March 2015

Trademark Trial and Appeal Board (“TTAB”) Has Issue Preclusion Effects

On March 24, 2015, the Supreme Court held that if the Trademark Trial and Appeal Board (“TTAB”) decides on a likelihood-of-confusion issue for purposes of registration, then it has issue preclusion effects in district courts regarding infringement if a mark owner uses its mark in ways that are materially the same as the usages included in the mark’s registration application. B&B Hardware, Inc. v. Hargis Industries, Inc., U.S., No. 13-352, 3/24/2015.

The underlying case involved B&B’s registered mark, “Sealtight,” for fastener products mostly used in the aerospace industry and Hargis’s attempt to register “Sealtite” for fasters used in the construction trade.  The TTAB upheld B&B’s mark and sustained B&B’s opposition to Hargis’s registration. 

In the subsequent district court case, a jury found that B&B’s mark, “Sealtight,” was merely descriptive and did not defer to the TTAB decision. The Eighth Circuit Court of Appeals affirmed the district court’s decision holding that the concept of “likelihood of confusion” for registration and infringement are not the same issue.

The Supreme Court rejected the Eighth Circuit’s analysis and held that the “likelihood of confusion for purposes of registration is the same standard as likelihood of confusion for purposes of infringement.”  The Court conceded that the TTAB and the district courts are concerned with different underlying purposes; the TTAB is concerned with whether marks “resemble” each other, while the courts are concerned with “use in commerce” for infringement purposes.  

However, the Court stated that TTAB preclusion should not be ruled out categorically. Instead, the Court stated, “if a mark owner uses its mark in ways that are materially the same as the usages included in its registration application, the TTAB is deciding the same likelihood-of-confusion issue as a district court in infringement litigation.” 

By contrast, if a mark owner uses its mark in ways that are materially unlike the usages in its application, the TTAB is not deciding the same issue…and should have no later preclusive effect in a suit where actual usage in the marketplace is the paramount issue.”

The Supreme Court addressed other issues, such as the presumption that administrative preclusion is supported by court cases as well as the Restatement (Second) of Judgments and the issue that TTAB preclusions raising the Seventh Amendment right to a jury trial is not an issue because the constitutionality of TTAB preclusion is not before the Court. 

The Court also found no “evident” reason why Congress would object and Justice Alito quoted Astoria Fed. Sav. & Loan Assn. v. Solimino, 501 U.S. 104 (1991), stating that “courts may take it as given that Congress has legislated with the expectation that the principle [of issue preclusion] will apply except when a statutory purpose to the contract is evident.”

In a concurring opinion, Justice Ginsburg judiciously noted that the scope of the TTAB issue preclusion is narrow, such that it will not apply for many decisions. In a dissenting opinion, Justice Thomas, joined by Justice Scalia, contends that historically speaking, administrative preclusion is not widely accepted as common law.

Future litigants of TTAB proceedings should be very concerned that the outcome of their TTAB case could have drastic effects upon any later federal court litigation between the parties.

The U.S. Soon to Join the Hague System: More Options for Multijurisdictional Protection for Industrial Designs

The United States has completed the process to become a Member of the Hague by ratification of the Geneva Act of the Hague Agreement Concerning the International Registration of Industrial Designs (“Hague Agreement”).

The Hague Agreement will allow U.S. applicants to file a single international design application either with the World Intellectual Property Organization (“WIPO”) in Geneva, Switzerland, or with the United States Patent and Trademark Office (“USPTO”) to obtain protection in multiple jurisdictions rather than filing different applications for each country. 

The improved efficiency under the Hague system will have potential cost saving benefits for applicants trying to obtain protection of their industrial designs.  

The United States just deposited its Instrument of Accession with WIPO on February 13, 2015.  The USPTO will soon publish the Final Rules in the Federal Registrar governing the USPTO examination process of international design applications pursuant to the Hague Agreement.  

The Final Rules are expected to go into effect on May 13, 2015. Accordingly, design patents filed on or after that date will have a 15-year term, whereas those filed before will have the 14-year term. 

For applicants considering delaying their filing in order to obtain a longer period of protection for their design patents, please consult with a patent attorney about the trade-offs for waiting until after May 13, 2015 to file a new design patent application or any continuations or divisionals as well. 

Patent Exhaustion Doctrine Narrowed in Helferich Patent Licensing Federal Circuit Ruling

Generally, under the doctrine of patent exhaustion, once a patented item is sold, all patent rights to that item are “exhausted.” Case law has been setting the bounds of that doctrine, which is intended to prevent a situation where a patent holder can “send its machines forth into the channels of trade of the country subject to conditions as to use or royalty to be paid, to be imposed thereafter at the discretion of the patent owner.”  Motion Picture Patents Co. v. Universal Film Manufacturing Co., 243 U.S. 502, 518 (1917). 

Yet, under new case law, the Court of Appeals for the Federal Circuit recently reversed a holding from the United States District Court for the Northern District of Illinois in Helferich Patent Licensing, LLC v. The New York Times Company (Fed. Cir. 2015).  The Federal Circuit held that the “first sale” or “exhaustion” defense does not extend to all the claims related to a particular patented device but rather extends only to the group of users that were authorized to use that device.

The plaintiff, Helferich, held more than thirty United States patents that cover a range of distinct, though related, wireless-communication technologies. One set of claims (the “handset claims”) related to the apparatus and method of receiving and/or requesting certain content.  Another set of claims (the “content claims”) related to the system and method of storing and updating the content and sending it to the handsets. Helferich licensed the handset claims to nearly all manufacturers of mobile handsets but expressly left out any licensing of the content claims. 

In the present case, Helferich filed suit against The New York Times Company and other media entities for alleged infringement of the content claims for sending links to external content via text message to subscribers’ mobile devices. The defendants moved for summary judgment and argued that Helferich’s right in the patents were barred by the doctrine of patent exhaustion. 

The district court agreed with the defendants, holding that because Helferich licensed the handset claims to the manufactures, allowing them to sell the handsets, it exhausted its patent rights against the content providers.  

On appeal, the Federal Circuit reversed and clarified that the exhaustion defense does not bar Helferich from asserting infringement of its claims against persons other than those authorized by a sale or license. Here, Helferich only licensed its handset claims to manufacturers and thus the authorized acquirers included the handset users but not the content providers. 

The court also found that neither the handset claims nor the method claims wholly contained the invention found in the other, such as to result in “double recoveries” because there were other practices, such as peer-to-peer sharing of links and airplane mode that required the handset claims but not the content claims. The court concluded that it will not “expand” the exhaustion doctrine “to hold that authorized sales to persons practicing the handset claims exhaust the patentee’s right to enforce the asserted content claims against different persons.”

Some scholars disagree with the holding and argue that patent exhaustion should adhere to the patented device and not in “certain persons” who are authorized to use the device. 

Unless the Supreme Court holds otherwise, this holding suggests that in the licensing and clearance context, clients and patent attorneys alike must be aware of the relationship between the claims being licensed and those that are not, who the likely infringers down the road are, and who are the “authorized acquirers.”

To read the full case, click here.

Cases Filed at Patent Trial and Appeal Board (“PTAB”) to Challenge Patents Increased by 12% 

A recent report by research company Docket Navigator stated that in 2014, the number of cases that were filed at the Patent Trial and Appeal Board (“PTAB”) of the United States Patent and Trademark Office (“USPTO”) reached 112% as compared to 2013. 

In comparison, the United States District Courts handled 18% fewer cases across the same period. According to the report, Apple, with 89 cases, and the global division of Samsung, with 61 cases, were the top two petitioners at the PTAB, followed by other technology companies such as Google, LG and Microsoft.  

In the district courts, Apple and the American division of Samsung were the two most frequently accused defendants, with 47 and 41 cases filed against them respectively. 

Despite the fewer number of patent cases in district courts, the U.S. District Court for the Eastern District of Texas remained the popular jurisdiction for patent litigation in 2014, with a rise from 24.7% in 2013 to 28.6% in 2014 of its overall district cases.

California Federal Judges Are Overworked But Central District Efficiently Handles Trials Lasting Less than 19 Months

Although the number of federal filings has not increased more than one percent since last year, California judges are handling more than the national average of 533 cases a year. Judges in the Eastern District, Central District, Northern District, and Southern District handled an average of 974, 664, 593, and 508 cases weighted filings, respectively. 

Despite the pressure, the Central District was able to see 160 civil trials last year, which was more than the other three districts combined. Additionally, the Central District was able to handle them relatively efficiently—each trial took an average of less than 19 months from the filing date to completion. 

Compared to the average time of three years for the Eastern District and around 31 months for both the Northern and Southern Districts, the Central District is the forum to be at if one desires a speedy civil trial.

Non-Disclosure Agreements: Don’t Use “Legally Required Disclosures” As Exceptions To Confidential Information

Generally, a Non-Disclosure Agreement (“NDA”) offers one of the most surefire ways to protect confidential information, including trade secrets.  However, like all contracts, there are strong NDAs and weak NDAs. Some notable issues that weak NDAs tend to possess are: setting excessively long periods during which the confidentiality obligations are binding; not separating out a provision for trade secrets to be confidential indefinitely; or not leaving exceptions for legally required disclosures correctly. 

NDAs are no strangers to lists of non-confidential exceptions, such as information that is already publicly available or information that the receiving party rightfully possess already. However, in the typical list of exceptions of confidential information for NDAs, using the terms “information that is required by law to be disclose[d]” may cause problems. 

The issue is that “confidential information” loses that title once it is disclosed and there may be information that is required by law to be disclosed but needs to remain in the category of “confidential information.” 

Therefore, instead of having “legally required disclosure” as an exception to what is confidential, the correct way to incorporate this concept is to have it as an exception of the overall non-disclosure obligation and to be a specifically permitted disclosure of confidential information. Under this new label, even after the information is disclosed, the information remains confidential.

Here is an example of how to implement the “legally required disclosure” exception language into your NDAs:

“A disclosure of Confidential Information (a) in response to a valid order by a court or other governmental body, (b) otherwise required by law, or (c) necessary to establish the rights of either party under this Agreement, shall not be considered to be a breach of this Agreement or a waiver of confidentiality for other purposes; provided, however, that Recipient shall provide prompt written notice thereof to enable Discloser to seek a protective order or otherwise prevent such disclosure.”

Here is an example of a simple NDA and here is an example of a NDA with assignment of IP rights.

Key Step in Turning Ideas into Profitable Patents

Innovative ideas are spawned from brilliant minds every day, but it is those inventors that implement rigorous business strategies and a strict process who eventually develop profitable products or services. Most guidelines for developing a business strategy require that the first step be research and development, and have patent research as one of the later steps down the line. 

However, too many times, after a great deal of research and development has already been invested, inventors discover previous disclosures that may not have resulted in a patent or a product in the market but may end up being detrimental to getting the broad patent protection they were seeking.  

Nonetheless, because of the invested costs and emotional attachment to their product, those inventors end up pursuing patent protection for their product anyway by way of narrowed protection. These unfortunate events could have easily been avoided.

The best method for developing a profitable patent is inter-weaving “patent research” as a core aspect of research and development. Certain tools, such as, can ease the process of looking to find a patentable invention that is novel and nonobvious from the already patented or disclosed inventions.       

Patent Term Adjustment Is Limited By Late Information Disclosure Statement (“IDS”)

In Gilead v. Michelle Lee (Fed. Cir. 2015), the Court affirmed that the United States Patent and Trademark Office (“USPTO”) has authority to fill gaps in rules regarding the patent term adjustment (“PTA”) system. Congress created the PTA system to increase the post-issuance term of a patent if the USPTO has delayed the patent protection for the 20-year term from the filing date. 

Many scholars and patent applicants, along with Gilead, have voiced their opinion that the PTA statute is poorly drafted. However, the Federal Circuit reiterated courts’ wide deference of the USPTO’s decisions regardless if, in the view of the courts, the applicability of the rules is sub-optimal. 

In Gilead, the applicant filed its information disclosure statement (“IDS”) 57 days after its responsive election and the issue was whether those 57 days should be counted against Gilead. 35 U.S.C. § 154(b)(2)(C) stated that “the period of adjustment … shall be reduced by a period equal to the period of time during which the applicant failed to engage in reasonable efforts to conclude prosecution of the application.”  

The statute gives the UPSTO authority to “prescribe regulations establishing the circumstances that constitute a failure of an applicant to engage in reasonable efforts to conclude processing or examination of applications.” 

One of the rules that the USPTO created was a failure to submit “a supplemental reply or other papers, other than a supplemental reply or other paper requested by the examiner, after a reply has been filed.” 36 C.F.R. § 1.704(c)(8). The late IDS filing fell squarely within the rules. However, Gilead argued that the late filing did not lead to any delays in prosecution and therefore Gilead should still get the extra 57 days.

The Federal Circuit found that (i) the statute does not particularly address Gilead’s issue at hand but does give the USPTO authority to fill the gaps, and (ii) the no-exception rule by the USPTO was reasonable even though there was no delay in this particular case.  

Therefore, as a practice tip, practitioners and applicants need to consider supplemental IDS filings before filing an Office Action response in order to avoid losing patent term.

Contractual Term “Affiliates” Unambiguously Defined by New York Court of Appeals

For newly drafted agreements, especially involving copyright licensing in New York, clients and drafters need to be mindful of what “affiliates” embodies and explicitly define its constraints in light of Paul M. Ellington v. EMI Music, Inc, 24 N.Y.3d 239 (2014). 

In Ellington, the Court of Appeals of New York held that the contractual term “affiliates” was unambiguously defined as those affiliates that were in existence at the time the agreement was executed, which did not include any future affiliates. 

Plaintiff Paul Ellington, the grandson and heir of Duke Ellington, sought a claim for a breach of contract against EMI Music for effectively “double-dipping” into the royalties of the foreign sales of Duke Ellington’s music. 

In the contract, the royal provision at issue requires EMI to pay Ellington “a sum equal to fifty (50%) percent of the net revenue actually received by [EMI] from foreign publication” of the relevant musical compositions. Under this provision, Ellington was to collect royalties based on income received by a publisher after the deduction of fees charged by foreign sub-publishers. 

However, at the time of the agreement, foreign sub-publishers were typically not affiliated with domestic music published whereas recently, many domestic publishers, including EMI, have affiliated with foreign sub publishers.  

In an audit report of EMI, plaintiff discovered that that the affiliated foreign sub-publishers retained 50% of the royalties while the remaining 50% was split between EMI and the Ellingtons.  Effectively, because the foreign sub-publishers were not considered affiliates under the calculation, 50% of the income received through the affiliated foreign sub-publishers and 50% of the remaining income, resulting in 75% of the income, were received by EMI and “affiliates” in sum.  

However, the Court stated that “absent explicit language demonstrating the parties’ intent to bind future affiliates of the contracting parties, the term “affiliate” includes only those affiliates in existence at the time the contract was executed. (VKK Corp. v. National Football League, 244 F.3d 114, 130-31 [2nd Cir. 2001]).” 

The Court analyzed the parties’ intent and held that the use of present tense language, and not forward looking language in the agreement, demonstrated the parties’ intent to bind only affiliates in existence at the time of the agreement. 

The Court further analyzed that the use, in a later clause, of the confirmation that “any other affiliate companies of [EMI] not specifically mentioned, were and are now possessed of and are entitled to the original copyright of the [relevant] musical compositions” was probative of an intent to limit application then-current affiliates. 

Four of the seven justices for the New York Court of Appeals supported the holding, a fifth concurred with the result but rejected the majority’s interpretation of “affiliate.” Two justices dissented, stating that the term “affiliate” was ambiguous and that Ellington’s interpretation seemed at least as reasonable as EMI’s and should not have been decided by the Court on a motion to dismiss.

The holding may have ramifications that go beyond just licensing agreements. For example, in non-compete agreements, practitioners need to be wary of using forward-looking language in order to bind future subsidiaries to the terms of the non-compete agreement. However, the context of the full agreement may play a role in the ultimate interpretation as exemplified in Ellington

Therefore, for newly drafted agreements, especially under New York law, practitioners need to consider including future-looking language for relevant terms such as “affiliates.” 

Apple Ordered to Pay Over $500 Million to Smartflash LLC

On February 24, 2015, a Texas jury awarded Smartflash, LLC for Apple’s infringement of three Smartflash patents that covered methods of managing digital rights and paying for songs, games, and other data.  

Although Apple viewed Smartflash as a patent troll, Smartflash alleged it had a legitimate claim because one of the co-inventors of the patents, Patrick Racz, discussed the data management technology in 2000 with Augustin Farrugia, who later became a senior director at Apple. 

The holding, along with over 5,000 other patent cases filed in district courts last year, raise questions about whether or not the U.S. patent system is broken. Apple argues that “Smartflash makes no products, has no employees, creates no jobs, has no U.S. presence, and is exploiting our patent system to seek royalties for technology Apple invented.” 

On the other hand, companies like Smartflash argue that it is one of the many legitimate non-practicing entities that hold valuable patent assets that have the right to enforce them. John Curry, an attorney for Smartflash, stated that Racz had attempted to launch a line of products in the late 1990s, but the business was not successful and instead he filed for patent protection.

Apple remains unwavering in their stance against patent trolls especially because they faced more than 100 lawsuits in the recent years from companies that threaten to file patent lawsuits unless they receive royalty payments. Apple states that it will appeal the verdict.   

Uber Faces More Troubles—Possible Patent Infringement Of Sidecar’s Patent in Future

Besides other issues that Uber is facing, such as kidnapping assault claims and airport policies, it may now face a potential patent infringement suit from its rival, Sidecar.  

In 2002, Sidecar’s founder obtained a patent titled “System and method for determining an efficient transportation route,” which describes the use of GPS-tracking to plot routes and connect drivers with passenger pick-up locations, with the patent term lasting until 2020. 

If Sidecar, Uber’s rival, can prove that Uber is indeed infringing, the substantial market share that Uber has may be up for grabs.  Some believe that Sidecar’s claim does not hold enough merit to stop Uber, and even if it did, Uber can take the approach that large corporations like Facebook do, and buy Sidecar with its patent portfolio. 

On the other hand, Uber itself has been busy filing more than a dozen patent applications, one of which includes Uber’s system of “surge pricing,” as well as other basic aspects of the car hire business such as dispatching and calculating tolls. Uber’s earliest patents can be traced back to 2010.

With Alice Corp. v. CLS Bank International saying that tying a well-known idea to a computer or smartphone is ineligible, scholars are doubtful that any of the patents that both Sidecar and Uber applied for can withstand the validity test under Alice.  

However, Sidecar still may try to start a patent war, and ultimately consumers will bear the cost.  Luckily, with the wary attitude towards business method patents among courts and entrepreneurs, the war is unlikely to start any time soon.