United States: IP Update, Vol. 16, No. 1, January 2013

IP UPDATE: Edited by Paul Devinsky and Rita Weeks

Patents / International Trade Commission

Federal Circuit Clarifies ITC Domestic Industry Requirement for Non-Practicing Entities

By Christopher G. Paulraj

In an opinion that further reinforces the authority of the U.S. International Trade Commission's (ITC) to conduct Section 337 investigations initiated by non-practicing entities, the U.S. Court of Appeals for the Federal Circuit found that if the asserted patent covers the article that is the subject of the proceeding and the party seeking relief can show substantial investment in exploitation of the patent so as to satisfy the domestic industry requirement, that party is entitled to seek relief under section 337.  InterDigital Communications, LLC v. Int'l Trade Comm'n, Case No. 10-1093 (Fed. Cir., Jan. 10, 2013) (Bryson, J.) (Newman, J., dissenting). 

In order to maintain a Section 337 action, there must be ' an industry in the United States, relating to the articles protected by the patent, copyright, trademark, mask work, or design concerned, exists or is in the process of being established.'   The statute further provides that ' an industry in the United States shall be considered to exist if there is in the United States, with respect to the articles protected by the patent, copyright, trademark, mask work, or design concerned' . . . (C) substantial investment in its exploitation, including engineering, research and development, or licensing.'   The primary issue on appeal in this case was whether a complainant relying on its investments in licensing must also establish the existence of ' articles protected by the patent' in order to satisfy the domestic industry requirement.

In the original Federal Circuit opinion, the majority rejected respondent Nokia's argument there must always be a domestic industry relating to articles protected by the patent, noting that ' section 337(a)(3) makes clear that the required United States industry can be based on patent licensing alone.'   (see IP Update, Vol. 15, No. 9).  The same majority provided further clarification in the second opinion that, while the requirement that investments must be ' with respect to articles protected by the patent' is applicable to a domestic industry based on subparagraph (C), that requirement can be satisfied even when the complainant fails to establish that it has products of its own that practice the asserted patent. 

The opinion noted that complainant InterDigital had entered into 24 revenue-producing licenses that included the asserted patents with major manufacturers of wireless devices, including Samsung, LG, Matsushita, Apple and RIM.  In view of these licensing investments, the majority found this to be a ' classic case for the application of subparagraph (C).'   There was no genuine dispute that InterDigital's level of investments were substantial, and the only question was whether those investments were made with respect to the articles protected by the patent.  The Court held that this requirement was satisfied because ' the patents in suit protect technology that is, according to InterDigital's theory of the case, found in products that it has licensed and that it is attempting to exclude.'  

The opinion provided an extensive discussion of the legislative history behind the 1998 amendments that added licensing to the domestic industry requirement and, based on this legislative history, concluded that it was not necessary that the party manufacture the product that is protected by the patent, nor was it necessary that any other domestic party manufacture the protected article.

In dissent, Judge Newman argued that the panel majority erred in holding that the domestic industry requirement is met by licensing the importation of foreign-made articles.  Under Judge Newman's view, the statutory phrase ' articles protected by the patent' requires proof of domestic manufacture.

Practice Note:  Since there appeared to be no dispute that the complainant's licensees had articles that practiced the patent, thus satisfying the statutory domestic industry requirement, it is an open question as to whether products that are accused of infringement in a Section 337 investigation can by themselves be used to satisfy the requirement of ' articles protected by the patent.'

Patents / Remedies

Permanent Injunctions on the Rise?

By Mandy Kim

Addressing the issue of irreparable injury under the traditional four-factor test for permanent injunctions, the U.S. Court of Appeals for the Federal Circuit vacated a lower court's denial of a permanent injunction, finding that district courts must not ignore the fundamental nature of patents as property rights granting the patent owner the right to exclude when weighing the four factors for permanent injunctions.  Presidio Components, Inc. v. Am. Tech. Ceramics Corp., Case Nos. 10-1355, 11-1089 (Fed. Cir., Dec. 19, 2012) (Rader, C.J.).

Presidio brought suit against American Technical Ceramics (ATC) for infringement of a patent directed to monolithic broadband capacitors.  The jury found the patent valid and willfully infringed, and it awarded lost profits.  After trial, the district court, among other things, denied Presidio's motion for a permanent injunction, detecting no irreparable injury under the conventional four-factor permanent injunction test set forth in eBay v. MercExchange.  While the district court noted that substantial evidence existed that the products competed in the same market, the district court found that ATC was not a direct competitor for purposes of determining irreparable injury.  Presidio appealed.

The Federal Circuit reversed, finding that the district court's conclusion that there was no competition for the purpose of an irreparable harm analysis conflicted with the clear finding of competition for the purpose of awarding damages.  The record showed direct and substantial competition between the parties.  The Federal Circuit found that this evidence combined with Presidio's showing of lost market share and access to potential customers, in addition to Presidio's unwillingness to license the patent-in-suit, showed that the district court erred by dismissing the irreparable harm evident on the record.

The Federal Court explained that analysis under the four-factor permanent injunction test must proceed with ' an eye to the long tradition of equity practice granting injunctive relief upon finding of infringement in the vast majority of patent cases.'   The Court stated that while ' a patentee is not entitled to an injunction in every case, it does not follow that court's should entirely ignore the fundamental nature of patents as property rights granting the owner the right to exclude.'   The Federal Circuit emphasized that the patentee can suffer irreparable injury without even practicing the claimed invention. Moreover, the Federal Circuit clarified that direct competition in the same market is a factor that would strongly suggest the potential for irreparable harm if the right to exclude is not enforced.

Patents / Sanctions

Sanctioned Parties in Exceptional Cases Continue to Get Fresh Second Look from Federal Circuit

By John C. Low and Paul Devinsky

Denying motions for panel rehearing and rehearing en banc, the U.S. Court of Appeals for the Federal Circuit, in a sharply divided seven-to-five ruling, maintained the de novo standard of review for the analysis of objective unreasonableness in exceptional case determinations pursuant to 35 U.S.C § 285.  Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc., Case No. 11-1219 (Fed. Cir., Dec. 6, 2012) (per curiam) (Dyk, J., concurring, joined by Newman, J.) (Moore, J., dissenting; joined by O'Malley, J.; Reyna, J. and Wallach, J.) (Reyna, J., dissenting, joined by Moore, J.; O'Malley; J. and Wallach, J.; Rader, C.J, joining in parts I-III of the dissent). 

The lower court found that defendant Highmark did not infringe Allcare's patent, found that Allcare's infringement allegations were an exceptional case and awarded attorneys' fees.  In the original panel decision, the Federal Circuit concluded that since there was at least on claim made by the patent owner that was not baseless, the case (as a whole) was not exceptional under § 251.  (IP Update, Vol. 15, No. 9).  In that panel decision Judge Mayer voiced a dissent arguing that a more differential standard review should apply to the district court determination.  He would have affirmed the exceptional case award of the district court.  In considering the appellants en banc petitions, a divided Federal Circuit declined to conduct an en banc review of whether district court rulings, finding that a party brought an ' objectively baseless' claim are entitled deference on appeal thereby leaving the rule of the Federal Circuit that a district court's finding that a case is ' exceptional,' based on a determination of objective unreasonableness, should be reviewed de novo

In a concurring opinion, Judge Dyk, joined by Judge Newman, noted that the standard for determining an exceptional case under § 285 required a determination that the position of the sanctioned party is objectively unreasonable and asserted in subjective bad faith.  The concurring opinion, relying upon the Supreme Court's decision in PRE, stated that the prior panel's finding that the objective reasonableness standard was a question of law to be reviewed de novo was correct and should not be reheard.

Judge Reyna, in dissent, argued that imposing de novo review for sanctions determinations was contrary to prior Federal Circuit precedent.  The dissent relied upon Supreme Court precedent that dealt with the award of attorneys' fees under Rule 11 and the Equal Access to Justice Act (EAJA).  The concurring opinion rejected this argument for five reasons.

First, the concurring opinion looking to the language of § 285, and relying on a change in the language of the statute § 285, argues that the statute did not mandate deference to the district court's discretion on questions of law.  Second, the concurring opinion notes that the relevant policy considerations behind § 285 are quite different from those involved in the EAJA and Rule 11, explaining that Rule 11 is designated to deters abusive litigation practices while § 285 is a primarily compensatory provision.  Third, unlike Rule 11 or the EAJA, the concurrence argues that an exceptional case findings under § 285 frequently involves extraordinarily large awards warranting more scrutiny by the appellate court.  Fourth, the decision to award attorneys' fees under § 285 is based on the entire case, not merely events at the time of the filing of the complaint or pleading, as is the case for Rule 11.  Fifth, appeals of exceptional case findings typically come to this the Federal Circuit either after an appeal that resolved the merits, or in an appeal that also involves review of the merits, so that they will typically not require a significant investment of appellate energy to determine if, under a correct understanding of the law, a litigant was objectively reasonable.  Finally, the concurring opinion noted that the Federal Circuit brings to the table useful experience, noting that the Federal Circuit sees far more patent cases than any district court and is well positioned to recognize exceptional cases.

The concurring opinion concluded that de novo appellate review of the objectively reasonableness prong will assure uniformity in the treatment of patent litigation, while ' district courts will continue to play an important role in determining whether the subjective good faith prong of the applicability has been satisfied.'  

In her dissent, Judge Moore also argues that deference should be afforded to the district court in its determination of objective reasonableness:  ' There is simply no reason to believe that we, as an appellate tribunal spending just thirty minutes with the attorneys and having a limited record and knowledge of the events taking place in the proceeding below, are in a better position than the trial judge to decide objective baselessness.'

In his dissent, Judge Reyna argued that the panel opinion, as it relates to review of § 285 determinations, adopted an ' erroneous approach that disregards binding precedent,' in violation of principles of stare decisis

Patents / Sanctions

Rare Federal Circuit Order to Impose Sanctions Against Patentee for Frivolous Claim Construction

By Donna M. Haynes

In a rare decision reversing a lower court's denial of sanctions, the U.S. Court of Appeals for the Federal Circuit concluded that the patentee's proposed claim construction was objectively baseless as a matter of law, warranting Rule 11 sanctions and a potential fee award under 35 U.S.C. § 285.  Raylon, LLC v. Complus Data Innovations, Inc. et al., Case Nos. 11-1355 through 11-1359 (Fed. Cir., Dec. 7, 2012) (Prost, J.) (Reyna, J., concurring).

The patentee, Raylon, brought three separate suits in the district court alleging infringement of a patent directed to a hand-held ticket issuing system.  The patent claimed a ' housing' with two relevant limitations: a ' display being pivotally mounted on said housing' and a ' printer assembly being mounted in said interior of said housing.'   The accused infringing devices had a fixed-mounted display and external printer connection capabilities.  Raylon argued that the fixed-mounted display met the first limitation because it could be pivoted ' relative to the viewer's or user's angle of visual orientation.'   It contended that the second limitation requiring a printer in ' said housing' encompassed a printer in any housing, including the housing of an externally connected printer.

At the conclusion of a consolidated hearing, the district court rejected Raylon's claim construction and granted summary judgment of non-infringement in favor of the defendants.  The defendants moved for Rule 11 sanctions and attorneys' fees and costs under § 285.  The district court weighed the reasonableness of Raylon's settlement negotiations against its proffered damages model to conclude that Raylon subjectively brought suit in good faith.  Based on this subjective standard, the district court denied Rule 11 sanctions.  Relying on the same analysis, the district court also denied § 285 fees and costs.  The defendants appealed. 

In a rare reversal on this issue, the Federal Circuit held that the district court's denial of Rule 11 sanctions was an abuse of discretion.  Under the correct, objective standard, Raylon's claim construction was ' a clear instance where no objectively reasonable litigant . . . would believe it [...] could succeed.'   Moreover, the Federal Circuit found that the district court's conclusion that ' Raylon's claim construction arguments and infringement theory do stretch the bounds of reasonableness . . . they do not cross the line' was not supported by any analysis or explanation.  The Court concluded that Raylon's claim construction was frivolous, a Rule 11 violation and sanctionable.  The Court also vacated the district court's § 285 holding, as it was based on the flawed Rule 11 analysis.  The case was remanded for determination of a proper Rule 11 sanction and full consideration of the defendants' § 285 motion in light of the Rule 11 violation.

Concurring, Judge Reyna argued that a finding of a Rule 11 violation should compel the Court, if it is so moved by a party, to engage in a thorough § 285 analysis.  Judge Reyna would have declared the case exceptional under § 285 and limited the § 285 remand to a determination of appropriate sanctions.

Practice Note:  The Federal Circuit suggested that even though the district court's denial of Rule 11 sanctions was predicated on a subjective standard, had the district court articulated reasoning as to why Raylon's claim construction was also objectively reasonable, it may have left the denial undisturbed.  Nevertheless, the Court maintained that there is a threshold below which a claim construction is so objectively unreasonable that Rule 11 sanctions are warranted.

Patents / Hatch Waxman Litigation

Generics Challenge to Crestor Patent Fails

By Christopher L. May

In a case involving multiple defendants seeking to sell generic versions of the drug rosuvastatin calcium, currently marketed as Crestor®, the U.S. Court of Appeals for the Federal Circuit, a divided panel, found that the patent at issue was valid and enforceable.  In re Rosuvastatin Calcium Litigation, Case Nos. 10-1460 through -1473 (Fed. Cir., Dec. 14, 2012) (Newman,  J.) (Plager, J., concurring) (Mayer, J., dissenting). 

The patent-at-issue to Shionogi was directed to rosuvastatin calcium, the active ingredient in Crestor.  Nine separate defendants filed Abbreviated New Drug Applications (ANDAs), alleging that their generic versions of Crestor would not infringe the patent and that the patent was invalid and/or unenforceable.  At trial, the defendants, conceding infringement, argued that the patent was invalid based on structural obviousness, unenforceable due to inequitable conduct, and invalid due to improper reissue.  The district court found the patent to be valid and enforceable, and the defendants raised each of the above arguments on appeal. 

On appeal, the Federal Circuit dismissed the obviousness arguments, finding that a skilled artisan would not have been prompted to make the necessary changes to obtain rosuvastatin from the lead compound proposed by the defendants. 

Regarding inequitable conduct, the Federal Circuit found that while three undisclosed references proffered by the defendants were unquestionably known to Shionogi and material to patentability, the defendants failed to prove that Shionogi withheld these references with specific intent to mislead or deceive the Patent and Trademark Office (PTO), based largely on the panel's deference to the district court's determination of three key witnesses' credibility. 

Addressing the improper reissue argument, the Court found that there was insufficient evidence to establish that Shionogi had intentionally omitted a claim specific to rosuvastatin in the original application and that Shionogi had acted in a timely manner once the error was discovered.  The Court noted that deceptive intent in the context of reissue required the same level of proof as deceptive intent in the context of inequitable conduct. 

Finally, the Federal Circuit found that one of the defendants, Apotex U.S., was a proper defendant.  Apotex U.S. had argued that while it submitted Apotex's ANDA to the U.S. Food and Drug Administration (FDA), another company, Apotex Canada, had sent the Paragraph IV notification, which was an infringing act under Section 271(e)(2), and therefore Apotex U.S. could not be bound by any judgment of patent infringement.  The Court agreed with the finding of the district court that ' a wholly-owned subsidiary of a foreign ANDA applicant, which signs an ANDA as the agent of its parent-applicant, and which intends to benefit directly if the ANDA is approved by participating in the manufacture, importation, distribution and/or sale of the generic drug [i]s subject to suit under §271(e) as the one who has ' submitted' the ANDA.'   Judge Plager wrote separately to clarify his opinion that Apotex U.S. was a proper defendant because Apotex U.S. had a financial interest in the drug that was the subject of the ANDA, i.e., Apotex U.S. was the party that would actually market and sell the drug in the United States.

Judge Mayer dissented from the decision, arguing that the patent should be held invalid for improper reissue, because the evidence demonstrated that Shionogi's failure to specifically claim rosuvastatin was a deliberate choice made during the prosecution of the original application, and Shionogi made no attempt to seek reissue for over five years after the original patent issued.  Judge Mayer also noted that he believed Shionogi would have been found to commit inequitable conduct under the standard that existed prior to Therasense.

Patents / Subject Matter Jurisdiction

Third-Party Competitor Cannot Sue PTO Over Issued Patents

By Charles J. Hawkins

Addressing the issue of whether an alleged infringer can sue the U.S. Patent and Trademark Office (PTO) to prevent issuance of a competitor's patents, the U.S. Court of Appeals for the Federal Circuit affirmed a lower court's bench ruling that it lacked subject matter jurisdiction over such a claim, concluding that the Patent Act's comprehensive legislative scheme provides competitors with an adequate remedy in a court for the issuance of invalid patents and, thus, precludes such lawsuits.  Pregis Corp. v. Kappos, Case Nos. 10-1492, 10-1532 (Fed. Cir., Dec. 6, 2012) (Reyna, J.).

Free-Flow Packaging International, Inc. owned patents relating to air-filled packaging technology used to fill space in shipping boxes carrying lightweight items that do not take up all the available space in a box.  Pregis Corporation, Free-Flow's direct competitor, filed suit in district court seeking a declaratory judgment of non-infringement and invalidity of the Free-Flow patents.  Pregis also took the unusual step of suing the PTO under the Administrative Procedures Act (APA) to prevent the issuance of two pending patent applications.

The district court dismissed Pregis' APA claims for lack of subject matter jurisdiction.  In a bench ruling, the district court held that the Patent Act shows Congress' intent to preclude putative third-party infringers from seeking judicial review under the APA of PTO decisions to issue patents.  After a jury trial, the jury found the entire asserted claims invalid, not infringed or both.  Free-Flow moved for judgment as a matter of law as to infringement and validity of the patents, and the court denied its motions.  Free-Flow appealed the denial of its post-trial motions on validity and infringement, and Pregis appealed the dismissal of its APA claims.

Regarding obviousness, Free-Flow did not dispute that the prior art cited at trial, with some modifications, taught every element of the asserted patent claims.  Instead, Free-Flow argued that there was no evidence of a reason to combine the prior art references in the manner required to arrive at the asserted claims of the Free-Flow patents.  Free-Flow also argued that the prior art references taught away from such combination.

Relying on the testimony of Pregis' technical expert, who presented detailed claim charts and testimony detailing the disclosure of the prior art and explaining how a person of ordinary skill in the art would have knowledge regarding certain modifications of the prior art disclosure, the Federal Circuit found that there was substantial evidence to support the factual underpinnings of the jury verdict of invalidity for obviousness.  The Court also found that the prior art references did not teach away from the asserted claims, affirming the lower court's denial of Free-Flow's post-trial motions in this regard.  The Federal Circuit stated that a prior art reference's preferred embodiment does not constitute teaching away from other reasonable uses of the disclosure.

The Federal Circuit also affirmed the lower court's ruling that dismissed Pregis' APA claims.  The Court relied on the part of the APA that states the APA applies except to the extent that another statute precludes judicial review and that the APA authorizes judicial review of final agency actions only if there is no other adequate remedy in a court.  The Federal Circuit stated that the comprehensive legislative scheme of the Patent Act precludes judicial review of the reasoning of PTO decision to issue patents after examination and that competitors have an adequate remedy in a court for the issuance of invalid patents.  The Federal Circuit concluded that a third party cannot sue the PTO under the APA to challenge a PTO decision to issue a patent.

Patents / Invalidity

Obviousness Ruling Reversed for Failure to Analyze Why References Should Be Combined

By Gregory D. Yoder

Addressing the issues of anticipation and obviousness, the U.S. Court of Appeals for the Federal Circuit reversed and remanded a district court's finding of invalidity because of a dispute as to whether the prior art's disclosure of a genus anticipated the claimed species and reversed the district court's finding of obviousness for failure to provide a reasoned analysis of why the prior art references should be combined.  Osram Sylvania, Inc. v. American Induction Techs., Inc., Case Nos. 12-1091, 12-1135 (Fed. Cir., Dec. 13, 2012) (O'Malley, J.).

Plaintiff Osram sued defendant American Induction Technologies (AITI) alleging infringement of a patent directed to a closed-loop tubular electrodeless lamp.  The patent required the lamp to have an internal gas ' pressure less than 0.5 torr.'   The district court granted AITI's motion for summary judgment of invalidity based on anticipation and obviousness, finding that a prior art reference anticipated all elements of one of the asserted claims.  The district court further found that the remaining asserted claims were obvious.  Osram appealed. 

The Federal Circuit reversed the district court's finding of anticipation based on its conclusion that there was a disputed issue of material fact as to whether the prior art reference adequately disclosed a lamp with an internal gas pressure ' less than 0.5 torr.'   The reference disclosed a lamp with an internal gas pressure of ' approximately 1 torr or less.'   AITI argued prior art reference's disclosure of a small genus anticipates the species claimed in the asserted patent, as the claimed pressure is completely encompassed by the prior art reference's disclosure.  The Federal Circuit stated that whether a species is encompassed in a genus has a factual component and found that the prior art reference did not disclose with enough specificity the claimed pressure of less than 0.5 torr.  In addition, Osram's expert testified the claimed pressure of less than 0.5 torr is central to the invention of the asserted patent and the lamp would operate differently at different pressures.  AITI did not rebut Osram's expert testimony.  The Federal Circuit held that it is of ' critical importance' how one of ordinary skill in the art would understand the relative size of a genus or specie is in a particular technology and therefore reversed the district court's grant of summary judgment based on that material issue of disputed fact.

The Federal Circuit also reversed the district court's finding of obviousness because the district court did not provide any analysis for why the two prior art references used for obviousness would be combined.  The district court merely provided general conclusions and did not give any findings of facts in making its ruling.  The Federal Circuit found there were substantial questions of fact as to whether a person of ordinary skill in the art would have been motivated to combine the two references.  Indeed, Osram's expert testified one of the prior art references taught away from the design of the asserted patent, and AITI's expert even acknowledged the prior art reference disparaged the design of the other prior art reference used to prove obviousness.

Patents / Obviousness

Positioning a Finger Flap Between Cans in a Carton Is Non-Obvious

By Sungyong ' David' In

Addressing obviousness in the context of inter partes reexamination, the U.S. Court of Appeals for the Federal Circuit affirmed a decision by the U.S. Patent and Trademark Office (PTO) Board of Patent Appeals and Interferences (Board), finding that while positioning of finger flaps on a box that holds can at the top of the box was predictable, putting the flaps between cans was not.  C. W. Zumbiel v. Kappos, Case No. 11-1332 (Fed. Cir., Dec. 27, 2012) (Wallach, J.) (Prost, J., dissenting-in-part).

This case arises out of an inter partes reexamination of a patent assigned to Graphic Packaging International.  The validity of the patent was challenged by third-party requester, The C.W. Zumbiel Company, based on prior art including U.S. patents to Ellis and Palmer and a German publication, among others. 

The reexamined patent was directed to a carton or box that holds containers such as cans and bottles.  The claimed carton included a dispenser piece that has a finger flap on top for pulling the dispenser-piece either into an open position or pulling off of the carton.  In one embodiment, the finger flap is located between the first and second cans in the top of the carton.  Ellis discloses a carton for holding cans with a detachable dispenser piece which is detached from the carton along the tear line around a part of the carton.  The prior art German publication disclosed a carton for containers with a dispenser piece opened by a finger flap on the top.  Palmer disclosed a package for canned goods including a finger grip for transport purposes. 

During reexamination, the examiner rejected certain independent claims as being obvious over Ellis in view of the German publication and confirmed patentability of certain dependent claims over Ellis, Palmer and the German publication.  One of the allowed dependent claims recited that the finger flap is located between the first and second containers in the top of the carton.  Graphic appealed the examiner's rejections, and Zumbiel appealed the examiner's confirmation of patentability of the allowed dependent claim to the Board.  Zumbiel argued that the location of the finger flap between the first and second cans is obvious in view of the prior art.  Subsequently, the Board held that the certain independent claims were obvious over Ellis in view of the German publication, but determined that the dependent claim directed to the finger flip location was non-obvious over the prior art.  Both parties appealed.

On appeal, the Federal Circuit affirmed the Board's determination that the prior art teaches the location of the finger flap on the top panel of a carton, finding the independent claims unpatentable.  The Federal Circuit also found that providing a finger opening on the top of a carton would be a predictable variation that enhances user convenience and was, thus, obvious over Ellis in view of the German publication.

Regarding the representative dependent claim, the Court also agreed with the Board that having the finger flap positioned between the first and second cans in the top of the carton is not obvious over the prior art because Ellis teaches away from the claimed location of the finger flap and because Palmer does not provide necessary teachings as to placement of the finger flap.  

Judge Prost dissented in part, contending the majority opinion affirming the Board's decision of patentability of representative dependent claim would be contrary to teachings of KSR.  Judge Prost opined that an overemphasis on the importance of the prior art teachings has insulated the Board's analysis from the ' pragmatic and common sense considerations that are essential to the obviousness inquiry.'

Patents / Licensing

Patent Licenses Extend to Reissue Patents Unless Specifically Limited

By D. Jeremy Harrison

Addressing the scope of a license agreement, the U.S. Court of Appeals for the Federal Circuit affirmed a district court's grant of summary judgment that a license precluded patent infringement allegations, finding that certain reissued patents fell within the scope of a licensing agreement that did not mention reissue patents.  Intel Corp. v. Negotiated Data Solutions, Case No. 11-1448 (Fed. Cir., Dec. 17, 2012) (Linn, J.).

In 1976 Intel and National Semiconductor Corp. (National) entered into an agreement involving the cross-licensing of various patents relating to semiconductor technology.  By 2006, after the agreement had expired, three of National's patents falling within the scope of the agreement had reissued and were assigned to National's successor in interest, Negotiated Data Solutions LLC (N-Data).  N-Data then sued Dell, Inc., one of Intel's customers, alleging infringement of several patents, including the reissued patents.  Intel intervened in N-Data's suit against Dell and, in 2008, filed a complaint seeking a declaratory judgment that under the agreement Intel and its customers retained a license not only to the patents defined in the agreement but any reissued patents derived therefrom. 

The issue on appeal was whether the agreement that licensed various National patents to Intel extended to cover any reissue patents derived from the expressly licensed patent.  N-Data argued that the agreement covered only the patents issued directly to National during the term of the agreement and should not extend to the reissued patents since they were issued directly to N-Data after the agreement had expired.  Based on the statutory language of 35 U.S.C. § 251, and the parties' mutual intent in contracting under the agreement, the Federal Circuit rejected this argument.

The Federal Circuit explained that § 251 does not refer to issuance of ' a' reissue patent for ' an' invention, but instead refers to reissue of ' the' inoperative or invalid patent for ' the' invention disclosed in the original patent.  Thus, absent any language to the contrary, the Court concluded that a license for a patent that is not directed to any specific claims, field of use or other limited right will extend to the invention that is the subject of that patent and any reissue patents derived therefrom. 

In the present case, the agreement did not discuss reissue patents nor place any limitations on the patent licenses with reference to any specific claims.  Accordingly, the Federal Circuit concluded that the agreement manifested the parties' intent that the license extended not only to the claims in existence at the time of the agreement but also to the full scope of any coverage available by way of reissue for the invention disclosed.  Supporting this conclusion, the Court reasoned that ' [t]o interpret the [a]greement otherwise would allow the unilateral act of the licensor to place the licensee, which sought to eliminate any infringement risk and effect a global peace with the licensor for all claims in all patents, in a position of being exposed to further risk relating to the exact same inventions that were subject to the license.'

Patents / Res Judicata

Failure to Raise Patent Validity Challenges in Breach of License Suit Precludes Later Invalidity and Misuse Claims

By Shaun B. Hawkinson

Addressing the res judicata effect of prior licensing litigation on a subsequent patent case, the U.S. Court of Appeals for the Federal Circuit affirmed the lower court in finding that the res judicata bar extends beyond matters actually decided to cover every defense and counterclaim that could have been raised in the earlier suit. Cummins Inc. v. TAS Distributing Co., Case No. 10-1134 (Fed. Cir., Dec. 5, 2012) (Reyna, J.).

TAS owns patented technology relating to diesel engines. Cummins, a truck engine manufacturer, entered into a license agreement with TAS granting Cummins the co-exclusive right to use the TAS technology in return for a $1 million royalty to be paid over five years plus an ongoing royalty based on the number of Cummins' products sold containing the licensed technology. Under the agreement, Cummins also agreed to maximize royalties by making ' reasonable efforts to market and sell' products involving TAS's technology.

TAS sued Cummins for breach of contract (TAS I), alleging that Cummins failed to make reasonable efforts to market and sell products containing the TAS technology. The court found for Cummins, but also ruled that Cummins was obligated to make continuing, per unit royalty payments for any ongoing sales involving TAS's technology. TAS sued again (TAS II) claiming that Cummins failed to pay those royalties.

The scope of TAS's patents became an issue, and Cummins deposed the sole inventor, who admitted that a version of the TAS technology was sold to another engine manufacturer before the critical dates of the TAS patents. Cummins then turned around and sued TAS (TAS III), seeking, among other things, to dismiss TAS II, invalidate the TAS patents and declare the license agreement void for patent misuse. The court granted TAS's summary judgment motion barring all of Cummins' claims based on the doctrine of res judicata. The court noted that the validity of the contracts was an operative fact in TAS I, and Cummins certainly could have contested, as either a defense or a counterclaim, the validity of the contracts and the patents.  The court found the two cases related, stating that ' a decision on the validity of the underlying contract would have conformed to standard expectations in a breach of contract dispute.'   Cummins appealed. 

The Federal Circuit applied Illinois principles of res judicata as described in River Park, which stated that ' [t]hree conditions must pertain before Illinois state courts will bar a later suit based on res judicata: a court of competent jurisdiction must have rendered a final judgment on the merits in an earlier suit; the earlier and later suits must involve the same causes of action; and the two suits must involve the same parties or their privies.' Cummins admitted the first and third prongs of this test were satisfied (that TAS I represented a final judgment on the merits and that there is no dispute as to the parties).  The crux of this case is the second prong:  whether the causes of action in TAS I and TAS III are the same.

To determine if two causes of action are the same under this second prong, Illinois courts have adopted the ' transactional test.' Under this test, ' separate claims [are] considered the same cause of action for purposes of res judicata if they arise from a single group of operative facts, regardless of whether they assert different theories of relief.' Cummins argued the operative facts of each case were distinct, since TAS III deals with patent invalidity and misuse whereas TAS I dealt with enforcing the ' reasonable effort' clause in the licensing agreement. The Federal Circuit found River Park controlling, stating that ' ' operative facts' are not just those supporting the first judgment, but all ' facts that give rise to plaintiffs' right to relief.'' The Federal Circuit agreed with the district court that Cummins could have and should have brought up patent invalidity and unenforceability in TAS I.  If those patents were found to be invalid or unenforceable in TAS I, found the Court, the license agreement would have been affected as well, and Cummins would have prevailed as against TAS.

Patents / Antitrust

Market Definition Critical to Summary Judgment Determination in Casino Games Case

By Carrie G. Amezcua

Addressing market definition issues in the context of Sherman Act antitrust claims, the U.S. Court of Appeals for the Federal Circuit affirmed a lower court's ruling granting summary judgment to plaintiffs, finding that defendant's proposed relevant market was too narrow.  IGT v. Alliance Gaming Corp., Case No. 11-1166 (Fed. Cir., Dec. 17, 2012) (Reyna, J.) (Bryson, J., dissenting).

The plaintiff, IGT, is a designer, developer and manufacturer of computerized gaming machines, one of which is the ' Wheel of Fortune,' a popular wheel game.  IGT holds a number of patents on wheel games.  The defendant, Bally Gaming International, also designs, develops and manufacturers gaming machines, including wheel games.  IGT sued Bally for infringement of certain patents relating to wheel games.  In response, Bally brought a counterclaim accusing IGT of illegal monopolization under Sherman Act § 2.  IGT moved for summary judgment against Bally's antitrust claim, and the district court granted the motion.

On appeal, Bally argued that the district court erred when it concluded that wheel games were not a relevant submarket of casino gaming machines.  However, Bally had agreed with IGT that wheel games compete with all gaming machines because casinos mix and match products to maximize floor space revenue generation.  Bally also agreed with IGT that wheel games did not require any special or unique production facilities and that the customers of wheel games' the casinos' were the same customers as all other gaming machines.

Bally's argument that wheel games were a relevant submarket was based, in part, on the proposition that some players preferred wheel games.  The Federal Circuit found that what players preferred said nothing about whether wheel games should be considered a submarket under the Brown Shoe factors.  The Brown Shoe factors include industry or public recognition of the submarket as a separate economic entity, the product's peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes and specialized vendors.

Bally further based its proposed relevant market on IGT's argument supporting its patent infringement claims that there were no non-infringing substitutes of wheel games.  According to Bally, this meant that IGT conceded that there were no substitutes for wheel games.  The Federal Circuit disagreed, and held that an expert's opinion that there were no non-infringing technological substitutes did not necessarily mean that there were no economic substitutes.  According to the Court, Bally had not presented any evidence that there were no economic substitutes for wheel games, particularly in light of the fact that Bally had agreed wheel games competed with other gaming machines.  Thus, the Federal Circuit ruled that the undisputed facts showed that meaningful competition existed between wheel games and all gaming machines, and as a result the district court did not decide a disputed issue of material fact.

Patents / America Invents Act

USPTO Releases Final Rules for Micro-Entity Status

By Bernard P. Codd

The U.S. Patent and Trademark Office (USPTO) released final rules for micro entity status, as authorized by the America Invents Act (AIA), 77 Fed. Reg. 75,033 (2012).  Patent applicants filing under micro-entity status would benefit from a 75 percent reduction of certain Patent Office fees, including fees for filing, searching, examining, issuing, appealing and maintaining the application.  The rules regulating micro-entity status are set forth in 37 C.F.R § 1.29.  Procedures for claiming micro-entity status, paying micro-entity fees, notification of loss of micro entity status and correction of payments of erroneously paid micro-entity fees are included in the rules.  The new rules take effect on March 19, 2013, before fee reductions begin, however, the USPTO must first set fees in accordance with section 10 of the AIA.

According to the rules, a party requesting micro-entity status must file a certification of entitlement to micro-entity status and must qualify for small entity status under 37 C.F.R. § 1.27.  A micro-entity inventor or applicant can not have been named on more than four previously-filed U.S. non-provisional applications and could not, in the calendar year preceding the calendar year in which the applicable fee is being paid, have had a gross income exceeding three times the median household income for that preceding calendar year.  According to the rules, an applicant is not considered to be named on a previously filed application for the purposes of micro-entity status if the applicant has assigned or is under an obligation to assign all ownership rights in the application as a result of the applicant's previous employment.  In addition, an applicant who is an employee of a non-profit institution of higher education, from which the applicant receives a majority of his or her income, would be considered a micro entity.   

In order to qualify for micro-entity status, each applicant and any other party holding rights in the application must qualify for micro-entity status.  Further, micro-entity status must be established in each related, continuing and reissue application for which such status is desired.  The USPTO plans to rely on applicant's certification of micro-entity status and does not plan to provide advisory opinions on whether a particular entity is entitled to claim micro-entity status.

Micro-entity status, once established, remains in effect until changed by applicant.  Applicant should determine each calendar year whether micro-entity fee status is warranted, as applicant's gross income and the median household income each may change from year to year.  If applicant is no longer eligible for micro-entity status, the applicant must file a notification of a loss of entitlement to the micro-entity status prior to paying any fees after the loss of entitlement occurs.  An inadvertent, improper payment of a micro-entity fee must be corrected.  A fraudulent payment of micro-entity fees would be considered a fraud on the USPTO.

Patents / False Marking

AIA's False Marking Retroactive Provision is Constitutional

By Eric Garcia

Addressing the American Invents Acts's (AIA's) impact on false marking, the U.S. Court of Appeals for the Federal Circuit found that Congress' retroactive elimination of the qui tam provision in the false marking statute did not violate the due process clause.  Brooks v. Dunlop Mfg. Inc., Case No. 12-1164 (Fed. Cir., Dec. 13, 2012) (Prost, J.).

Under the AIA, the false marking statute, Section 292, was amended to eliminate the qui tam provision, limit suits to only the United States and those who suffered a competitive injury and exempt the marking of products with expired patents. The AIA provided that these amendments would apply to all pending cases.

Kenneth C. Brooks filed suit in district court alleging that Dunlop falsely marked its guitar string winders with an expired and invalidated patent.  After passage of the AIA, Dunlop moved to dismiss the case, arguing that Brooks no longer had standing because he could no longer recover a statutory penalty and failed to allege a competitive injury.  The court agreed and entered final judgment.  Brooks appealed.

On appeal, Brooks argued that Congress violated the due process clause by retroactively eliminating the qui tam provision, because the retroactive elimination was arbitrary and irrational, as it was tantamount to sanctioning Dunlop's public deception and indemnifying its violation of Section 292.  The Federal Circuit disagreed, stating that the AIA replaced the qui tam action with a compensatory action for any person who suffered a competitive injury and, therefore, the AIA did not sanction public deception.

Brooks also argued that Congress' retroactive elimination of the qui tam provision was not justified by a rational legislative purpose.  The Federal Circuit found that in making the elimination of the qui tam provision retroactive, Congress was attempting to reduce litigation expenses, rein in abuses and eliminate a potential constitutional issue regarding the qui tam provision.  Accordingly, the Federal Circuit found that the retroactive application of the amended false marking statute to pending actions was a rational means of pursuing a legitimate legislative purpose.

Finally, Brooks argued that by filing the lawsuit against Dunlop, he entered into a binding contract with the United States that was repudiated when Congress retroactively eliminated the qui tam provision.  Brooks claimed that by repudiating its contract, Congress violated the due process clause.  The Federal Circuit disagreed, reasoning that because there was no financial obligation imposed on the United States and there was nothing in Section 292 that created a contract, there was no contract formed between Brooks and the United States.  Moreover, the Federal Circuit reasoned that because qui tam plaintiffs have no vested rights, Brooks had no contractual or vested right with the United States.

Patents / EU

The EU Agrees to a New, Unitary Patent System

By Alexander Harguth

Despite criticism from the European industry, patent lawyers and judges, the European Parliament has now approved the Unitary Patent (UP) Regulation and associated legislation for a European Patent Court (EPC). Even though it remains for the legislation to be formally ratified, the new patent system is expected to come into effect and heralds fundamental changes to both patent prosecution and litigation in Europe.


Participants in the system are the member states of the EU, i.e., the 25 member states, but without Italy and Spain. Both Italy and Spain have challenged the new system before the European Court of Justice (ECJ), but the challenge is given little chance of success. The system does not cover contracting states of the EPC which are not members of the EU, such as Switzerland.

European Patent with Unitary Effect

Patent applicants will be able to request that their European patents have ' unitary effect' across 25 EU member states, rather than a bundle of national patents, as it is the case for the present European patent. The European Patent Office will be in charge for that unitary patent and the granting proceedings will basically follow the rules of the EPC as applicable to the present European Patents.

European Patent Court

A new court will be created that will have jurisdiction to decide issues regarding present European patents as well as the new unitary patent. In contrast to the current system of litigating on a country-by-country basis, under the new system a single court will have the authority to grant EU-wide injunctions, damages or other relief. In addition, freedom to operate across the EU can be obtained by a single set of invalidity or non-infringement proceedings.

Structure of the New Court

The European Patent Court will be composed of national and regional divisions across the EU.  It will have its central division in Paris with secondary offices in Munich and London. This centralized division will mainly hear invalidity actions and infringement cases against non-EU defendants.

Co-Existence of National Systems and ' Opt-Out' System

Patent applicants will not necessarily need to request the unitary effect for their European patents. To use the national systems the applicants will have to ' opt out' of the new litigation system. This will be possible during a transitional period of seven years after of the new system goes into effect. Also, national patents will still be available, as well national patent litigation (for national patents) and also for opted-out European (unitary) patents.

Characteristics of the Proceedings   

The procedural rules at the European Patent Court are expected to be significantly influenced by existing continental laws. The proceedings will largely be in writing. It is expected that hearings will seldom last longer than a single day and that a first instance decisions will be handed down within 14 to 16 months from the filing of the complaint. There will likely be a right of appeal which should typically add an additional 14 to 16 months to the proceedings. Witnesses may be summoned to appear at the hearing, and expert evidence may be provided either by the parties or by an expert appointed by the court. In compliance with the continental legal concepts there will be no discovery as it is known in the United States. Disclosure of specific evidence under the control of another party may, however, be ordered by the court.

Role of European Court of Justice (ECJ)

The ECJ will not be involved as an appellate court. Nevertheless the new patent court may refer questions of EU law to the ECJ, as national courts can do at present, but the ECJ has no new competence over questions of substantive patent law.


The unitary patent may reduce translation costs, although in many of the key countries these have already been eliminated by the London Agreement. Other key costs such as annual renewal fees have not yet been determined. For patentees engaged in litigation, the litigation system should reduce costs in comparison to the aggregate cost of multijurisdictional litigation.


It is likely that many patentees will opt out and continue to use the national systems until there is enough experience with the new unitary patent system to establish its reliability and efficiency. A main fear expressed by the industry is that although the court procedures (amongst the divisions of the European Patent Court) may be the same, existing national practices will remain, including the German tradition of bifurcating infringement and validity and granting pan-EU injunctions more liberally than elsewhere based on infringement alone. Since the divisions of the new court will be spread over the EU, patent enforcement may often require international litigation teams. It is thus also expected that the new system will cause some reorientation of the legal profession in the EU.

Trademarks / Case-in-Controversy

Supreme Court Confirms that Broad Covenant Not to Sue Negates Jurisdiction Over Counterclaims for Non-Infringement and Cancellation of Trademark

By Paul Devinsky and Rita Weeks

The U. S. Supreme Court, agreeing with the U.S. Court of Appeals for the Second Circuit, concluded that a trademark plaintiff's voluntary dismissal of its infringement suit, together with a covenant not to sue, deprived the district court of declaratory judgment jurisdiction and consequently its consideration of a counterclaim of trademark invalidity.  Already LLC v. Nike, Inc., Case No. 11-982, (Supr. Ct., Jan. 9, 2013 (Roberts, C. J.) (Kennedy, J., concurring; joined by Thomas, J.; Alito, J. and Sotomayor, J.).


In 1982, Nike designed a shoe called ' Air Force 1.'    It has sold millions of pairs each year since.   In 2009, Nike sued Already for federal and state infringement and dilution of Nike's registered ' Air Force 1' trade dress.  Already filed counterclaims seeking a declaratory judgment that Nike's registered trademark was invalid, that Already did not infringe the mark, as well as for cancellation of the associated U.S. trademark registration. 

Eight months after it had filed the infringement suit, Nike delivered to Already a ' covenant not to sue,' which covered all of Already's alleged infringing designs, past and present, as well as future sales of present designs.   Nike then moved to dismiss its complaint with prejudice.   Nike also moved to dismiss Already's counterclaims without prejudice on the ground that the district court lacked subject matter jurisdiction.  Already argued that a ' case or controversy' persisted despite Nike's covenant not to sue, claiming that Nike's litigation' and Nike's trade dress registration itself' constituted a ' continuing libel' against Already by causing it to appear that the Already had infringed and was continuing to infringe Nike's trade dress.  The district court, siding with Nike, dismissed the counterclaims for lack of subject matter jurisdiction, holding that the covenant ended the controversy between the parties.  

On appeal, the 2d Circuit ruled that, in a trademark context, under the Supreme Court's 2007 decision in MedImmune v. Genentech, a covenant not to sue deprives the district court of declaratory judgment jurisdiction held, as a matter of law, that Nike's delivery of the covenant to Already divested the district court of subject matter jurisdiction, thus affirming the district court.  (IP Update, Vol. 14, No. 11).  The 2d Circuit explained that whether a covenant not to sue eliminates a justiciable case or controversy in a declaratory judgment action involving a trademark, courts must consider three factors:  ' (1) the language of the covenant, (2) whether the covenant covers future, as well as past, activity and products; (3) evidence of intention or lack of intention, on the part of the party asserting jurisdiction, to engage in new activity or to develop new potentially infringing products that arguably are not covered by the covenant.'   Applying those factors, the 2d Circuit agreed with the district court that no actual case or controversy existed in this case.  The 2d Circuit pointed to the broad language of Nike's covenant not to sue, noting that it covered both present and future products, and concluded that ' the breadth of the Covenant renders the threat of litigation remote or nonexistent even if [the defendant] continues to market and sell these shoes or significantly increases their production.'   Moreover, the court explained that ' [g]iven the similarity of [the defendant's] designs to [the plaintiff's registered trade dress] and the breadth of the Covenant, it is hard to imagine a scenario that would potentially infringe [the plaintiff's registered trade dress] and yet not fall under the Covenant.'  

The Supreme Court

A unanimous Supreme Court agreed with the 2d Circuit, concluding that the breadth of the Nike covenant was sufficient to meet the ' formidable burden' imposed by the voluntary cessation test, i.e., of showing that the allegedly wrongful behavior cannot reasonably be expected to recur.

As noted by Chief Justice Roberts, the record here only indicated that Already had plans to introduce new shoe lines, but provided no indication that those lines would arguably infringe.  Given the breadth of the Nike covenant, the Supreme Court concluded that Already did not meet its burden of showing it was engaging in or planning to engage in activities not covered by the covenant.

The Court rejected Already's alternative theories as not supportive of Article III standing.  Specifically, the Court concluded that neither Nike's theoretical freedom to assert its trademark (which Already argued would give rise to investor apprehension) nor Nike's prior suit (which Already argued gave rise to apprehension of another suit) are legally cognizable injuries to support standing.  As Justice Roberts explained, ' once it is ' absolutely clear' that challenged conduct cannot reasonably be expected to recur . . . the fact that some individuals may base decisions on ' conjectural or hypothetical' speculation does not give rise to the sort of ' concrete' and ' actual' injury necessary to establish Article III standing.'

The Court also rejected Already's ' sweeping argument' that no covenant, no matter how broad, can eradicate the effects of a registered but invalid trademark, noting that under such an approach, Nike's earlier-filed suit would not even be relevant to the jurisdictional issue inasmuch as Already, because it is a competitor to Nike, could initiate an action even without a threat of suit from Nike and with no plans to make anything resembling Nike's product.  As explained by Justice Roberts, ' [W]e have never accepted such a boundless theory of standing.'


In his concurring opinion, Justice Kennedy warned trademark holders that covenants are ' not to be taken as an automatic means . . .  to abandon a suit to avoid without incurring the risk of an ensuing adverse adjudication.'   Rather Justice Kennedy emphasized the Court's awareness that charges of trademark infringement can be market place disruptive and adversely affect business relations between the manufacturer alleged to have been an infringer and its distributors, retailers and investors. He noted that the ' mere pendency of litigation can mean that other actors in the marketplace may be reluctant to have future dealings with the alleged infringer.'   Alluding to Nike's awareness of this marketplace ' dynamic,' Justice Kennedy, noted: 

The formidable burden to show the case is moot ought to require the trademark holder, at the outset, to make a substantial showing that the business of the competitor and its supply network will not be disrupted or weakened by satellite litigation over mootness or by any threat latent in the terms of the covenant itself. It would be most unfair to allow the party who commences the suit to use its delivery of a covenant not to sue as an opportunity to force a competitor to expose its future business plans or to otherwise disadvantage the competitor and its business network, all in aid of deeming moot a suit the trademark holder itself chose to initiate.

Trademark Infringement

Once an ' Ale House,' Always an ' Ale House'

By Jeremy T. Elman

Addressing the issue of trademark and trade dress infringement in the context of a restaurant chain asserting common law trademark rights in the term ' ale house' and trade dress rights in the interior decorations of its restaurant, the U.S. Court of Appeals for the Eleventh Circuit affirmed a summary judgment ruling of no infringement.  Miller's Ale House, Inc. v. Boynton Carolina Ale House, LLC, Case No. 10-15140 (11th Cir., Dec. 20, 2012) (Tjoflat, J.).

The plaintiff, Miller's Ale House, has more than 50 locations, with the vast majority in Florida.  Each location has a different name, but all use the words ' Ale House,' such as ' Boynton Ale House.'   The plaintiff's restaurants share several common features, and the predecessor company obtained copyright protection for five different floor plans containing a different arrangement of common elements.  Defendant Boynton Carolina Ale House is a licensee of the creator of the ' Carolina Ale House' brand in North Carolina.  Each of defendant's locations has a different name, but all use the words ' Carolina Ale House' e.g., ' Boynton Carolina Ale House.'   Boynton Carolina opened up a ' Boynton Carolina Ale House' restaurant in Boynton Beach, Florida, after Miller's had already opened a ' Boynton Ale House.'   The two restaurants shared many common features, including walls made of wood, exposed kitchen, central bar, and similar server uniforms.  Nevertheless, there were several differences.  For example, the Boynton Carolina restaurant had an outdoor area while Miller's did not.  

Miller's sued Boynton Carolina for trademark and trade dress infringement under the Lanham Act.  The 11th Circuit, in affirming the district court's grant of summary judgment on all counts in favor of defendant, Boynton Carolina, held that the unregistered term ' ale house' was a generic term like ' bar,' ' lounge' or ' pub,' citing the U.S. Court of Appeals for the Fourth Circuit's Decision in Ale House Mgmt. v. Raleigh Ale House (2000).  The district court noted that Miller's had previously contested this very issue in the 4th Circuit case (to prevent the original Carolina Ale House from opening) and concluded it was how barred from relitigating the same issue again, i.e., by issue preclusion. 

Miller claimed that the term ' ale house' (the term that the 4th Circuit found was generic) was no longer generic as of the date of the present case, 2009, and that, as a consequence, issue preclusion did not apply.   The 11th Circuit disagreed, noting that even a changed perception of the mark in the ensuing 11 years was not enough to overcome issue preclusion, stating that ' [w]ere changed perception sufficient to warrant the elevation of a non-coined, generic term to trademark status, such change would have to be radical.'   The 11th Circuit concluded that Miller's evidence was not sufficient to show a radically changed perception of ' ale house' , since it only offered two declarations from individual customers, not evidence from, for example, a survey.  The 11th Circuit concluded that even though Miller's expanded its locations and spent money on advertising, it was not enough to show that the mark is no longer generic. 

As to the trade dress, the 11th Circuit affirmed that there was nothing ' particularly unique' about Miller's common features, which were typical of brewpubs or sports bars, such as the arrangement of the exposed kitchen, central bar and wood-paneled walls, among other non-distinctive features. 

Practice Note:  A finding of genericness of a trademark cannot be later avoided unless a mark's significance to the public is radically changed. 

Trademarks / False Advertising

Alternative Defense to False Advertising Claim Carries the Day

By Paul Devinsky

The U.S. Court of Appeals for the Eleventh Circuit has sua sponte reissued its earlier decision in a trademark and false advertising case, revising certain evidentiary rulings but not the outcome of the case between two charities claiming the same historical heritage.  Sovereign Military Hospitaller Order of Saint John of Jerusalem of Rhodes and of Malta v. Florida Priory of the Knights Hospitallers of the Sovereign Order of Saint John of Jerusalem, Case No. 11-15101 (11th Cir., Dec. 18, 2012) (Wilson, J.).

In its earlier decision (IP Update, Vol. 15, No.10) the dissent argued that the district court's admission of testimony about the history of the organizations by an individual affiliated with one of the parties was error.  In vacating its earlier decision, the 11th Circuit, in a unanimous opinion, agreed that the testimony was improperly admitted.  Notwithstanding that ruling, the case conclusion on false advertising remains unchanged.  In the reissued decision, the 11th Circuit looked to the district court's alternative decisional basis that did not rely on the now-excluded testimony.

The plaintiff is a religious order of the Roman Catholic Church that offers charitable services, while defendant is also a charitable organization, having an ecumenical, rather than Roman Catholic, association.  The plaintiff filed trademark infringement and false advertising claims under the Lanham Act and state law claims based on the defendant's use of word marks that were confusingly similar to the plaintiff's registered marks.  The plaintiff also claimed defendant falsely claimed a connection to plaintiff dating back to the 11th century.  The defendant counterclaimed, asserting that the plaintiff committed fraud on the PTO for failing to disclose the existence of other organizations that used similar word marks.

The district court ruled in favor of the defendant on all counts, finding that the plaintiff committed fraud on the PTO based on the defendant's use of a similar mark before the plaintiff. 

In its original decision, the 11th Circuit reversed the district court on its fraud holding that was based on a declaration in support of registration submitted by the applicant's representative attesting that there were no similar marks under 15 U.S.C. § 1051 (a)(3).  The 11th Circuit concluded that the representative could not have intended to deceive the PTO in attesting to an oath that he believed was entirely accurate, as he was personally unaware that any other organization was using the marks for which plaintiff sought a trademark.

The 11th Circuit found that it was error for the district court to rely on Global-Tech Appliances, a patent case, for the applicable standard for a claim of fraud on the PTO for a trademark.  The 11th Circuit found that standards cannot be imported between different intellectual property, such as patents and trademarks.  The appeals court also found that if a declarant subjectively believed the applicant has a superior right to use the mark, there is no fraud, even if the declarant was mistaken (such as in this case).

In its reissued decision the 11th Circuit has maintained its reversal of the district court's fraud finding and vacated the district court's judgment of no infringement of the design mark, explaining that the district court considered only one of the seven likelihood-of-confusion factors in Frehling Enterprises v. International Select Group.  However, with regard to the earlier split on the false advertising charge, the panel members in the reissued decision were now unanimous.

The false advertising claim involved the Florida Priory's advertising of a connection to the historic Order of Malta. The plaintiff claimed that this was a misrepresentation that had deceived its Catholic customers into contributing money to the interdenominational Florida Priory.

The factual issue rested on competing versions of events dating back prior to 1800. The district court adopted the version put forward by Florida Priory's purported expert to establish the historical connection. Reliance on that evidence was basis for the dissent voiced by Judge Pryor in the original 11th Circuit decision.

The expert evidence relied on by the district court was the testimony of the prince grand master of the Ecumenical Order, whose testimony admitted under Fed. R. Evid. 702.  Judge Pryor argued that the district court considered the testimony without first qualifying the witness as an expert as to the history on which he testified.

In the reissued opinion the 11th Circuit distinguished what each side believed to be the correct version of pre-1800 history of the Order of Malta.  However with regard to the false advertising claim, the underlying district court decision held that the Florida Priory could not be held liable for false statements for two reasons:  because it shared a pre-1800 history with plaintiff Order; and because (in the subject advertising) the Florida Priory did associate itself with the Ecumenical Order, a non-Catholic organization.

In its revised opinion, the 11th Circuit looked to the district court's second reason to affirm the judgment; noting that while the district court erred ' when it permitted ... a lay witness ... to testify about historical matters,' the error was harmless because the Florida Priory's defense based on the district court's alternative ground was sufficient. 

Trademarks / Scandalous

Is that Mark Funny, Scandalous or Both?

By Ulrika E. Mattsson

The U.S. Court of Appeals for the Federal Circuit agreed with the U.S. Patent and Trademark Office's (PTO) Trademark Trial and Appeal Board's (the Board) that the double entendré nature of a trademark does not necessarily cure its vulgarity.  In re Fox, Case No. 12-1212 (Fed. Cir., Dec. 19, 2012) (Dyk, J.).

Marsha Fox used the mark COCK SUCKER since 1976 to sell rooster-shaped chocolate lollipops.  In 2001, she applied to register her mark for use in connection with ' chocolate suckers molded in the shape of a rooster.'   The PTO examiner determined that the mark ' consists of or comprises immoral or scandalous matter' and argued that a dictionary defined ' cocksucker' as ' someone who performs an act of fellatio.' Citing the dictionary, Fox argued that there are other non-vulgar and more relevant definitions of the mark and specifically that Webster's Dictionary defines . . . a cock as a rooster, and . . . a sucker as a lollipop.' Given that she was labeling her products COCK SUCKERS (and not COCKSUCKERS) Ms. Fox argued that the public would be more prone to understand the non-vulgar meaning.  The PTO examiner issued a final refusal, reiterating the view that the widely known and strong unitary meaning of the mark in society would lend the meaning penis sucker to the ordinary consumer.  Fox appealed to the Board, which affirmed the examiner's refusal.  Fox then appealed to the Federal Circuit.

According to the Lanham Act, ' no trademark by which the goods of the applicant may be distinguished from the goods of others shall be refused registration on the principal register on account of its nature unless it (a) consists of or comprises immoral, deceptive, or scandalous matter.'   The PTO may prove scandalousness by establishing that a mark is vulgar, demonstrating that the mark is vulgar ' in the context of contemporary attitudes,' ' in the context of the marketplace as applied to only the goods described in the application' and ' from the standpoint of not necessarily a majority, but a substantial composite of the general public.'  

The Federal Circuit agreed with the Board, concluding that the distinction between COCKSUCKER and COCK SUCKER is a distinction without a difference. The Court concluded that any association of the mark with a poultry-themed product does not diminish the vulgar meaning - it merely establishes an additional, non-vulgar meaning and a double entendre.  Here, the Federal Circuit explained that the mark was intended to convey a double entendre, meaning both ' rooster lollipop' and ' one who performs fellatio.'   The Court said that just because a mark is whimsical and humorous does not mean it is not also entendre scandalous (and therefore unregistrable).

Trademark / Collateral Estoppel

Once and for All, the Pooh Belongs to Disney

By Melissa Nott Davis

The U.S. Court of Appeals for the Federal Circuit upheld the U.S. Patent and Trademark Office's Trademark Trial and Appeal Board's (the Board) dismissal of a challenge to Disney's trademark rights in A.A. Milne's Winnie-the-Pooh and other characters.  Stephen Slesinger, Inc. v. Disney Enterprises, Inc., Case No. 11-1593 (Fed. Cir., Dec. 12, 2012) (Rader, J.) (Reyna, J., dissenting).

In 1930 A.A. Milne transferred to SSI exclusive merchandising and other rights based on the Winnie-the-Pooh characters.  In 1961 SSI exclusively ' assigned, granted, and set over to' Walt Disney Productions the rights to the 1930 agreement with A.A. Milne.  In a 1983 agreement, SSI acknowledged it had transferred and assigned it rights to Disney in 1961, but then revoked the prior agreements and gave SSI ' all of the rights in the work which were transferred to [SSI] in 1930 and amended from time to time.'   SSI then transferred its rights, acquired in 1930, back to Disney as well as ' various further rights in and to said work, which include merchandise,' television, radio and analogous processes.  Not surprisingly, the parties interpret the agreement differently' SSI contends it retained the rights in the Winnie-the-Pooh works while Disney maintains that SSI assigned all its rights to Disney.  The parties have been locked in litigation for decades, including in state and federal courts as well as at the Board.  Importantly, in one of the state court actions, SSI acknowledged that the 1983 agreement ' regranted, licensed and assigned all [. . .] acquired rights to Disney.'   In a later case before a federal district court, that court analyzed SSI's state court statements and found SSI estopped from arguing that it retained any interest in Winnie-the-Pooh.

In the action underlying the Federal Circuit's opinion, SSI sought to cancel Disney applications to register various Pooh related marks.  SSI claimed the agreement with Disney was a license that did not grant Disney the right to register marks while Disney maintained that the 1983 agreement assigned all the Winnie-the-Pooh rights to Disney.  After the Board granted summary judgment to Disney based on collateral estoppel, SSI appealed to the Federal Circuit. 

The Federal Circuit analyzed each element of the collateral estoppel doctrine, specifically a prior action presents an identical issue; the prior action actually litigated and adjudged the issue; the judgment in that prior action necessarily required determination of the identical issue; and the prior action featured full representation of the estopped party.  Based on that analysis, the Court concluded that SSI's prior statements and the district courts' holdings in earlier cases met each element and that SSI was estopped from claiming otherwise.  The Federal Circuit thus upheld the Board, explaining that SSI could not take contradictory positions in serial litigation and had no remaining rights to assert a claim that its 1983 grant of rights was anything other than a complete assignment of its rights.

Trademarks / EU

CJEU Holds that Territorial Borders of EU Member States Must Be Disregarded in Determining Use of Trademarks

By Désirée Fields

The Court of Justice of the European Union (CJEU) has held that the territorial borders of EU member states must be disregarded in determining whether a trademark has been put to genuine use in the European Community. Use of a European Community trademark in a single EU member state may not necessarily be sufficient, although there is no need for a trademark use to extend throughout an extensive geographic area for the use to be deemed genuine. Leno Merken BV v. Hagelkruis Beheer BV, [2012] C-149/11 (Dec. 19, 2012).

Leno owned a European Community trademark for the word mark ONEL covering services in Classes 35, 41 and 42 and opposed a later application by Hagelkruis to register the word OMEL as a Benelux trademark in Classes 35, 41 and 45.  Hagelkruis requested that Leno furnish proof of use of the trademark in accordance with Article 15 of Regulation 207/2009 which provides that a trademark becomes vulnerable to revocation for non-use if its owner has not put it to genuine use in the European Community for an uninterrupted period of five years.  In response, Leno provided proof of use in only one EU member state, the Netherlands. 

The Benelux Office for Intellectual Property rejected the opposition on the ground that Leno had not shown that it had put the ONEL trademark to genuine use during the five-year period preceding Hagelkruis' application for OMEL.  Leno appealed the decision to the Regional Court of Appeal in The Hague, which stayed the proceedings to refer a number of questions on genuine use to the CJEU.

It was common ground between the parties that the two trademarks were similar, that they were registered for identical or similar services and that use of the later mark OMEL was liable to give rise to a likelihood of confusion with ONEL.  The parties also agreed that Leno had put its mark to genuine use in the Netherlands.  However, the parties disagreed on the interpretation of ' genuine use' as referred to in Article 15, in particular, on the extent of the territorial area that was required for such use.

The CJEU interpreted Article 15 as meaning that the territorial borders of EU member states should be disregarded in assessing whether a trademark has been put to genuine use in the European Community. 

The CJEU further concluded that a trademark was put to genuine use when it was used in accordance with its essential function and for the purpose of maintaining or creating market share within the European Community for the goods or services covered by it.  It was for national courts to assess whether the conditions for genuine use were met, taking into account all the relevant facts and circumstances, including the characteristics of the market concerned, the nature of the goods or services protected by the trademark and the territorial extent and the scale of use as well as its frequency and regularity. Territorial scope of use was not a separate condition for establishing genuine.  Rather, it was only one of the factors to be taken into account in the overall assessment of genuine use. 

The CJEU noted that there was some justification for thinking that a European Community trademark should, on the basis that it enjoyed more extensive territorial protection than a national trademark, be used in a larger area than the territory of a single member state in order for use to be regarded as ' genuine.'   However, it could not be ruled out that, in certain circumstances, use in the territory of a single member state could satisfy both the conditions for genuine use of a European Community trademark and genuine use of a national trademark.  There was no need for the trademark to be used in an extensive geographic area for it to be deemed genuine.

Practice Note:  The CJEU noted that the assessment of whether use of a trademark is genuine must be carried out by reference to all the facts and circumstances relevant to establishing whether the commercial exploitation of the mark serves to create or maintain market shares for the goods or services for which it was registered.  Accordingly, the CJEU found that it was impossible to determine in the abstract what territorial scope should be chosen in order to determine genuine use and declined to lay down a de minimis rule, leaving national courts to appraise all the circumstances of disputes on a case by case basis.

Copyright / Personal Jurisdiction

Intentional Infringement of Copyright with Knowledge of Copyright Owner's Forum Supports Claim of Personal Jurisdiction

By Elisabeth (Bess) Malis Morgan

The U.S. Court of Appeals for the Ninth Circuit, reversing a district court decision, held that an Arkansas retail company was subject to personal jurisdiction in Washington even though the only contact with that state was a claim of willful infringement of a copyright held by a Washington corporation.  Washington Shoe Company v. A-Z Sporting Goods, Inc., Case Nos. 11-35166, 11-35206  (9th Cir., Dec. 17, 2012) (Bybee, J.).

Plaintiff Washington Shoe, a Washington corporation that manufactures footwear, became aware that its customer, retailer A-Z Sporting Goods, offered for sale certain boots that infringed the designs of those manufactured by Washington Shoe.  After receiving multiple cease-and-desist letters from Washington Shoe, A-Z removed the allegedly infringing boots (which it purchased from China) from its store and sold off the remaining inventory to a thrift store.  Washington Shoe brought suit in federal court in Washington State for copyright infringement, among other claims.  A-Z moved to dismiss the case for lack of personal jurisdiction and the district court granted A-Z's motion.  Washington Shoe appealed.

The issue on appeal was whether non-resident defendant, A-Z, satisfied the first prong of the minimum contacts test, namely, whether it purposefully availed itself of the benefits and protections of the state of Washington or whether it purposefully directed its activities at the state of Washington.  The 9th Circuit applied the ' purposeful direction' or ' effects' test from the 1989 U.S. Supreme Court case of Calder v. Jones, which allows courts to exercise personal jurisdiction over a defendant that engages in an intentional act, aimed at the forum state that causes harm in the forum state. 

Considering these elements in connection with Washington Shoe's willful copyright infringement claim, the 9th Circuit concluded that A-Z committed an ' intentional act' within the meaning of Calder by purchasing the allegedly infringing boots from China, selling the boots at the same store where A-Z sold Washington Shoe footwear and selling off its inventory of boots to a thrift store despite receiving Washington Shoe's cease-and-desist letters.  Second, the 9th Circuit reasoned that A-Z's actions were aimed at the forum state because A-Z knew that its intentional acts would impact Washington Shoe's copyright by virtue of the cease and desist letters it had received and A-Z knew, or should have known, that Washington Shoe is a Washington company.  Finally, the Court held that economic harm to the forum state was foreseeable because it is the principal place of business of the copyright holder.

Based on the foregoing, the 9th Circuit held that the district court erred in dismissing the action based on lack of personal jurisdiction; it reversed and remanded.

Trade Secret / Misappropriation / Criminal Prosecution

Economic Espionage Act Exposed

By Stephen M. Yu

Addressing what the chairman of the House Judiciary Committee referred to as a ' dangerous loophole that demands our attention,' President Obama enacted the Theft of Trade Secrets Clarification Act of 2012 (S. 3642).  The legislation removes the apparent loophole in the Economic Espionage Act of 1996 (EEA), which restricted the government's ability to prosecute theft of certain trade secrets.  The bill was enacted in the wake of a controversial decision by the U.S. Court of Appeals for the Second Circuit in United States v. Aleynikov, in April of 2012.  (See IP Update, Vol. 15, No. 5).

Under the old EEA, 18 U.S.C. § 1832(a), it is a criminal offense to intentionally ' convert a trade secret, that is related to or included in a product that is produced for or placed ininterstate or foreign commerce, to the economic benefit of anyone other than the owner.'   The apparent flaw, which allowed a computer programmer to be found not guilty of theft after taking proprietary source code from his former employer to a new employer, hinged on the words ' produced for or placed in' commerce.  The 2d Circuit reasoned that the stolen code was used strictly internally and with no intention of selling or licensing it to anyone.  Therefore, the 2d Circuit reasoned that under the facts of the Aleynikov case, the code was neither ' produced for' nor ' placed in' interstate or foreign commerce.

The new legislation replaces the language ' a product that is produced for or placed in interstate' with ' a product or service used in or intended for use in interstate or foreign commerce [. . .].'   The bill was introduced by Sen. Patrick Leahy (D-Vt.) and Sen. Herbert Kohl (D-WI) on November 27, 2012 and quickly received the unanimous consent of the Senate, majority approval by the House of Representatives and the signature of the president.

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