registration was not made before infringement or within three months after the dates of first publication of each tattoo (as required by Section 412 of the Copyright Act), Solid Oak is clearly not entitled to either statutory damages or attorney fees.

The lesson to be learned here is that statutory damages and attorney fees are not available just because they are asked for; they must be earned by the timely filing of a registration certificate.  The failure to timely file (before infringement or if infringed, within three months of first publication) prevents a claimant from seeking statutory damages and attorney fees which may (as is likely the case here) strip a case of the majority of its value.

Audrey-Millemann-03_webOn April 18, 2016, the Supreme Court denied certiorari in Akamai Technologies, Inc. v. Limelight Networks, Inc., 797 F.3d 1020 (Fed. Cir., August 2015) (“Akamai IV”), cert. denied, 2016 U.S. LEXIS 2768.  The Court declined Limelight’s petition for review of a $46 million jury verdict against Limelight for patent infringement.  The jury had found Limelight liable for direct infringement of Akamai’s method patent, but the Federal Circuit Court of Appeals had reversed that judgment, ruling for Limelight.  In Akamai IV, however, the Federal Circuit had reinstated the jury’s verdict, establishing a new rule for direct infringement by “divided” (or “joint”) infringement.

The new rule of Akamai IV is that a defendant can be liable for direct infringement of a method claim when another party performs some of the steps of the method as long as the steps performed by others are attributable to the defendant.  According to the court, a defendant can be liable for direct infringement if the acts of the other party or parties can be attributed to the defendant through a joint enterprise or “when an alleged infringer conditions participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method and establishes the manner for timing of that performance.”  Akamai IV, supra, at 1023.  The court emphasized that its new rule is flexible and should be applied on a case-by-case basis, stating “other factual scenarios may arise” that would support a finding of attribution.  Id.  With its new rule, the Federal Circuit expressly overruled its prior cases and turned Limelight’s victory into a loss.

Limelight’s petition for certiorari argued that the Federal Circuit’s Akamai IV rule was too broad.  Many agreed with Limelight, but obviously the Supreme Court did not.

On April 22, 2016, within days after the Supreme Court denied certiorari in Akamai IV, the Federal Circuit used Akamai IV to vacate a district court’s decision in favor of the defendants in another case involving divided infringement, Mankes v. Vivid Seats Ltd., 2016 U.S. App. LEXIS 7924.  In Mankes, the Federal Circuit remanded the case to the district court based on the “broadened divided-infringement standard articulated by the en banc court in Akamai IV.”  Id. at *16.

In Mankes, the plaintiff owned a method patent for a reservation system in which the inventory was split between a local server and a remote Internet server.  Mankes sued Vivid Seats Ltd. and Fandango, LLC in the Eastern District of North Carolina for patent infringement.  The defendants’ business offered movie ticket reservations and used both an Internet system and local movie theaters’ systems.  Fandango and Vivid Seats did not perform all of the steps of Mankes’ claimed method, but together with the local movie theaters, all of the steps of the method claim were performed.

The Federal Circuit explained that Mankes had gotten caught in the changing law of divided patent infringement, as both the Federal Circuit and Supreme Court issued multiple decisions in Akamai v. Limelight.  In early 2015, the Mankes district court had granted judgment on the pleadings for Fandango and Vivid Seats on the grounds that Mankes had not sufficiently alleged direct infringement under 35 U.S.C. §271(a).

On appeal, the Federal Circuit held that the district court’s judgment on the pleadings against Mankes was based on the prior, narrower rule of divided infringement that had been superseded by the new rule of Akamai IV.  Mankes, supra, at *18.  The appellate court vacated the district court’s decision and remanded the case.  The court noted that Mankes had alleged that some of the method steps (the Internet server) were performed by Fandango and Vivid Seats, while other steps (the local server) were performed by local movie theaters.  The defendants had not disputed that all of the method steps were performed; rather, they contended that the local theaters’ actions could not be attributed to them.  Id. at *16.

The Federal Circuit held that Mankes should have a chance to prove his case under the new rule of divided infringement, stating that Mankes may be able to allege facts that fall within Akamai IV’s new rule “or might otherwise justify finding direct-infringement liability for divided infringement.”  Id. at *20.  The court emphasized that it is not “appropriate to rule out at this stage any particular theory of direct infringement, including the joint-enterprise theory and the possibility of other bases of attribution recognized in Akamai IV.”  Id.  Thus, the court left the door wide open for Mankes to argue that his case falls within a flexible application of the Akamai IV rule.  After all, if Akamai could win after three tries, Mankes might win on his second time around.

01-Caliguri-Er-15EX-webSince the U.S. Supreme Court’s twin 2014 decisions in Highmark Inc. v. Allcare Health Management System, Inc. and Octane Fitness, LLC v. ICON Health & Fitness, Inc. attorney’s fees awards are becoming more common in patent cases. 35 U.S.C. § 285 allows attorney fees “in exceptional cases.” Before 2014, this meant a court awarded attorney’s fees only if a party’s litigation position was objectively baseless. This standard proved to be a high bar, and courts rarely awarded fees. However, the aforementioned Supreme Court cases liberalized the standards for finding a patent case to be “exceptional” and instituted an abuse-of-discretion review standard. Specifically, the Supreme Court: (1) defined an exceptional case in which reasonable attorney fees may be awarded to the prevailing party to be “one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated;” (2) reduced the evidence required from clear and convincing to a preponderance of evidence; and (3) increased the deference given the trial court during appellate review of such awards from de novo to abuse of discretion.
A recent attorney’s fees award in Alzheimer’s Institute of America v. Eli Lilly & Co. et al., case number 3:10-cv-00482, in the U.S. District Court for the Northern District of California included pre-suit attorney’s fees, which illustrates the impact of the recent Supreme Court holdings. In Alzheimer’s Institute of America, the Court awarded almost $8,000,000 in attorneys’ fees, including $235,780 in pre-suit fees, to the defendants after findings that plaintiff Alzheimer’s Institute of America’s (“AI”) patent infringement lawsuit misrepresented the true owner of patents covering Alzheimer’s detection. Specifically, the court awarded defendant Eli Lilly & Co. (“Eli Lilly”) $4,445,492 and defendant Elan Pharmaceuticals Inc. (“Elan”) $3,435,130. This recent ruling concerned only the amount of attorneys’ fees the Court would award the defendants because the Court had already ruled last summer that AI’s patent infringement suit was “exceptional” under 35 U.S.C. § 285 and the recent Supreme Court precedent.
The lawsuit traces back to February 2010 when AI filed its patent infringement complaint against Eli Lilly and Elan. The complaint alleges that Eli Lilly and Elan infringe U.S. Patent Numbers 5,455,169 (the “’ 169 Patent”) and 7,538,258 (the “’258 Patent”), which involve technology related to “the Swedish mutation,” one of the known genetic causes of Alzheimer’s disease. AI filed a second patent infringement lawsuit in November 2010 in the Eastern District of Pennsylvania, alleging the University of Pennsylvania (“Penn”) and Eli Lilly subsidiary Avid Radiopharmaceuticals Inc. (“Avid”) also infringe the ’169 and ’258 Patents. AI contended that Penn and Avid had infringed the two asserted patents by relying on a protected type of transgenic mice to develop breakthrough Alzheimer’s imaging technology.
In the Eastern District of Pennsylvania action, an issue arose as to whether AI was in fact the proper owner by assignment of the two patents in suit. AI asserted it was assigned the rights to the patents by Michael Mullan, the sole listed inventor on both patents, who was employed by the University of South Florida (“USF”) at the time. Thus, there was an issue as to whether the patents were owned by USF because of Mr. Mullan’s employment status. In addition, there was an issue as to whether Mr. Mullan was actually the sole inventor, or whether his collaborator, John Hardy, had also made a substantial contribution to the innovation.
In August 2011, the Court in the Eastern District of Pennsylvania found that under Florida law the patents were owned by USF, but the issue was further complicated because there was a factual dispute as to whether USF had waived its ownership rights. The Court thus ordered a jury trial on the waiver issue. In May 2012, the jury found that USF had not in fact waived its right to the asserted patents and that Mr. Mullan was not the sole inventor of the technology covered by the two patents. The Federal Circuit later affirmed the jury verdict on appeal, and when remanded back to the Eastern District of Pennsylvania, the District Court found the case to be “exceptional” on a motion for attorney’s fees. The Court found the evidence at trial showed that AI’s principal conspired with two other individuals to misrepresent the true owner of the Swedish mutation inventions and to defraud two universities, and that this “conduct was rare and beyond common decency . . . . [and] motivated by ego and greed . . . . [and] [b]ringing this action was nothing more than a perpetuation of the conspiracy.”
In the meantime, the suit against Eli Lilly and Elan in the Northern District of California had been stayed in December 2011 pending the outcome of the jury trial in the Eastern District of Pennsylvania. In August 2012, after the jury finding that AI was not the true owner of the asserted patents, the Court dismissed the suit against Lilly and Elan, applying collateral estoppel that AI lacked standing to pursue its patent claims. Then, in June 2015, after the Federal Circuit appeal and the exceptional finding in the Eastern District of Pennsylvania action, the Court in the Northern District granted the defendants’ motions for attorneys’ fees, finding that, as in the Eastern District of Pennsylvania case, the suit was exceptional and attorneys’ fees were justified.
Therefore, the only issue outstanding was the amount of attorney’s fees to award defendants in the Northern District action. Although the Court considered many issues, including reasonableness of hourly rates, adequacy of documentation, overlapping counsel, standard fees for patent litigation, the effect of multiple litigations, and recovery for paralegal time, one issue of particular note is the Court’s awarding of pre-suit fees to defendants. In reaching its ruling, the Court noted that defendants’ billing entries reflected that it engaged counsel during its pre-suit investigation “to perform an analysis of Plaintiff’s patents and of potential damages.” Specifically, the Court noted, “Elan states that it ‘foresaw litigation’ based on a letter from [AI] indicating that ‘[AI] believes that it is now appropriate for licensing discussion with Elan to re-commence’ and that ‘it appears that a substantial portion of Elan’s drug discovery efforts for Alzheimer’s Disease are entirely reliant on the unauthorized use of [AI’s] patented technology.’” Therefore, the Court reasoned, “as Elan reasonably anticipated that this litigation would occur, its reasonable fees incurred prior to the initiation of this case are recoverable.”
This case illustrates that the courts will take strong action when faced with baseless claims, hidden or altered evidence, and misleading statements made to the court or opponents. It also serves as a strong reminder to consider your counsel carefully, and the advice that they provide, or a plaintiff may have to pay its own fees and those of the defendant, which in this case amounted to another $8 million.

Section 2(a) of the Lanham act bars the registration of “scandalous, immoral or disparaging trademarks.” The USPTO has used this applied this provision to refuse the registration of marks such as F**K PROJECT, PORNO JESUS, ASSJACKED and NO $#!+. The USPTO also invoked this provision when it upheld an examiner’s refusal to register the mark THE SLANTS for a musical band on the grounds that it was Scott-Hervey-10-weboffensive to Asian-Americans. The band appealed the refusal to register to the Federal Circuit.

The question on appeal was whether Section 2(a)’s prohibition on scandalous, immoral or disparaging trademarks is constitutional. The government defended the prohibition on the grounds that it disapproves of the messages conveyed by disparaging marks. The Federal Circuit noted that this prohibition does not further the Lanham Act’s purpose and preventing consumers from being deceived. This reason for denial of registration is for “reasons quite separate from any ability of the mark to serve the consumer and investment interest underlying trademark protection.”

The Federal Circuit found that Section 2(a)’s prohibition on registering disparaging marks is a content-based regulation which is presumptively invalid. Content-based laws – those laws that target speech based on its communicative content – are presumptively unconstitutional and maybe justified only if the government proves that the laws are narrowly tailored to serve a compelling state interest. The refusal to register a trademark because it is disparaging results from the government making a moral judgment based solely on the mark’s expressive content. The Federal Circuit found that the government’s desire to prohibit disparaging marks and the messages they convey is not a legitimate and compelling state interest. Based on this analysis, the Federal Circuit found this provision of Section 2(a) to be unconstitutional.

Subsequent to the Federal Circuit’s opinion, the band pushed the USPTO to immediately register its mark. In response, the USPTO said that it would suspend the registrations of all disparaging trademarks while it considered appealing the Federal Circuit’s ruling to the United States Supreme Court. Commentators believe that the US PTO will likely appeal the Federal Circuit’s ruling to the Supreme Court.

The Federal Circuit’s opinion may open the door for the registration of marks that may be potentially disparaging and new applications for marks previously refused registration based on Section 2(a). Further, the Federal Circuit’s opinion may have an impact on the case of Washington Redskins football team which is appealing the 2014 revocation of its REDSKINS trademark on the grounds that it was offensive to Native Americans.