By#160 Pamela Winston Bertani

Pamela W. Bertani is an associate in Weintraub Genshlea Chediak Tobin & Tobin Sproul’s Intellectual Property group.#160 Her practice includes providing advice in obtaining various forms of intellectual property protection, including patent, trademark, and copyright protection.#160 Ms. Bertani is a member of the United States Patent Bar, and her practice also includes both patent litigation and prosecution.

It is a well known fact that federal funding recipients have been notoriously non-compliant with Bayh-Dole Act disclosure requirements, and federal agencies have been lax in enforcing those requirements.#160 But, the Federal Circuit’s recent Campbell Plastics opinion should serve as a serious wake-up call for federal fund recipients that do not believe in the prospect of losing – completely – title to valuable patent rights.#160 Universities, small businesses and other entitles receiving federal funding to conduct research, which results in patentable inventions, could very well forfeit valuable patent rights in those inventions if they fail to comply strictly with Bayh-Dole Act disclosure requirements.#160 The Federal Circuit’s Campbell Plastics case makes clear that noncompliance could result in patent rights being stripped away under these circumstances, even if reporting noncompliance did not harm the funding agency.#160

Campbell Plastics Engineering & Mfg., Inc. v. Brownlee (Nov. 10, 2004) 389 F.3d 1243. Congress enacted the Bayh-Dole Act approximately 25 years ago to encourage United States innovation by giving inventors an incentive to create valuable technology using federal funding. (35 U.S.C. �߬� 200-212.)#160 Under Bayh-Dole, persons or entities receiving federal funding are allowed to apply for patents rights to corresponding inventions, so long as those persons or entities comply with specific disclosure requirements spelled out in the Act at 35 U.S.C. 202 and corresponding Federal Acquisition Regulations (“FARs”).#160 Pursuant to the Bayh-Dole Act, each government contract entered into under the Act must contain provisions that require the contractor to disclose each discovered invention to the federal agency providing funding within a reasonable time after the invention is discovered, and – importantly – the federal government may receive title to any such invention not disclosed within a reasonable time.#160 The Act not only provides nonprofit organizations and small businesses the right to elect title to an invention created with federal funding, but also gives the government the right to a royalty-free license to the invention when the contractor elects to retain title.

FAR 52.227-11 derives from the Bayh-Dole Act statutory scheme and provides, inter alia, the detailed timeline for invention disclosures, and the format in which those disclosures are to be made to funding agencies.#160 For instance, FAR 52.227-11(c) requires disclosure of each subject invention within two months after the invention is disclosed to the contractor’s patent personnel, and that each disclosure be made via detailed written reports.#160 FAR 52.227-11(d)(1) expressly states that upon government request, a contractor will convey patent title to the federal government when that contractor fails to disclose the subject invention within the timeframe and format requirements specified in FAR 52.227-11(c).

Campbell Plastics profiled what has become a prototypical federal funds recipient that carelessly disregarded its Bayh-Dole reporting requirements – but this time lived to regret it.#160 In 1992, Campbell Plastics entered into a contract with the United States Army to develop certain components of an aircrews protective mask.#160 The government contract incorporated the FAR 52.227-11 reporting requirements.#160 Between 1992 and 1997 Campbell Plastics submitted to the Army a series of piecemeal disclosures, which neither substantively nor procedurally complied with the Bayh-Dole/FAR reporting requirements.#160 The reports were not submitted in the proper format, and did not disclose the very invention, developed with federal funds, to which Campbell Plastics ultimately obtained patent title.#160 Rather, the Army became aware of the invention only after the Patent and Trademark Office forwarded the patent application to the Army for a statutory security determination.#160 The patent application issued on April 20, 1999, expressly reserving for the Army a royalty-free license, and a week later Campbell Plastics notified the Army in writing of the issued patent.#160

The Army demanded title to the invention for Campbell Plastics’ failure to comply with its Bayh-Dole reporting requirements, and the Federal Circuit affirmed an administrative decision awarding the Army title.#160 The Federal Circuit likened its analysis to a breach of contact claim, and found that the plain meaning of the

FARs was clear, unambiguous, and breached by Campbell Plastics’ noncompliance.#160 The Court also found that the plain-meaning interpretation of the contract was buttressed by policy considerations behind the Bayh-Dole Act.#160 According to the Court:

[W]hile Congress clearly intended to promote the commercialization and public availability of inventions made in the United States by United States industry and labor, and to encourage maximum participation of small business firms in federally supported research and development efforts, it also provided the government with certain aforementioned rights to the inventions and sought to ensure the safeguard of those rights by requiring government contractors to disclose subject inventions.

Sound policy is promoted by the rule of strict compliance with the method of disclosure demanded by the contract.

The Court concluded that Campbell Plastics’ piecemeal disclosures did not adequately disclose the subject invention under the parties’ contract, which entitled the Army to invoke forfeiture proceedings and obtain title to the patent.#160 Importantly, the Court also found that the Army was not required to show harm from Campbell Plastics’ reporting noncompliance in order to obtain patent title.#160 According to the Court, FAR 52/227-11(d) vests discretion in the government in determining whether to invoke forfeiture when an invention has not been correctly disclosed to it, and harm is not a requirement for the government to obtain title under these circumstances.

This case is important because it signals a new – stricter – approach to enforcing Bayh-Dole Act disclosure requirements, and conceivably all other requirements set forth in government contracts.#160 Apparently gone are the days of careless disregard for compliance with these requirements.#160 The Federal Circuit’s tone in Campbell Plastics is sharp and succinct – its rulings clear and to the point – comply or lose your patent rights.#160 Thus, a word to the wise – take your Bayh-Dole Act reporting requirements (and all funding contract provisions) seriously and comply in a timely manner – otherwise risk irrevocably losing title to corresponding patents.

By Joshua Deutsch

On February 1, 2005, the Senate unanimously passed the Family Entertainment and Copyright Act (FECA).#160 The Act is being hailed as bipartisan, significant anti-piracy legislation and a reaffirmation of congressional intent to protect copyrighted material from new technological means of theft and infringement.#160 FECA has been referred to the House of Representatives and is awaiting further action there.

FECA is comprised of four independent bills introduced as a package.#160 The most notable provisions are found within the Artists’ Rights and Theft Prevention (ART) Act.#160 In particular, the ART Act aims at curbing Internet piracy by increasing the criminal penalties for the illegal distribution of copyrighted works before they are released.#160 It also establishes civil remedies by which copyright owners may be compensated for their losses in such a situation.

In addition, the ART Act makes it a federal crime to record a film as it is shown in a theater, with a penalty of up to 3 years in prison for the first offense or up to 6 years for a second offense.#160 Furthermore, theater owners or their agents, with reasonable cause for doing so, may detain, “in a reasonable manner and for a reasonable time,” suspected violators of the Act “for the purpose of questioning or summoning a law enforcement officer.”

Representatives from online peer-to-peer companies, collectively acting as P2P United, find the bill to be suspect.#160 Adam Eisgrau, executive director of P2P United, stated that “this package seems to be another point on a very distressingly long line of actions that ratchet up enforcements and penalties at times out of proportion with the law.#160 To camcord a movie is wrong, certainly, but the penalty (of three years in jail) and the entitlement of theater ushers and owners to physically detain people makes you have to ask whether the copyright industry is having more sway than it should over the legislative process.”#160 William Triplett, “Piracy Bills Pass Muster,” Daily Variety (Feb. 2, 2005).

FECA also includes the Family Movie Act.#160 The controversial Family Movie Act is aimed at permitting the use of technology to skip or mute content that may be objectionable to certain viewers when watching a DVD movie at home.#160 Opponents of the Act contend that it permits copyright infringement.#160 However, the Act makes clear that the technology can be used so long as no fixed copy of the edited work is made.#160 Motion picture studios further object to the Act because the technology could be used to skip over commercials inserted on DVD movies.#160 The current version of the Act does not ban use of the technology for the commercial-skipping purpose but it has been suggested that it should not be used for that purpose.

The Family Movie Act is a congressional attempt to address a lawsuit for copyright infringement filed by the seven major studios, sixteen prominent directors, and the DGA against ClearPlay, Inc., one of several companies manufacturing and selling software and services that remove language and scenes from DVDs.#160 ClearPlay contends that its technology is equivalent to a fast forward or mute button, and does not constitute copyright infringement because it never alters the actual DVD or create a fixed version of the alternate movie-watching experience.

The Family Movie Act is part of the current administration’s indecency crusade.#160 On February 17, 2005, the House of Representatives overwhelmingly passed legislation substantially increasing the penalties for broadcast indecency.#160 The Broadcast Indecency Enforcement Act of 2005 raises the maximum fine from $32,500 to $500,000 per incident, and makes artists personally liable beginning with a first offense (currently, the Federal Communications Commission is limited to issuing only a warning for a first offense).#160 The Act also permits the revocation of broadcasting licenses from repeat offenders.#160 The Senate is currently considering its own version of the bill.

The White House, believing that there is a shared view of public morality, stated that “[t]his legislation will make broadcast television and radio more suitable for family viewing by giving the FCC the authority to impose stiffer penalties on broadcasters that air obscene or indecent material over the public airwaves.”#160 Critics of the Act argue that the government’s standard for indecency is ambiguous and that the bill will indiscriminately threaten a variety of programming.

At the same time that Congress is offering additional protections for copyrighted works in response to new technologies, it is weakening traditional copyright and First Amended protections by permitting the alteration of those works and limiting the ability of the public to enjoy them via public broadcasts.#160 This current round of lawmaking evidences the problems inherent in morality-based copyright legislation.

Joshua I. Deutsch is an attorney with Weintraub Genshlea Chediak Tobin & Tobin Sproul in Sacramento, California.#160 His practice#160 focuses on entertainment and intellectual property matters.#160 Mr. Deutsch can be contacted via telephone at (916) 558-6077 or by electronic mail at jdeutsch@weintraub.com.

Are you tired of all of the letters inviting you to refinance your home mortgage?#160 Have you ever been shocked and a little angry when you receive such a letter and see the name of your lending institution, your account number and the amount owed on your mortgage?#160 You are not the only one that was upset.#160 The financial institutions carrying consumer mortgages grew increasingly upset as a number of customers refinanced.#160 They also grew tired of explaining to irate customers who believed the bank had disclosed private financial information that the information was publicly available.#160 So, in an attempt to deal with the situation, the banking industry in California, literally, wrote its own law.

SB 1150, which was passed by the California Legislature in 2004 and became effective January 1, 2005, places significant restrictions on the use of names, trade names, logos and taglines of lending intuitions as well as consumer loan information. The bill adds to California Business and Professions Code sections 14700 through 14704.#160

The new statutes prohibit the use of the name, trade name, logo, or tagline of a lender in a direct mail advertisement for financial services that is sent to#160 a consumer who has obtained a loan from the lender without the consent of the lender, unless the advertisement clearly and conspicuously states that the party is not sponsored by or affiliated with the lender and that the advertisement is not authorized by the lender, which must then identify by name.#160 This statement must be made in close proximity to, and in the same or larger font size as, the first and the most prominent use or uses of the name, trade name, logo, or tagline in the solicitation, including on an envelope or through an envelope window containing the advertisement.

The new statutes also prohibit the use of a consumer’s loan number or loan amount, whether or not publicly available, in a solicitation for services or products without the consent of the consumer, unless the solicitation clearly and conspicuously states, when applicable, that the party is not sponsored by or affiliated with the lender and that the solicitation is not authorized by the lender, and states that the consumer’s loan information was not provided by that lender.#160 This statement shall be made in close proximity to, and in the same or larger font as, the first and the most prominent use or uses of the consumer’s loan information in the solicitation, including on an envelope or through an envelope window containing the solicitation.

In addition to the above, the new statutes prohibit the use of use the name of a lender or a name that is similar to that of a lender in a solicitation for financial services if that use could cause a reasonable person to be confused, mistaken, or deceived initially or otherwise as to either (a) the lender’s sponsorship, affiliation, connection, or association with the sender; or (b) the lender’s approval or endorsement of the sender.#160 The above “could cause” confusion standard differs from the traditional “likelihood of confusion” standard under both the Lanham Act and California‘s chapter of the Business and Professions Code that addresses Trademark Law.

This statute poses a number of problems.#160 First, it proposes a new standard for judging consumer confusion without giving the court guidance.#160 The courts have a well developed test for determining whether there is a likelihood of confusion in a trademark case; here they have nothing to guide them.#160 In addition, the new statute does not provide a mechanism for dealing with marks that lack distinctiveness and thus otherwise would not be entitled to a great deal of trademark protection.#160 For example, a financial institution could rename itself “The Bank” and then use B&P Code �� 14700 et al to prevent other financial institutions from using the words “The Bank” because it could cause confusion.#160

The new statute makes it rather easy for a financial institution that believes another lender is using a mark that could cause confusion to obtain an injunction.#160 The aggrieved bank is not required to show actual damages in order to obtain an injunction as irreparable harm and interim harm are presumed.#160 In addition to injunctive relief, an aggrieved bank would be entitled to recover actual damages, if any, as well as reasonable attorney’s fees.

Although the new law lessens the burden for bringing what otherwise could be considered a trademark action, it does attempt to preserve some fair use elements.#160 The new statutes provide that it is not a violation to use the name, trade name, logo, or tagline of a lender without the disclaimer statement described above in comparison advertising or in a manner that otherwise constitutes nominative fair use.

There have not yet been any lawsuits brought under this new law.#160 However, given the competitive nature of the home mortgage industry, it is only a matter of time.

Scott Hervey is a shareholder with Weintraub Genshlea Chediak Tobin & Tobin Sproul.#160 Scott represents clients in numerous industries on intellectual property matters and issues concerning the Internet in both transactions and litigation.#160

In 2004, the Ninth circuit heard the case Metro-Goldwyn-Mayer Studios Inc. v. Grokster; an appeal from the District court’s granting of motions for summary judgment by Grokster and StreamCast Networks and finding that their products include substantial non-infringing uses and therefore, under the decision in Sony Corp v. Universal City Studios (more commonly known as Sony-Betamax), do not constitute contributory infringement.#160 #160

The Motion Picture Studios and Recording Companies, in petitioning the Supreme Court for review of the Ninth Circuit’s decision, argue that the Ninth Circuit misread the holding of the Sony-Betamax case.#160 They claim that the Ninth Circuit’s decision emptied all meaning from Sony-Betamax’s concept of “commercially significant noninfringing uses.”#160 Specifically, the petitioners claim that the court did not attempt to ascertain whether there is a substantial market for a#160 non-infringing use of Grokster’s or StreamCast’s services that could commercially support their advertisement-dependent business.#160 #160The petitioners claim that this case presents the issue expressly left open in Sony-Betamax; whether noninfringing uses can be “commercially significant” when the defendant’s business depends on infringing uses and is not sustainable without them.

The Sony-Betamax case found the 1984 US Supreme Court facing the question whether the betamax video tape recorder subjected its manufacturer, Sony Corp., to contributory copyright infringement.#160 The court acknowledged that uses of the video tape recorder include acts of copyright infringement. However at least some of the uses by the public were noninfringing, such as time shifting or copying public domain works that were broadcast over the air.#160 Based on these non-infringing uses, the court found that Sony could not be held liable for secondary copyright infringement.#160 In#160 doing so, the court set forth a new standard for determining secondary copyright infringement when it held that:#160 ” the sale of copying equipment, like the sale of other articles of commerce do not constitute contributory infringement if the product is widely used for legitimate, unobjectionable purposes.#160 Indeed, it need merely be capable of substantial noninfringing uses.”

The Ninth Circuit’s decision in Grokster relied on its interpretation of Sony-Betamax as set forth in#160 A&M Records v. Napster.#160 Namely, if a defendant could show that its product was capable of substantial or commercially significant noninfringing uses, then constructive knowledge of the infringement could not be imputed and there would be liability for contributory copyright infringement.#160 Grokster was able to show that 10% of its use was for a non-infringing purpose.#160 The Ninth Circuit found that this usage was “substantial” and, therefore, Grokster could not be liable for contributory copyright infringement.

The Movie Studios and Recording Companies contend that the Ninth Circuit misread or misapplied the Sony-Betamax test. They point to the Seventh Circuit’s decision in In re Aimster Litigation which held that a court must assess a system’s actual and probable potential infringing uses, and then must balance the costs and benefits to accommodate the interests of copyright holders in preventing infringement while protecting the right of the public to use products specifically for noninfringing uses.#160 #160While acknowledging that the Aimster system was capable of at least five different types of noninfringing uses, the court noted that the controlling issue was the ratio of legitimate use to unlawful use.#160

The Ninth Circuit specifically rejected the approach taken by the Seventh Circuit in deciding Grokster, stating that the Seventh Circuit has read Sony-Betamax differently.#160 In petitioning the United States Supreme Court for review, the Movie Studios and Record Companies claim there is a split between the Seventh and Ninth Circuit, that the Ninth Circuit is incorrect in its analysis, and that the Court should adopt the Seventh Circuit’s balancing test.

Grokster and StreamCast argue that the Movie Studios and Record Companies have misread Aimster, and that it does not apply to this case.#160 They point out that the Aimster court found that Aimster had failed to introduce any evidence whatsoever that its technology was capable of noninfringing uses and therefore could not avail itself of the Sony-Betamax defense.#160 Also, they point out that the Seventh Circuit made it clear that evidence of either “present or prospective” noninfringing uses would satisfy the requirements of Sony-Betamax.

However, the primary argument made by Grokster and StreamCast is that finding the proper accommodation between new technology and copyright is a task best left for Congress.#160 They point out that the primacy of Congress in our federal intellectual property system was at the heart of Sony-Betamax:#160 “In a case like this, where Congress has not plainly marked out a course, we must be circumspect in construing the scope of rights created by a legislative enactment that never contemplated such a calculus of interests.”#160 They point out that Congress has not failed to adjust copyright laws when faced with new technologies, and that Congress has the resources and institutional ability to weigh the competing concerns of the technology and copyright industries, as well as the interests of society in general.

During the last legislative session, various Senators sponsored the Inducing Infringement of Copyright Act of 2004.#160 This act was in direct response to the Ninth Circuit’s decision in Grokster.#160 #160Senator Hatch, one of the Bill’s main sponsors, asserted that the Bill is supposed to be “technology-neutral,” focusing instead on the circumstances under which the technology is deployed.#160 Second, the Bill should provide copyright owners with the ability to bring causes of action against#160 P2P services that enable massive copyright infringement, but also be adaptable to new, unforeseen technological developments.#160 Third, the Bill should not unnecessarily chill technology innovators, through fear of liability.#160 Finally, the Bill should not preempt the decision in Sony-Betamax and related common law doctrines with regard to secondary liability for copyright infringement.

This Bill has been the subject of much debate and lobbying.#160 The U.S. Copyright Office was invited to mediate the conflicting opinions and positions, and as a result of these consultations, the Copyright Office proposed a different version of the Bill.#160 At the close of the 108th Congress, the Bill was still in the Senate’s Judiciary Committee.

In granting certiorari to Grokster, the United States Supreme Court has taken on a number of issues.#160 It could decide to address the claimed split between the Circuits with regard to the standard for contributory infringement liability; this is the approach favored by the American Intellectual Property Law Association.#160 However, even if the Supreme Court decides that substantial non-infringing uses must be probable (7th Circuit) rather than requiring that a device be capable of substantial noninfringing uses (9th Circuit), this would not necessarily mean a reversal of the Grokster decision.#160 (The evidence inferred ten percent (10%) of Grokster’s product’s use was for a noninfringing purpose.)#160 The Supreme Court could also defer to Congress.#160 After all, the Betamax test is judge-made law; the Court could find that expanding its scope from analogue to digital is too far to stretch.