Both House and Senate Passes Defend Trade Secrets Act (“DTSA”)
Takeaway: There will likely soon be a federal claim for trade secret misappropriation under the Defend Trade Secrets Act (“DTSA”). The DTSA:
— models the Uniform Trade Secrets Act and duplicates the definitions of “trade secret,” “misappropriation,” and “improper means”.
— offers immunity for whistleblowers and requires that employment contracts provide employees with notice of their immunity.
— provides for ex parte seizures of misappropriated trade secrets in “extraordinary circumstances where necessary to preserve evidence or prevent dissemination of a trade secret.”
— awards attorneys’ fees to the prevailing party if the defendant’s misappropriation was “willful and malicious” and/or if the plaintiff’s claims were meritless or made in “bad faith.”
The United States House of Representatives passed S. 1890, the Defend Trade Secrets Act of 2016 (“DTSA”), by an overwhelming majority vote of 410-2, and having been passed in the Senate by 87-0, and the bill is heading to the President to be quickly signed into law within the next couple of days. The Senate Report explains that the new federal remedies “are intended to coexist with, and not to preempt, influence, or modify applicable state law.”
In Kewanee Oil v. Bicron, the Supreme Court observed that “Congress, by its silence over these many years, has seen the wisdom of allowing the States to enforce trade secret protection.” Almost 40 years later, Congress has finally agreed that the federal government should enforce trade secret protection as well.
For many companies and industries, trade secrets are a critical element of their overall business strategy, valuable only when that ‘secret sauce’ doesn’t get into the wrong hands,” said Michelle Lee, under Secretary of Commerce for Intellectual Property and the Director of the United States Patent and Trademark Office. “Innovators, manufacturers, and entrepreneurs of all types will benefit greatly from a civil cause of action at the federal courts – providing a more uniform way to take action and stronger resources to prevent the transit of trade secrets out of the country. We applaud today’s bipartisan action, as it builds on the Administration’s unwavering commitment to arm businesses with a robust suite of intellectual property tools, vital to remaining competitive in a global and digital economy.”
The Explosive Growth of Prior Art and the Urgency To File Preliminary Provisional Patent Applications
Takeaway: It is very important to file a provisional patent as soon as possible as the first step to patent protection.
The establishment of a first-to-file patent priority system in the United States, and an explosive growth of prior art documents on the web and at various patent offices throughout the world require quick and early filing of patent applications.
“Preliminary” provisional patent applications (“PPAs”) are used primarily to quickly secure a priority date and are different in form and substance from later filed and highly-detailed patent attorney-drafted non-provisional applications. The urgency to file “preliminary” PPAs was enhanced by recent enactment of the AIA, a patent reform act that greatly added to the procedural and cost benefits of PPAs. The AIA has continued to fuel growth in popularity of “preliminary” PPAs due, in part, to the large number of new prior art issues arising every day.
When using preliminary PPA filing tools like PatentFiler.com, practice pointers for in-house counsel include the following four (4) key points:
(1) Always review the prior art as quickly as possible to determine whether a “preliminary” PPA is warranted; however, the low cost of web-based preliminary PPAs may encourage early filing without the higher costs of extensive searching;
(2) Quickly file a “preliminary” PPA based on the innovation as understood at that time which may be the writings and sketches of the inventors;
(3) Later, file additional embellishments via follow-on “preliminary” PPAs as the innovation is refined, which could be the work product of a patent attorney working with the inventor to create a more comprehensive disclosure; and finally,
(4) File a non-provisional patent application claiming priority to all previously filed provisional patent applications with within twelve (12) months of the early “preliminary” PPA, being careful to use consistent terms and define terms as required to take into account the evolving nature of the innovation being developed.
Supreme Court Hears Oral Arguments Regarding Inter Partes Review’s Claim Construction Standard and Appealability
Takeaway: A reversal by the Supreme Court will have a dramatic impact on inter partes review (IPR) proceedings: if Cuozzo wins on the claim construction standard to be the plain and ordinary meaning standard, the number of future IPR proceedings may decline, but if Cuozzo wins on appealability, the number of appeals to the Federal Circuit from the PTAB will increase.
The Supreme Court recently heard oral arguments for Cuozzo Speed Technologies v. Lee, a case that addressed the issue of claim construction standard that the Patent Trial and Appeal Board (PTAB) should apply during the inter partes review (IPR) process.
The case involves a speed-limit indicator patent owned by Cuozzo Speed Technologies LLC, which had sued companies including Garmin Ltd., General Motors Co., and TomTom NV for patent infringement and Garmin successfully argued that the Cuozzo patent was invalid as obvious in light of prior art.
Regarding the issue of claim construction standard, Cuozzo argued that IPRs were created by Congress to essentially be a substitute or surrogate for district court litigations, and, therefore, the PTAB should use the same standard as the district courts, i.e., the plain and ordinary meaning standard rather than the broadest reasonable interpretation (BRI).
The United States Patent and Trademark Office (USPTO) argued that it has long applied the broadest reasonable interpretation (BRI) in all agency proceedings and that IPRs were not intended to simply replicate the results of hypothetical district-court litigation.
At one point, Justice Roberts asked: “So if the district court interprets the patent, is that binding on the PTO?” Gannon replied: “No.” So we are left with decisions by the PTAB that are not binding on the district court and decisions by the district court not binding on the PTAB, which led the Chief Justice to say: “I’m sorry. It just seems to me that that’s a bizarre way to conduct legal – decide a legal question.”
Regarding the issue of appealability, both counsels only briefly addressed this secondary issue. Justice Ginsburg was the one who asked questions, and seemed to be worried that if the reviewing court can only review final judgments, then the “statute is doing no work, because there would be a bar on interlocutory review under the final judgment rule.”
Supreme Court Denies Review of the Google Books Fair Use Copyright Case
Takeaway: Supreme Court agrees with Second Circuit’s ruling that Google Book’s searching and partial public access to copyrighted works is considered fair use under the copyright law.
Google’s database of books allows people to search through millions of titles and read passages and selected pages from them. Due to this, Google was sued by The Authors Guild for copyright infringement.
Supreme Court refused to hear the case where Second Circuit held that Google does not have to get the copyright owner’s permission because of “fair use.”
The Author’s Guild argued that Google Book Search does not get the publisher’s permission to use a book and that Google is profiting on a derivative, which is not fair use. Google argued that Google Book Search does not need the publisher’s permission because it falls under fair use, which does imply non-profit.
Fair Use remains a powerful defense with regards to new technologies and new ways of presenting information.
Federal Circuit Focuses Only on Elements That Contribute to the Design’s Overall Ornamentation in Design Patent Infringement Suit
Takeaway: The courts look at the overall design of the embodiments in the design patent to determine the proper claim construction or patent scope.
In Sport Dimension, Inc. v. Coleman Co., Inc. (Fed. Cir. April 19, 2016), Coleman accused Sport Dimension of infringing on U.S. Patent No. D623,714 (the “D’714 patent”) for a “Personal Flotation Device.”
The district court adopted Sport Dimension’s proposed claim construction: “The ornamental design for a personal flotation device, as shown and described in Figures 1–8, except the left and right armband, and the side torso tapering, which are functional and not ornamental.”
The Federal Circuit’s 2010 decision Richardson v. Stanley Works, 469 F.3d 1361, 1366 (Fed. Cir. 2006), was interpreted to require courts to “factor out” functional parts of claimed designs. Thus, Coleman appealed the claim construction and moved for entry of judgment of non-infringement. Soon after Coleman’s appeal was docketed, the Federal Circuit disavowed the “factoring out” rule that many had read in Richardson and insisted that Richardson did not require the elimination of functional elements from design patent claims.
Thus, the Federal Circuit reversed the district court’s construction of Coleman’s claim, following this new interpretation of Richardson. The court further explained how it determined whether something is “functional” for the purposes of claim construction. Words cannot easily describe ornamental designs, the appellate court noted. Even so, a district court may use claim construction to help guide the fact finder through issues that bear on claim scope.
Agreeing with the district court, the Federal Circuit pointed out that Coleman’s armbands and tapered side torso designs meet several of the factors announced in PHG Technologies, LLC v. St. John Cos., for determining whether a design claim was dictated by function, including:
“whether the protected design represents the best design; whether alternative designs would adversely affect the utility of the specified article; whether there are any concomitant utility patents; whether the advertising touts particular features of the design as having specific utility; and whether there are any elements in the design or an overall appearance clearly not dictated by function.” Id.
“We thus look to the overall design of Coleman’s personal flotation device disclosed in the D’714 patent to determine the proper claim construction.” The overall design includes the appearance of three interconnected rectangles, and it is minimalistic, with little ornamentation, and the shape of the armbands and side torso tapering.
Therefore, the district court’s claim construction was rejected, the stipulated judgment of non-infringement was vacated, and the case remanded for consideration of infringement.
Determining whether a design patent is infringed can be challenging and needs to take into account functionality of the design.
The Billion-Dollar Verdict – Trade Secret Edition
Takeaway: Trade secret misappropriation may lead to extremely serious legal consequences, especially in terms of punitive damages.
In Epic Systems v. Tata Consultancy Services, a Western District of Wisconsin jury awarded Epic Systems close to $1 billion ($240 million for compensatory damages and $700 million in punitive damages) on state-law trade-secret misappropriation, breach-of-contract claims, unfair competition, and computer-fraud.
In 2011, Kaiser Permanente contracted with Tata Consultancy Services “TCS” to test a beta Epic Systems software. Once the testing was complete, a TCS employee was able to reactivate his account which was listed as “expired” rather than deactivated, and use it in 2013 and 2014.
“This is basically every CIO and CISO’s nightmare – unauthorized access to sensitive data and information by offshore contractors that are a direct or indirect part of their supply chain,” said Avivah Litan, vice president and distinguished analyst at Gartner Inc. in an email sent to the Wall Street Journal.
Tata employee Rajesh Gajaram had access to Epic’s UserWeb portal, according to court documents, and he testified that he shared his login credentials with three other Tata employees. At least one of the three employees testified that he downloaded documents form UserWeb and made them available to other team members. Over 6,000 documents and more than 1,600 files were downloaded between June 2012 to June 2014.
One of the main risks in cybersecurity is rooted in human error and, thus, humans remain to be the weakest link in cybersecurity.
Federal Circuit Reverses Dismissal on Forum Non Conveniens Grounds
Takeaway: In order for a case to be dismissed on forum-non-conveniens grounds, meaning the case is better suited in another court, the forum non conveniens movant must demonstrate adequacy of the alternative forum.
In Halo Creative & Design v. Comptoir Des Indes Inc. (Fed. Cir. 2016), the Federal Circuit reversed and remanded the decision from the N.D. Illinois Federal Court and held that because there was no evidence that a Canadian court would be willing to enforce a U.S. copyright against infringement in the U.S. or that there was infringement in Canada, the case should not have been dismissed on forum-non-conveniens grounds.
Halo, a Hong Kong based company, sued Comptoir, a Canadian company, for infringing its intellectual property rights including design patents, copyrights (pending registration), and non-registered trademark rights for its furniture designs.
Judge Leinenweber from the N.D. Illinois Federal Court dismissed the case on forum-non-conveniens grounds stating that Illinois is not a convenient forum for a Canadian defendant company and that Canada would be a better-suited forum. According to the district court, “the United States has recognized the potential of applying the copyright laws of other nations and perhaps Canada could do likewise.”
The Federal Circuit quickly reversed and remanded, reasoning that:
“It cannot be assumed that a foreign court would adjudicate an intellectual property dispute where the alleged infringement occurred elsewhere [i.e., in the US], and the case otherwise has little or no connection to the chosen forum. The copyright and patent laws of the United States certainly reflect such territoriality. United States copyright law, for example, generally admits of no remedy for extraterritorial infringement unless a predicate act of infringement was first committed within the United States.”
28 U.S.C. § 1404(a) and common law address the forum non conveniens doctrine. Piper Aircraft Co. v. Reyno, 454 U.S. 235 (1981) thoroughly discuss when the U.S. courts should dismiss cases to instead be adjudged by foreign tribunals. The factors to consider include: ease of access to proof; availability of compulsory process of unwilling witnesses; cost savings for the parties; local (immovable) evidence (such as the site of an accident); court congestion; local interest in enforcement; potential conflict of laws, etc.
In Piper, the Supreme Court stated that the alternate foreign forum must be ‘adequate’ although it need not offer identical rights, and under a more liberal Piper interpretation, the alternate forum must at least permit litigation under the same subject matter of the dispute…
IP Considerations Before Exporting
In an evermore globalized economy, exporting offers businesses many advantages, including, but not limited to, foreign access to increased profits. Most companies perform due diligence financial calculations before making such decisions, yet they may neglect an important area of their strategy: IP considerations. Be sure to carefully plan how you will establish your brand in foreign markets with these guidelines:
- IP is the foundation of your brand. Intellectual property such as patents, designs, and trademarks compose intangible assets born out of creativity. This is the basis of defining and protecting the quality, origin, and reputation of your brand, which is core to the demand for and pricing of your product.
- Consider local languages and cultures. Check your product, trademark, and logo in the local languages of your potential export markets as these might have different meanings in other languages. Also, scan for cultural barriers, such as use of colors and symbols, before committing your resources to specific packaging and specifications.
- Before entering new markets, be aware of pre-existing, potentially competing rights of others. Do your due diligence to perform research and searches beforehand. It will be easier to address these issues before you have formulated your export strategy: You can still redesign your product, trademark, packaging and marketing materials. Otherwise, you face potentially expensive and brand-damaging product recalls, as well as wasted time, money, and resources if you run into problems with third-party rights down the road.
- Use IP to your advantage in business negotiations. An IP portfolio is often one of the first things an investor will look for when considering backing your expansion into a new market.
- IP is your defense to prevent potential competitors from entering your markets, leading to significant commercial advantage and less time, effort, and resources expended to establish a brand presence. Being a leader in your markets will lead to obvious commercial advantages, as well as an easier path of entry to future target markets.
- Consider Licensing Agreements. An IP portfolio often forms the basis of a licensing agreement, which allows another entity to commercialize your IP in exchange for a license fee, providing your company with indirect access to new markets. This may be a strategically simpler way to use another entity’s existing local business infrastructure to derive revenue from an otherwise infeasible or inaccessible market. For example, in a case where you come across conflicting, pre-existing IP rights of a third party in a potential market, you may be able to cross-license your IP to the party in question.