Fall 2013

Cislo & Thomas LLP Recent Success:EDCO Plastics, Inc. V. Allynce, Inc., Ralph Dudley, Cassandra Samano, and Dispensing Dynamics International, U.S.D.C., Central District of California, Case No. 12-1168 JVS(JPRXx). July 15, 2013
After Dispensing Dynamics International (“DDI”) (represented by Cislo & Thomas LLP) succeeded in moving the Court to dismiss EDCO’s breach of contract action against DDI with prejudice, and EDCO’s fraud claim against DDI without prejudice, DDI moved the Court for an award of attorneys’ fees and costs based on a contractual provision providing for prevailing party attorneys’ fees and costs predicated upon an Asset Purchase Agreement between EDCO and DDI. In response to DDI’s motion, the Court ruled that DDI was the prevailing party on both of EDCO’s claims against it, and awarded DDI the full amount of its requested attorneys’ fees and costs ($147,342.69). In so ruling, the Court determined that the fees charged by Cislo & Thomas LLP’s attorneys handling the case were reasonable.
File a Provisional Patent Application-Fast & Cost Effective
We are proud to have launched PatentFiler.com this September. PatentFiler­­­­­®is a unique and inexpensive online system that quickly files provisional patent applications with the United States Patent and Trademark Office (USPTO). PatentFiler® is a simple three-step approach that levels the playing field as a cost-effective way to file a provisional patent application for $295, including USPTO filing fees. With the initiation of the America Invents Act (2011) and a first to file system, it is extremely important to file a provisional patent application as soon as possible.
USPTO Office Remains Open Temporarily, Despite Government Shutdown
The United States Patent and Trademark Office (USPTO) recently announced it would remain open and continue to operate if there is a government shutdown. The agency, funded by prior year reserve fees, has the ability to remain open for an estimated four weeks but will continue to monitor and assess the situation. In the event that the reserve funds are depleted before the shutdown comes to an end, a minimal staff will continue to accept new applications and other base level operations. The USPTO will provide more updates when possible and can be found on their website, www.uspto.gov.

Hope Gardens Family Center

Cislo & Thomas LLP is proud to be an Angel sponsor for the Union Rescue Mission’s Hope Gardens Family Center in helping the economic orphans and women of downtown Los Angeles. Union Rescue Mission’s Hope Gardens Family Center is a transitional living and permanent supportive housing campus that gives single mothers, their children, and senior women experiencing homelessness a chance to leave the streets and find sanctuary in a peaceful setting.

Our Managing Partner, Dan Cislo’s wife Lisa is the chair Person for 2013/2014. If you would like to join Cislo & Thomas LLP in support of Hope Gardens Family Center, please donate at www.urm.org/hearts.

Offer for Sale by Supplier, Invalidates Patent Under the On-Sale Bar

In Hamilton Beach Brands, Inc. v. Sunbeam Products, Inc., Fed. Cir. Case No. 2012-1581, (August 14, 2013), the Federal Circuit affirmed a lower court ruling that Hamilton Beach’s patent was invalid because a suppler made a binding offer for sale more than one year prior to the filing date of the patent application.

The patent at issue covered Hamilton Beach’s line of pressure cookers marketed as the “Stay or Go’ slow cooker.” The product had proven quite successful for Hamilton Beach having boosted its market share to over 30%, displacing the previous market leader Sunbeam. Sunbeam responded by introducing to the market its “Cook and Go” slow cooker, which embodied features similar to that of Hamilton Beach’s product. Hamilton Beach filed suit for patent infringement.

In an effort to invalidate Hamilton Beach’s patent, Sunbeam conducted extensive discovery into Hamilton Beach’s relationship with its supplier. Sunbeam learned that more than one year prior to the filing date of the patent, Hamilton Beach had issued a purchase order to its foreign supplier. More than one year prior to the filing date of the patent application, the supplier confirmed the order and stated that manufacturing would begin once Hamilton Beach provided its “release.” Hamilton beach provided its release within one year of the filing date of its patent application, and no products were manufactured or sold more than one year before the filing date.

However, In patent law, an offer for sale is deemed to occur where the other party only needs to accept an order to create a binding contract for sale. The lower court deemed Hamilton Beach’s supplier’s confirmation of Hamilton Beach’s purchase order to have been a binding offer that could have been accepted by Hamilton Beach at any time, and on this ground invalidated Hamilton Beach’s patent. The Federal Circuit affirmed.

This case illustrates that retailer and its supplier relationships can, if not managed carefully, create situations which give rise to a patent invalidating on-sale bar. Patentees should take care to ensure that patent applications are filed within one year of any production order for a product from a supplier or take other remedial action by way of Confidential Supply Agreements.

Federal Circuit Affirms $8.4 Million Fee Award for Litigation Misconduct

In Monolithic Power Systems v. O2 Micro, No. 2012-1221 (Fed. Cir. 2013), a patent infringement case, the Federal Circuit upheld the lower court’s exceptional case finding and award of $8.4 million in attorney’s fees, based solely upon the Plaintiff, O2 Mirco’s, misconduct during the course of the litigation. (An exceptional case finding pursuant to Section 285 of the Patent Statute, entitles the winning party to recover its attorney’s fees and costs of suit.) Per the Federal Circuit, an exceptional case finding does not require that a lawsuit be objectively baseless and filed in bad faith. Rather, a party’s misconduct during the course of the litigation alone may be sufficient to support such a finding.

The Court’s ruling begs the question of just what kind of litigation conduct would justify an exceptional case finding, where the case was, at least initially, not objectively baseless and not filed in bad faith. In Monolithic v. O2 Micro, O2 Micro submitted falsified evidence in the form of circuit schematics backdated by the inventor of the patent-in-suit. The inventor backdated the circuit schematics in order to antedate clearly invalidating prior art. O2 Micro repeatedly misrepresented the creation date of the schematics and produced three witnesses, each of whom testified to the false date.

After the falsification was uncovered by Monolithic’s expert, O2 Micro supplemented its verified interrogatory response regarding the date of the schematics with a convoluted paragraph in which it obfuscated the fact that the inventor had backdated the documents. Thereafter, O2 Micro filed three motions deemed baseless by the district court, i.e. a motion to strike Monolithic’s expert’s report and expert testimony regarding the schematics and two motions for summary adjudication to foreclose further litigation as to the authenticity of the schematics and the conception date of the subject matter claimed in the patent-in-suit. The district court found that, “rather than straightforwardly admit the truth, O2 Micro dissembled and sought, through motion practice, to mask its proffer of false testimony.” The district court then concluded that this misconduct, along with O2 Micro’s generally vexatious litigation strategy, warranted designating the case exceptional. On the record before it, the Federal Circuit affirmed.

The moral of the story here is: if your seemingly good case when filed goes south, don’t try to rescue it by submitting false evidence. If you do make such an error, don’t compound it by trying to discredit the opposition when the false evidence is brought to light.

Content Distributor Not Liable for Copyright Infringement Because it Enables “Commercial Skipping” Recently Authored by David B. Sandelands, Esq. of Cislo & Thomas LLP and published in the Los Angeles Daily Journal and the San Francisco Daily Journal

In its recent opinion in Fox Broadcasting v. Dish Network, No. 12-57048 (9th Cir. 2013), the Ninth Circuit upheld the district court’s denial of Fox’s request for a preliminary injunction against Dish. The heart of the dispute between Fox and Dish arises from Dish’s provision of equipment and services that allow Dish’s subscribers to record and later view Fox’s primetime programming while skipping the commercials. Television networks like Fox depend upon commercials for revenue, so needless-to-say, Fox did not view favorably Dish’s commercial skipping activities and sought an injunction for alleged copyright infringement.

Dish enables “commercial skipping” through the provision of both equipment and services. In particular, Dish provides its customers with a digital video recorder and its “PrimeTime Anytime” and “Autohop” services. Using PrimeTime Anytime, Dish customers can record and store primetime broadcasts from Fox (and other networks) for a period of up to eight days. After eight days, the recordings are automatically deleted. Approximately a day after a broadcast first airs, a Dish customer can select Autohop which automatically skips over the commercials during playback of the broadcast. Autohop is only available for programs recorded using PrimeTime Anytime. To enable Autohop, Dish employees view Fox’s primetime broadcasts each night and mark the beginning and end of each commercial. The marked broadcasts are then retransmitted to Dish’s customers. When a customer views a marked broadcast, Autohop recognizes the marks and automatically skips the commercials.

Not pleased with Dish’s commercial skipping feature, Fox sought a preliminary injunction. Fox alleged two theories of liability, direct copyright infringement and secondary or contributory copyright infringement. To establish direct infringement Fox had to prove that it owned the copyrighted broadcasts and copying by the defendant. See Kelly v. Arriba Soft Corp., 336 F.3d 817 (9th cir. 2003). The district court found that Fox owned the copyrights to its broadcasts, but that Dish was not responsible for the copying. The district court reasoned that Dish exercised substantial “discretion” over the copying, i.e. Dish decides how long the copies are available for viewing, maintains the authority to modify the beginning and end times of the primetime programming block, prevents a user from stopping a recording once it has started, and, of course, enables its commercial skipping feature.

Nevertheless, the district court reasoned that Dish’s customers must take the initial step of enabling PrimeTime Anytime and are therefore “the most significant and important cause” of a copy. In other words, Dish’s customers, not Dish, push the “record” button. Therefore, Dish does not make the copies and is not liable for direct copyright infringement. The Ninth Circuit affirmed.

To establish secondary liability by Dish, Fox needed to show direct infringement by a third party. See A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001). Here, Dish did not dispute that Fox had established a prima facie case of direct infringement by Dish’s customers. Fox owned the copyrights to its programs and Dish’s customers made copies. Dish argued however, that its customers had a fair use defense to infringement because they made copies primarily for the purpose of “time shifting,” i.e. for the purpose of watching the programs at a later point in time. Time shifting has long been held by the Supreme Court to be a legitimate fair use and thus a complete defense to infringement. See Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417 (1984).

Fox countered by arguing that Dish’s customers made copies for purposes other than time shifting, namely for “commercial skipping” using Dish’s Autohop feature. Fox further argued that commercial skipping harmed the value of its copyrighted broadcasts. In Sony v. Universal, the Supreme Court did not address the issue of whether commercial skipping was a fair use of copyrighted material and neither the district court nor the Ninth Circuit addressed the issue here. Rather, the district court reasoned that Fox had no copyright interest in whether the commercials included in its broadcasts were skipped because, while Fox owned the copyrights to its programs, it did not own the copyrights to the commercials. On this ground, the district court held that Dish was not liable for secondary copyright infringement and the Ninth Circuit affirmed.

As shown by Fox v. Dish, the federal courts have so far shown a disinclination to allow major content providers, such as Fox, to use copyright law to impose limitations on distributors of copyrighted materials, beyond that of traditional direct infringement. This appears to be particularly true where distributors use new technology to provide services such as commercial skipping that are strongly desired by consumers. This battle is far from over however as content providers derive substantial revenues from commercials and the practice of commercial skipping would appear to diminish the market value of their products.

Warning to All Transactional Attorneys and Those Who Transact: Intent to Use Trademark Applications Are Not Readily Transferable

Federal intent-to-use trademark applications (“ITUs”) are very popular devices for businesses in today’s marketplace. They allow you to stake a claim for a trademark that you have not yet used commercially, establishing a relatively early priority date as well as giving you a chance to hear from both the Trademark Office and the public at large as to whether there is likely to be any problems with the new trademark before you invest too much time and resources into it.

ITUs involve a number of potential traps for the unwary, however. For one thing, they are not readily transferrable. In 1988, when Congress was enacting the statute amendments that created this new form of application, many members raised concerns that ITUs might be used for trafficking in trademarks. As a result, Congress included in the amendments a prohibition that an ITU application may be assigned only to the successor to the business pertaining to the trademark and only in instances in which the business being transferred is already “ongoing and existing.” (15 U.S.C. § 1060(a)(1)).

Several federal courts and the Trademark Trial and Appeal Board (“TTAB”) recently have interpreted this narrowly to require that an ITU applicant may transfer its application to another only if (1) the applicant has already begun providing the goods or services recited in the application under the applied-for mark and (2) it transfers with the application at least that part of its business to which the mark pertains.

For example, on August 16, 2013, in Central Garden & Pet Co. v. Doskocil Manufacturing Co., the TTAB canceled the federal trademark registration for “Zilla” because the owner had violated this statute. Back when the “Zilla” mark was just a lowly ITU application, the applicant at the time assigned the ITU to its parent company but retained the rights to manufacture and sell certain goods under the mark. Even though the assignee was the applicant’s parent company, the TTAB ruled the assignment void since applicant did not transfer all of that part of the business that pertained to the mark. The owner had argued that no one was “trafficking” in trademarks here, that its eventual use of the mark was consistent with the original ITU application, and that the original applicant should be seen merely as its licensee under the mark. None of these arguments saved the trademark assignment, and since the assignment was void, the TTAB canceled the federal trademark registration that resulted from the ITU.

As for the other side of the trap mentioned above, in Greene v. Ab Coaster Holdings, Inc., 2012 U.S. Dist. LEXIS 136890, at *27 (S.D. Oh. 2012), the District Court for the Southern District of Ohio ordered the cancellation of the federal trademark registration for “Ab Coaster” because the owner likewise had violated the statute. Back when the “Ab Coaster” mark was a lowly ITU application, the applicant (an innovative concept developer) assigned the ITU to a product developer before the particular business that pertained to the mark was “ongoing and existing.” In reaching this conclusion, the district court held that, under a clear reading of the statute and the weight of the case law, a business is ongoing and existing for purposes of this statute only if the ITU applicant had begun providing the goods or services related to the applied-for mark. The applicant had developed significant investments in the business pertaining to the “Ab Coaster” mark, investments in time, resources, etc., but it had not begun selling Ab Coaster products in the marketplace, and this, according to the district court, doomed the assignment under the statute.

Be careful, therefore, to consult an experienced trademark attorney before attempting to transfer a trademark from one owner to another. This is especially true if you are attempting to transfer a trademark for which there might be no ongoing and existing business or for which the transferring party wishes to retain some of the trademark rights after the transfer.

By, Kelly W. Cunningham, Esq. of Cislo & Thomas LLP

David B. Sandelands, Esq., Newsletter Editor