Federal Circuit Clarifies Standards for Using Internet Materials as Specimens of Use

On December 23, 2009, the Federal Circuit Court of Appeals gave trademark applicant Michael Sones an early Christmas gift in reversing a Trademark Trial and Appeal Board decision maintaining a refusal to accept Mr. Sones's specimen of use submitted for his application to register the mark ONE NATION UNDER GOD for "charity bracelets." In the Federal Circuit decision In re Michael Sones, the court held that a picture of goods is not a mandatory requirement for a website-based specimen of use. The proper test for an acceptable website-based specimen is "just as any other specimen, …it must in some way evince that the [applied-for] mark is 'associated' with the goods and services as an indicator of source."

The specimen of use of the applied-for mark submitted with a statement of use consisted of pages from the applicant's website including a product listing consisting of the wording "ONE NATION UNDER GOD™ CHARITY BRACELET for $2.00" and under this listing the wording "ONE NATION UNDER GOD™ CHARITY BRACELET, CHOICE OF BLUE OR RED $2.00 EACH. No photograph of the product was displayed on the submitted website materials. The web page also displayed a "shopping cart" function for online ordering, including a "View Cart" and "Add to Cart" function.

During prosecution, the trademark examiner treated Sones's specimen of use as a 'web catalog' and strictly adhered to a rule from the Trademark Manual of Examining Procedures (TMEP) requiring a picture of the relevant goods as part of an acceptable catalog or similar specimen of use. In following this rule, the trademark examiner noted that the submitted specimen did not show a picture of the goods in close proximity to the mark— which, as described above, is entirely correct. In the Final Office Action, the trademark examiner took a more entrenched position, emphasizing that "a display is acceptable 'only if' it includes 'a picture of the relevant goods.'" (emphasis in original quote) The Board's decision followed the bright line rule applied by the trademark examiner and concluded that Sones failed to satisfy "the criteria …that the specimen (1) include a picture of the relevant goods and (2) show the mark sufficiently near the picture of the goods to associate the mark with the goods." The Board also noted what it believed to be an inadequacy of Sones's description of the goods on the submitted materials.

In reaching its decision, the Federal Circuit reviewed and commented on the origins of the rule applied by the trademark examiner and the Board. This rule originated in a federal district court decision Land's End, Inc. v. Manbeck, addressing a specimen of use from a mail order catalog. While the Land's End decision made reference to the catalog page showing a picture of the goods and corresponding description—thus constituting "a display associated with the goods"— the decision hinged on the catalog page's "point of sale" characteristics through the inclusion of order forms as part of the catalog. The USPTO interpreted and adopted the Land's End decision and created a new section in the TMEP specifically for "catalogs as specimens." Trademark examiners routinely apply this rule to electronic specimens of use, regardless of whether they are catalog pages, and the Board has regularly applied this standard on review.

In the Sones decision, the Federal Circuit clearly states that it does not believe the Land's End decision established a clear rule requiring that specimens of use from the Internet always include a picture of the goods. The Federal Circuit pointed to the Land's End decision's reliance on the "point of sale" nature of the specimen, and less on the fact that the catalog page included a picture. The Federal Circuit also indicated that Internet specimens should be viewed in the same manner as actual goods sold in a brick-and-mortar store. Product labels and product packaging displaying the mark are readily accepted without a picture of the goods. Likewise, product displays such as tradeshow booths, have been found to be acceptable, even though goods were not present or visible at the tradeshow booth. The TMEP recognizes that a website is akin to an electronic retail store and that a web page is a "shelf-talker" or "banner" encouraging consumers to buy a product. The TMEP also recognizes that ordering from a website is the "equivalent" to picking up a box in a store, and boxes as product packaging do not need a photograph of the goods per se to link a trademark to the goods inside. Accordingly, the Federal Circuit questioned the need for a photograph in the context of Internet specimens. The Federal Circuit further pointed out that the TMEP also includes a section concerning specimens of use entitled "Electronic Displays" which makes reference to websites, but does not recite the elements of the test from Land's End.

The Federal Circuit acknowledged that a "visual depiction" of a product is an important consideration in determining the sufficiency of an Internet specimen and the absence of a picture could certainly support a lack of association between a mark with the source of the goods. Nevertheless, a picture is not the only means for establishing an association between a mark and the goods, and a bright-line rule as applied by the trademark examiner and maintained by the Board was not correct. The Federal Circuit identified factors, as examples, to be considered in examining an Internet specimen of use, and possibly offsetting the lack of picture, as the "point of sale" nature of the specimen and whether the actual features or inherent characteristics of the goods are recognizable from the textual description.

The Federal Circuit vacated the decision of the Board and remanded the case for further proceeding consistent with the Federal Circuit's decision.

This decision raises interesting issues that could shape future USPTO analysis of specimens of use and TMEP sections. The Federal Circuit is clearly looking to substance over form in specimens of use. Will this ease review of non-traditional or "new media" specimens of use? The Federal Circuit has made a distinction between a catalog as a specimen of use and an Internet reference as a specimen of use, but did not offer guidance on Internet-based catalogs. Whereas the TMEP section pertaining to catalogs as specimens of use includes factors that do not fully reflect the Land's End decision, might an amendment to this TMEP section be forthcoming? These issues are likely to be addressed as the Board and USPTO digest the Federal Circuit's decision.

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Complications Under the Physician's Immunity Statute: Still Rare, Potentially Costly

Attorneys practicing in the medical-patent field routinely submit method-of-treatment claims for prosecution before the U.S. Patent and Trademark Office, as such are considered patentable subject matter under U.S. law. When drafting and enforcing such claims, however, patent practitioners should be aware of the "physician's immunity" statute in force in the U.S. since 1996, as the statute may prevent the enforcement of remedies for infringement of certain method-of-treatment claims against physicians and hospitals.

Under 35 U.S.C. 287(c), a medical practitioner who infringes a patent by performing a medical or surgical procedure on a human body (the Section also provides immunity for procedures performed on a nonhuman animal used in medical research or instruction directly relating to the treatment of humans) is immune from liability for that infringement, including freedom from injunctions, damages and attorneys fees. The immunity does not apply if the performance included the use of a patented product (machine, manufacture, composition of matter) in violation of patented claims to the product. While nicknamed to indicate physician's immunity, this statute provides immunity to non-physician medical treatment providers as well as health care entities related to the performance (e.g. hospitals). Section 287(c) also provides that immunity does not apply to certain device manufacturers, pharmacy or clinical lab services, or to US patents having effective filing dates prior to September 30, 1996.

U.S. law provides little guidance as to the metes and bounds of 35 U.S.C. 287(c). The legislative history of the statute provides some examples of intended application of the statute, for instance stating that a physician that transplanted a healthy heart into a cardiac patient using a conventional anesthetic would likely enjoy Section 287(c) immunity and not be liable for infringing a method claim covering the transplant procedure. The legislative history also states that if the method claim were directed to the use of a novel and non-obvious anesthetic, immunity under 35 U.S.C. 287(c) may not apply, and patent holders could receive traditional remedies for infringement.

The Supreme Court was given the opportunity to comment on subject matter that might fall under Section 287(c) in Laboratory Corporation of America Holdings v. Metabolite Laboratories, Inc., et al., 548 U.S. 124, 126 S.Ct. 2921 (US S.Ct. 2006). At issue was the validity of claim 13 of U.S. Patent No. 4,940,658, which reads as follows:

A method for detecting a deficiency of cobalamin or folate in warm-blooded animals comprising the steps of:

assaying a body fluid for an elevated level of total homocysteine; and

correlating an elevated level of total homocysteine in said body fluid with a deficiency of cobalamin or folate.

Commentators hoped the Supreme Court would consider whether this diagnostic method claim would be considered protected medical activity under 35 U.S.C. 287(c), and whether physicians and hospitals may enjoy immunity from liability after infringing this claim. However, the Supreme Court dismissed the case on procedural grounds and did not consider 35 U.S.C. 287(c). Dissenting Supreme Court Justices commented that this claim should have been considered by the Court to make the public aware whether such a claim falls under 35 U.S.C. 287(c).

In Emtel, Inc. v. Lipidlabs, Inc., 2008 U.S. Dist. LEXIS 77597 (S. Dist. Tex. 2008), a district court discussed 35 U.S.C. 287(c) in some detail. In Emtel, the holder of U.S. Patent No. 7,129,970 alleged infringement of claims including a method claim self-categorized as a business method, directed in part to delivering medical services by having a physician diagnose medical problems from a distance. The alleged infringer filed a motion for summary judgment, requesting dismissal of the suit in part due to immunity as a provider of health services under 35 U.S.C. 287(c). The district court denied the motion for summary judgment under 35 U.S.C. 287(c), stating that the claims at issue were not infringed and therefore section 287(c) immunity did not apply.

Also, in response to the patent holder's assertion that the physician's immunity statute does not apply because "a Diagnosis is not a 'medical or surgical procedure,'" the Emtel Court noted that a procedure can refer to diagnosis in the medical field, citing medical dictionary definitions and reviewing legislative history records to rebut the patent holder's arguments. The Court also construed the phrase "the performance of a medical or surgical procedure on a body," suggesting that a diagnosing physician need not physically interact with a patient to deliver medical or surgical treatment under 287(c), and that a company providing communication links between physician and patient may qualify for 287(c) immunity.

General Recommendations

When drafting medical method claims for filing in the United States, we recommend considering whether the claims may fall under Section 287(c) (for instance, if they are directed to a medical or surgical method, or even a diagnostic method), and whether a potential infringer might be a physician or a hospital. Where Section 287(c) may be a later issue, we recommend that a claim set include claims having patented products and non-treatment steps where possible. Also, claims should be included in the application that will be geared toward manufacturers and others in the medical industry that do not qualify for 287(c) immunity.

We also recommend that patent litigators seeking immunity under Section 287(c) remember that the immunity likely only applies if infringement has been found. The statute does not prevent patent hol¬ders from alleging infringement or allow alleged infringers to avoid suit altogether. Rather, the statute provides immunity from the enforcement of remedies for infringement against medical practitioners and related health care entities.

Multiple forms of patent protection should be considered, including utility, design and plant patents. It may be that a design patent provides the only means of patenting the product, in contrast to patenting the use of the product during a medical or surgical procedure.

Further, global marketing of a new invention should be considered during the initial claim drafting of the US utility application. In particular, patent protection and enforcement of such claims are treated differently in various countries. For example, most foreign patent offices do not allow method-of-treatment claims, but rather require "use" style claims instead. Therefore, certain claims may be composed in the US application in anticipation of the subsequent examination in specific foreign patent offices.

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U.S. Design Patent— the New Patent King

A case may be made that recent court decisions have made obtaining and enforcing a utility patent more difficult. Conversely, recent court decisions have been largely favorable as to design patents. Although design patents protect ornamental features while utility patents cover functional aspects of an invention, this article suggests that design patent protection deserves greater consideration.

Design patents are on the rise. This is largely due to the fact that the burden on design patent owners to prove infringement has been reduced, courtesy of the Federal Circuit's 2008 decision in Egyptian Goddess, Inc. v. Swisa, Inc., 543 F.3d 665 (Fed. Cir. 2008) (en banc), cert. denied 129 S.Ct. 1917 (2009) that changed the test for design patent infringement, by dropping one of two previously required infringement tests. In particular, the Federal Circuit's point-of-novelty test was dropped in favor of the Court's ordinary-observer test. (Although the Federal Circuit also suggests that a test similar to the point-of-novelty test should be taken into consideration during the ordinary-observer test.) The patent in Egyptian Goddess was directed to the ornamental features of a nail buffer. While not a typical product for a design patent, the district court held that the infringer did not demonstrate the patent to be invalid. The Federal Circuit affirmed the finding of non-infringement.

In contrast, ongoing developments in patent law have been less favorable to owners of utility patents. The 2007 U.S. Supreme Court decision in KSR Int'l Co. v. Teleflex Inc., 550 U.S. 398, 127 S. Ct. 1727 (2007) has changed the tests applied by the USPTO when deciding to grant a patent, and by the US courts when deciding whether to invalidate a patent. The ruling has created great consternation within the patent community, raising concerns that it would be very difficult to obtain a patent, and that issued patents en masse could be held invalid. The KSR decision considered a claim directed to a combination of an electronic sensor with an adjustable automobile pedal so that pedal's position can be transmitted to a computer that controls the throttle in the vehicle's engine. The Court held that the claim was invalid as a combination of familiar elements according to known methods which does no more than yield predictable results.

It remains unresolved whether the US Supreme Court intended KSR's patentability analysis to apply to design patents. The Federal Circuit declined to address this issue in its 2009 decision in Titan Tire Corp. v. Case New Holland, Inc., 556 F.3d 1372, 1384 (Fed. Cir. 2009). That case was directed to a design patent covering the ornamental features of a tractor tire. The Federal Circuit indicated that the issue of whether it was necessary to consider the KSR analysis was not relevant. Instead, the issue of obviousness, in the context of a preliminary injunction, was affirmed as to the district court's Durling analysis (Durling v. Spectrum Furniture Co., 101 F.3d 100 (Fed. Cir. 1996)). The Titan Tire Corporation decision suggests that perhaps the analysis of KSR, which was directed to a utility patent, may not be applied to design patents.

Make no mistake. Design patents are a potent tool and should be given serious consideration as a means of intellectual property protection for a vast array of products, provided there is an ornamental aspect of the invention which is not dictated by function.

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Random House Asserts Digital Rights in Its Older Titles

In the mid 1990s, with the dawn of mainstream reliance on the internet and electronic communication, many of the large publishing companies revised their standard publishing contracts with authors to explicitly name rights in digital publication, along with the traditional printing rights. For many publishers, one of the constant areas for profit in a struggling industry remains its authors' backlists, the republication and sale of works long after their initial run. Now, with the swift rise in popularity of e-books in step with the growing use of digital book readers, many publishing companies find themselves scrambling for a way to claim digital rights for works in their backlists whose contracts did not explicitly include such rights, as some of these works had been published before the existence of the digital format.

The battle between authors and publishers over digital rights has now come to head in several inter-related events. On December 11 Random House sent a letter to many literary agents, announcing its position that all digital rights in its backlists vested with Random House. Many of the contracts that do not explicitly name the digital publishing rights still grant the rights to publish books "in book form" or "in any and all editions" according to the comments made in the letter. Shortly thereafter, the Authors Guild revealed its own response to Random House's action on December 15, refuting Random House's claim by pointing to a 2002 New York case also involving Random House and Rosetta Books LLC (Random House, Inc. v. Rosetta Books LLC, 283 F.3d 490, 62 U.S.P.Q.2d (BNA) 1063 (2d Cir. 2002)). In that case, Random House had pointed to the same clause in its contracts granting publishing rights "in book form", that it is currently using to justify its claim to e-book rights in backlist titles. The Southern District of New York refused to grant a preliminary injunction to stop Rosetta from publishing the digital books of a number of authors in Random House's own backlist, finding that Random House did not have the electronic rights to the works of William Styron, Kurt Vonnegut Jr. and Robert Parker. Despite having the rights for the earlier print editions of the books "in book form," the digital rights to works that had been created before the advent of digital publishing were not automatically encompassed within the contracts and therefore vested with the author. The court of appeals subsequently affirmed the refusal to grant the injunctions against Rosetta. However, in late 2002 Random House and Rosetta settled their litigation and avoided trial on the merits. The case was also decided under New York state law, and could conceivably lead to a different approach elsewhere where state courts take a less restrictive approach in interpreting contracts. Indeed the New York appeals court pointed out that Random House did have some appeal to its argument that an e-book is merely "a 'form' of a book, and therefore within the coverage of [those] licenses."

One could argue that Random House's own actions do contradict its claim that the digital rights are inherently included in prior grants, considering it has explicitly contacted authors requesting that the digital rights be released to Random House, and has also amended its standard contracts in 1994 to explicitly include such rights where necessary. While such actions may be seen as a way to just remove all doubt as to who controls the rights rather than as an admission that the digital rights are not included in prior grants, it certainly indicates that the issue and scope of prior contracts are not as clear cut as Random House is claiming.

Random House's announcement may also be a reaction to action by one of its authors, William Styron, author of "Sophie's Choice," and one of the authors involved in the earlier case with Rosetta. Styron recently entered an agreement with a different publishing company to release the e-book version of several of his novels that are in Random House's backlist. Around the same time, Steven Covey, the author of the popular "Seven Habits" series of books, announced that he had reached an independent and exclusive deal with Amazon to publish his books in digital format, presumably for use with the Kindle reading device. In reply, Simon & Schuster, the publisher of Covey's traditionally-published works, announced its intent to still publish its backlists in digital formats.

The issue seems to have not yet come to blows with publishers in Britain, where the e-book readers are less ubiquitous and a more common view is that publishers do not maintain the digital rights in their backlists unless they had been specifically granted. On the flip side, however, there also appears to be more reluctance in Britain for authors to turn to other e-publishing sourced beyond their print publisher. While such a gentlemen's agreement is working for the time being, it may only take one author on the scale of someone like Steven Covey to step towards seeking digital publishing deals elsewhere and challenge this arrangement.

Despite the New York case's prior finding, the fact that the parties did eventually reach a settlement and never went to trial leaves the issue somewhat open-ended, and Random House does maintain that since the matter eventually ended in a settlement, it is not a final ruling on the merits, only on the issue of the injunction. In refusing the injunction, the Rosetta court stated that the digital publishing rights for works created before the existence of digital publishing remained with authors, but this was under a fairly restrictive interpretation of the scope of the contracts. Would the same be true for works that were created after the existence of digital publishing, but before publishing contacts were amended to explicitly name such rights? If a contract granted the general publishing right using the catchall phrase of "in book form" or "in any and all editions," one could reasonably view this as encompassing digital publishing, provided the format was in existence at the time of the contract. While digital formats were certainly not contemplated for many books in a publishing company's backlist that were created before the dawn of digital publishing, there is a window between the start of digital publishing and the time when contracts were amended to specifically address digital rights.

With the stronghold by Amazon's Kindle in the e-publishing industry, followed closely by Barnes and Noble's new Nook and the Sony Reader, and the expected foray of Apple into the market in 2010, this issue is only beginning to develop. Furthermore, as digital versions are often far less costly for publishers to produce, authors are concerned that the royalty percentages provided by old contracts for the print editions may simply be inequitable and view the digital printing rights as a way to re-negotiate a more favorable percentage. Added on this, many large publishing companies intend to delay release of the digital format for many new titles, in an attempt to hold onto any potential profit from the hardback formats. In light of each party's at least partial motivation to increase its own profits, large publishing companies may have been better off approaching author's and agents to rework old agreements, rather than making unilateral announcements claiming all rights under former terms.

Random House's letter may be just one more attempt to revive a struggling industry, and the first shot in what will likely be a long war over the ownership of the increasingly lucrative digital rights.

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Trademark Protection Proposals for New gTLDs Open for Comment

As we have previously reported, the timeline for launch of new gTLDs by ICANN has slowed while there is continuing evaluation of overarching issues, including trademark protection. In its Third Draft Applicant Guidebook, ICANN staff had proposed a number of trademark-protection mechanisms, including provisions for creation of a Trademark Clearinghouse ("TC"), which would make verification of rights easier when a new gTLD is in a sunrise period prior to launch. The Draft also proposed the creation of a Uniform Rapid Suspension System, which is a post-delegation dispute-resolution mechanism intended to more swiftly and less costly address the most obvious cases of trademark infringement or cybersquatting in domain names. Subsequent to the latest Guidebook proposal, a Special Trademarks Issues (STI) review team was created to further analyze the proposed rights-protection mechanisms. The STI team consisted of representatives from the various ICANN constituencies, including business and intellectual-property constituencies. The STI recently issued its recommendations, which are available at www.icann.org and open for comment until January 26, 2010. These recommendations provide greater detail to the processes than previous recommendations did, and in some cases are more limited in scope of protection.

In the Trademark Clearinghouse Proposal, the team consensus was that the Clearinghouse was not a rights-protection mechanism, but was to be used as a beneficial implementation tool for rights-protection mechanisms, such as during a Sunrise or Trademark Claims period of a new gTLD. The Clearinghouse is to be operated by an arms-length contractor, who would validate the trademarks included in the TC and create a centralized trademark database to provide information to the new gTLD registries. The database would include only "text mark" trademarks from all jurisdictions, which were nationally or multinationally registered, including countries where there is no substantive review. However, equal protection would not be required to be provided by registries to marks registered in a country with no substantive review. Common-law rights would be excluded from the database, except for court-validated common-law marks.

The TC database would only be used for validation during pre-launch of a new gTLD, and would not be used post-launch to screen requested domain names for trademark matches. The matches reported to a registry would only include identical matches between the domain name string and validated trademarks. The proposal states that inclusion of a validated mark in the TC database is not proof of any right, nor does it confer any rights on the trademark holder. Conversely, failure to file should not be perceived to be a lack of vigilance by trademark holders.

A minority opinion from the Intellectual Property Constituency objects to the unequal protection of no-substantive-review marks. It notes that this might prejudice marks from a large number countries, including most of Europe, which do not engage in substantive review. It might also prejudice small businesses and not-for-profits whose budgets may not allow for a global registration program beyond their home country.

The Business Constituency and At-Large Advisory Committee also objected to the "identical match" provision. They suggested that a "match" between a validated mark and requested domain name should include the Mark plus significant words from the class description in the Nice Classification system, as was used in the .ASIA Sunrise period. This would further deter cybersquatters and curb registrations of domain names that include a trademark along with common words associated with it.

In the proposed Uniform Rapid Suspension Procedure (URS), the consensus of the STI Review Team is that the procedure would be a beneficial rights-protection mechanism for inclusion in the new gTLD program. Whereas the Draft Guidebook proposal made the URS optional for new registries, the STI team calls for mandatory use of the URS for all new gTLDs. It is intended to be a post-delegation dispute-resolution mechanism to more swiftly and less costly address the most obvious cases of trademark infringement or cybersquatting in domain names. However, some constituencies question its effectiveness, cost and time savings when comparing it to the UDRP procedure.

In a URS, a Complainant would need to satisfy the same elements as in a UDRP, but with a higher burden of proof. Namely, a URS Complainant would need to establish clear and convincing evidence that there is no genuine issue of material fact requiring further consideration. Upon the filing of a complaint, and passing initial examination, an "Initial Freeze" status would be applied to the domain name. The freeze would dictate that the domain name cannot be transferred and the WHOIS record cannot change, but the domain name would still resolve to the original IP address and all features of the domain would still function (e.g. resolving to a website, routing e-mail). However, the effect of a decision in favor of the Complainant is limited. Rather than allowing a transfer of the domain name as in a UDRP, a successful Complaint in a URS would only result in the domain name being placed in "hold" status. As a result, the domain name would still remain in the Registrant's name in WHOIS information during the course of the registration, but would no longer resolve to the original website, pointing instead to an informational web page provided by the URS service provider about the URS process.

While the initial intent was to create a streamlined and swifter version of the UDRP, the timelines of the proposal merely create a shorter timeframe for the examination process, while still allowing 20 days for the registrant to file an answer. Even if a registrant were to default, there is still the possibility of filing an answer within 30 days of a decision, or even later upon the payment of additional fees. Either party would have the right to seek a de novo appeal, along with the option of pursuing a UDRP or court action. Initial URS complaints would be decided by one panelist, while an appeal would be decided by a three-person panel. The URS would also call for penalties against trademark holders that try to abuse the process, along with penalties against Examiners who abused the process. The full URS process would also be subject to a review by ICANN one year after the first date of operation.

Minority positions were voiced again by the Business Constituency and At-Large Advisory Committee, requesting the transfer of the domain name in a URS. Otherwise, it would be necessary to file a UDRP if a cybersquatter registered a domain name that the trademark holder intended to utilize. With similar costs necessary to investigate and prepare a complaint for a URS, the cost savings in filing fees and minimal time savings may not be worth the limited value of placing the domain name on hold, while allowing it to be free for future registration upon expiration.

While the various constituency groups and stakeholders have had their voice in preparing a consensus Trademark Protection Proposal for use with new gTLDs, there is not full consensus on all issues. Trademark holders and other interested parties are encouraged to provide their comments to ICANN during the public comment period. The proposals presented by the STI team, along with public comments, will then be considered by ICANN when it finalizes the proposed model for trademark protection in the new gTLD program.

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Phony Floridians Foiled

Have you ever paid Federated Institute for Patent and Trademark Registry for services rendered in acquiring a patent or mark? Hundreds of companies paid on phony invoices issued by this Florida company, a Florida court recently found, allegedly to the tune of $2.6 million.

The scheme: Companies applying for marks or patents from various government agencies received invoices from Federated Institute for Patent and Trademark Registry, indicating money was "due" for "charges of registration." The companies paid the invoices, believing them to be legitimate charges associated with their intellectual property. According to official reports, Federated Institute did not render a service or pay fees with monies it collected, but rather spirited its booty across the sea into Swiss bank accounts.

The Florida court considered testimony provided by a WIPO PCT expert and held this behavior violated Florida's Deceptive and Unfair Trade Practices Act. Full restitution is being sought for targets of the scheme.

We recommend that all IP holders be aware that hoaxers are looking to the lucrative IP field for potential targets. More information about schemes to mislead or cheat IP holders is available at http://wipo.int/pct/en/warning/pct_warning.htm.

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Supreme Court Hears Oral Arguments In In re Bilski Business Methods Patents Case

On November 9, 2009, the Supreme Court heard oral arguments on behalf of the patent applicants and the U.S. Patent Office in In re Bilski. At the heart of In re Bilski is how a business method may fall within the definition of "process" as it is used in Section 101 of the U.S. Patent Act. Section 101 of the Patent Act broadly defines proper patentable subject matter in the United States as "any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof." Due to the breadth of this definition, it is often left to the courts to render decisions concerning how new technologies or advancements fit within this definition and ultimately left to Congress to enact legislation that further restricts or defines the patentability of these new technologies or advancements. While the term "process" has an ordinary meaning that is quite broad, the Supreme Court has previously limited the definition to something narrower than its ordinary meaning by concluding that a patent claim covering a "process" is not patent-eligible if it claims "laws of nature, natural phenomena, [or] abstract ideas."

The Bilski case stems from an application for patent protection filed by Bernard L. Bilski and Rand A. Warsaw in 1997 and covering a method of hedging risk in the field of commodities trading. The U.S. Patent Office refused Bilski's claims as failing to meet the patent eligibility standard of Section 101. The patent examiner supported the refusal of all claims in the application stating that "the invention is not implemented on a specific apparatus and merely manipulates [an] abstract idea and solves a purely mathematical problem without any limitation to a practical application, therefore, the invention is not directed to the technological arts." The applicants appealed the patent examiner's decision to the Board of Patent Appeals and Interferences at the U.S. Patent Office. While the Board rejected the patent examiner's reasoning, it did agree that the claimed method was not proper patentable subject matter. Specifically, the Board concluded that the applicants' claims did not involve any patent-eligible transformation, holding that transformation of "non-physical financial risks and legal liabilities of the commodity provider, the consumer, and the market participants" is not patent-eligible subject matter. The Board also held that Applicants' claims "preempt[] any and every possible way of performing the steps of the [claimed process], by human or by any kind of machine or by any combination thereof," and thus concluded that they only claim an abstract idea ineligible for patent protection. Finally, the Board held that Applicants' process as claimed did not produce a "useful, concrete and tangible result," and for this reason as well was not drawn to patent-eligible subject matter.

The applicants timely appealed the decision of the Board to the Federal Circuit Court of Appeals. The Federal Circuit, sitting en banc, affirmed the Board's decision that the applicants' claims did not meet the patent eligibility standard of Section 101. The Federal Circuit held that a "process" must be tied to a particular machine or apparatus, or must transform a particular article into a different state or thing (the "machine-or-transformation" test), to be eligible for patenting under Section 101 of the Patent Act. Of particular significance during prosecution of the application, the appeal to the Board and appeal to the Federal Circuit was the admission by the applicants that the claimed "process" was not limited to application on a computer, removing the "machine" portion of the "machine-or-transformation" test from consideration by the Federal Circuit. Because the applicants' claims do not involve the transformation of any physical object or substance, or an electronic signal representative of any physical object or substance, the Federal Circuit concluded that "transformation" portion of the "machine-or-transformation" test was not met.

The applicants appealed the Federal Circuit's decision to the Supreme Court, asking the Supreme Court to consider whether the Federal Circuit erred by holding that a "process" must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing ("machine-or-transformation" test), to be eligible for patenting under Section 101 of the Patent Act. The matter was fully briefed on behalf of the applicants and the Patent Office earlier this year. A total of 67 "friends of the court" or amicus curiae briefs have been filed by patent owners, bar associations, interested organizations, academics, and individuals, both supporting and refuting the Federal Circuit's "machine-or-transformation" test. Supportive briefs generally fell in line with the position that the "machine-or-transformation" test would provide meaningful limits to the scope of patent claims as they apply to methods and processes. Briefs refuting the test generally criticize it as being arbitrary, more restrictive than what has been previously applied by the Federal Circuit in similar matters, and in conflict with accepted definitions of statutory terms. Some amicus curiae briefs plead the case of application or non-application of the "machine-or-transformation" test to software patents, clearly requesting the Supreme Court to render a decision beyond the scope of the case at issue.

At oral argument, Justices Sotomayor, Kennedy and Breyer were particularly active, with only slightly lesser participation by Justices Scalia and Ginsburg and Chief Justice Roberts. The Court clearly understood the far reaching implications this decision will have on business methods and methods covering new technologies yet to be developed. During the presentation of the applicants' argument, the Justices peppered applicants' counsel with questions on where to establish a limitation on patentable subject matter, should the "machine-or-transformation" test not be accepted. The Justices all appeared concerned of the consequences of setting no limits and affording patent protection to abstract ideas. The Justices appeared equally concerned that the "machine-or-transformation" test could ultimately turn into something too easily applied on a rigid basis. The Solicitor General answered the Justices' questions by seeking to demonstrate how the "machine-or-transformation" test was a flexible test and a test that would not have changed the result of other seminal cases regarding patentability of processes.

The Supreme Court's decision is expected in the spring of 2010. The business and legal world alike anxiously await this decision. The Supreme Court may decide the issue without much analysis beyond the specific circumstances at hand, leaving open the possibility for more arguments and analysis as new issues arise, or the Supreme Court may decide to render a broad reaching decision that could extend to cover a host of issues concerning methods and processes.

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Sunrise Registration Period Begins for .РФ

Russian registrar RU Center has begun accepting applications for domain names under .РФ, the Cyrillic country-code top-level domain for Russian Federation. Following a four-month sunrise registration period for trademark owners that began on November 25, 2009, registration will open to general public, first through an auction process planned between April and June 2010, and then at a fixed price, beginning July 2010. The domain names will be in the Russian language, using the Cyrillic alphabet. During the sunrise period, instead of granting registrations on a first-come, first-served basis, the registrar will consider applicants' underlying trademark registrations and give priority to holder of the earlier registration. Thus, if there are two identical registrations in different classes, and both owners have applied for the corresponding .РФ domain name, holder of the earlier-issued registration will prevail. The domain is still pending final approval by ICANN and the delegation is not expected until February 2010 at the earliest.

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ACTA's Controversial Internet Provisions

On November 30, 2009, a leaked European Commission document dated October 29, 2009, confirmed suspicions regarding the Anti-Counterfeiting Trade Agreement's controversial Internet chapter. This comes after Round Six of ACTA negotiations that took place November 4-6, 2009, focusing on enforcement in the digital environment, ramped into controversy in light of a different leaked document, a summary dated September 30, 2009, also drafted by the European Commission. The leaked summary discussed the US Trade Representative's oral briefing on the progress of the proposed Internet Chapter, and led many in the technology industry to fear that ACTA would impose DMCA-like regulations worldwide. The October document leaked on November 30th is the European Commission's analysis of the ACTA Internet Chapter proposed by the United States, and it confirms suspicions that the US is pushing for ACTA to contain DMCA-like provisions, third-party liability, and criminal sanctions.

ACTA

ACTA is a proposed agreement between the United States, the European Union, Australia, Canada, Japan, Singapore, Morocco, Mexico, the Republic of Korea, New Zealand and Switzerland to address global counterfeiting and piracy. The idea was launched by the United States and Japan in 2006; thus far, ACTA has been negotiated to cover a broad scope of infringements related to intellectual property and their consequences, including (1) depriving legitimate businesses and their workers of income; (2) discouraging innovation and creativity; (3) threatening consumer health and safety; (4) providing an easy source of revenue for organized crime; and (5) causing a loss of tax revenue. The aim is to enhance international co-operation and to create worldwide standards for enforcing intellectual property rights. Negotiations began in June 2008 and are set to be completed in 2010.

The leaked October document titled "European Union's Comments to the US Proposal" confirms the suspicions generated by the previously leaked September document, in which the EU summarized the USTR's briefing on its progress in drafting the Internet Provisions for ACTA. Taken together, these documents confirm that the US is pushing to model ACTA's Internet Chapter generally on the respective Internet section of the recently completed US-Korea Free Trade Agreement (KORUS), which was based on Section 512 of the Digital Millennium Copyright Act (DMCA).

According to the documents, the US has drafted ACTA's Internet provisions to consist of 7 sections:

Section 1

First section covers general obligations, focusing on "effective enforcement procedures" with language inspired by article 41 TRIPS. Critics have noted, however, that absent from this language is a statement that the procedures shall be fair, equitable, and/or proportionate, contained in the corresponding sections of TRIPS, the WIPO Copyright Treaty, and Europe's Intellectual Property Rights Enforcement Directive.

Section 2

The real controversy begins with Section 2, which would require ACTA members to provide for third-party liability for copyright infringement. Although this is something that copyright owners have long sought after, it is not required by any of the major international IP treaties, including the 1994 Trade Related Aspects of IP agreement (TRIPS), the WIPO Copyright Treaty and WIPO Performances and Phonograms Treaty. Opponents are concerned that this section focuses solely on copyright, and that it may incorporate US "contributory copyright infringement" standards, including the "inducement" standard from the Grokster case which would significantly change the law in many countries.

Section 3

Perhaps the most controversial, Section 3 discusses limitations on third-party liability, laying out the conditions under which an ISP could qualify for safe-harbors. The section is reported to require ISPs to adopt and reasonably implement a policy "to address the unauthorized storage or transmission of materials protected by copyright or related rights" and mandate "broad" provisions regarding notice-and-takedown mechanisms.

The concern here is that the requirement that ISPs must develop and implement a certain policy goes beyond the law already in place in the EU by essentially conditioning the application of the liability limitations on an ISP actively policing its content. An example of a reasonable policy is explained in footnote 6 which discusses requiring ISPs to terminate subscriptions. This is highly controversial as the issue of whether such an account can be terminated without court decision is still subject to negotiation between the European Parliament and the Council of Telecoms Ministers.

Further, the leaked September document mentioned the following:

"to benefit from safe-harbours, ISPs need to put in place policies to deter unauthorized storage and transmission of IP infringing content (ex. Clauses in customer's contracts allowing, inter alia, a graduated response)"

Opponents are concerned that the "graduated response" language may imply that negotiators are considering a sort of "three-strikes" policy under which ISPs would be required to terminate a customer upon repeated allegations of copyright infringement, or the ISP could be vulnerable to liability. The Three Strikes/Graduated Response has been sought by the entertainment industry since the European office of the Motion Picture Association began advertising the Three Strikes policy as an ISP "best practice" in 2005. Those in the technology and telecom industries are concerned that requirements of this type will make it too costly to successfully operate online enterprises such as Flickr or YouTube.

Such Three Strikes regime has previously been rejected by the European Parliament and in several ACTA-negotiating countries, and has never been proposed by US legislators. Opponents argue that even the suggestion of such a policy is contrary to the USTR's own statement that ACTA will not change US law. The current safe harbors under the US DMCA require ISPs to adopt and reasonably implement a policy for termination of "repeat infringers" "in appropriate circumstances." ISPs are given the flexibility to determine what constitutes "appropriate circumstances." If a Three Strikes policy were adopted, this would change. ISPs would no longer be able to determine "appropriate circumstances," but instead would be required to automatically terminate a customer.

Further, many are concerned that this section's aim at implementing a notice and take down procedure will be at odds with the current European Commission's E-Commerce Directive (2000/31/EC), under which an ISP may adopt such policies, but they are not a requirement to benefiting from liability exemptions.

Section 4

Section 4 of the US proposal focuses on technical protection measures (TPMs, aka DRM), and includes language inspired by the US-Jordan Free Trade Agreement (article 4.13) and WIPO Internet Treaties (articles 11 WCT and 18 WPPT). This section would cover prohibitions on use, manufacture and trafficking in circumvention of access controls and provide both civil and criminal penalties, separate and apart from "general" copyright infringements.

Sections 5, 6 and 7

Section 5 focuses on Civil and Criminal Enforcement of Anti-Circumvention and requires both civil and criminal provisions. These provisions are also reportedly designed to stop efforts towards establishing interoperability requirements (i.e., ability for consumers to play purchased music on different devices).

Finally, Section 6 focuses on Rights' Management, again inspired by the US-Jordan Free-Trade Agreement and WIPO Internet Treaties and provides for civil and criminal remedies, and Section 7 focuses on the limitations to Rights Management Information protection.

The Good and Bad

The main concern with sections 4, 5, and 6 is that they go beyond current EU law by requiring members to provide for civil and criminal remedies. Under current EU law, member states are merely required to provide "adequate legal protection."

Opponents are concerned that the proposed Internet provisions of ACTA will impede consumer privacy, civil liberties and the free flow of information on the internet. They also fear that many of the provisions may mandate requirements above and beyond, or even in the face of, what is already required under other treaties and/or international law. Because the purpose of ACTA is to create new global standards, many fear that implementation of ACTA by developing countries could become a condition imposed in future free trade agreements and ensure that US' chosen implementation of the WIPO Internet Treaty becomes a global standard, hindering the ability of developing countries (which, opponents argue, are excluded from negotiations) to choose polices best suited for their domestic priorities and economy.

Members of the entertainment and content industries take the position that in light of the substantial technological changes since the drafting of TRIPS nearly 20 years ago and the growth of online theft, new tailored rules are long overdue.

On November 19, the MPAA wrote a letter to Congress expressing its support for a "robust" ACTA and requesting codification of the "best practices" for copyright enforcement (aka "three strikes") in order to protect members of the entertainment and content industry whose livelihood is dependent on intellectual property. In light of the technological changes that have occurred in the last decade, they argue, internet piracy is the fastest growing threat to their industry and copyright protection needs to be strengthened accordingly. They argue that opponents' view that stronger rules are "anti-innovation" disregards that innovation thrives only with adequate incentive. A number of movie studios, labels, and other copyright-holding companies wrote a similar letter in support of ACTA on the same date also requesting codification of "best practices" for copyright and urging for stronger protections.

Conclusion

Since no official draft has been released, it is yet to be seen how far the Internet provisions may go. In any case, negotiating countries are set to meet again in Morocco in July 2010, and the intention is still to conclude negotiations in 2010.

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Cloud Computing: Potential Benefits Come With Legal Risks

Cloud computing has come to the forefront recently as a means for businesses to reduce costs and create efficiencies for IT departments and company employees in utilizing software, infrastructure, and platform as a service. However, the use of cloud computing also comes with potential legal risks and issues of concern. This brief article will touch on some of the issues that should be considered when moving a company's documents and applications to a "cloud."

Cloud computing refers to computing services provided over the internet. Consumers and businesses have been using cloud computing for years, through services such as web-based email from AOL, Yahoo and Gmail, or social-networking and information-sharing sites like Twitter, Facebook and WebMD. Generally, third-party service providers supply various software and/or hardware infrastructures on an as-needed "pay as you go" basis, thereby making cloud computing more scalable and flexible to meet a company's changing needs for software, infrastructure or storage. Frequently, these services include software applications that an end user might access for basic functions like email and word processing. Additional services provided by a third-party vendor would be infrastructure such as networking and storage capabilities, and more advanced software applications, which could include custom applications.

Although cloud computing can reduce costs and provide flexibility, there are risks that must be assessed and accounted for when moving a company's valuable data, including intellectual property, to a cloud hosted by a third-party. Of prime importance is making sure that a company's assets and data are in a safe environment, protected from theft and modification, while also complying with the laws of the location(s) where the company and the cloud may be located. The risks can be minimized by entering into a detailed agreement dictating the terms relating to security, access, performance, location, management and control of a company's assets in the cloud.

The security of a company's data is a primary concern, as the third-party provider has access to the data which is stored on servers and systems over which the company does not have complete control. While the customer legally owns its data in the cloud, it is important that the customer ensures that the provider is contractually obligated to protect the data on a level that complies with the customer's internal policies. Also of concern is protecting the data in a fashion sufficient to meet the regulatory levels of protection required by the locales of the cloud and the customer. This is of particular importance to companies operating in Europe, Canada, or other foreign locations where data protection, security and privacy obligations may be different. It may therefore be necessary to specify particular locations for cloud storage, rather than unknowingly run afoul of the law due to the provider's location or movement of the cloud.

Security issues are also of utmost importance when protecting intellectual property, such as undisclosed patents and trade secrets. Since it is not uncommon for third-party providers to store one company's data at a location where data belonging to other companies (potentially including company's competitors) is also stored, proper protocols should be contractually defined to ensure that there is no commingling of data with that of another company. These terms would include protocols for access rights and encryption standards, thereby preventing data from being improperly accessed or removed by an unauthorized user.

Performing due diligence on the service provider, including stability of the service provider as an on-going entity, continuous availability of data, backup contingencies, and ability to retain and transfer data to another provider are also of utmost importance. If entering into an agreement with a service provider, a company should also secure assurances that the service provider has obtained any necessary intellectual property licenses, while also getting indemnification for any potential infringement by the provider. The negotiated contract must also provide for the safeguarding and transfer of data in the event the provider ceases to exist. Inability to fully control company's data and intellectual property assets on a daily basis, as well as in a force majeure event, including bankruptcy or change of ownership of the third-party provider, can negate potential benefits of using a cloud.

Location of the cloud is important not only in terms of compliance with privacy and security laws. Where the data resides may be a critical factor in determining what law applies to the dispute, and how easy it may be to actually access and control the electronic information. Since data stored in foreign countries may be subject to strict requirements with respect to privacy and security, cross-border litigation can become more complicated. Preservation and record-retention policies, including segregation of privileged, confidential or proprietary information such as intellectual property, must be reviewed in light of compliance with litigation protocols.

While cloud computing can provide financial and scalable benefits to companies and IT departments, potential legal issues and risks that it carries must be carefully assessed, evaluated and contractually provided for in a negotiated agreement before a company's valuable data and intellectual property is moved to the cloud.

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December 10 Landrush for Non-Latin .EU Domain Names

EURid, the European Registry for .EU domain names, has announced that starting December 10, 2009, companies and individuals based in the European Union will be able to register .EU Internationalized Domain Names (IDNs). IDNs are domain names that contain non-Latin characters such as the Swedish å, the German ü, the Romanian ş and characters from the Bulgarian and Greek alphabets as a whole. IDN support will enable companies and individuals to register second-level .EU domain names in any of the 23 official languages, many of which have non-Latin characters in their alphabets. Rather than having a sunrise period for existing registrants, EURid has decided to allow registrations on a landrush, first-come, first-served basis. Any disputes regarding these newly-registered domains will have to be resolved through EURid's Alternative Dispute Resolution process administered by the Prague-based Czech Arbitration Court.

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USPTO: There's a New Sheriff in Town

On August 7, 2009, President Obama's nominee David Kappos was sworn in as the new Director of the United States Patent and Trademark Office. Mr. Kappos has a long and distinguished career in intellectual property, having once served as Vice President and Assistant General Counsel for IBM, where he was responsible for management of that company's extensive global patent and trademark portfolio. He takes over management of an Office that had become well-known for a significant backlog and is also the center of much controversy and litigation regarding various rules issued by the former Director.

At the time of Mr. Kappos's confirmation, the USPTO was defending the validity of a number of controversial and sweeping changes to the Office's patent practice which were ostensibly meant to streamline and simplify patent practice. Though the rules at issue were never fully enacted (since enactment was stayed during litigation over same), one of Mr. Kappos's first major acts as Director was to issue a new rule withdrawing the highly-controversial rule changes that were in litigation. This action cleared the way for the USPTO to refocus resources and efforts toward management of the Office and to work on development of new rules that would be more acceptable to the users of USPTO services, namely inventors and trademark owners, and that would streamline the process of obtaining intellectual property protection and bring goods and services to the market.

Though the final form of many new rules is still on the horizon, Mr. Kappos recently outlined some of the items the Office intends to focus on with respect to trademark practice. Mr. Kappos indicated that the USPTO will continue its trademark IT system modernization project. Ultimately, the Office hopes to provide applicants, registrants and their counsel with real-time access to trademark files and even the ability to manage USPTO dockets online. Such functionality could considerably ease trademark practice before the USPTO.

In addition, since Mr. Kappos took the helm, the USPTO has redesigned and revamped its website, including many of the document and application-filing interfaces. Though the changes to date have been rather minor, the Director stressed that the Office will work closely with the Trademark Public Advisory Committee to further develop and refine USPTO website functionality.

On the substantive side of trademark practice, Mr. Kappos indicated the Office may likely issue new rules in response to the recent decision in Bose Corp. v. Hexwave Inc. addressing the question of fraud on the Trademark Office and may also review how that ruling would apply to use-based trademark applications and declarations of use. The Director also indicated the Office may likely re-evaluate statement of use requirements and sufficiency of specimens in the context of intent-to-use applications identifying multiple goods within a single class. As with the website issues, the Director has pledged to work with the parties most impacted by any new rules or decisions in this area—trademark registrants, owners and practitioners.

Finally, in August, President Obama signed legislation authorizing the Director of the USPTO to shift revenues received from trademark application filings to fund internal patent practice operations. Though Director Kappos has indicated he would "prefer not to use" such funds for internal costs, the ability of the Director to tap this source of revenue to fund operations could minimize or eliminate potential PTO down-sizing which, in the end, would aid in the overall streamlining of the Office, since decreases in staff and examiners could be held to a minimum.

It appears that Mr. Kappos intends to shake things up at the USPTO. By rescinding the sweeping rules instituted by his predecessor and committing to re-evaluate and revamp both patent and trademark practices before the Office, a new era may be near and the Office may be able to create policies and practices that better mirror the market realities faced by inventors and trademark owners and to embrace available technologies to streamline the process. The Office appears on the verge of shifting from an agent of delay and expense to a catalyst in the process of obtaining patent and trademark rights.

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Surviving the Plague: Federal Circuit Finds No Inequitable Conduct in Procuring AstraZeneca's Quetiapine (Seroquel®) Patent

In AstraZeneca Pharmaceuticals LP v. Teva Pharmaceuticals USA, issued September 25, 2009, the Federal Circuit upheld the District Court's finding of no inequitable conduct in the prosecution of US Patent No. 4,879,288 ("the '288 patent"). The '288 patent has survived what Federal Circuit judges call a "plague" on US patents—allegations of inequitable conduct (wrongdoing) which may be easily pled, but not easily dismissed.

In the present case, Teva alleged that AstraZeneca misled the Examiner during prosecution of the '288 patent by disclosing data only on prior art compounds that would help but not hinder prosecution. The Federal Circuit found that AstraZeneca's submission of data relating to closest prior-art compounds satisfied its duties to the USPTO during prosecution. AstraZeneca's selective submission and omission of data relating to other structurally-similar compounds was not inequitable conduct in procuring the '288 patent.

As inequitable conduct was the only issue on appeal, Teva Pharmaceuticals issued a press release on September 25, 2009, stating it expects to market quetiapine compositions after the expiration of the '288 patent. The '288 patent covers AstraZeneca's antipsychotic drug "Seroquel" (active ingredient: quetiapine), having 2008 sales in excess of $4.4 billion.

Summary of the case

AstraZeneca alleged infringement of the '288 patent by generic drug makers Teva Pharmaceuticals and Sandoz, Inc. (collectively, "Teva"), in response to the generic companies' ANDA filings for approval to sell generic quetiapine compositions in the United States. AstraZeneca moved for summary judgment against Teva's assertions that the '288 patent was unenforceable due to inequitable conduct; the District Court found for AstraZeneca, and Teva appealed to the Federal Circuit.

The '288 patent discloses that antipsychotic drugs typically cause undesired, involuntary movements, and that quetiapine is atypical in that it causes fewer and less intense involuntary movements (see, e.g., US Patent No. 4,879,288 column 1 lines 41-68 and Example 9). Claim 1 of the '288 patent is directed to a compound having the chemical structure of quetiapine, a dibenzothiazepine having a piperazine ring N-substituted with –CH2CH2OCH2CH2OH. During prosecution of the '288 patent, the Examiner rejected claims to quetiapine as obvious in view of two prior-art compounds the Examiner identified as the structurally-closest prior art – "Schmutz X" and "Horrom" – where Schmutz X was N-substituted with –CH2CH3, and Horrom was a chlorinated diazepine. The Examiner required submission of data comparing atypical properties of quetiapine with Schmutz X and Horrom to overcome the rejection.

In response, AstraZeneca submitted a declaration with already-existing internal data comparing quetiapine with Horrom, noting that quetiapine caused atypical side effects and Horrom did not. The declaration also advised that internal data was not readily available regarding Schmutz X, and that generating such data would be very expensive. However, the declaration submitted that prior-art compound Schmutz B (N-substituted with –CH2CH2OH) was structurally closer to quetiapine (–CH2CH2OCH2CH2OH) than Schmutz X (–CH2CH3), and provided data to show that quetiapine caused atypical side effects and Schmutz B did not. The declaration also volunteered that another compound, Schmutz A (a chlorinated compound having an N-substituted –CH3 group on the piperazine ring), did not provide antipsychotic effects, emphasizing that structurally-similar compounds did not necessarily provide the same pharmacological results. The Examiner accepted the substitution of Schmutz B for Schmutz X as the closest prior art and allowed claims to quetiapine to issue to grant.

To prove inequitable conduct, a challenger must show a patent applicant (1) misrepresented material information (2) with an intent to deceive the USPTO. Teva alleged that AstraZeneca misrepresented material information because the substitution of Schmutz B for Schmutz X, the omission of data relating to other structurally-similar compounds, and the selective submission of data regarding Schmutz A were meant to lead the Examiner away from data AstraZeneca knew would be or could be damaging to its quetiapine application.

In considering the issue, the Federal Circuit decided that Schmutz B was, in fact, structurally more similar to quetiapine than Schmutz X, and that a reasonable examiner would have accepted AstraZeneca's substitution of Schmutz B for Schmutz X as the structurally-closest prior art. AstraZeneca's omission of data relating to other structurally-similar compounds and selective disclosure of information relating to Schmutz A were therefore not material misrepresentations because the Examiner and applicant reasonably identified and focused on the closest prior art, and found that structural similarities or differences were not determinative of typical or atypical side effects. The Court also noted that Teva did not show that AstraZeneca had data for Schmutz X and withheld it, and that Teva did not present its own evidence that Schmutz X is an atypical antipsychotic agent; whether these circumstances would have altered the Court's opinion is not clear from the record.

Teva also alleged AstraZeneca intended to deceive the Examiner during prosecution of the '288 patent by not preparing and submitting data on Schmutz X and other compounds, and by submitting information on Schmutz A. The Federal Circuit held that an intent to withhold data on structurally similar compounds is not an intent to deceive, particularly where plausible reasons are given for withholding information:

an applicant would not know how much of its research must be filed with the PTO, although of no interest to the Examiner, or run the risk of wrongdoing no matter where the line is drawn.

Overall, AstraZeneca's disclosure of comparative information regarding the structurally-closest prior-art compounds was enough to satisfy duties imposed by the USPTO on a patent applicant. AstraZeneca's selective submission and omission of data relating to other structurally-similar compounds was not seen as materially misrepresenting information to, or intending to deceive, the USPTO examiner.

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ICANN Gains Independence

The Internet Corporation for Assigned Names and Numbers (ICANN), the body responsible for managing the core mechanisms of the internet, has recently gained some independence from the US control. ICANN was originally created in 1998 through a Memorandum of Understanding between the US Department of Commerce and ICANN with the purpose of transitioning management of the Domain Name System (DNS) from the US government to the global community. Although ICANN is a private not-for-profit organization where policies are developed from the bottom up, through global constituencies often representing competing interests, it was ultimately accountable only to the US government. At the end of September, the Department of Commerce allowed the last MOU to expire, thereby declaring that ICANN is mature enough to move on to the next stage of its global development. However, the US has retained some minimal control through a new agreement called an Affirmation of Commitments.

The Affirmation of Commitments commits ICANN to remaining a private not-for-profit organization, but declares that ICANN is independent and not controlled by any one entity. It further commits ICANN to reviews performed by the entire multi-stakeholder global community, such as constituencies representing registries, registrars, registrants, trademark owners, and other commercial and non-commercial interests. The agreement is intended to be long-standing and gives ICANN some autonomy. However, it also reaffirms the role of the Government Advisory Committee, which is a key participant in selecting the membership of the review teams. Rather than ICANN being reviewed by just the US government, under the new relationship, these reviews will be developed by an international committee of parties representing over 100 countries around the world, with the US government still having a seat at the table. All of these reviews will also be submitted for public comment, thereby creating accountability to the full international community.

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ICANN Approves Local Language Domain Names for Country-Code Top-Level Domains

ICANN is moving forward with plans to allow country-code Internationalized Domain Names (IDNs). IDNs are domain names displayed in a language-specific, non-Latin script or alphabet, such as Chinese, Russian, Arabic, or Hebrew. The inclusion of country-code IDNs in the domain name system will enable countries and territories to offer domain names in their native languages to the more than 60 percent of internet users who are not English speakers. This change will also allow users of languages based on right-to-left scripts or users of languages based on non-alphabetic scripts, such as Mandarin Chinese, to participate.

The IDNs will initially be available as ccTLDs, such as .рф (Cyrillic for .RF or Russian Federation), if the IDN is based on non-Latin script(s) that are considered official in the corresponding country or territory. The registries will only be available to the governments and administrators of countries and territories listed in the ISO 3166-1 standard, or their designated representatives. After the requester for an IDN registry has been approved, the domain names will be available to the public for registration. It is anticipated that the first IDN registrations will become available in the middle of 2010, with each registry providing its set of rules and guidelines for registrations. While some countries may give existing ccTLD holders rights to the new IDN ccTLD, this will not be required.

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New Generic and Brand-Driven TLDs Delayed Pending Further Review and Opinions

As we have previously reported, ICANN is still proceeding with the expansion into generic and brand-driven top-level domains, gTLDs (generic top-level domains), allowing alternatives to .COM, .ORG, .BIZ, etc, such as .YOURCOMPANYNAME. The new gTLDs may also expand to include IDN gTLDs in addition to the new IDN ccTLDs. While ICANN has recently released for review and comment the Third Draft Applicant Guidebook relating to the proposal, it appears that the timeline for implementation has slowed down. At its recent meeting in Seoul, Korea, indications from the Board of ICANN were that there may be at least one more draft Guidebook prior to a Final Guidebook. These delays are due to significant disagreements amongst competing interests in the internet community, and the calls to further evaluate difficult issues. These include: conducting economic analysis to determine whether new gTLDs are necessary; analyzing the cumulative effect of the new IDNs and other implementations on the scalability of the domain name system; weighing additional considerations relating to trademark protection; and appointing evaluators for the new gTLD application process.

In the latest draft of the Guidebook, ICANN included some recommendations by the Implementation Response Team (IRT) concerning trademark protection. The IRT included members of the Intellectual Property Constituency (IPC) comprised of representatives from a variety of constituencies, including private practitioners, in-house attorneys for brand owners, registry and registrar representatives, and other domain-name and trademark experts from around the world. The recommendations included in the Draft relate to a number of trademark-owner protection mechanisms. These include a requirement for a registry to maintain a thick WHOIS database at the registry level, rather than the current method of WHOIS information being provided at the registrar level, to provide further safeguards for the maintenance of accurate information. In addition, there are provisions for creation of an IP Clearinghouse, which would make verification of rights easier when a new gTLD is in a sunrise period prior to launch. The Draft also includes the creation of a Uniform Rapid Suspension System ("URS"), which is a post-delegation dispute-resolution mechanism intended to address the most obvious cases of trademark infringement and cybersquatting more swiftly and economically. However, the Globally Protected Marks List, which had been proposed earlier, was not included in the Draft.

The Third Draft Applicant Guidebook is subject to a public comment period, including trademark protection solutions, until November 22, 2009. It is anticipated that following the comment period, and after further discussion and studies amongst the constituencies and ICANN, that another draft of the guidebook would be issued in Q1 of 2010. Rather than provide another timeline that it would not be able to meet, ICANN has chosen to further address a variety of issues in the time necessary to properly achieve a sound implementation, instead of hastily proceeding at the expense of proper protection mechanisms. As a result, implementation of the new gTLD program may be delayed until mid 2010, if not later. Comments on the guidebook, along with comments on other pending ICANN proposals, are encouraged by interested parties, and can be lodged at www.icann.org.

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Focus on Patents

IpHorgan is delighted to welcome Michael L. Kenaga and Valerie Neymeyer-Tynkov to its Patent Group. Michael has nearly 20 years of experience handling United States and foreign patent issues for large and mid-sized companies while Valerie has a depth of experience in the medical technology fields, as a practitioner, an academic and a researcher. Indeed, all members of the group acquired field experience in their chosen areas prior to entering law school and becoming patent attorneys. The team now includes:

Michael L. Kenaga is the Director of Patents. He is a registered patent attorney and his 20 years of patent experience include advising and counseling on patentability, providing infringement opinions, and preparing, filing and prosecuting domestic and foreign patent applications in the electrical and mechanical arts for large and mid-sized corporations. He has substantial experience in IP due diligence in connection with potential acquisitions of companies and his practice includes license-agreement work and litigation support. Michael is a regular speaker and lecturer on issues related to US and foreign patent practice. He is an electrical engineer by training (BSEE) and prior to law school worked for a telecom company and for a military and government contractor. Michael is a member of the Chicago Bar Association, Chair of the Intellectual Property Committee (2004-2005), The Intellectual Property Law Association of Chicago, Past Treasurer (1997-1999), American Intellectual Property Law Association and the Licensing Executives Society.

Sean Swidler prosecutes a broad range of patents, including those for medical, mechanical and electro-mechanical devices along with software and business methods inventions. He is also experienced in all phases of patent litigation and has spent significant time litigating patent claims associated with generic drug applications and medical devices. Sean also counsels clients in patent portfolio development and management, assisting clients in developing protection strategies and tailoring patent portfolios to specific business interests and market factors. Before attending law school, he also spent time working in the construction engineering field, conducting chemical analyses of concrete samples and developing application-specific concrete compositions. Sean has an undergraduate degree in Biomedical Engineering from the University of Iowa and his J.D. from the Chicago-Kent College of Law.

Valerie Neymeyer-Tynkov focuses on drafting and prosecuting patents in the pharmaceutical, biotechnological, medical and chemical arts; preparing legal opinions; devising cost-saving strategies; and troubleshooting patent-related problems for clients. Her technical expertise includes over six years of bench experience in R&D and academic laboratories, including experience manufacturing product under cGMP protocols. Valerie obtained a J.D. with Honors from the Chicago-Kent College of Law, where she has since taught International Patent Law for several years as an Adjunct Professor of Law. Her educational background includes an M.S. in Pharmacology and a B.A. (with Honors) in Literature, Science and the Arts with a minor in Chemistry from the University of Iowa.

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A Whiter Shade of Pale Turns into Some Green for Organist

On July 30, 2009, the House of Lords upheld a 2006 High Court ruling holding that the mere passage of time does not work to bar a claim to a share of copyright ownership. Despite a thirty-eight-year delay in bringing his claim for a share of copyright in the musical work A Whiter Shade of Pale, the equitable doctrines of estoppel and laches did not work to defeat Matthew Fisher's claim where the defendants, Gary Brooker and Onward Music Ltd. suffered no detriment. Rather, the House of Lords held that not only Mr. Fisher's claim was not defeated by the delay, but also that he is a co-author and 40% joint owner of the musical copyright in the song, and that the defendants' license to exploit his share was revoked as of May 31, 2005, when his claim was first brought.

Background

A Whiter Shade of Pale, a cult classic of the 1960s, was originally composed in 1967 by Gary Brooke, the lead singer and pianist of the British rock band Procol Harum, with lyrics written by Keith Reid, the band's manager. The band then signed a contract with Essex Music by which all of the copyrights to the words and music were assigned to Essex in exchange for a percentage of royalties generated from exploitation of the song. Shortly after the agreement was signed, Fisher joined the band as organist and composed the organ solo comprising the beginning of the song and organ melody which appears throughout the duration. After the song was recorded, the band members entered into a recording contract with Essex granting Essex rights to exploit any recording the band made. Mr. Fisher left the band two years later. In 1993, Essex assigned its rights to the song to Onward Music Ltd. In May 2005, Mr. Fisher brought suit to claim a share of the musical copyright in the song.

2006 High Court Ruling

After rejecting Brooker's claim that a fair trial was impossible after such a delay, the High Court found that Fisher was a joint owner of the work. The Court looked at the circumstances under which the song was written, the philosophy of the band being that each musician made his own musical contributions, and specifically whether Mr. Fisher's contribution of the organ solo could be regarded as invention separate from the song as it was originally written. The court drew on the evidence from Mr. Fisher that the solo was inspired by "Wachet auf, ruft uns die Stimme" by J.S. Bach, a completely different work from the one the original song was inspired by, and Mr. Brooker's own admissions that the solo was a result of a "careful creative process on [Mr. Fisher's] part." Based on the facts, the Court found that Fisher had a copyright interest in the song, but that he had granted Brooker and Essex Music an implied license to exploit the copyright in the song, which the Court deemed was terminated when Fisher gave notice to defendants of his intention to claim copyright ownership.

Next, the Court considered whether any equitable defenses might apply to bar Fisher's claim given the considerable delay in bringing it. Defendants asserted that the defenses of estoppel, acquiescence and laches were applicable in five instances: 1) Fisher's failure to assert his claim before the release of the Work in 1967; 2) Fisher's decision in 1967 not to pursue his claim so as to benefit from membership in Procol Harum; 3) the circumstances under which Fisher left Procol Harum in 1969; 4) Brooker's efforts in continuing to promote the Work, keeping it in the public eye; and 5) Fisher's delay in bringing his claims. The Court first noted that for estoppel to work, detriment to the defendant is an essential element. The Court rejected that Fisher's delay caused Essex to rely on the fact that he was foregoing his rights. The Court also found the second instance irrelevant as it relied on a statement in connection with advice Fisher sought at the time, and was only raised during these proceedings. Further there was no evidence to suggest that the defendants suffered detriment as a result of Fisher's failure to speak out. Finally, the Court found that not only was no detriment suffered by defendants by the delay, but rather the defendants benefited significantly in that they received all of the musical royalties to the Work over the years without having to pay Fisher. The Court found that delay itself is no defense to bringing a copyright claim under English law, especially where no equitable relief is sought. The court found that considering the case involved a "valuable property right" it would be "wholly unjust" to deprive Fisher for the remainder of his life and 70 years thereafter of his interest in the Work, when the defendants have enjoyed the fruits of the Work for years with no need to account to Fisher.

To assess what share was appropriate for Mr. Fisher's contribution, the Court first looked to evidence provided in Fisher's case in chief, finding that when Brooker was given a keyboard to play the song as it had been originally written without Fisher's contributions, there was "nothing akin to the flowing organ melody which is such a distinctive feature of the Work." The Court then went on to reject an argument made during the presentation of evidence suggesting that it is custom and practice in the music industry that where an arrangement is a result of collaborative effort from band members, because the skill and labor of each member relates to the musical elements of the arrangement of the original work, and not to creation of the original song itself, the persons contributing should not be entitled to any share in the copyright. The Court stated that it is well established under Copyright Law, despite what practice may or may not be customary, that the fact that a musical work is an arrangement of an earlier work does not mean the arrangement cannot attract separate copyright. Considering that Fisher's pleaded claim was for a 50% share of the copyright and no positive case was advanced by the defendants against this result, the Court granted Fisher a 40% share, as his share was definitely substantial, but not as great as that of Mr. Brooker.

Court of Appeal

The Case was ultimately appealed to the Court of Appeal, which upheld that a fair trial was possible and that Fisher was a joint owner entitled to a 40% share of the copyright, but held that Fisher was not entitled to his share because it was either assigned to Essex under the terms of the recording contract, or in the alternative, if deemed an implied license rather than an assignment, that implied license was made irrevocable by virtue of acquiescence as a result of Fisher's "excessive and inexcusable delay" in bringing his claim. The Court of Appeal found it would be unjust to permit Fisher to succeed in his claim, and that Fisher's implied license to Essex Music was irrevocable due to acquiescence and laches.

Appeal to House of Lords

Fisher further appealed the decision to the House of Lords, the highest court for copyright infringement. Here, there were three matters left to be considered: 1) the implied license issue; 2) the recording contract issue, and 3) the laches, estoppel and acquiescence defenses.

Defendants' argument regarding the implied license was that Essex had taken an assignment of the copyright in the original song, and since it was intended by Essex and the members of the band that Essex would exploit the song as developed for the recording, it also took an assignment of the copyright in the Work, as completed with Fisher's contribution. The House found this argument to be based on implication, meaning that for it to be successful, the elements of implication must be met, namely: 1) it would have to have been obvious to Fisher and Essex that Fisher's copyright was to be assigned, and 2) the commercial relationship between the parties could not sensibly have functioned without the assignment. The House rejected the argument finding it undermined by the fact that the agreement was reached between musicians in their early twenties on the one hand and the highly-experienced music-recording company, Essex, on the other. Further, the House found that an assignment of copyright was not necessary for Essex to exploit the recording; all that was needed was a license.

Turning to the recording contract issue, the House found that the High Court judge was right to reject the contention that the recordal contract worked as an assignment of copyright, finding that the contract operated as a provision licensing rights to Essex to exploit the Work.

The House then addressed the arguments based on laches, estoppel and acquiescence. First, the House noted that acquiescence does not really add anything beyond estoppel and laches. Turning to estoppel, the House noted that for the defense to be successful, defendants had to show that they have reasonably relied on Fisher having no claim, have acted on that reliance, and that it would now be unfair to permit Fisher to claim a share. The House noted that there was no evidence that the defendants would have acted any differently had Fisher brought his claim in 1967. Further, rather than suffer detriment, the House agreed that defendants had benefited considerably by his delay, collecting royalties for nearly 40 years without having to account for any part of them to Fisher.

For laches, the House noted that there is no explicit requirement of detriment, but suggested that it was an immutable requirement and covered by the evaluation of the facts on equitable principles. Thus, something more than mere delay would be required. The House found that the laches defense fails in two ways. First, laches can only act to bar equitable relief, and a declaration as to ownership of a property right recognized by statute is not an equitable remedy. Second, the House found that defendants failed to demonstrate that the delay resulted in an imbalance of justice justifying barring relief claimant would otherwise be entitled to.

Conclusion

While Fisher cannot recoup any royalties earned over previous years, he can now enjoy his share of the copyright in the song. He now also has a right to seek an injunction, although this would have to be decided by a trial judge on the merits.

For musicians and their lawyers, the decision is a victory. Musicians may now be more confident to seek what they believe to be their fair share of the riches from exploitation of their songs over the years. The decision will not be felt as a victory for music companies, on the other hand, who are likely to now be more concerned about the risks of a claim due to old poorly-drafted agreements. In addition, music companies now may fear that the decision may open up the prospect of countless claims from musicians who feel their rights have been overlooked.

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