July 2017

Apple to Pay Over $500 Million in Damages for Patent Infringement

Takeaway: Defendants of patent infringement suits can still be liable for additional damages if the patent is still being infringed upon after the damages verdict was awarded.

After a long-fought patent infringement case between Apple and the University of Wisconsin-Madison patent-licensing division, Judge William Conley of the Western District of Wisconsin added $272 million to a previous $234 million damage verdict because Apple continued to infringe the patent at issue for more than a year after the jury issued the verdict for damages.

The University of Wisconsin-Madison patent-licensing division, Wisconsin Alumni Research Foundation (WARF), owned a patent relating to a technology called a “predictor circuit,” which is a type of circuit that can improve a processor’s performance inside a device.  The predictor circuit allows the processor to anticipate a user’s command, allowing it to respond more quickly.

In 2014, WARF sued Apple for using the predictor circuit technology in its iPhones. In 2015, a jury awarded WARF $234 million in damages.  Apple argued that the patent was invalid and should not be awarded. However, the U.S. Patent and Trademark Office (USPTO) rejected Apple’s request to review the patent’s validity.  Up until December 2016, Apple continued to use the technology in its iPhones, and consequently, Judge Conley added $272 million the damages award for Apple’s continued infringement.

Now, with the damages doubled, Apple faces the choice of continuing to fight, or surrendering now and cutting its (rather hefty) losses.

Variety v. Walmart: Dire Consequences For Intentionally Infringing Trademarks

Takeaway: Walmart was found to be willfully infringing on a trademark against the warnings of its legal counsel and now is paying the price, which could be around $100 million.

Intellectual property litigation can be expensive, and large companies sometimes take advantage of this fact to bully smaller entities out of exercising their intellectual property rights. A recent case shows that, despite the defendant’s massive size (2,200,000 employees), a smaller company (3,000 employees) can still prevail in intellectual property litigation.

On July 6, 2017, U.S. District Judge Terrence W. Boyle ordered Wal-Mart Stores, Inc. to pay attorneys’ fees resulting from the ongoing Variety Stores, Inc. v. Wal-Mart Stores, Inc.  case, in which Walmart was ordered to disgorge $32.5M of profits from the sale of products that the court found infringed upon Variety’s Backyard™ brand.

On November 21, 2016, Judge Boyle stated that the case demonstrates “a willful and knowing violation by a larger corporation of a smaller company’s established and registered trademark.” He decried Walmart’s choice to use the infringing mark as “deliberate” and “done over repeated warnings from its own legal counsel.” Therefore, he ruled in favor of disgorgement of Walmart’s profits in light of this willful infringement of Variety’s trademark rights.

Following this judgement, Variety moved for an award of attorneys’ fees and associated costs. According to the Trademark Act of 1946 (Lanham Act), attorneys’ fees may be awarded in “exceptional” cases.  As interpreted by the Supreme Court, “an ‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of the party’s litigating position… or the unreasonable manner in which the case was litigated.”

The court opined that this case is indeed exceptional, with the judge citing Walmart’s decision to use the BACKYARD mark even after its own counsel warned twice against doing so and in spite of its knowledge of the existence of Variety’s trademark registration.  Walmart’s “remarkable contentions” that the BACKYARD mark was worth “zero” were rejected by the court, and the judge ordered Walmart to pay Variety  for 5,276 hours of legal work, amounting to $1.96M for attorneys’ fees and costs.

Prior to the award of attorneys’ fees, both parties filed appeals with the United States Court of Appeals for the Fourth Circuit. Variety sought treble damages and pre-judgment interest, while Walmart wanted the decision to be overturned. If Variety gets their way, Walmart would be compelled to pay a total of around $100M to Variety.

In determining the amount of the award for both the attorneys’ fees and the disgorgement order, Judge Boyle articulated the importance of balancing the two goals: deterring trademark infringement and avoiding unjustly enriching the plaintiff with a windfall.  In essence, the court should award an amount that adequately compensates a victim while avoiding over-punishing the infringer.

In Variety’s pending case at the appellate court level, Variety is hoping that a non-punitive doctrine will not apply. They are seeking treble damages, which permits a court to triple the award of compensatory damages in order to punish a willful infringer or one that acts in bad faith. If the judges at the appellate court share Judge Boyle’s sympathies, Variety might get their way.

Redskins Maintain Trademark

Takeaway: In light of Matal v. Tam and after years of litigation, the Redskins will maintain registration of their trademarks. Individuals and companies across the country are seeking to register marks that previously would have been rejected as scandalous, signaling that Tam will likely have a broad impact on trademark registration of marks previously considered to be disparaging under Section 2(a) of the Landham Act. Perhaps the floodgates have opened for profane trademarks at the USPTO. 

Image retrieved from: http://www.thedailybeast.com

After more than 15 years of opposition, the trademark battle between Amanda Blackhorse et al., a group of Native Americans, and Pro-Football, the owner of multiple U.S. service mark registrations for REDSKINS and other football-related marks, ended on June 29, 2017. In response to the Supreme Court’s decision in Matal v. Tam, 137 S.Ct. 1744 (2017), the clerk of the court for the Fourth Circuit wrote to both Blackhorse et al. and Pro-Football asking the respective parties if they felt oral argument was still needed. Pro-Football, Inc. submitted a statement that oral argument was unnecessary because Tam directly addresses the same issues that Pro-Football does, and as such, Tam is controlling.

In Tam, the Supreme Court held that the disparagement clause of the Lanham Act (15 U.S.C. § 1052(a)) was unconstitutional, as it violates the First Amendment. As the USPTO’s sole basis for not renewing Pro-Football’s trademarks was that it was deemed disparaging, Pro-Football argued that oral argument would not benefit the court and requested a reversal of the District Court’s judgment that the District Court’s order directing the USPTO to schedule cancellation of Pro-Football’s trademark registrations is vacated, and that the case be remanded with instructions to grant summary judgment in favor of Pro-Football. In response, appellee Blackhorse et al. agreed that Tam is controlling, that there is no need for oral argument, and as such, agreed to Pro-Football’s requests for reversal and summary judgment in Pro-Football’s favor.

This marks the end of formal litigation, but not the end of the plaintiffs’ fight against what they still consider to be an inappropriate mark. Plaintiffs’ counsel emphasized that the litigation was effective in that it brought to light the issues with the team’s name and imagery. Plaintiffs’ counsel stated that, in fact, “[a]s a result of the litigation, the entire country has learned of Native American objections to the team’s name.  The litigation led to a national discussion of the appropriateness of the team’s name by the media and political leaders, including even President Obama, and, most importantly, by ordinary citizens from every walk of life.”  Plaintiffs fully intend to move forward and continue to persuade advertisers, politicians, and fans to pressure the team to stop using the mark.

Although this was not a published opinion, it is likely that this acquiescence by Blackhorse et al. is indicative of how broadly Tam will apply to future disparaging trademark cases, or at the bare minimum, how broadly some companies and individuals think Tam will be applied. Since Tam, there have been at least nine applications filed with the USPTO for marks including the N-word, an epithet for people of Chinese descent, and a swastika for products such as energy drinks, sweatshirts, and fragrances.

However, the current trend appears to be more entrepreneurial, with men like Mike Lin of San Francisco who submitted an application for the same slur against Chinese people that he was called as a child.  He wants to reappropriate it by selling T-shirts with the slur and using the mark to produce news coverage for his company. It will be interesting to see what trademarks are granted registration by the USPTO.

STRONGER Patents Act Recently Introduced

Takeaway: A bill recently introduced in the Senate could significantly change the landscape of intellectual property rights and enforcement. It aims to strengthen patent protection, but could also disadvantage domestic companies who manufacture outside of the United States.

The Support Technology and Research for Our Nation’s Growth and Economic Resilience (STRONGER) Patents Act was recently introduced in the Senate on June 21, 2017. Sponsored by Senator Chris Coons (D-DE), the bill intends to help the United States regain its status as the premier country for patent protection.

While the United States held onto the top spot in the U.S. Chamber of Commerce’s overall intellectual property rankings, it only managed to earn a tie with Hungary for 10th place in the patents category. Proponents of stronger patent protections, including the authors of the bill, attribute this decline to recent changes in the U.S. patent system brought on by the America Invents Act (AIA) passed in 2011.

The AIA included the creation of post-grant administrative trials, consisting of three procedures to challenge patents after they are issued by the USPTO. Supporters of the STRONGER Patents Act argue that these statutes amount to a deviation from the proper enforcement procedures of intellectual property rights. Of particular concern to them is the institution of inter partes review (IPR), which allows the Patent Trial and Appeal Board (PTAB) to reconsider the patentability of claims in a patent with regards to novelty and obviousness. Through IPR proceedings, a patent can be cancelled or revoked. This ability to extinguish private property rights outside of federal courts and without the involvement of a jury could be unconstitutional, as indicated by a Supreme Court’s grant of certiorari in Oil States vs. Greene’s Energy Group, et al.

Senators Chris Coons and co-sponsor Tom Cotton (R-AK) believe that the USPTO’s newly-granted ability to “change its mind” leaves small-entity investors vulnerable to bullying from big corporations. Since defending patents in post-grant administrative trials is expensive, some inventors cannot afford to protect their patents from repeated challenges by infringers. The AIA created channels through which infringers can assail small-entity inventors by repeatedly challenging their patents, which stymies the innovation that supports our international competitiveness and has been a mainstay of the U.S. economy since the days of the Founding Fathers.

Eliminating or weakening these channels would likely aid small-entity inventors in defending their patents, but this aid would not be limited to small entities. Patents would likely become stronger across the board, which could lead to undesirable consequences as well. For one, the STRONGER Patents Act would make it a requirement for an entity to be sued before that entity can challenge the legitimacy of a patent.

Considering that a patent owner is able to wait until a person has built up a business before exercising their patent rights, this requirement would lead to uncertainty for a business owner who would be unable to determine whether or not a product would be considered infringing until after he or she has invested considerable resources into development of that product. This uncertainty could operate as a looming threat to business operations, and could ultimately cause many would-be entrepreneurs to decide against developing products, which could lead to a less innovative country.

Additionally, the STRONGER Patents Act includes an amendment of 35 USC § 271, which makes a person who supplies a patent-protected design or invention from the United States to a foreign country liable as an infringer. In addition, this liability remains whether or not the person knew about the existence of the patent.

In this manner, if this bill becomes law, a U.S. patent would hold American companies to a different standard than foreign companies. For example, a company such as Apple, which designs their products in California but manufactures them mostly in China, could be held liable for their sales all around the world under the provisions of the bill. On the other hand, a Korean company like Samsung would only be held liable for sales of infringing products in the United States, because it did not supply designs of these products from the United States. This could encourage companies to move their research and design operations to countries other than the United States to reduce their liability under the proposed bill.

The STRONGER Patents Act is intended to strengthen patents and benefit their holders by making the process of invalidating an existing patent harder, while easier to obtain injunctive relief. However, strengthening some patents may lead to some undesired consequences. Ultimately, while patents would most likely be strengthened, it is unclear whether the passage of the STRONGER Patents Act would lead to a more innovative United States

Trade Secrets and How to Maximize Their Potential

Takeaway: Know what you need to protect before it is too late and understand how to gain the most value from your intellectual property. California employers have a particularly tough time defending trade secrets. The key is to have a developed plan from the beginning.

Intellectual property is ever-increasing in value to companies around the globe. According to the Ocean Tomo 300® Patent Index, up to 80 percent of public companies’ market value now derives from IP and other intangible assets. In the Intellectual Property and the U.S. Economy: 2016 Update published by the U.S. Department of Commerce, it was shown that IP-intensive industries represented 38.2 percent of U.S. GDP. For companies, the question is now not only how to protect their IP in the most efficient way possible, but how to derive the most value from it.

California employers often have a very difficult time adequately protecting their IP against competitive activity by former employees. The California Business and Professions Code limits an employer’s ability to pursue claims against former employees when the information is confidential but does not qualify as a trade secret. Employers are also limited by the California Code of Civil Procedure from bringing a claim under the California Uniform Trade Secrets Act (UTSA) unless the trade secrets are identifiable with “reasonable particularity” by the employer.

In FLIR Systems, Inc. v. Parrish, 174 Cal.App.4th 1270 (Cal. Ct. App. 2009), the California Court of Appeal upheld a $1.6 million attorney fee award for defendants on the grounds that the claim was brought in bad faith. Because there was no proof of economic harm to the plaintiff and no actual or threatened misappropriation, the court found in favor of the defendants. The hard drive containing confidential information was destroyed without being accessed and the plaintiff filed the complaint before discovering that the former employee had downloaded confidential information. This case serves as a warning to emphasize the precautions that employers must take in protecting their confidential information before, during, and after the employer/employee relationship.

Before the relationship begins, employers should enter into confidentiality and non-disclosure agreements with their employees. These agreements satisfy one of the UTSA prongs, which is the employer taking reasonable steps to identify trade secrets and keeping them confidential.

During the employment relationship, employers should pay attention to red flags. Working after hours without clearance, taking home confidential information, or downloading documents that do not relate to the employee’s current projects are all warning signs.

After termination of the employment relationship, employers should pay attention to the employee’s work-related electronic usage towards the end of the employment period as well as conduct an exit interview.

An important caveat is that California favors the employee’s ability to move around freely in an employment context. This means that the download of confidential information may not be enough to prove damages; it is important that the employer knows about the download, monitors for misappropriations, and considers the actual or potential economic damage regarding the data.

The Increase in Non-Precedential Decisions Since Alice Corp. v. CLS Bank International

Takeaway: Plaintiffs and defendants will both be unable to find examples of patented claims similar to their own if the Federal Circuit continues to issue non-precedential opinions regarding patent eligibility.

In 2014, the U.S. Supreme Court handed down a decision in Alice Corp. v. CLS Bank International, 134 S.Ct. 2347 (2014) regarding the patent eligibility of computer-implemented electronic escrow services for enabling financial transactions. The Court held that the abstract idea of an escrow arrangement was not patentable, and method claims requiring generic computer implementation to manage escrow debts did not transform the invention to be patent-eligible. Since then, the case has been interpreted to involve software patents, patents on software for business methods, and beyond. The “Mayo framework” is applied to any case where the Court must determine patent eligibility. See, Mayo Collaborative v. Prometheus Labs., 132 S.Ct. 1289 (2012).

The Mayo framework has a two-step analysis. First, the patent claim must be examined to see if it contains an abstract idea (i.e. an algorithm). If the claim does not have an abstract idea, the claim is patentable subject to other patent code requirements. If the claim contains an abstract idea, then the court must analyze the second prong to determine if the patent adds something embodying an “inventive concept.” If there is no further “inventive concept,” then the patent is invalid under §101.

While Alice primarily increased the number of patents invalidated under §101 of the United States patent laws in Federal District Courts, the number of non-precedential decisions issued by the Federal Circuit has sharply increased as well. Before Alice was decided, there were no non-precedential patent-eligibility related opinions issued. In the second half of 2015, there was one, as well as one during the first half of 2016. There were five in the second half of 2016 and the first half of 2017, respectively. What is of greater interest is the percentage of non-precedential patent-eligibility related opinions issued compared to the total patent-eligibility related decisions. The latter half of 2015 was approximately 25% of all decisions, while the first half of 2016 was only approximately 12%. The rate in the second half of 2016 shot up to over 30% and in the first half of 2017, non-precedential opinions represent over 50% of the opinions issued.

What exactly is a non-precedential opinion and why is this even a concern? A non-precedential opinion cannot be used as authority in future cases and cannot be cited in briefs and/or oral arguments by attorneys. Originally, non-precedential (or unpublished) opinions were used to cut costs, save energy and time, and maintain consistency and clarity of circuit law. While some individual courts allow citations to non-precedential cases under certain circumstances, the majority do not allow them to be cited. In other words, a case that is non-precedential cannot be used to shape the future of the legal system, it defeats stare decisis. On one hand, it takes pressure off of judges to write with extreme caution, who might fear that lawyers will twist their own words against them in subsequent cases. On the other hand, judges are expected to think clearly, and some argue that clear writing and clear thinking are linked. They argue that:

“good judicial practices requires that such ideas be expressed in an understandable way so that later users can understand a case’s material facts, the precedential rules and principles being applied, the court’s estimate of the rule it has devised to resolve the issue, and the bases for the rule. But nothing precedential hangs on the choice of a word. It is the later courts that have the power to extract the precedent’s holding and to phrase it according to their judgments about its content and breadth.” Unpublished Judicial Opinions: Oversight Hearing Before the Subcomm. on Courts, the Internet and Intellectual Prop. of the House Comm. on the Judiciary, 107th Cong. (2002)
Both sides have important arguments, but it is clear that if the trend of increasing non-precedential opinions continues, the law will not be as dynamic and changing as in the past.

Following Alice, there have been over 40 decisions on patent-eligibility. The increase in non-precedential opinions likely signals one of two results: the Federal Circuit either thinks the law surrounding patent-eligibility is clear, or they lack confidence in the prior decisions. Some practitioners have argued that patent-eligibility law is not clear, as SHzoom LLC filed a motion under Federal Circuit Rule 32.1(e) to make the January 2017 Federal Circuit decision in Trading Technologies Int’l., Inc. v. CQG, Inc. precedential. Trading Technologies was the first case that found a user interface qualified as patent eligible subject matter. SHzoom argued that Trading Technologies should be precedential not only because the subject matter was found to be patent eligible, but also because it is “an important positive example of patent eligible technology.” SHzoom also added that the case exhibits that “an improvement in the functioning of a computer includes an improvement in the usability of the computer to perform an information processing task,” and finally that “long standing” is a “threshold criterion,” for a concept to be considered an abstract idea, which helps elaborate the first step of the Alice test.

It is also likely, however, that the Federal Circuit will continue issuing non-precedential patent-eligibility opinions the more that the Mayo/Alice framework is applied and the court feels as though the applications are routine. This is a negative for both sides of patent-eligibility cases who want to create an analogy to a prior case, but find themselves unable to use some of the past decisions. It will be interesting to see where the statistics fall for the second half of this year.

Two Months Later: the Impact of TC Heartland on Venue For Patent Cases

Takeaway: While TC Heartland was predicted to change the patent venue game, the Eastern District of Texas and others are prepared to limit the immediate effects of the Supreme Court’s decision. It is unclear if the Federal Circuit will uphold these modifications of TC Heartland.

Two months ago, the U.S. Supreme Court handed down a decision that many thought would overturn years of precedent regarding patent case venue. In TC Heartland LLC v. Kraft Foods Group Brands LLC, 137 U.S. 1514 (2017), the Supreme Court held that a domestic corporation “resides” only in the state where it is incorporated in regards to the patent venue statute. Before TC Heartland, where a patent case could be heard was determined by the patent venue statute, 28 U.S.C. § 1400(b), which states that venue is proper “in the judicial district where the defendant resides,” or “where the defendant has committed acts of infringement and has a regular and established place of business.” Following the 1988 “corporate residence” amendment, and the Federal Circuit’s decision in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), the typical interpretation of the patent venue statute was that “the judicial district where the defendant resides” is equivalent to personal jurisdiction, allowing patent cases to be heard anywhere where the defendant has made sales. The decision in TC Heartland severely restricts the availability of venues for patent cases, as they must be heard in the state of incorporation.

Prior to TC Heartland, the Eastern District of Texas heard over a third of all patent cases, with 794 alone (8% of the total patent cases) being assigned to Judge Rodney Gilstrap of the Marshall Division. Marshall, Texas has a population of about 25,000 people, no major research facilities, no FBI office, and no major industries, yet more patent litigation occurs there than in any part of the country. This is due to the high costs of defending a patent case in the Eastern District of Texas, the low likelihood of a motion to transfer being granted, and a requirement that documents are produced quicker compared to normal standards. As patent trolls have noticed this trend, more and more suits have been filed in the Eastern District of Texas in the past years.

After TC Heartland was decided, Unified Patents predicted that there would be a 69% decrease in filings in the Eastern District of Texas, a 230% increase in filings in the District of Delaware, and a 300% increase in cases in the Northern District of California.

While the decision in TC Heartland was predicted to severely limit the availability of the Eastern District of Texas as a venue for patent cases, Judge Rodney Gilstrap of Marshall, Texas was not going to let his docket be reduced. In Raytheon Company v. Cray, Inc., Raytheon alleged infringement of four patents for supercomputers used in scientific research by supercomputer research firm Cray. Cray tried to have the case removed from the Eastern District of Texas following the Supreme Court’s decision in TC Heartland on the grounds that Cray does not “reside” in the Eastern District of Texas and that Cray did not infringe at the location of the regular and established place of business, but the motion was denied. Judge Gilstrap based his analysis on the 1985 Federal Circuit case In re Cordis Corp., where the court held that “the appropriate inquiry is whether the corporate defendant does its business in that district through a permanent and continuous presence there and not… whether it has a fixed physical presence in the sense of a formal office or store.” Judge Gilstrap compared the facts in In re Cordis Corp. to the facts in Cray; one of which included the fact that one of Cray’s sales executives had been working for Cray within the Eastern District of Texas for over seven years, with one of his responsibilities being “new sales and new account development.”

Rather than ending his analysis there, Judge Gilstrap established a four-part test to establish if a defendant has a regular and established place of business in the Eastern District of Texas. The factors are: (1) physical presence; (2) the extent of the defendant’s representations, internally or externally, of presence in the district; (3) the extent to which a defendant receives benefits from its presence in the district (including metrics such as sales revenue); and (4) the extent to which a defendant targets interactions with existing or potential customers, consumers, users, or entities within a district. As to the first element, Judge Gilstrap added that equipment or employees located in the district may support finding proper venue. The second element was based on Judge Learned Hand’s conclusion that a defendant’s advertising of its place of business there cannot deny connection to the locale. Judge Gilstrap did not elaborate on the third element other than giving sales revenue as a basic example. Finally, regarding targeted interaction, Judge Gilstrap said that interactions with customers “through localized customer support, ongoing contractual relationships, or targeted marketing efforts” all represented “localized” interactions and support finding venue proper. The four elements are designed to be weighed against each other in a totality of the circumstances test.

These broad and rather flexible elements imply that the future impact of TC Heartland will be limited. It is encouraging to those who want to keep the Eastern District of Texas as an available venue, and disappointing to those who thought TC Heartland was a step in the right direction. Judge Gilstrap, however, is not the only one facing patent venue cases post TC Heartland; on July 5, Judge Huff of the Southern District of California held that a defendant waived its venue objection through conduct during a one-year litigation period. Judge Huff further added that TC Heartland was not “an intervening change in controlling law.” Judge Gorton of the District of Massachusetts, Judge Michael H. Simon of the District of Oregon, and Magistrate Judge John D. Love of the Eastern District of Texas all ruled that venue objection was waived by a failure to raise it previously. These decisions are all sharply contrasted by Judge Mark Gergel’s (District of South Carolina) grant of a motion to transfer based on equitability even though the defendant admitted venue was proper in its first answer before denying that venue was proper in its amended answer.

On July 13, the House IP Subcommittee on the Courts, Intellectual Property and the Internet conducted a hearing on The Impact of Bad Patents on American Businesses, with Chairman Darrell Issa (R-CA.) and House Judiciary Committee Chairman Bob Goodlatte (R-VA.) openly sharing their disdain for the decision Judge Gilstrap handed down in Raytheon Company v. Cray, Inc. Chairman Issa said that in his decision, Judge Gilstrap “rejects the Supreme Court’s unanimous decision,” and that it is “an act I find reprehensible.” He later added that Judge Gilstrap’s decision “does not serve justice.” Representative Bob Goodlatte said:

“Just a few weeks ago, the Supreme Court in its TC Heartland decision concurred with Congressional enactment of a patent specific venue provision in Title 18. This decision was expected to lead to a sharp reduction in cases being filed in one particular district in Texas that seems skilled at attracting patent trolls. Unfortunately, one judge in this district has already re-interpreted both the law and the unanimous Supreme Court decision to keep as many patent cases as possible in his district in defiance of the Supreme Court and Congressional intent.”

Following this, Cray Inc. filed a mandamus petition on July 17 seeking review of the Raytheon Company v. Cray, Inc., 2-15-cv-01554 (E.D. Tex. June 29, 2017) (Order, Dkt. 289) ruling by Judge Gilstrap. The Federal Circuit has not indicated whether or not they will grant this petition, but if they do, the definition of “regular and established place of business,” will be clarified. While it is unlikely that Congress will react now with widespread patent reform, the Eastern District of Texas may find itself at the center of targeted venue practice reform in the more immediate future. Only time will tell if the Federal Circuit will uphold these decisions or if they will once again be struck down.

Strengthening Intellectual Property Protection in Canada

Takeaway: Through rejection of the “Promise Doctrine” and other recent rulings by the Supreme Court of Canada, there appears to be a new trend of increasing intellectual property protection in Canada, which suggests increasing confidence in R&D and IP investment in Canada.

There has been concern in recent years about the strength of IP protection in Canada. Much of this concern has been directed at the “Promise Doctrine.” A recent series of holdings in the federal courts of Canada suggest a reversal of the “Promise Doctrine” and that an overall increase in intellectual property protection in Canada could be a continuing trend. The “Promise Doctrine,” practiced in Canadian courts in past years, holds that a patented invention must hold up to its “promise” of utility, object, goal, or intended utility, in a somewhat specific manner or risk invalidation. A realistic scenario that has impacted pharmaceutical companies involves patents on investigational drugs. If a patented drug intended to treat a certain illness does not in fact treat that illness effectively, but rather is seen to be effective in treating a separate illness, the drug would not be fulfilling its exact “promise” and is at risk of invalidation. Such uncertainty of intellectual property protection and a string of invalidations of patents held by U.S. companies has led to increasing concern for the safety of R&D investment and overall intellectual property investment in Canada.

This concern can be seen in the 301 Report of the Office of the United States Trade Representative (UCTR) for 2017. The 301 Report identifies barriers to trade with the United States resulting from IP laws and regulations, usually from inadequate protection of IP or from limited fair access of U.S. companies that heavily rely on IP to the foreign market. It expresses concerns for invalidations of “valuable patents held by U.S. pharmaceutical companies on utility grounds by interpreting the ‘promise’ of the patent and finding that insufficient information has been provided in the application to substantiate that promise.” It is unclear how applicants and patent holders can meet that standard, and it is reported that unpredictability in the “Promise Doctrine” severely harms incentive for investment.

In June, the Supreme Court of Canada (SCC) evaluated and clarified the “Promise Doctrine,” in AstraZeneca Canada Inc. v. Apotex Inc. (2017 SCC 36). The court recognized that “[the] Promise Doctrine risks, as was the case here, for an otherwise useful invention to be deprived of patent protection because not every promised use was sufficiently demonstrated or soundly predicted by the filing date.” The SCC ultimately determined that the “Promise Doctrine” was not appropriate for evaluating patents. Such a decision removes the importance of promised and demonstrated utility in enforcing patents, which decreases the likelihood of patent invalidation given utility issues and strengthens IP protection in Canada.

Additionally, the SCC had the recent opportunity to further strengthen IP protection in Canada in the June 2017 decision in Google Inc. v. Equustek Solutions Inc. (2017 SCC 34). As a part of the remedy, the court granted a worldwide interlocutory injunction against Google, preventing Google from displaying certain material from Equustek Solutions on their websites internationally. While Google argued that the injunction should have only applied in Canada, the strength of the decision further demonstrates the increase in IP protection through issuance of a worldwide interlocutory injunction.

Another recent example of an increase in IP protection comes from the Dow Chemical Company v. Nova Chemicals Corporation (2017 FC 637). In this case, over $644 million in damages was granted, which is by far the largest award in the history of patent infringement in Canada. The award included pre-grant and post-grant damages as well as “springboard profits.” Springboard profits are meant to compensate for the advantage an infringer may receive by entering the market before the expiration of the patent, an advantage that would not have occurred had the infringer not infringed on the patent. It is assumed that the patent holder would otherwise have been more dominant in the market. Overall, the case shows the flexibility in how Canadian courts will punish an infringer and are trying to strengthen IP protection in Canada.

Taken together, these recent examples have supplied Canadian courts with precedent increasing patent strength and strengthening the enforcement of intellectual property rights. If this trend continues, increased confidence for R&D investment is expected.

Clarifying Reverse Confusion in Trademark Infringement: Marketquest Group Inc. v. BIC CORP [Case Number 15-55755 (9th Circuit July 7, 2017)]

Takeaway: Reverse confusion needs not necessarily to be claimed on its own, but it may rather be a viable claim as a subset of a likelihood of confusion claim. Establishing a reverse confusion argument may become easier to establish, but harder to defend as any form of evidence is acceptable in establishing the element of intent. Summary judgement on trademark cases may be more difficult to obtain due to the intensely factual nature of reverse confusion.

The owner of a trademark can claim infringement under the Lanham Act using a theory of confusion. There are two recognized theories of confusion, forward and reverse, that can explain mistaken or wrongful attribution of one company’s trademark to another company. Forward confusion is typically what comes to mind when likelihood of confusion is referenced. It occurs when a junior mark (that is a more recently registered mark) is mistaken for a senior mark (a less recently registered mark). This occurs, for example, when a company creates a newer product, a sunscreen with the name “Banana Ship,” that is confused with an older product, a sunscreen called “Banana Boat,” of an established company in a certain market. It is not unreasonable to posit that someone shopping for sunscreen would believe that the “Banana Ship” sunscreen came from or was sponsored by the makers of “Banana Boat.” This is forward confusion. On the other hand, if “Banana Ship” sunscreen became the most well recognized sunscreen following its introduction, there would be reverse confusion if someone bought “Banana Boat” believing that it was “Banana Ship”. This reverse type of confusion was relevant in the Marketquest Group v. BIC (9th Cir. July, 2017; No. 15-55755), where the Ninth Circuit clarifies pleading reverse confusion.

In 2011, Marketquest, a promotional products company, sued BIC USA for trademark infringement under 15 U.S.C. § 1114 and unfair competition under 15 U.S.C. § 1125. In the Southern District of California District Court, Marketquest argued that BIC infringed on their trademarks “All-in-One” and “The Wright Choice” by using “The Wright Pen Choice” in advertisements and the phrase “All in ONE” in a 2011 catalog. BIC acquired the promotional products company Norwood in 2009. Norwood published a 2011 catalog which included several uses of the phrase “All in ONE.” The court proceedings only investigated possible infringement for the trademarked phrase “All in One” because the evidence submitted did not pertain to “The Wright Choice” trademark. Following filings of cross-motions for summary judgement, the district court granted a summary judgement that the use of the phrase in the catalog did not infringe on the trademark.

The decision was based on the fair use argument. BIC argued that the phrase was used in good faith, as description and not as a product identifier, and was separate from the BIC CORP trademark; the fair use argument offered a complete non-infringement defense, despite a level of possible confusion resulting from the use of the phrase. The fair use argument actually outweighed a partial Sleekcraft analysis of the use of the trademark that, according to the district court, favored Marketquest.

Following the appeal to the Ninth Circuit, the court noted that summary judgement is generally unfavorable in trademark cases. The court also emphasized that it is not necessary to claim reverse confusion on its own as a separate claim, but that claiming forward confusion or mere likely confusion will encompass the possibility of reverse confusion as well. This suggests that reverse confusion will be considered under a claim of forward confusion and suggests that pleading reverse confusion will be easier, while defending it will become more difficult.

Intent and good faith were also noted as elements of a reverse confusion claim. The court asserted that no specific type of evidence was necessary to establish or destroy these elements. For example, “intent could be shown through evidence that a defendant deliberately intended to push the plaintiff out of the market by flooding the market with advertising to create reverse confusion.” In another example, intent could be shown by evidence that a defendant “knew of the mark, should have known of the mark, intended to copy the plaintiff, failed to conduct a reasonably adequate trademark search, or otherwise culpably disregarded the risk of reverse confusion.” Many forms of evidence to establish intent or bad faith are likely to be accepted.

In regard to the consideration of the fair use defense that was accepted by the District Court, the Ninth Circuit noted that it is necessary to show likelihood of confusion before fair use becomes acceptable to argue. The Ninth Circuit’s opinion cited KP Permanent Make-Up, Inc. v. Lasting Impression I, Inc., 408 F.3d 596 (Cal.,2005): “The fair use defense only comes into play once the party alleging infringement has shown by a preponderance of the evidence that confusion is likely.” The district court had not fully considered Marketquest’s likelihood of confusion argument, not completing the Sleekcraft analysis, and considered the fair use argument as a complete defense, which was opined as an error in the district court.

This case emphasizes and clarifies both the fair use defense, and the likelihood of confusion claim. Showing that an entity’s use, or infringement of a trademark, is not fair use is generally difficult unless there is evidence of bad faith or clear use of the trademark as a product identifier. On the other hand, showing reverse confusion is difficult without evidence of forward confusion and without evidence of why confusion would be in the reverse. However, this holding clarifies that reverse confusion does not necessarily need to be argued as a separate claim, and that there is flexibility in the kind of evidence required to show intent to infringe (i.e. marketing or lack of a thorough trademark search for example). In fact, it is not even necessary to reference reverse confusion directly. In the future, this case may serve as a guide on how to properly claim reverse confusion.

The 2017 Ninth Circuit Judicial Conference

The 2017 Ninth Circuit Judicial Conference was held in San Francisco the week of July 17 and our Managing Partner, Daniel M. Cislo, Esq., was in attendance as one of the Lawyer Representatives to the Ninth Circuit from the Central District of Los Angeles. Lawyer Representatives are specially selected by the federal judges to participate in a three year commitment to serve and assist the Judiciary in improving the judicial system.

This year the keynote speaker was the new Supreme Court Justice Neil M. Gorsuch. Typically, Justice Anthony Kennedy would be the presiding Supreme Court Judge for the Ninth Circuit at these annual events.  Unfortunately, due to health issues with his wife, he was not able to attend, but asked Justice Gorsuch to attend on his behalf.  What was most interesting to see was one of the most conservative justices interacting with one of the most liberal circuits.  Dan Cislo was able to meet with and greet our newest Justice and found him to be very warm and inviting.

The conference was excellent, covering matters from how to reduce incarceration and recidivism of criminals, the internment of Japanese Americans during World War II, the swearing in ceremony of new citizens, the use of science in the courtroom, public confidence in elections, the ramification of fake news, and many more topics.

Stay Tuned…

Big News coming from
Cislo & Thomas later this month!

The firm will be announcing that some of the most prominent intellectual property attorneys in Southern California will be joining the firm.