Friday, September 28, 2012

The Price of Fame in China

A recent series of arrests in China highlight the difficulties with obtaining trademark “fame” in that country, and the lengths that companies and attorneys may sometimes go to establish that fame. See July 20, 2012 article.

The arrests also serve as a reminder of how critical anti-corruption compliance policies and procedures are to any organization with a global footprint.

Maximizing brand recognition has grown extremely difficult in China, a market flooded with both legitimate and illegitimate marks. Given this competition, establishing a trademark as a “well-known” or “famous” has grown even more important.

In China, such a designation bestows upon the owner certain familiar advantages, including legitimacy and credibility in the eyes of Chinese consumers, and tactical advantages in intellectual property disputes. Read The American Chamber of Commerce People’s Republic of China’s Discussion.

“Well-Known Trademark” Options

Companies seeking a “well-known trademark” designation in China have two options. See King and Wood’s 2008 publication.

First, a company may seek approval from a series of local and national trademark authorities—an often long (up to three years), onerous and expensive process.

Companies can also seek a “well-known trademark” designation through the Chinese judicial system. Chinese courts have the authority to declare a mark “well-known” if the issue is presented in the course of a trademark infringement lawsuit.

More often than not, companies pursue the second option and “fast-track” their efforts, seeking a judicial declaration that their trademark is “well-known.”

“Well-Known Trademark” Exploited in China


It was recently reported that the judicial recourse option has been illegally exploited by a number of attorneys and companies. According to the report, these companies have filed fake trademark infringement lawsuits with the sole purpose of establishing that the trademark is well-known or “famous.” Attorneys for these companies allegedly hired individuals to serve as dummy “defendants” in their lawsuits, accused of infringing the company’s trademark.

The attorneys also allegedly paid bribes to the judges hearing the cases to rule in their favor and declare that the marks are, in fact, well-known. The bogus lawsuits wound their way through the Chinese judicial system at a rapid pace—much more quickly than the potential three-year administrative process—and succeeded in obtaining this designation for several marks.

The scheme came to light when a Taiwanese soy milk manufacturer, whose trademark suffered as a result of a Chinese competitor’s allegedly fake litigation and subsequent well-known designation, “smelled a rat” and alerted the authorities. The authorities apparently received similar allegations from other entities, and initiated an inquiry. During the course of their investigation, one Chinese attorney, Zheng Lifang, apparently confessed to accepting over 1 million  (Chinese yuan) from clients to pursue fake lawsuits, some of which was used to bribe Chinese judges.

To date, at least six judges and three attorneys have been arrested in connection with this scheme, and some have speculated that the problem is far more wide-spread within the Chinese legal community. See July 20, 2012 article.

White Collar Crime Crashes Into Trademark Law


While trademark law may rarely intersect with white collar crime, these arrests provide an excellent example of how the two worlds can collide.

Companies that participate in schemes such as those alleged to have occurred in China could face significant civil and criminal exposure under both Chinese anti-bribery laws, and the U.S. Foreign Corrupt Practices Act (“FCPA”).

The FCPA prohibits giving or authorizing payments or anything of value to non-U.S. officials (e.g., judges) for the purpose of obtaining or retaining business. The statute also subjects companies to punishment for the acts of third-party intermediaries acting on their behalf. This would include the Chinese attorneys hired to prosecute the fake infringement actions and pay bribes to judges. The conduct alleged here would fall squarely within the elements of the FCPA, and could lead to domestic civil and criminal prosecutions of both the company and any individuals that knew about or authorized the activity.

These allegations serve as a reminder to companies of the importance of implementing and supporting robust anti-corruption policies and procedures, to guard against improper conduct in all foreign activities, including intellectual property prosecution. Companies should keep close tabs on the activities of third-party entities acting on their behalf, especially in high risk countries like China.

Sources: Heyan, W.: Fake lawsuits behind China’s ‘famous’ brands, Caixin Online (July 20, 2012); The American Chamber of Commerce People’s Republic of China; Jing, X., Ye, Z.: Judicial Recognition of Well-known Trademarks in China, King & Wood (2008).

This article was prepared by Josh Foster (jfoster@fulbright.com / 212 318 3282) of Fulbright’s White Collar Crime and Intellectual Property and Technology Practice Groups.

Thursday, September 27, 2012

Trademark Licenses in Bankruptcy Proceedings

What would happen if your counterparty to a trademark license entered bankruptcy proceedings?

The question has implications for licensors and licensees alike, and should be a standard consideration when drafting any trademark license.

Recent opinions from several federal appellate courts underscore the importance of understanding how bankruptcy proceedings can affect the rights of a trademark licensee, even years after a license agreement was signed.

Further, these decisions provide some guidance to drafters of license agreements seeking to anticipate the risks and challenges presented by a counterparty’s bankruptcy. Finally, the Sunbeam Products case, discussed below, tees up questions about the rights of trademark licensees for potential decision by the U.S. Supreme Court.

Background

A trustee (or debtor-in-possession) in a Chapter 11 bankruptcy is typically allowed to assume or reject any of the debtor’s “executory contracts,” which are generally understood to mean those contracts in which material obligations have yet to be performed by each contracting party.

Recognizing the difficulty and uncertainty that the rejection of license agreements can cause for licensees of intellectual property, Congress enacted § 365(n) of the Bankruptcy Code, which aimed to protect licensees by extending the right to continue using certain intellectual property despite a debtor-licensor’s rejection of an executory contract.

The protections of § 365(n), however, do not apply to the trademark licensee, as the Bankruptcy Code’s definition of "intellectual property" includes patents, copyrights and trade secrets, but does not include trademarks. See 11 U.S.C. §101(35A).

In re Interstate Bakeries Corporation

On August 30, 2012, the Eighth Circuit affirmed that a perpetual, royalty-free, assignable, transferable and exclusive license for trademarks associated with two lines of white bread was an executory contract, which could be assumed or rejected under Bankruptcy Code § 365(a)). See Aug. 30, 2012 In re Interstate Bakeries Corporation Opinion.

In 1995, as part of its acquisition of Continental Baking Company (owner of the Wonder Bread and Hostess brands and trademarks), Interstate Bakeries Corporation responded to antitrust concerns about the deal by agreeing to “to divest itself of certain rights and assets to allow the acquisition to go through, in order to create viable competition of ‘White Pan Bread’ in and around the Chicago, Illinois, area.” In re Interstate Bakeries Corp. Opinion, 690 F.3d 1069 (8th Cir. 2012).

As a result, Interstate entered into an asset purchase agreement to sell two lines of bread—Butternut Bread and Sunbeam Bread—to a third-party, Lewis Brothers Bakeries, along with a “‘perpetual, royalty-free, assignable, transferable, exclusive’” license to use the brands and trademarks in the [companies’] respective areas.”

Nearly ten years later, Interstate filed Chapter 11. See Bankruptcy Petition.

In the bankruptcy proceedings, the trustee for Interstate sought to classify the license agreement with Lewis Brothers as an executory contract, subject to assumption or rejection under § 365. See Motion.

In turn, Lewis Brothers sought a declaratory judgment that the license agreement was not executory—or in other words, that it was not subject to assumption or rejection. See Complaint for Declaratory Judgment.

In deciding this issue, the appellate court focused on the Countryman test, which considers whether material obligations remain unperformed on each side of the contract.

In this regard, the court found the contract to be executory because the licensee, Lewis Brothers, remained subject to quality-control standards while the licensor, Interstate, was bound by notice and forbearance provisions, along with infringement-related obligations related to the trademarks at issue. See Aug. 30, 2012 In re Interstate Bakeries Corporation Opinion.

In reaching its decision, the Eighth Circuit distinguished the Third Circuit’s opinion in In re Exide Technologies, 607 F.3d 957 (3d Cir. 2010), which also involved a “perpetual, exclusive, royalty-free license” incident to an asset purchase agreement.

The Eighth Circuit found that—unlike the license agreement at issue in Exide Technologies, which included weak quality-control provisions—the quality-control provisions in the agreement between Interstate and Lewis Brothers were more robust and therefore material to the parties’ bargain, which meant that the license agreement continued to be an executory contract long after its execution. June 1, 2010 Opinion.

Sunbeam Products. Inc.

In July 2012, the Seventh Circuit also issued an opinion with potentially far-reaching effects for trademark licensees.

In Sunbeam Products, the Seventh Circuit squarely rejected the Fourth Circuit’s longstanding decision in Lubrizol Enterprises, and set the stage for a potential Supreme Court ruling on the effect of a debtor-licensor’s decision to reject a trademark license. July 9, 2012 Sunbeam Opinion; see Lubrizol Enters., Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985).

Lubrizo held that when a trustee acting on behalf of a debtor/licensor rejects a license agreement, the licensee loses the right to use the licensed intellectual property—in light of subsequent amendments to the Bankruptcy Code.

In Sunbeam Products, however, the Seventh Circuit, ultimately held that while a debtor is able to reject an executory contract pursuant to § 365(n), “nothing about this process implies that any rights of the other contracting party have been vaporized.” Sunbeam Prods., 686 F.3d at 377.

As the court noted, “outside of bankruptcy, [the debtor/licensor] could not have ended [the licensee’s] right to sell the box fans by failing to perform its own duties . . . ,” and that nothing in §365 affects this. Id. at 377. For a further discussion of Sunbeam Products, see July 11, 2012 Publication.

The Sunbeam Products decision also echoes elements of the concurrence in the Third Circuit’s opinion in Exide Technologies (discussed above), which suggested that a rejection of a license in bankruptcy should operate simply as a breach of the contract rather than a termination of the licensee’s right to use the mark. See In re Exide Technologies, 607 F.3d 957, 964 (3d Cir. 2010), as amended (June 24, 2010) (Ambro, J., concurring).


Sources: In re Interstate Bakeries Corp., No. 11–1850, (8th Cir. Aug. 30, 2012); Sunbeam Prods. Inc. v. Chi. Am. Mfg. LLC, 686 F.3d 372, 375 (7th Cir. 2012); Lubrizol Enters., Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985); In re Exide Technologies, 607 F.3d 957 (3d Cir. 2010); In re Interstate Bakeries Corp., Bankruptcy Petition No: 04-45814-jwv11 (W.D. of Missouri).

This article was prepared by Christopher Weimer (cweimer@fulbright.com / 512 536 4553) of Fulbright’s Intellectual Property and Technology Practice.

Monday, September 24, 2012

Fulbright Hosts Oct. 2 Web Seminar: Crisis Communication Concerning Thorny Legal Problems - Protecting Your Company’s Reputation

As U.S. District Judge Lewis Kaplan has said, “Dealing with the media in a high profile case probably is not a matter for amateurs…"

On Oct. 2, 2012, Fulbright will host a webinar forum with the president of a top strategic communications firm, an in-house counsel experienced in crisis management and two Fulbright senior litigators discussing key considerations for protecting a company's reputation in a crisis. 

For more information on this Fulbright Forum, register online for the Fulbright web seminar "Crisis Communication Concerning Thorny Legal Problems - Protecting Your Company’s Reputation."

Friday, September 21, 2012

International AntiCounterfeiting Coalition Reaches Chinese Counterfeiting Agreements

In an important development, the International AntiCounterfeiting Coalition (“IACC”) announced that it has reached agreements with two major online platforms in China, Taobao Marketplace and DHgate, to fight online counterfeit goods. The agreements envision cooperation to develop best practices to deal with online counterfeits, use suitable technologies and develop educational materials for buyers and sellers.

The agreements represent a continuation of the IACC’s private sector voluntary efforts to address online counterfeiting. The IACC previously established an innovative program with the payment processing industry to identify and prevent illegal commercial transactions online.  

This article was prepared by Mark Mutterperl (mmutterperl@fulbright.com / 212 318 3183) of Fulbright’s Intellectual Property and Technology Practice.

Advertising, Websites, and Children’s Privacy

Part of protecting a brand includes compliance efforts for advertising and websites in order to avoid unwanted regulatory attention. On September 6, 2012, the manufacturer of BMX bicycles—USA BMX/BMX Canada—agreed to modify its website in response to an inquiry by the Children’s Advertising Review Unit (“CARU”). See Sep. 6, 2012 CARU Press Release.

CARU is administered by the Council of Better Business Bureaus; the unit routinely monitors websites for compliance not only with federal law relating to children’s privacy but also with CARU’s self-regulatory program.

BMX Website Not Screened for Children 13 and Under


The BMX matter involved an advertisement in Sports Illustrated Kids Magazine that featured children riding BMX bicycles. The advertisement invited children to race their bikes at different locations in the U.S. in connection with a special event. Readers could register for the event at BMX’s website. This website registration allowed visitors to post their first and last names, email addresses, and passwords. The site did not screen registrants to determine whether they were age 13 or older prior to collecting that information.

The Federal Trade Commission’s current regulation under the Children’s Online Privacy Protection Act (COPPA) imposes restrictions on companies that operate websites or provide online services directed at children under the age of 13, and those companies that have actual knowledge that they are collecting personal information online from children under 13. In addition to those federal requirements, CARU has guidelines relating to advertising directed towards children. Upon receiving CARU’s initial inquiry, USA BMX / BMX Canada stated that it would bring the website into compliance with COPPA and CARU’s guidelines.

The FTC and Children’s Privacy


This matter demonstrates the importance of coordinating a brand’s advertising and a company’s website for compliance not only with federal requirements but also with industry guidelines. CARU is a self-regulatory organization. If a company decides not to participate or if it refuses to change its advertising after an adverse decision, the matter can be referred to the Federal Trade Commission. The FTC takes children’s privacy matters very seriously, most recently shown by its consent order settling a case with RockYou, which included a civil penalty of $250,000. See March 27, 2012 FTC Press Release and Consent Decree.

Sources: The Advertising Self-Regulatory Council; Federal Trade Commission; and United States of America vs. RockYou, Inc., Case No. 12-cv-1487 (N.D. Cal.).

This article was prepared by Sue Ross (sross@fulbright.com / 212 318 3280) of Fulbright’s Privacy,Competition and Data Protection Practice.

Wednesday, September 19, 2012

6th Circuit Rules Energy Drink Makers Can Take Their Shots With A Jury

Last Thursday, the Sixth Circuit resurrected a trademark infringement claim and a false advertising counterclaim involving the competing “energy shot” vitamin drinks “5-hour ENERGY™” offered by Innovation Ventures, LLC, d/b/a Living Essentials (“LE”) and “6 Hour POWER” from N.V.E., Inc. (NVE).  See Sep.13, 2012 Decision.

5-Hour Energy Mark More Than Descriptive

The Sixth Circuit first addressed the question of whether LE’s “5 hour ENERGY” mark was suggestive and distinctive – rather than merely descriptive – and thus eligible for trademark protection.

Though observing the mark could be viewed as merely descriptive “in the sense that it simply describes a product that will give someone five hours of energy,” the Court held “[t]he connection between ‘5-hour’ and ‘ENERGY’ is not so obvious that a consumer seeing 5-hour ENERGY in isolation would know that the term refers to an energy shot rather than, for example, a battery for electronics, an exercise program, a backup generator, or a snack for endurance sports.”

The appellate court concluded that connecting LE’s “5-hour ENERGY” mark with the product “requires imagination and perception to determine the nature of the goods.”

NVE Mark May Create Confusion

The Sixth Circuit also held there was a triable question of whether there was a likelihood of confusion between LE’s and NVE’s marks.  LE had offered evidence of intentional copying as well a survey on, and alleged actual instances of, consumer confusion. Taken together, the Court held “[t]his factually intensive issue is a close call,” and as such was for the jury to decide.   The lower court’s grant of summary judgment on the claim was reversed.

LE Recall Notice Not Literally False

NVE’s false advertising counterclaim arose from LE’s victory in an unrelated suit.  LE had sued a third company, N2G Distributing, which marketed a “6 Hour ENERGY Shot.”  N2G used notably similar trade dress as LE’s product, and LE was granted injunctive relief.  See LE Prelim. Inj.

LE then created and distributed a Legal Notice and a “Dear Customer” letter entitled: “RECALL of ‘6-HOUR ‘SHOT ORDERED,” alerting 100,000 retailers: “Court orders immediate stop to manufacturing, distributing and sale of 6 Hour Energy shot,” and advising the “knock-off” product be returned to the distributor.  Although only the N2G product was subject to the injunction, LE’s notice/letter said:

If you have any of the “6 Hour” energy shots in your store(s) or warehouse(s) contact the product’s manufacturer or your distributor to return the product immediately. [1]
The Sixth Circuit noted this language “teeters on the cusp between ambiguity and literal falsity.”  “By saying ‘any’ of the shots, the notice suggests that any shot bearing the name ‘6 Hour’ was subject to recall.”  On the other hand, the documents also used the definite article “the”“suggest[ing] that there is only one specific product at issue.”  Ultimately, the court concluded, the meaning of the notice/letter depended on context.  “And ‘it depends’ cannot support a claim of literal falseness.”

“Hearsay” Evidence Sufficient to Raise Issue of Confusion

Literally true advertisements can still violate the Lanham Act if they are misleading and cause consumer confusion.  Overturning the lower court’s refusal of evidence of confusion as “hearsay,” the Sixth Circuit held NVE presented sufficient evidence to send the question of consumer confusion to the jury.  The court pointed to evidence that NVE and its distributors received numerous calls and faxes from retailers questioning if they should return NVE’s product.

The Sixth Circuit rejected a strict application of the rules of evidence to a claim that depends on showing customer confusion, reasoning “[t]he fact that so many people called N.V.E. immediately after receiving the notice at the very least raises a genuine issue of material fact as to whether a significant portion of the recipients were misled.”  Ultimately, “[w]hether the evidence shows that the retailers were tricked into believing an untruth about ‘6 Hour POWER’ is an issue for trial.”

While reinstituting the competing Lanham Act claims, the Sixth Circuit affirmed summary judgment on NVE’s Sherman Act § 2 claim, also based on LE’s recall notice.

Cases: Innovation Ventures, LLC, d/b/a Living Essentials v. N.V.E., INC., Case Nos. 10-2353, 10-2355, (6th Cir. Sep. 13, 2012); Innovation Ventures, LLC, d/b/a Living Essentials v. N2G Distributing, Inc., Case No. 08-cv-10983 (E.D. Mich.); Innovation Ventures, LLC, d/b/a Living Essentials v. Body Dynamics, Inc. d/b/a BDI Marketing, Case No. 08-12711 (E.D. Mich.)

The article was prepared by Andre Hanson (ahanson@fulbright.com / 612 321 2231) and Saul Perloff (sperloff@fulbright.com / 210 270 7166) of Fulbright’s False Advertising Practice.


[1] NVE wasn’t the only 6 Hour shot maker to complain about LE’s recall notice and letter.  In March 2009, Body Dynamics, Inc., marketer of “ Mini Thin Rush” – which is labeled to provide “6 Hour Energy!” – won a preliminary injunction against LE due to the documents.   See BDI Prelim. Inj.

Tuesday, September 18, 2012

Using Design Patents to Bridge the Gap in a Package Redesign

Over at Fast Company’s Co.DESIGN blog, Christine Hall and Dale Doyle of Landor Associates offer some tips on getting the most out of packaging redesign, using their design of the packaging for Kraft Foods’ new MiO liquid water flavor enhancer as a case study.

Among other things, Hall and Doyle recommend thinking about packaging as a project without an end date, and making the “evolution of packaging” a regular conversation. They also recommend partnering with a branding and packaging firm to identify the strongest aspects of a product and communicate those with the packaging. Finally, they suggest incorporating trends from other industries into packaging. By following these tips, MiO has become a $100 million brand for Kraft in just a few short years.

We would add one more item to Hall and Doyle’s list: Protect your new packaging! In Kraft’s case, the food giant secured a federal trademark for the MiO wordmark (Reg. No. 4,168,532) for “pre-packaged preparations for making beverages, namely, fruit drinks, soft drinks, tea-flavored drinks, sports drinks and energy drinks.”

Packaging may also be eligible for trade dress protection if it is either inherently distinctive or has acquired secondary meaning and is not functional. To be protectable, trade dress must be instantly identifiable in customers’ minds, which requires strong sales over several years and robust advertising. Like trademarks, trade dress protections can continue indefinitely as long as the trade dress serves to identify the source of the product.

Kraft obtained several design patents that it can use to bridge the gap between product launch and trade dress eligibility:
These patents may grant Kraft a monopoly to exclude others from using the claimed ornamental designs for fourteen years. Kraft can use this period to associate the MiO packaging to the MiO product in the minds of its customers, so that by the time the patents expire, the packaging will be eligible for trade dress protection.

Awareness of the protections available for brand packaging designs will only grow in importance. Indeed, in recent years, there has been an apparent increase in trade dress infringement suits by brand owners against those who make look-alike packaging for store brands. Following Kraft’s lead, a brand company may consider using the complimentary protections of trademarks, design patents, and trade dress to ensure that products are protected to the fullest extent throughout their lifecycle.

This article was prepared by Andy Liddell (aliddell@fulbright.com / 512 536 3043), Saul Perloff (sperloff@fulbright.com / 210 270 7166) and Mark Mutterperl (mmutterperl@fulbright.com / 212 318 3183) of Fulbright’s Intellectual Property and Technology Practice.

Friday, September 14, 2012

En Banc Federal Circuit Addresses ‘Joint Infringement’ Standard

On August 31, 2012, the Federal Circuit, sitting en banc, addressed the "problem of divided infringement." Akamai Techs., Inc. v. Limelight Networks, Inc., No. 2009-1372, slip op. at 10 ("Akamai").

In granting en banc rehearing in Akamai, the court requested briefing on the question: "If separate entities each perform separate steps of a method claim, under what circumstances would that claim be directly infringed and to what extent would each of the parties be liable?" Akamai Techs., Inc., No. 2009-1372, slip op. at 2 (April 20, 2011).

A majority of six of 11 judges ultimately did not address direct infringement. See Akamai at 10. Instead, the majority held "that all the steps of a claimed method must be performed in order to find induced infringement, but that it is not necessary to prove that all the steps were committed by a single entity." Id.

In doing so, the court overruled, at least in part, its prior decision in BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007). See id.

BMC and Muniauction
At issue in Akamai were two prior Federal Circuit decisions: BMC and Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008). In BMC, defendant Paymentech provided a computerized system for verifying and paying debit transactions. 498 F.3d at 1375-76. Paymentech did not direct or control the performance of separate process steps performed by the debit networks and financial institutions. Id. at 1381-82.

The Federal Circuit panel held that because Paymentech did not direct or control the actions of the entities, no one party performed all of the steps of the claimed process, precluding a finding of direct infringement. Id. at 1382. The panel further held that without a finding that some party amongst the accused actors directly infringed, there could not be induced or contributory infringement. Id. at 1379.

In Muniauction, the claimed invention was a method of conducting bond auctions over an electronic network, and Muniauction argued that the defendant Thomson directly infringed by controlling access to its auction system and instructing bidders on participating in the system. 532 F.3d at 1321-23.

The Federal Circuit panel expanded upon the direction or control standard of BMC, stating that this "standard is satisfied in situations where the law would traditionally hold the accused direct infringer vicariously liable for the acts committed by another party." Id. at 1330.

Because the plaintiff had not identified any situation in which Thomson would be subject to vicarious liability, the panel held that Thomson did not directly infringe as a matter of law. Id.

En Banc Decision

The Akamai majority, in an unsigned per curium opinion joined by Chief Judge Radar and Judges Lourie, Bryson, Reyna, Moore, and Wallach, concluded that "[b]ecause the reasoning of our decision today is not predicated on the doctrine of direct infringement, we have no occasion at this time to revisit any of those principles regarding the law of divided infringement as it applies to liability for direct infringement under 35 U.S.C. § 271(a)." Akamai at 10.

 Instead, the court addressed the "doctrinal problem[]" that "when the acts necessary to give rise to liability for direct infringement are shared between two or more actors," the court stated that "[r]ecent precedents of this court have interpreted section 271(b) [inducement] to mean that unless the accused infringer directs or controls the actions of the party or parties that are performing the claimed steps, the patentee has no remedy, even though the patentee's rights are plainly being violated by the actors' joint conduct. We now conclude that this interpretation of section 271(b) is wrong as a matter of statutory construction, precedent, and sound patent policy." Id. at 9-10.

The court thus held "that all the steps of a claimed method must be performed in order to find induced infringement, but that it is not necessary to prove that all the steps were committed by a single entity." Id. at 10. In doing so, the court "reconsider[ed] and overrule[d] the 2007 decision of this court in which we held that in order for a party to be liable for induced infringement, some other single entity must be liable for direct infringement." Id.

"Because liability for inducement, unlike liability for direct infringement, requires specific intent to cause infringement, using inducement to reach joint infringement does not present the risk of extending liability to persons who may be unaware of the existence of a patent or even unaware that others are practicing some of the steps claimed in the patent." Id. at 14, n. 1.

The court then turned to the predicate underlying inducement and stated that there cannot be inducement without performance of "acts necessary to infringe," but "[r]equiring proof that there has been direct infringement as a predicate for induced infringement is not the same as requiring proof that a single party would be liable as a direct infringer." Id. at 16 (emphasis in original).

The court observed that a "party who knowingly induces others to engage in acts that collectively practice the steps of the patented method—and those others perform those acts—has had precisely the same impact on the patentee as a party who induces the same infringement by a single direct infringer; there is no reason, either in the text of the statute or in the policy underlying it, to treat the two inducers differently." Id.

To support this conclusion, the court turned to the structure of the statute itself, the legislative history, and criminal statutes and the Restatement of Torts by analogy. See id. at 17-26.

Addressing the statute, the court noted that section 271(a) "states that a person who performs the acts specified in the statute 'infringes the patent,'" while "[n]othing in the text indicates that the term 'infringement' in section 271(b) is limited to 'infringement' by a single entity." Id. at 17. That is, "[s]ection 271(a) does not define the term 'infringement,' but rather simply sets forth a type of conduct that qualifies as infringing." Id. at 26.

The court also noted that later-added subsections of 271 define other forms of infringement in which "the statutory term 'infringer' does not advert to the requirements of section 271(a)." See id. at 26-27. Finally, the court distinguished the Supreme Court's decision in Aro Mfg. Co. v. Convertible Top Replacement Co., 365 U.S. 336, 341 (1961) by stating that "the Aro Court, dealing only with product claims, was not presented with the divided infringement question we address today." Id. at 31.

The court distinguished "[t]he cases that predated Aro" by stating that those cases "emphasized that what was induced was the fact of infringement, not liability for direct infringement by a single actor." Id. at 32.

Application to Akamai and McKesson

The court vacated judgments of noninfringement and remanded for further proceedings in both cases subject to the opinion. In Akamai, the "claimed method consists of placing some of a content provider's content elements on a set of replicated servers and modifying the content provider's web page to instruct web browsers to retrieve that content from those servers." Id. at 11.

Akamai accused defendant Limelight of performing all claimed steps except "modify[ing] the content providers' web pages," and "Limelight instructs its customers on the steps needed to do that modification." Id.

The court held that on remand, "Limelight would be liable for inducing infringement if the patentee could show that (1) Limelight knew of Akamai's patent, (2) it performed all but one of the steps of the method claimed in the patent, (3) it induced the content providers to perform the final step of the claimed method, and (4) the content providers in fact performed that final step." Id. at 36.

In the companion case McKesson Technologies, Inc. v. Epic Systems Corp., No. 2010-1291, the patent at issue related to "a method of electronic communication between healthcare providers and their patients." Id. at 11. Defendant Epic "does not perform any steps of the patent. Instead, those steps are divided between patients, who initiate communications, and healthcare providers, who perform the remainder of the steps." Id. The court held that upon remand, "Epic can be held liable for inducing infringement if it can be shown that (1) it knew of McKesson's patent, (2) it induced the performance of the steps of the method claimed in the patent, and (3) those steps were performed." Id. at 35.

Judge Linn's Dissent

Judge Linn, joined by Judges Dyk, Prost, and O'Malley, stated that the majority "assumes the mantle of policy maker" and "effectively rewrites" sections 271(a) and (b), "telling us that the term 'infringement' was not, as was previously thought, defined by Congress in § 271(a), but instead can mean different things in different contexts." Akamai Techs., Inc. v. Limelight Networks, Inc., No. 2009-1372, slip op. at 2 (Linn, J. dissenting).

Judge Linn would adopt the prior BMC and Muniauction decisions, "which hold that liability under § 271(b) requires the existence of an act of direct infringement under § 271(a), meaning that all steps of a claimed method be practiced, alone or vicariously, by a single entity or joint enterprise." Id. at 4. "Divorcing liability under § 271(a) from liability under § 271(b) is unsupported by the statute, subverts the statutory scheme, and ignores binding Supreme Court precedent." Id. "Broadening the doctrine of inducement, such that no predicate act of direct infringement is required, is a sweeping change to the nation's patent policy that is not for this court to make." Id. at 12.

In support, Judge Linn cited to the legislative history as confirming "that § 271(a) is, in fact, a declaration of what constitutes infringement in the present statute." Id. at 7-8 (internal citations omitted). Additionally, Judge Linn noted that the "fact that §§ 271(e), (f), and (g) identify acts not falling under § 271(a) that are to be treated as infringement confirms that, when Congress intended to cover acts not encompassed within the traditional definition of infringement, it knew how to create an alternative definition thereof." Id. at 15.

The "fact that Congress was aware of BMC and Muniauction when it reformed the 1952 Patent Act indicates that Congress did not intend to abrogate the single entity rule for direct infringement, or broaden indirect infringement liability beyond its intentionally limited scope." Id.

Judge Newman's Dissent

Judge Newman criticized both the majority and Judge Linn's dissent, stating that "neither [] resolves the issues of divided infringement." Akamai Techs., Inc. v. Limelight Networks, Inc., No. 2009-1372, slip op. at 2 (Newman, J. dissenting). Judge Newman proposed that the "court should simply acknowledge that a broad, all-purpose single-entity requirement is flawed, and restore infringement to its status as occurring when all of the claimed steps are performed, whether by a single entity or more than one entity, whether by direction or control, or jointly, or in collaboration or interaction." Id. at 16.

Judge Newman then proceeded to address perceived issues arising from both BMC and Muniauction, as well as the majority's opinon.

Addressing the majority opinion, Judge Newman stated that under "this new 'inducement-only rule,' the inducing entity is liable on greatly enlarged grounds, such as merely advising or encouraging acts that may constitute direct infringement. This new rule is not in accordance with statute, precedent, and sound policy." Id. at 2.

Judge Newman also stated that although "review of the single-entity rule was the sole reason for this rehearing en banc, and the sole question briefed by the parties and the amici curiae, this aspect is not resolved by the majority." Id. at 3. "In addition to its incorrect treatment of the foundational requirement of direct infringement, the majority creates a new, ill defined, and open-ended theory of liability for patent infringement, simply by "caus[ing], urg[ing], encourag[ing], or aid[ing]" someone to perform separate steps of a patented method." Id. at 23.

Judge Newman also criticized Judge Linn's dissent, stating that "[q]uestions of divided infringement are not new, but resolution by way of the single-entity rule is plainly inadequate." Id. at 8. In particular, Judge Newman focused on the statutory text of section 271(a) and stated that the "word 'whoever' in §271(a) does not support the single-entity rule. By statutory canon the word 'whoever' embraces the singular and plural." Id. at 9.

Addressing the argument that "ingenious patent claim drafting can avoid single-entity problems," Judge Newman stated that "the presence or absence of infringement should not depend on cleverness or luck to satisfy a malleable single-entity rule." Id. at 15.

This article was prepared by Daniel Leventhal (dleventhal@fulbright.com or 713 651 8360), Richard S. Zembek (rzembek@fulbright.com or 713 651 5283), Jonathan Franklin (jfranklin@fulbright.com or 202 662 0466) and Bert Greene (ggreene@fulbright.com or 512 536 3097) from Fulbright's Intellectual Property and Technology Practice.

Wednesday, September 12, 2012

Update: Copyright, Right of Publicity and Marilyn Monroe

As readers of this blog have seen, protecting your brand involves tending to a variety of rights. See Einstein, Child . . .and Kardashian. This task can become even more complex if the brand you’re protecting is a celebrity, as recently illustrated in a Ninth Circuit case involving the estate of Marilyn Monroe. See. Milton Greene Archives Inc. v. Marilyn Monroe LLC, Nos. 08-56471, 08-56472 & 08-56552 (9th Cir. Aug. 30, 2012).

Marilyn Monroe Ranks Third for Top-Earning Deceased Celebrities

Most of our readers probably associate Ms. Monroe with Hollywood and, indeed, she purchased a home in California in 1962 during the filming of “Something’s Got to Give.” Ms. Monroe, however, had an apartment in New York, which she maintained and staffed even while she was in California. When Ms. Monroe died in 1962, the question was whether she was a California domiciliary or a New York domiciliary.

The executor of her estate over the years successfully maintained in the courts and before various administrative agencies that she was a New York domiciliary, with the resulting tax benefits. The executor also managed Ms. Monroe’s “brand” such that Forbes ranked the earnings to her estate in 2011 as #3 among deceased celebrities right after Michael Jackson as #1 and Elvis Presley as #2. See Pomerantz, Top-Earning Dead Celebrities, Forbes, Oct. 25, 2011.

The estate also maintained federally registered trademarks associated with Ms. Monroe. 

Right of Publicity Survives Death

In 2005, the estate sued a company, claiming that it violated the estate’s rights in Ms. Monroe’s state-law right of publicity in photos that the company was commercially exploiting. (The estate did not own the copyright in the photographs; the company did.) The court ruled against the estate, holding that neither New York nor California had a right of publicity that survived the death of the celebrity and, therefore, the estate had no right of publicity to enforce.

In response, the California legislature amended its law to permit a right of publicity to survive the death of the celebrity under certain circumstances. Cal. Civ. Code § 3344.

The estate sued the company again, arguing that the new California law gave it a right of publicity. The estate also argued that Ms. Monroe was a California resident at the time of her death. Both the trial court and the Ninth Circuit disagreed, holding that the estate was judicially estopped from changing the state of domicile.

Part of the Ninth Circuit’s reasoning was based on copyright law. The court found that this case and the 2005 case “have forced Monroe photographers into lengthy litigation in order to simply defend their right to profit from their copyrighted photographs. If Monroe LLC [the estate] were to succeed in establishing ownership of Monroe’s right of publicity, Milton Greene’s [defendant’s] ability to commercially exploit the photographs that it created and in which it owns copyrights would be subject to Monroe LLC’s control.” Slip Op. at 15.

Case: Milton Greene Archives Inc. v. Marilyn Monroe LLC, Nos. 08-56471, 08-56472 & 08-56552 (9th Cir. Aug. 30, 2012).

This article was prepared by Sue Ross (sross@fulbright.com / 212 318 3280) of Fulbright’s Intellectual Property and Technology Practice.

Tuesday, September 11, 2012

UPDATE: KV Cannot Require FDA to Protect the Market Exclusivity of Makena®

As we previously reported, K-V Pharmaceutical and its THER-Rx subsidiary (“KV”) sued the FDA in an effort to compel the agency to enforce KV’s market exclusivity for its drug, Makena®. At the center of the case, was the FDA’s decision to allow pharmacies to continue to offer a compounded version of the drug to patients. Shortly after filing the suit, KV filed for protection under Chapter 11 of the Bankruptcy Code.

Last week, the U.S. District Court for the District of Columbia dismissed KV’s suit against the FDA concluding that KV’s “requests that the court order ‘sufficient’ enforcement action to restore plaintiffs’ competitive advantage and that it monitor FDA’s activities by requiring regular reports demonstrate that they are asking the court to get right smack in the middle of agency operations.” See Sep. 6, 2012 Opinion.

FDA Immune from Judicial Review

The Court ruled that KV’s case was controlled by Heckler v. Chaney in which the Supreme Court held that an agency’s decision not to take action “is presumed to be immune from judicial review” unless Congress has both expressed the intent to limit the agency’s enforcement discretion and set forth meaningful standards defining those limits. 470 U.S. at 834–35. According to U.S. District Judge Amy Berman Jackson, “In this case, Congress has done neither.”

The Court also rejected KV’s assertion that its claims fell within a narrow exception to Chaney that allows a plaintiff to challenge an agency’s general policy concerning enforcement. Judge Jackson held that the FDA’s March 2011 statement setting forth its intention not to take action against pharmacies that compound the drug based on a valid prescription for a particular patient was not a broad statement of general enforcement policy.

Hologic’s Interests in Makena

In a related development, KV creditor Hologic Inc. has asked the New York court overseeing the KV bankruptcy to lift the automatic stay so Hologic can immediately exercise of its rights and remedies as the fist-lien holder with respect to the Makena assets. See Hologic Motion.

Holigic claims that KV’s “continuing missteps and its impaired relationships with the [FDA], the Centers for Medicare and Medicaid Services, state Medicaid agencies and the medical community” is likely to cause the value of Hologic’s interests in the Makena collateral to continue to shrink.

Hologic developed and sold Makena to KV in 2008. According to Hologic’s motion, KV owes Hologic $95 million from the sale.

Cases: K-V Pharmaceutical Company and THER-Rx Corp. vs. U.S. Food and Drug Administration, et al., Case No. 1:12-cv-01105-ABJ (D. C.); In re K-V Discovery Solutions, Inc., et al., Case No. 12-13346 (Bankr. S.D. N.Y.)

This article was prepared by Saul Perloff (sperloff@fulbright.com / 210 270 7166) and Bob Rouder (rrouder@fulbright.com / 512 536 2491) both of Fulbright’s False Advertising Practice.

Monday, September 10, 2012

Recent Decisions Confirm that “All Natural” Food Labels Are Not Warranties

Companies advertising their food products as “all natural” to health-conscious consumers won a victory when two California federal judges held that labels describing food products as “all natural” were meant to describe the contents of the products and did not warrant the products’ quality.

Class Action Trimmed

On July 23, 2012, a California federal judge trimmed some claims from a proposed class action alleging Dreyer’s Grand Ice Cream Inc. falsely labels its products as “all natural,” deciding product descriptions do not constitute warranties against a product defect.  See Astiana v. Dreyer’s Grand Ice Cream Inc., Case No. 3:11-cv-02910 (N.D. Cal., Jul. 20, 2012).  See Dreyer’s Order.

The plaintiffs alleged Dreyer’s violated a written warranty under the MagnusonMoss Warranty Act.  They said that by using the “All Natural Flavors” and “All Natural Ice Cream” labels, Dreyer’s “promised that the ingredients in the products, including the flavor ingredients, were free of a particular type of defect (i.e., that they were not synthetic or artificial).”

U.S. District Judge Edward M. Chen agreed with Dreyer’s that the federal claim should be dismissed because a claim that a food is “natural” does not give any assurance that it is defect-free.

“In other words, just because a food contains artificial and/or synthetic ingredients, that does not make it defective. According to [Dreyer’s], the word ‘natural’ is just used to describe the food,” Judge Chen wrote in the order dismissing the federal claim.

Judge Nixes Warranty and Fraud Claims

This ruling follows a pair of recent decisions by U.S. District Judge Marilyn Huff nixing breach of warranty and fraud claims from two false advertising class action suits targeting KashiCo. and Bear Naked Inc. over allegedly deceptive “all natural” labeling.

In Bates v. Kashi et al., No. 3:11-cv-01967 (S.D. Cal. July 17, 2012) the plaintiffs had argued that many of Kashi’s “all natural” products contain at least one artificial or synthetic ingredient, while some contain as many as seven.  See Bates Order.

Similarly, in Thurston et al. v. Bear Naked Inc., Civ. No. 3:11-cv-02890 (S.D. Cal. July 17, 2012), the plaintiffs alleged that Bear Naked labeled its line of granolas, granola bars, cereals, trail mixes and cookies, as completely natural although they contained certain ingredients considered synthetic under federal regulations. See Thurston Order.

“All Natural” Labels Describe Contents

Judge Huff ruled that the “all natural” labels on the Kashi and Bear Naked food products were meant to describe the contents of the products and did not necessarily offer warranties. “The court concludes that the phrases are product information disclosures, not written warranties,” Judge Huff said in two separate orders of dismissal.

The cases are Astiana v. Dreyer’s Grand Ice Cream Inc., Case No. 3:11-cv-02910 (N.D. Cal.); Bates v. Kashi et al., Case No. 3:11-cv-01967 (S.D. Cal.); and Thurston et al. v. Bear Naked Inc., Case No. 3:11-cv-02890 (S.D. Cal.).

This article was prepared by Kathy Grant (kgrant@fulbright.com / 210 270 7283) of Fulbright’s False Advertising Practice.

Friday, September 7, 2012

Panama 2012 IP Crime Conference

The International Law Enforcement IP Crime Conference will take place September 11-13 in Panama City. 

This is an unusual program co-hosted by INTERPOL and the Policía Nacional de Panamá in partnership with Underwriters Laboratories.

Following several years of successful programs in Canada, Spain and Hong Kong, this year’s program moves to Panama with a theme of “East Meets West – Working With The Americas to Combat Counterfeiting.”

The conference affords a unique forum for delegates to meet and learn about best practices to combat transnational organized IP crime.  Prior programs have included delegates from nearly 60 countries.

Sources: International IP Crime Investigators College (IIPCIC)


This article was prepared by Mark Mutterperl (mmutterperl@fulbright.com / 212 318 3183) of Fulbright’s Anti-Counterfeiting Practice.

Rights of Publicity: Einstein, Child . . .and Kardashian


By Saul Perloff


We have been tracking notable cases addressing a person’s rights of publicity.

Julia Child and Thermador


On Aug. 24, 2012, BSH Home Appliances Corp. – which owns the Thermador brand of culinary equipment – sued The Julia Child Foundation seeking a declaration that the company’s use of photos of the late Julia Child together with Thermador products do not violate the renowned chef’s rights of publicity.

According to the Complaint filed in the federal district court for Massachusetts, “[BSH’s] use of these photos and references to Julia Child’s name and use of Thermador products reflect on the long history, significance and influence of Thermador products on American society and culture, and Ms. Child’s documented and well-known use of those products.” See Complaint.

Einstein and GM

In 2010, the Hebrew University of Jerusalem sued GM over the automakers’ use of Albert Einstein’s image in an ad placed in People Magazine. The ad – which superimposed the Nobel Prize winner’s head on a male underwear model – carried the slogan “Ideas are Sexy Too.” The University has said that Einstein’s stepdaughter inherited control of Einstein’s name and likeness upon his death and signed them over to the school in 1982.

Earlier this year, the California federal judge overseeing the case, denied GM’s motion for summary judgment on whether the University owned Einstein’s publicity rights. See the Court’s Opinion.

However, Law360 is reporting that during a recent hearing, Judge Matz closely questioned the University’s attorneys asking them “What are the public interests — the societal values — advanced by having a [publicity] right coterminous with or lengthier than copyright? . . .The generation of people growing up with mobile devices and Twitter . . .value privacy less, because they surrender it more readily.”

Kim Kardashian and The Gap


Finally, on August 24, Kim Kardashian and The Gap, Inc. notified the District Court for the Central District of California that they have reached a settlement of Ms. Kardashian’s $20 million suit which claimed that the clothing retailer’s Old Navy subsidiary had used a look-alike model in a TV ad. See Notice of Settlement.




Sources: Case No. 1:12-cv-11590-MBB, BSH Home Appliances Corp. v. The Julie Childs Foundation for Gastronomy and The Culinary Arts (D. Mass.); Case No. 2:10-cv-03790-AHM-JC, The Hebrew University of Jerusalem v. General Motors LLC (C.D. Cal.); Case No. 2:11-cv-06568-DSF-MAN, Kardashian et al v. The Gap Inc et al, (C.D. Cal.); Law360.

This article was prepared by Saul Perloff (sperloff@fulbright.com / 210 270 7166) of Fulbright’s Intellectual Property and Technology Practice.

Thursday, September 6, 2012

Copyright - Customs and Border Protection - Lego v Best-Lock

When a trademark owner registers its marks with the U.S. Customs and Border Protection (CBP), CBP may seize imported counterfeits based on trademark claims. CBP may also seize shipments from abroad based upon copyright infringement. See 19 C.F.R. §§ 133.41-46.

As stated by CBP, “In regard to copyright infringement, articles that are determined by CBP to be clearly piratical of a protected copyright, i.e., unauthorized articles that are substantially similar to a material protected by a copyright, are subject to seizure.”[1]

An ongoing case relating to such a copyright-based seizure involves toymaker Lego and its “minifigures.” Lego has been manufacturing its minifigures since 1978, and registered copyrights of the toys with the U.S. Copyright Office. In 1998, Best-Lock Construction Toys began selling its own similar toys in the U.S. In July 2011, after Lego recorded its copyrights with CBP, the agency began seizing Best-Lock toy shipments.

CBP asserted that the seizures were being carried out because the toys infringed one of Lego’s registered copyrights. Lego followed with a suit claiming that the Best-Lock toys infringed Lego’s registered copyrights. See Complaint. Best Lock counterclaimed seeking declaration that the Lego copyrights are invalid and that its toys do not infringe the copyrights. See Counterclaim.

Best Lock moved for preliminary injunctive relief. See Memo. for Prelim. Inj. In the motion Best-Lock asserted that: the Minifigure Copyrights are invalid, that Lego is estopped from asserting them, and that Best-Lock is suffering continuing and irreparable harm as a result of CBP’s seizures of its products. Lego, of course, opposes the Motion on the grounds that Best-Lock has been infringing the Minifigure Copyrights, and that Lego will likely succeed on the merits of its Complaint. (Lego Slip Op. at 3)

The court deemed Lego’s opposition to the Best Lock motion to be “the functional equivalent” of its own motion for preliminary injunction. See Lego Slip Op.

A crucial issue for the court was whether Lego’s decision not to sue Best-Lock until 2011 barred the toymaker from asserting its copyright claims under the equitable doctrines of estoppel or laches. The court ruled that Best-Lock was not entitled to prevail on estoppel because “pure inaction does not create estoppel in the face of an affixed copyright notice.”

The court also held that Best-Lock was not ignorant of the “true facts” because it was aware of Lego’s copyright. The court had, on its own initiative, raised the separate question of whether laches could bar Lego’s claims that were brought with the 3-year statute of limitations. On this issue, the court concluded additional discovery was needed to determine whether Lego “unreasonably delayed” bringing its suit.

CBP Seizure Permitted

Without ruling on the CBP seizure issue, the court concluded, in a 55-page opinion, that the record was insufficient to allow full consideration of the preliminary injunction motions and ordered additional discovery. At least for now in this case, the CBP seizure was allowed.

Sources: Case No. 3:11-CV-1586, Lego A/S v. Best-Lock Constr. Toys, Inc. (D. Conn.); U.S. Customs and Border Protection website; U.S. Government Printing website.

This article was prepared by Sue Ross (sross@fulbright.com / 212 318 3280) and Saul Perloff (sperloff@fulbright.com / 210 270 7166) in Fulbright’s Intellectual Property and Technology Practice.

[1] U.S. Customs and Border ProtectionKnow Before you Go,” at 50 and “Prohibited and Restricted Items.”

Wednesday, September 5, 2012

The Second Circuit Sees Red

Christian Louboutin SA Shoe us.christianlouboutin.com
The United States Court of Appeals For the Second Circuit ruled today that French shoemaker Christian Louboutin SA is entitled to trademark protection for its red-soled high-heeled shoes, except when the shoe is also red.

The lower court denied Louboutin’s request for a preliminary injunction against Yves Saint Laurent's (YSL) red monochromatic shoe because Louboutin’s red-sole trademark was “likely not enforceable.”

The court found that the district court’s per se rule that a “single color can never serve as a trademark in the fashion industry” is inconsistent with the Supreme Court’s decision in Qualitex Co. v. Jacobson Products Co. The court also held that Louboutin’s red, lacquered outsole trademark had acquired “limited” secondary meaning, except to the extent the shoe is also red.

The court ultimately held that the YSL shoe Loubtouin sought to enjoin, a monochromatic red shoe with a red sole, does not violate Louboutin’s rights and thus the district court correctly refused to preliminarily enjoin YSL from selling that shoe.

The court remanded the case to consider YSL’s counterclaims. Because the court found the YSL design was not a use of Louboutin’s trademark, it did not address whether YSL’s use of a red outsole causes impermissible consumer confusion or whether the Louboutin mark, as modified, is functional.

Click here for the decision.

This article was prepared by Jessica S. Parise (jparise@fulbright.com / 212.318.3397) in Fulbright’s Intellectual Property and Technology Group.

60-Day Comment Period on USPTO’s Proposed Fee Schedule Begins September 6

Today the USPTO announced the September 6 publication of Notice of Proposed Rulemaking, which opens a 60-day comment period for its new proposed fee schedule. According the Office, “the proposed fees are at least 22 percent lower for a routine patent process—i.e., filing, search, examination, publication, and issue fees—than the current fee schedule,” and are lower than those originally proposed in February.



Along with the comment period, the USPTO will seek feedback at eight AIA Roadshows in September. These events will include a presentation on the proposed fee schedule, with an opportunity for questions and comments from the public. Following the comment period, the Office will prepare the final fee-setting rule, which would go into effect no less than 45 days after it is published in the Federal Register.

Please visit the USPTO’s America Invents Act microsite for more information about AIA implementation and instructions about streaming next week’s roadshows.

Source: The U.S. Patent and Trademark Office

This article was prepared by Andy Liddell (aliddell@fulbright.com / 512 536 3043) of Fulbright’s Intellectual Property and Technology Practice.

Tuesday, September 4, 2012

UPDATE | Reps Propose “Loser Pays” for Long-Shot Patent Suits

On August 23, we reported on the recently proposed SHIELD Act which targets patent assertion entities (PAEs) by permitting courts to award attorney fees in some cases involving “computer patents.”

A recent report by the Congressional Research Service cautions that the SHIELD Act may run afoul of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). TRIPS, which is administered by the World Trade Organization, requires that patent rights be granted without discrimination as to the field of technology, although some differentiation may be possible for “legitimate reasons.”

The CRS report rounds up several other possible legislative options for reform, which include:
  • improving notice by more robustly using the definiteness requirements of § 112; 
  • reducing leverage, hold-up, and settlement pressures available to PAEs by shifting burdens and costs away from defendants; 
  • instituting a scheme of escalating costs or diminishing rights over time to reduce the number of outdated late-in-life patents that are asserted; 
  • making consequences for patent dormancy, including: shifted costs and burdens to the PAE; removing the presumption of validity; subjecting plaintiff to heightened pleading and production requirements; freezing rights until use resumes; or even a complete loss of patent rights akin to trademark abandonment; 
  • creating a more efficient patent market by requiring publication of patent assignment and license terms. 
For more: “Patent Troll Bill May Conflict With Trade Deal, Report Warns” Ryan Davis, IP360.com

This article was prepared by Andy Liddell (aliddell@fulbright.com / 512 536 3043) of Fulbright’s Intellectual Property and Technology Practice.