Business-Method Patents—Down but Not Dead

In a fractured decision, the Supreme Court's Bilski opinion (June 28, 2010) has ruled that patent law is available to secure the exclusive ownership of certain business methods. The Court failed to provide any clear rules for distinguishing between viable business methods for patent protection purposes and unprotectable abstract ideas.

The Court's opinion was directed to whether patents should be available for methods of doing business. In light of the negative press which patent law has experienced in recent years (some, but not all, of which was with merit), including the issue of business-method patents, it is surprising that the opinion was not more limiting in nature. It would not have been a complete surprise if the Court held that no business method is patentable. That was not the case. The patent statute continues to provide that any new process (and method) may be patentable. The majority opinion declined to read a business-method exception into the patent statute. However, in contrast, Justice Stevens's concurring opinion advocates that all business methods should be carved out from the patent statute.

The majority opinion holds that the Federal Circuit's test of whether a method or process is patentable (i.e., the machine-transformation test) is not the sole test. The majority opinion and concurring opinion lead us to believe the test is still viable, although it is not the sole test. The Federal Circuit's machine-transformation test holds that a process or method must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing to be eligible for patenting. Under the machine-transformation test, most if not all pure business methods or processes would not be patentable.

Further, the majority opinion interprets the scope of the patent statute broadly or literally, holding that the term "method" may include at least some methods of doing business. Yet, we are also warned that some business-method patents raise special problems in terms of vagueness and suspect validity.

Notwithstanding, the petitioners seeking patent protection for a pure business method did not prevail on the issue of patentability. Bilski claims a procedure for instructing buyers and sellers how to protect against the risk of price fluctuations in a discrete section of the economy. While the opinion suggests that additional or other tests are required to be formulated by the lower courts to decide whether a process or method is patentable, the Court relied on its earlier decisions to find the petitioners' business method was not patentable. Further, while the Court advocated against reading into the patent statute exceptions as to patentable processes, the Court relied on a previously created exception. In particular, the Court held Bilski's claims related to abstract ideas and thus were not patentable.

Specifically, the Court acknowledged that its precedents provide three specific exceptions to the patent statute's broad patent-eligibility principles: "laws of nature, physical phenomena, and abstract ideas." The Court justified these exceptions as consistent with the notion that a patentable process must be "new and useful" and further that these exceptions have defined the reach of the statute as a matter of statutory stare decisis going back 150 years. Otherwise, the Court was unaware of any other "exceptions" carved out from the patent statute without appropriate basis for doing so. Again, Justice Stevens's concurring opinion advocated excluding all business methods as not patentable.

The majority opinion repeatedly affirmed the Court's earlier Benson, Flook, and Diehr decisions. The Court's 1972 Benson decision considered whether a patent application for an algorithm to convert binary-coded decimal numerals into pure binary code was a "process" under the patent statute. The Court held it was not a "process" but an unpatentable abstract idea. A contrary holding would wholly preempt the mathematical formula and in practical effect would allow a patent on the algorithm itself.

The Court's 1978 Flook decision was directed to a procedure for monitoring the conditions during the catalytic conversion process in the petrochemical and oil-refining industries. The Court held the process unpatentable as the only innovation was reliance on a mathematical algorithm and that the limitation to a particular field (petrochemical and oil-refining) did not rescue the process from being unpatentable. Thus, the proposition that abstract ideas are not rendered patentable with the addition of insignificant post-solution activity.

The Court's 1981 Diehr decision was directed to an unknown method for molding raw, uncured synthetic rubber into cured precision products using a mathematical formula to complete some of its several steps by way of a computer. Diehr explained that while an abstract idea, law of nature, or mathematical formula could not be patented, an application of a law of nature or mathematical formula to a known structure or process may well be deserving of patent protection.

So what does it all mean? Reading the tea leaves, it would appear that a business method may be patentable if it is somewhere between a pure business method and one tied to a machine or which transforms a particular article.

As to computer software programs, the opinion arguably advocates patent protection once again. Yet, it is not an unbridled position. In particular, the opinion refers to the Diehr decision repeatedly, noting that the majority opinion in that case held that a procedure for molding rubber that included a computer program is within patentable subject matter. Further, the Bilski Court noted that relying solely on the machine-transformation test would create uncertainty as to the patentability of software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression, and the manipulation of digital signals.

All in all, the opinion advocates patent protection yet roughs out some vague guidelines in which to operate, and affirms the Court's earlier decisions as to guiding the lower courts. Thus, business methods remain potentially patentable, but subject to further and possibly uncertain scrutiny as lower courts attempt to interpret and implement Bilski.

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Federal Circuit Court of Appeals Weighs In On Patent False Marking Statute In Solo Cup Decision

In Pequignot v Solo Cup Company, a decision appealed from the District Court for the Eastern District of Virginia, the Federal Circuit affirmed the lower court's decision concerning Solo Cup's improper marking of "unpatented articles." However, Solo Cup's lack of "intent to deceive the public" precluded liability, enabling the Federal Circuit to avoid revisiting the issue of "what constitutes an offense" for purposes of calculating damages. The false-marking statute provides for recovery of damages in the amount of $500 for "every such offense" when an "unpatented article" is marked with the word "patent" or any other word or number importing the same meaning "for the purpose of deceiving the public." The distinction between a rebuttable and an irrebuttable presumption, for purposes of the intent-to-deceive element, in connection with the preponderance-of-the-evidence standard created an escape from liability in the present dispute. All manufacturers who have come under recent attack may not be as fortunate as Solo Cup as to have acted in good faith on advice of counsel in adopting and adhering to the product and packaging marking policies that were called into question.

The record from the lower court established that Solo Cup continued to mark its product with expired patent numbers because wholesale replacement of manufacturing molds each time a patent expired would be costly and burdensome. On advice of patent counsel, Solo Cup adopted and adhered to a policy under which when manufacturing molds required replacement due to wear or damage, new molds would not include the expired patents. Because Solo Cup's manufacturing molds could last for many years, there was often a significant gap in time between when a patent expired and when a manufacturing mold was replaced. Solo Cup also, on advice of patent counsel, adopted and adhered to a policy of marking packaging with a statement "This product may be covered by one or more U.S. or foreign pending or issued patents. For details, contact www.solocup.com." Solo Cup advances two theories as to why these facts did not establish false marking under the statute: (1) a product covered by an expired patent is not "unpatented" as required by the statute; and (2) the fact of patent expiration is insufficient to show an intent to deceive the public. The lower court dismissed Solo Cup's motion to dismiss finding that both marking a product with an expired patent number and marking packaging with the "may be covered" language could constitute false marking. The lower court did grant Solo Cup's motion for summary judgment, finding that Solo Cup lacked an intent to deceive by adopting its product and packaging marking policies. In its decision, the lower court held that false marking combined with knowledge of the falsity creates only a rebuttable presumption of intent to deceive and Solo Cup's evidence satisfactorily rebutted this presumption. Despite having granted summary judgment finding no liability, the lower court also granted summary judgment finding that Solo Cup had committed at most three "offenses" for purposes of the patent-marking statute: one offense when it continued to mark product with each of the two expired patents in question and one additional offense when it marked packaging with the "may be covered" statement.

On the issue of defining "unpatented" for purposes of the patent-marking statute, the Federal Circuit affirmed that products once covered by now-expired patents are "unpatented" within the meaning of the statute. While the Federal Circuit modified some of the lower court's analysis, the outcome of what constitutes "unpatented" did not change. On the issue of "intent to deceive", Pequinot argued at the lower court level that under Supreme Court precedent, intent had been proven if Solo Cup's statements were false and Solo Cup knew they were false. Solo Cup responded that the inference from knowingly false statements is rebuttable with evidence of good faith, such as advice of counsel. The Federal Circuit agreed with Solo Cup's position, finding that the bar for proving deceptive intent is particularly high as the false-marking statute is a criminal one, despite being punishable with only a civil fine. A purpose of deceit, rather than simple knowledge of falsity is required to satisfy this element of the statute. Such a purpose of deceit must be shown by a preponderance of the evidence. As established in the lower court record, "Solo [Cup] acted not for the purpose of deceiving the public, but in good faith reliance on advice of counsel and out of a desire to reduce costs and business disruption." The Federal Circuit agreed that Pequinot provided no credible contrary evidence. Because the Federal Circuit affirmed the lower court's finding of no liability for the lack of intent to deceive, the "for every such offense" element of the patent-marking statute was not examined on appeal.

This decision should begin to slow the tide of false-marking cases brought by plaintiff who has no real interest in the outcome of the dispute beyond the monetary award available under the statute.

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Facebook's Ongoing Struggle with Privacy

When Facebook changed its default privacy settings in late 2009 and changed the way profile information was shared in April 2010, many privacy advocates alleged that the social networking site had run afoul of the FTC's rules for material changes to a privacy policy. While Facebook's actions are irksome, did they actually break any laws under U.S. privacy regulations?

In April 2010, Facebook altered the way profile information would be shared. If a user chose to not link certain profile information with the corresponding Facebook Page, portions of the profile were initially deleted, rather than allowing users to maintain "text" entries listing their likes, interests and biographical information. Privacy and consumer protection organizations subsequently filed a formal complaint with the FTC on May 5, 2010, alleging deceptive trade practices and violations under consumer protection laws. This recent complaint is in addition to an earlier complaint filed in December 2009 after changes in privacy settings. Both are led by the Electronic Privacy Information Center, or EPIC, and joined by a number of other organizations.

Privacy law is somewhat fractured under U.S. law, where there is no general statute governing the collection and sharing of data from users online. Privacy law in the U.S. is generally less restrictive than in other countries, including the European Union countries, and in many cases, applies only to specific facts involving minors or the obligations of financial institutions.

The recent complaints, however, have approached the violations under consumer protection laws governing unfair and deceptive trade practices. Under that theory, a material change to a privacy policy can constitute an unfair and deceptive trade practice when done without the user's consent. The complaints allege that changes implemented by Facebook without users' consent "violate user expectations, diminish user privacy, and contradict Facebook's own representations."

There is no doubt that the increasing concern has also brought the issue of privacy to the forefront for lawmakers as well. In April, New York Senator Chuck Schumer proposed to the FTC that it use its authority to examine Facebook's practices or appoint a privacy commissioner, and joined with other Democrat Senators in a letter to the Facebook CEO, imploring that the company make its privacy practices more transparent. More recently, the House Judiciary Committee has asked that Facebook cooperate with its inquiries into Facebook's privacy practices. As a result, the recent controversy has the potential to significantly affect the landscape of privacy law in the United States in the future.

A decision from the FTC may not come any time soon, but the recent May complaint also comes on the heels of a security breach that enabled users to view others' private chats, and allowed users' private data to be sent to advertisers by mistake. In response to the growing concern that Facebook defaults to revealing private information rather than protecting it, Facebook recently revealed a simplified method for users to control their privacy settings, in which users are provided with three basic options—to share certain information with anyone, with "friends of friends", or with the user's friends only. Facebook's default "recommended" settings share some information, like user's name, gender and profile photo with anyone; make user's photos accessible to "friends of friends;" and restrict access to user's contact information to "friends only." Criticism continues over the amended approach, reiterating that the "recommended" option should always be the most stringent settings, however Facebook asserted that the site's primary focus is establishing and facilitating "connections" and has maintained that Facebook is devoted to protecting users' privacy. It remains to be seen whether the FTC complaints will be found to have merit, or whether these recent changes will be enough to satisfy users and keep Facebook a leader in social networking.

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New gTLDs: Version 4 of Draft Applicant Guidebook from ICANN

ICANN has recently released for public comment the Fourth Draft Applicant Guidebook for new gTLDs. As we have previously reported, the Guidebook covers the details of ICANN's plan for the expansion of gTLDs (generic top-level domains), introducing alternatives to the existing .COM, .ORG, .BIZ, and others in the form of .YOURBRAND. Comments on the latest draft are being accepted at icann.org through July 21, 2010. It is unknown how many additional versions, if any, of the Guidebook will be issued before a Final Version is released.

The latest Guidebook includes a number of changes and additions from the prior version. Of particular note to trademark holders is the incorporation of specific trademark-protection mechanisms that include: the Uniform Rapid Suspension, the Trademark Clearinghouse, and the Post-Delegation Dispute Resolution Proposal. In addition to the trademark protections, the Guidebook includes background checks that can exclude applicants for "intellectual property violations," such as being found liable in a series of cybersquatting proceedings.

The Uniform Rapid Suspension System (URS) 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. While it is similar to a UDRP, the burden of proof is intentionally higher than in the UDRP, and shall be by clear and convincing evidence. The Examiner must also find that there is no genuine contestable issue. Rather than resulting in the transfer of the domain name as in a UDRP decision, a favorable URS decision would result in the domain name being suspended for the balance of the registration period, without resolving to the original web site. The nameservers would be redirected to an informational web page provided by the URS Provider about the URS. Penalties for abuse of the process by trademark holders are also provided.

The Trademark Clearinghouse (TM Clearinghouse) is intended to make verification of rights easier via a centralized database. The Guidebook makes clear however, that inclusion of a mark in the database is not proof of any right, nor does it create legal rights. Likewise, failure to submit trademarks to the TM Clearinghouse should not be perceived to be lack of vigilance by a trademark holder or a waiver of any rights. The proposed standards for inclusion in the Clearinghouse database are for nationally or multi-nationally registered "text" trademarks from all jurisdictions, including countries where there is no substantive review. Additional text marks to be included are those that have been validated through a court of law or other judicial proceeding, or those protected by a statute or treaty currently in effect and that was in effect on or before June 26, 2008. No common-law rights will be included in the TM Clearinghouse database, except for court-validated common-law marks.

The Post-Delegation Dispute Resolution Procedures (PDDRP) provide an administrative proceeding for a trademark holder to claim that one or more of its marks have been infringed by the registry operator's manner of operation or use of the gTLD. The "registry" is the company/organization/party that has the rights to and operates the master database of the domain names in a particular gTLD. However, before proceeding to the merits of a dispute against a registry operator, a one-person Panel will perform an initial "threshold" review. Similarly to the URS, the burden of proof is by clear and convincing evidence. The PDDRP potentially applies to infringements by the registry operator in both the top-level gTLDs and second-level domain names. While not necessary or required, a hearing lasting no longer than one day may be requested by a party or determined to be necessary by the Expert Panel.

While the above highlights the proposed trademark-protection mechanisms, the full Guidebook can be found at icann.org, where interested parties should voice their comments and request potential changes.

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Costco v Omega – SCOTUS to Clarify First-sale Doctrine with Respect to Gray-market Sales

On April 19, 2010, the United States Supreme Court granted certiorari in Costco Wholesale Corp. v. Omega, S.A., No. 08-1423, to decide whether the Copyright Act's first-sale doctrine, codified in 17 U.S.C. 109(a), applies to goods manufactured abroad that have been imported and sold in the United States without authorization from the copyright owner. The Supreme Court's answer should provide some clarity to the Copyright Act's "lawfully made under this title" language, and will likely have a great impact on businesses such as eBay and Amazon.com, which thrive on gray- or secondary market goods, genuine goods purchased overseas and imported into the United States without right-owner's consent and frequently sold at discounted prices.

The case stems from sales by Costco of Omega watches back in 2004. Omega manufactures its watches, which bear a small engraved emblem protected by U.S. copyright, in Switzerland. The watches were sold by Omega to authorized foreign distributors under agreement to limit sales to certain territories outside the U.S., but were later re-sold via unidentified third parties to a gray-market importer who sold them to Costco. Costco then sold the watches in the United States, without authority from Omega, at prices which undercut Omega's U.S. retailers. Omega filed a lawsuit alleging the sales constituted copyright infringement and moved for summary judgment. Costco filed a cross-motion arguing that under the first-sale doctrine, Omega's initial foreign sale of the watches exhausted its right of distribution and precludes any claim of infringement with regard to subsequent sales. The District Court found in Costco's favor without explanation, and Omega appealed.

The Court of Appeals for the Ninth Circuit reversed the District Court's decision, holding that Section 109(a) serves as a defense only with regard to copies made and sold in the United States, and not to copies that were first made and sold abroad. Thus, the Court found the first-sale doctrine unavailable as a defense to Omega's claims. In doing so, the Court reconciled that relevant precedent does not invalidate such a finding. First, it found that such a ruling is still consistent with Quality King Distribs., Inc. v. L'anza Res. Int'l., Inc., 523 U.S. 135 (1998), which held that infringement cannot occur where the owner of a copy "lawfully made under this title" imports and sells that copy without the authority of the copyright owner, by finding that the copies of the design on the watches sold by Costco were not "lawfully made under this title" due to the fact that they were first made and sold abroad and not in the United States. This was something that Quality King did not have to touch on, as the copies at issue in that case were produced in the United States. The Court found that to find otherwise would be problematic because it would impermissibly extend the Copyright Act extraterritorially by characterizing the making of copies abroad—conduct occurring entirely outside of the United States. The Court also found that the exception to this rule created in BMG Music v. Perez, 952 F.2d 318 (9th Cir. 1991), which states that the first-sale doctrine can still apply to copies manufactured abroad, so long as an authorized first sale occurs in the United States, does not apply in this case, because the first sale in the United States was not authorized. Thus, the Ninth Circuit explained that to qualify as a "lawfully made copy" under Section 109(a), the copy must be made with the authorization of the copyright owner and be produced in the United States.

After the decision, Costco petitioned the Supreme Court for a writ of certiorari, and several amici curiae, including eBay, submitted briefs in support. The opponents argue that the Ninth Circuit decision is bad for commerce in general, and especially for domestic manufacturing because it provides an incentive for companies to manufacture their goods abroad, where they will find more generous copyright protection. Further, they argue that there is no support in the text or legislative history for limiting the first-sale doctrine to domestically-manufactured goods.

The Solicitor General, at the request of the Supreme Court, submitted a brief to represent the views of the United States, arguing that the writ should be denied. The brief recognized that there are indeed concerns that the decision could provide an incentive to produce abroad, but argued that there is no evidence of such severe consequences as of yet, and also that the BMG exception reduces this threat. Further, it found that the decision re-affirmed Ninth Circuit precedent, was consistent with the consensus view of the leading commentators on Copyright law, such as Melville Nimmer, and did not conflict with any other decision of any Court of Appeals.

Regardless of the outcome, the Supreme Court's decision will impact any retailer, importer, or distributor who deals in goods manufactured abroad and brought to the United States without copyright owner's authorization. It is certain that the Court will attempt to strike a balance between protecting the copyright owner while also keeping in line with the other concern behind Copyright law—ensuring the monopoly provided the author is properly limited so as not to conflict with overriding public interests.

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Morality in the Patent Courts: A Calamity of Conscience

A U.S. District Court recently held that patent claims directed to breast cancer-linked genes, and claims on methods for using the genes, are unpatentable subject matter and therefore invalid. Association for Molecular Pathology v. United States Patent and Trademark Office, 2010 U.S. Dist. LEXIS 35418, Sections IV.A, VIII et al. (SDNY April 5, 2010). We have discussed this case in our April 2010 Newsletter. The district court's holding has sparked lively debates in the patent community on the benefits and drawbacks of allowing patent monopolies on human genes.

The holder of the invalidated claims, Myriad Genetics, reportedly enjoyed revenues of about $200 million in 2008 alone for testing covered by these patent claims (Id. at Section III.D.2), and has, not surprisingly, announced it will appeal the district court's decision. Myriad's decision to appeal is also not surprising because the district court's holding seems unlikely to be upheld on appeal, as it attempts to overturn several decades of USPTO grants of gene patents and solid U.S. caselaw supporting the patenting of genes.

Why would a judge choose to buck the system this way, to engage in a holding so against precedent and so likely to be overturned in an appeals court? A lesson learned during early years of patent prosecution may hold the answer—rejections under one point of law may include elements of another. To overcome such rejections, one must frame arguments in the language of the rejection while addressing what is really bothering the Examiner.

The district court struck down the claims as unpatentable subject matter, but really seemed to perform a test balancing benefits and drawbacks of patenting genes. Facts of the case included testimony that women unable to pay Myriad's monopoly price went untested for gene mutations that would indicate whether they were at high risk for breast cancer; that Myriad sent cease-and-desist letters to physicians offering to perform genetic tests for their patients; and a discussion of the general impact of Myriad's patents on research on the patented genes. (Id. at Sections III.D-E). Possibly, the district court was swayed by moral arguments and so legitimized previously unpersuasive arguments on subject matter patentability to invalidate Myriad's gene patents.

Morality arguments in the patent field are best exemplified in the European Patent Office, where inventions may be denied patent protection if it is deemed contrary to morality. For instance, in 2008 the European Patent Office Board of Appeals held that claims directed to destroying human stem cells are immoral and therefore unpatentable subject matter. Claims directed to mammals genetically modified to develop cancer were limited to only mice, in view of suffering inflicted on animals by the invention. These holdings create controversy at the international patent level, in view of arguably complimentary and contrary treaty provisions, for instance in the WTO TRIPs Agreement. If upheld, the above district court decision will do the same.

The U.S. does things a little differently. We do not ask the USPTO to consider the morality of inventions when determining whether claims are patentable subject matter, but rather limit the use of patented or unpatented inventions with criminal and other laws. Certainly, morality considerations came into play when the Congress enacted 35 USC 287(c), indicating that patent claims directed to pure surgical methods of treating the human body are not enforceable against medical practitioners in U.S. courts (See our December 2009 Newsletter). Also, compulsory licensing and other laws are in effect to limit patent monopolies when necessary for public health reasons.

The district court judge, swayed by his conscience, appears to have indulged in judicial activism that will be, if upheld on appeal, a calamity to the U.S. patent and biotechnology systems. Patents on other chemicals will be vulnerable to invalidation on the same grounds; companies will move away from public disclosure to protect their inventions through other laws where possible (e.g. test data and trade secret laws); trends toward harmonization of international patent laws will be strained. Hopefully, our appeals courts will remember that subject matter patentability is not the proper place for a moral discussion on U.S. patents.

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Do Not Take Your Eye Off the Prototype

In late March, Mr. Gray Powell, an Apple computer engineer, inadvertently left what was a secret prototype Fourth Generation (4G) iPhone at a bar in Redwood City, California. R. Brian Hogan found the phone and ultimately sold it to a technology blog site called Gizmodo for $5,000. Gizmodo's president Jason Chen was instrumental in inspecting, photographing and describing the iPhone 4G on the Gizmodo blog. There were no attempts to reverse engineer the phone, download or copy any programming code or break into systems. There were just some basic external and internal observations, photos and video that Gizmodo released on its blog.

When the story broke on the blog, Apple immediately sent Gizmodo a letter asking for its "device" back. Gizmodo promptly turned the phone over to Apple and it looked like the matter was over.

Shortly after returning the phone, Jason Chen was served with a search warrant at his home that authorized seizure of essentially all of Chen's computer and electronic equipment. The warrant was based on potential violations of various California penal statutes, including theft of trade secrets. Representatives from Apple branded the prototype as "invaluable," and stated that release of photos and information about the prototype would damage Apple since it would entice consumers to delay purchases of new iPhones until the 4G phone was launched. When served with the warrant, Chen had no option but to comply and his equipment was seized.

Mr. Chen has not been charged with any crime. Neither has Mr. Hogan, who found the iPhone 4G and sold it to Chen. The iPhone 4G has been returned to Apple and Apple has not initiated any civil proceedings against anyone regarding this matter. It even appears that the engineer who lost the phone in the first place remains employed by Apple.

However, this story continues to raise interesting legal questions and some lessons from an intellectual property perspective. Though Chen has not been charged with any crime yet, what could he possibly be charged with? He bought a phone. That phone was found by someone at a bar. If the phone was found, could not returning it to its owner make it a theft? Could Chen then have liability for buying stolen property or misappropriation of trade secrets? In addition, issues surround the search of Chen's house and seizure of his computer equipment. Beyond these criminal law and search and seizure issues, there are potential First Amendment issues involved in this case. Since Chen was acting as a reporter for the Gizmodo blog through all of this, the First Amendment and its protection of the press is implicated and the government is very limited in what it can seize from the press relating to a story it is covering. Thus, the entire seizure may be improper and no evidence obtained could be used against Chen—when and if he is charged with anything.

Also, it appears that another alleged iPhone 4G prototype has surfaced in Vietnam. There, someone claims he purchased an iPhone 4G in the United States, for $4,000, in connection with the purchase of an iPad and returned to Vietnam with both items. The phone then turned up in the hands of a Vietnamese technology blogger who, like Gizmodo, posted photos, videos and descriptions of the phone's exterior and interior. How this will play out in Vietnam is uncertain at this point in time.

Lost in all of this is the actual iPhone 4G at the root of the story and what protection it deserves as a prototype. When one envisions a next generation product under development, like the iPhone 4G, one thinks trade secret. That is, new products are generally kept confidential during development and before release to the public. This is one of the tenets of trade secret law: the owner of a trade secret, which is something not generally known that gives the owner an advantage over competitors, must take affirmative steps to maintain its secrecy.

Here, the iPhone 4G was out in public for some reason, perhaps field testing. An item out in public will generally no longer be "secret." Once the phone left Apple's offices, was carried to a bar and was then left for lost, it may have transmuted into something no longer "secret." Further, once in public, readily visible aspects of an item are no longer "secret." Here, Gizmodo took photos and video of the iPhone 4G's exterior and interior components and offered observations and comments on same. Gizmodo did not try to reverse-engineer the phone, break into its code or software, or otherwise delve into the programming that makes the iPhone 4G what it is. What Gizmodo did was reproduce what is readily visible on the exterior and interior of the item.

Based on this, though issues remain in this matter regarding theft, search and seizure, and First Amendment, the question as to whether there has been an infringement or theft of Intellectual Property rights likely going to be a minor element. However, this iPhone saga provides a powerful lesson nonetheless. Trade secret protection for prototypes will generally apply only where the items are cloaked in secrecy, even in public. If a company is going to field test prototype products and wants to maintain secrecy over them, it must take precautions to prevent the public at large from using, viewing or obtaining the prototype, and take steps to avoid letting the product fall into the hands of the public at large and the press.

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Tiffany v eBay – The Appeal

In 2006, Tiffany & Company ("Tiffany") brought suit against eBay Inc. ("eBay"), alleging trademark infringement, trademark dilution, and false advertising. Tiffany claimed that eBay facilitated and advertised the sale of counterfeit Tiffany goods on its online auction website, however the district court held in 2008 that eBay was not liable under any of the alleged claims.

Tiffany appealed the decision, and in April 2010, the Second Circuit affirmed all counts but one, holding that eBay was not liable for contributory or direct trademark infringement or trademark dilution. The Second Circuit did, however, remand the false-advertising claim. The Court agreed that eBay's "Tiffany" advertisements were not per se false, as genuine Tiffany goods were available on the site, but was not convinced that the district court considered whether the ads were misleading. Advertising "Tiffany" jewelry may have implied that all Tiffany goods were indeed confirmed genuine, when the available merchandise was a mix of genuine and counterfeit product.

All other issues, though, were affirmed in favor of eBay. On the issue of contributory infringement, Tiffany alleged that eBay continued to make its marketplace services available to infringing sellers despite knowledge that counterfeit goods were being sold throughout its website. The Second Circuit disagreed, however, noting,

For contributory infringement liability to lie, a service provider must have more than a general knowledge or reason to know that its service is being used to sell counterfeit goods. Some contemporary knowledge of which particular listings are infringing or will infringe in the future is necessary.

To arrive at its conclusion, the Second Circuit applied the test for contributory infringement defined in the Supreme Court decision, Inwood Labs v. Ives Labs (1982), noting that eBay must have identified specific sellers engaging in infringing activity and then opted not to act for liability to stick. In this case, both Tiffany and the Court acknowledged eBay's prompt removal of counterfeit Tiffany listings within 24 hours of specific infringement notifications. Thus, Inwood supported eBay's position that, when notified of specific instances, it acts appropriately.

The Second Circuit also affirmed that eBay was not liable for trademark dilution of the TIFFANY mark, because eBay did not use the Tiffany trademark to refer to its own products or services. Likewise, the Court agreed that eBay did not directly infringe the TIFFANY trademark as eBay used the mark to "describe accurately that genuine goods [were] offered on its website."

When faced with Tiffany's complaint that brand owners should not be forced to police eBay's website every waking second of every day, the Court declined to bite, stating that its responsibility was to the law and facts at hand, not to designate trademark policemen.

Even though the Second Circuit seemed reluctant to assign trademark policing responsibility, it appears brand owners are still ultimately responsible for policing counterfeiting activity under this decision, even when that activity emanates from a single, very public source, in high volume. However, some responsibility may still befall the online merchants. As the district court revisits the false-advertising issue, online retailers may ultimately be forced to redefine advertising procedures for legitimately-branded goods when a possibility exists that some goods may be counterfeit.

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New York District Court Judge Invalidates Patent Claiming Composition of and Method of Isolating Genes

The district court in the Southern District of New York recently issued a decision in which patent claims directed to isolated DNA compositions and methods of isolation were determined to be invalid. The sole issue decided by the Court in Association for Molecular Pathology v U.S. Patent and Trademark Office, was whether the patent claims at issue met the threshold test for patentability, namely, whether these claims comprised patentable subject matter. In finding that the patent claims at issue did not meet this threshold, the ruling is a significant move away from current standards in the context of DNA and gene-related inventions. It may take years before the impact of this decision on the biotechnology industry is determined. Myriad Genetics, one of the defendants, has indicated it plans to appeal the decision to the Federal Circuit Court of Appeals, and depending on the Federal Circuit's decision and how the issue is framed or further developed in subsequent cases, the Supreme Court may take the opportunity to weigh in on the issue as well. It is doubtful that the USPTO will change its internal examination guidelines until all appeals of the current decision have been exhausted. Nevertheless, claim drafting strategies for biotechnology inventions may need to change to accommodate potential changes in the law.

Regarding the substance of the case itself, defendant Myriad Genetics and a group of academic researchers had sequenced Breast Cancer Susceptibility Genes 1 and 2 (BRCA1 and BRCA2), two human genes linked to breast cancer. The parties applied for and obtained patents covering the isolated and sequenced genes. Myriad Genetics developed and marketed genetic tests designed to identify mutated genes. The Association for Molecular Pathology and other organization brought the current suit seeking a declaration that the patents covering the BRCA1 and BRCA2 isolated and sequenced DNA and related methods were invalid as pertaining to unpatentable subject matter.

Central the District Court's decision regarding claims covering the BRCA1 and BRCA2 compositions was the idea that purification of a natural compound, without more, does not transform a product of nature into patentable subject matter. The Court reviewed a number of Supreme Court and accompanying lower court decisions and determined that patentable subject matter, in the context of purified products of nature, must possess "markedly different characteristics" in order to meet the threshold requirement for patentability. On this point, the Court found that the claimed isolated/purified DNA was not markedly different from native DNA as it exists in nature and is therefore not patentable subject matter. Patent claims covering methods for analyzing and comparing DNA sequences suffered a similar fate. The Court held that these claims lacked physical transformation of material and were therefore unpatentable as well.

While the immediate implications of this decision are clear, namely, the potential invalidity of a vast number of issued patents, competing interests on both sides of the issue have compelling arguments to make. DNA-related patents typically represent the fruits of the earliest stages of research. Without patent protection, and the ability to license patented technology, organizations are unlikely to be unable to raise the millions of dollars in capital necessary to advance the discovery of useful tests or treatments. Nevertheless, the research and development of large-scale genome projects may be hindered if each individual human gene is patented and subject must be licensed for such projects to move forward. The Association for Molecular Pathology v U.S. Patent and Trademark Office is likely the beginning of the story with competing concerns of all concerned parties likely to be accounted for in future caselaw, legislation and USPTO practice guidelines.

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Google Expands Use of Trademarks in Its AdWords Despite Adverse Court Rulings Finding "Use in Commerce" and New Class Action Suits

In a recent decision by the European Court of Justice, the Court ruled in favor of Google in a consolidated case spearheaded by Louis Vuitton relating to Google's Adwords program. The Court found that Google was not in breach of EU trademark law for its passive sale of third-party trademarks as keywords. However, Google's "safe harbor" is limited, as Google must act expeditiously to take down advertisements when trademark owners complain that the ads or websites linked from the keywords infringe their trademarks. Despite the finding of no infringement by Google, the decision may leave individual advertisers open to liability for use of a competitor's trademark as a keyword. The ECJ has left it to national courts to decide on a case-by-case basis whether trademark infringement has taken place.

In Google's AdWords program, advertisers bid on and purchase keywords, which may include trademarks of third parties. When an internet user types in a search term using Google's search engine, the resulting hits include regular or "natural" search results based on relevance, along with "Sponsored Links" results triggered by the keywords in the search query. These "Sponsored Links" is paid contextual advertising that is auctioned through Google's AdWords, with the highest bidder usually having its Sponsored Link listed first.

The ECJ found that Google's sale of trademarks as keywords, as a "referencing service provider," was not considered use of the marks under EU law. It further held that the keyword ads are not likely to have an adverse effect on the advertising function of the trademark. The court determined, however, that use of third-party trademarks as keywords or advertising links was considered "use in the course of trade" by the purchaser of the keyword, whether or not the trademark appeared in the ad text itself. Liability for the advertiser may arise if the ad does not enable the average internet user, or enables that user with difficulty, to ascertain whether the goods or services originate from the owner of the trademark (or an undertaking economically connected to it), or whether they originate from a third party.

National courts will have the power to adjudicate whether source confusion has actually occurred. The analysis will determine whether the online advertisement is considered trademark infringement, and whether Google's participation is active enough to remove its safe-harbor defense and provide liability based on Google's knowledge of and control over the infringing activity. Courts will have to consider whether Google's Keyword Suggestion Tool would be considered sufficient active participation to negate any exemptions that Google has garnered as a service provider.

While the current judgment refers to keywords that are "identical" to the trademark and to goods that are "identical" to the trademark owner's goods, it is anticipated that forthcoming decisions in the EU will address the liability of an advertiser for keywords that are similar to the trademark and are used for complimentary goods. Although Google appears to have averted blanket liability for keyword sales in the EU, its benefits may be limited due to potential advertiser liability.

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Recent Ruling in Favor of Comcast Sends FCC Back to the Drawing Board on Net Neutrality and Tangles Plans to Expand Internet Access

In September 2009, the FCC proposed new rules for net neutrality, requiring internet service providers to treat all content equally and not put any site at a disadvantage by slowing transmission speed or access. A recent decision in Comcast Corp v Federal Communications Commission sent the FCC back several steps, finding that that FCC, as an administrative agency, does not have the power to regulate internet service providers in this manner, as it is outside the scope of the specific powers delegated by Congress.

The dispute started with allegations that Comcast deliberately slowed access to the Bit Torrent peer-to-peer site. Comcast replied that its actions were necessary to manage the level of traffic and protect against slowdowns for other customers during peak times but the FCC issued sanctions in 2008 ordering Comcast to halt any slowdowns. Eventually, Comcast agreed to change its practices, but requested a review by the appeals court as to whether the FCC had the authority to sanction Comcast under its scope of power. The U.S. Court of Appeals for the D.C. Circuit agreed with Comcast that the FCC lacked such authority and vacated the prior sanctions.

This ruling was not a ruling against the principles of net neutrality, rather, it is solely a finding that the FCC does not have "any statutorily mandated responsibility" to enforce net neutrality by service providers, according to the opinion by Judge David Tatel. The FCC has replied that it remains committed to the principles of unimpeded access, and will continue with efforts to create such rules, however, it remains to be seen whether the FCC will pursue further appeal in order to do so, or whether it will turn to Congress to revise the FCC's grant of authority. With the FCC spokeswoman Jen Howard's statement that the FCC must ensure any future agenda rests on "solid legal foundation," and a statement by Democratic FCC commissioner Michael J. Copps, that "[i]t is time we stop doing the ‘ancillary authority' dance and instead rely on the statute Congress gave us to stand on solid legal ground in safeguarding the benefits of the Internet for American consumers," it seems that a revision of the FCC's grant of authority would be the more concrete approach, rather than further pursuit in the court system.

This recent decision may have been focused solely on the issues of the FCC's authority in enforcing net neutrality, but it also places the FCC's recently announced plans for improved infrastructure to increase access to the internet into question. If the FCC has no power to regulate service providers' management of their networks, then the FCC may also have no power to oversee any improvement of the existing broadband infrastructure.

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Social Media and Senators

How a Small Vermont Brewery Gave Rise to a Potential Study of Trademark Policing Tactics

Rock Art Brewery LLC is a Vermont-based brewer of craft beers that produces about 3,000 barrels of beer annually. Hansen Beverage Co. is the maker of the MONSTER brand energy drink and has over $600 million in annual sales. During fall 2009, Rock Art produced a barleywine beer called VERMONSTER and filed an application to register that trademark. Hansen sent a cease and desist letter to Rock Art claiming that VERMONSTER infringed its MONSTER mark.

Rock Art responded to Hansen on two fronts. First, by directly corresponding with Hansen's counsel on the trademark claim and standing firm in its position that market differences between energy drinks and craft beers negated potential confusion. Second, at an abstract level, Rock Art viewed the dispute as essentially David v Goliath. Firmly believing this, Rock Art used social media to its advantage. From the beginning, Rock Art notified its Twitter followers and Facebook fans of the issues, nature of the dispute and its view of same. The rockartbrewery.com website became a repository of information regarding the squabble and links to press pieces discussing same. The Hansen/Rock Art matter garnered attention in newspapers across the country and stories on ABC News, MSNBC and CNN. A Facebook fan page called "Vermonters and Craft Beer Drinkers Against Monster" sprouted and quickly rose to over 18,000 members.

Ultimately, Hansen backed down. The VERMONSTER trademark has since matured to registration and Vermonster Beer remains available. Whatever the ultimate impact of Rock Art's use of social media in this dispute was is unknown but clearly shows that utilization of such outlets can be persuasive, as evidenced by the nationwide following and press coverage the dispute received. Indeed, one particularly influential follower of the dispute was Senator Patrick Leahy of Vermont.

Senator Leahy sponsored legislation making certain amendments to the Lanham Act regarding Madrid Protocol filings. In addition to these technical amendments, Senator Leahy added a measure directing the Commerce Department to study trademark litigation tactics to determine whether large corporations are potentially misusing trademark laws by attempting "to enforce trademark rights beyond a reasonable interpretation of the scope" of those rights to essentially harass small businesses like Rock Art, which in turn may "stifle" innovation and entrepreneurship. President Obama signed the law and it went into effect March 17, 2010.

No timeline has been set for any such study to commence or complete. The results should prove interesting from both the perspective of the brand owner and its duty to police its marks and from the perspective of a small business and the incentive to innovate. Irrespective of the results of any study conducted as required by the Leahy-sponsored Amendment to the Lanham Act, the Amendment itself and the history leading up to it underscore the growing importance of social media. Twitter and Facebook are changing how people interact, how products are marketed and, now, how some disputes are resolved.

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Is Your Browser Policy Holding You Back?

Internet Explorer 6 does not have the best reputation among the technically aware due to its security holes, lack of features, and arrant disregard for modern web standards. Yet, it is the default and often the only browser at the majority of large companies. This article looks at how this came to be and questions the efficacy of the status quo.

Throughout the 1990s, Netscape and Microsoft fought for dominance in the browser market by releasing more and more unique features for their browsers. Without a common standard, a website could work fine in one browser and be unusable in another, and it was common to display "best viewed in Netscape" or "best viewed in Internet Explorer" buttons, inviting users to download the optimal browser. By the end of the decade Microsoft had defeated Netscape, which was largely due to tying Internet Explorer to its Windows operating system.

When IE6 was released on August 27, 2001, it received a warm welcome from the web community. Web developers praised its DOCTYPE support, which allowed designers to use standards-based markup by declaring a document type; if a site did not have a document type declared, IE6 would render it in "quirks mode"—an ugly legacy from the browser wars.

By 2004 Internet Explorer had a 95% market share but was starting to show its age. In the ‘90s, Microsoft was releasing a new version of Internet Explorer every year or two. Now, without a strong competitor, it left its browser stagnant. Occasional security breaches were becoming more and more common and the tech-savvy users began flocking to new competitors, such as Firefox and Safari. These new browsers had improved security, more features and better support for W3C standards.

Five years have passed between the releases of Internet Explorer 6 and Windows Internet Explorer 7. Microsoft timed the release to coincide with the release of Windows Vista. The new operating system was poorly received, and even though IE7 was available for Windows XP, many did not see a reason to upgrade. Likewise, people did not flock to IE8 when it was released last year together with Windows 7.

Simply because the majority of large companies are still using Windows XP, many of them are still using the browser that came with it. Some companies are reluctant to switch because their intranets and in-house applications were developed for IE6—perhaps using Microsoft's FrontPage 2000 software—instead of for the most widely supported web standards, and upgrading the browser would require changing these applications as well. From this perspective, sticking with IE6 is easy to rationalize as the simplest and cheapest option. The reality, however, is that in an era when more and more companies use cloud computing and software-as-a-service solutions, when one accounts for compromised security and productivity, the old IE6 browser may actually cost the company more.

It is time for corporate IT departments to consider installing an alternate browser for internet use and limiting IE6 access to the company's intranet.

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U.S. Supreme Court Holds Section 411(a)'s Copyright Registration Requirement Non-Jurisdictional

On March 2, 2010, the Supreme Court issued its decision in Reed Elsevier, Inc. v Muchnick, holding that Section 411(a) of the United States Copyright Act, which mandates registration as a prerequisite to suing for copyright infringement, is not a jurisdictional requirement, meaning a copyright owner's failure to register its work does not restrict a federal court's subject-matter jurisdiction over claims involving the unregistered work. While the decision is meaningful for class-action suits and claims for declaratory or equitable relief, the impact of the decision, if any, on the standard copyright-infringement claim for damages remains to be seen.

The case follows the Court's decision in New York Times Co. v Tasini, 533 U.S. 483 (2001), in which the Court affirmed the Second Circuit ruling that several online databases and publishers, including Google Books, infringed the rights of six freelance authors by electronically publishing their works without permission. The case was consolidated with several other suits by other freelance authors in the United States District Court for the Southern District of New York, which due to the complexity of the case ultimately referred the parties to mediation. Three years later, the freelance authors, databases and publishers reached a settlement agreement, dubbed the "Google Books Settlement" and moved the District Court to certify a class and approve the settlement. Over the objections of several freelance authors, including Irvin Muchnick, the District Court approved the Class, consisting of authors owning both registered and unregistered copyrights in their works, and approved the settlement.

Muchnick respondents appealed the decision on both procedural and substantive grounds. The Court of Appeals for the Second Circuit sua sponte ordered a briefing on the question of whether Section 411(a) of the Copyright Act deprives federal courts of subject-matter jurisdiction over infringement claims involving unregistered works.

Section 411(a) provides:

"Except for an action brought for a violation of the rights of the author under section 106(A), and subject to the provisions of subsection (b), no civil action for infringement of the copyright in any United States work shall be instituted until preregistration or registration of the copyright claim has been made…The Register may, at his or her option, become a party to the action with respect to the issue of registrability of the copyright claim by entering an appearance within sixty days after such service, but the Register's failure to become a party shall not deprive the court of jurisdiction to determine that issue."

Although all parties asserted in their briefs that the District Court did have subject-matter jurisdiction to approve the Class, the Court of Appeals held that it lacked subject-matter jurisdiction to approve both the Class and the Settlement. Judge Walker dissented, arguing that Section 411(a) is more like a non-jurisdictional claim-processing rule.

The Supreme Court granted the copyright owners and publishers' petition for writ of certiorari to answer whether Section 411(a) restricts the subject matter jurisdiction of federal courts, appointing amicus curiae to defend the Court of Appeal's judgment, since neither party supported its holding.

The Supreme Court began its analysis by looking to the general approach to distinguishing jurisdictional conditions from claim-processing rules or elements of a claim as laid out in Arbaugh v Y & H Corp., 546 US 500 (2006), which states that if the legislature does not "clearly state" that a statutory limitation is jurisdictional, and does not rank it as such, then the courts should treat it as non-jurisdictional in character.

Applying this test to Section 411(a), the Court found that the provision does not "clearly state" that its registration requirement is jurisdictional. The Court rejected the argument from amicus, that the use of the word "jurisdiction" in the last sentence of the provision indicates that the first sentence of the provision is meant to be read with a jurisdictional cast as well. Rather, the Court explained that the last sentence in 411(a) was added to the Act in 1976 to clarify that federal courts can decide an issue of registrability even if the Register does not appear in the relevant infringement suit, and that as used, it says nothing with regard to the federal court's subject-matter jurisdiction over claims involving unregistered works.

Further, the Court found that the provision also does not rank the registration requirement as jurisdictional. Section 411(a)'s registration requirement is located in a provision wholly separate from those provisions in the Act covering jurisdiction, namely Sections 1331 and 1338, and neither of these provisions conditions jurisdiction on whether the relevant copyright owners have registered their works. The Court pointed to the fact that Section 411(a) expressly grants courts jurisdiction to adjudicate claims involving unregistered works in three instances: 1) where the work is not a U.S. work, 2) where the claim also concerns moral rights under 106A, or 3) where the author attempted to register his work but registration was refused. The Court reasoned that if Section 411(a) was meant to be read in a jurisdictional light, it would be odd for the provision to contain these exceptions.

The Court then considered the amicus argument, relying on Bowles v Russell, 551 US 205 (2007), that it is improper to characterize a statutory condition as non-jurisdictional if doing so would override a "century's worth of precedent." Amicus argued that Bowles stands for the proposition that if a provision is silent as to whether its condition is to be considered jurisdictional, then a court should treat it as jurisdictional if that is how the condition has been consistently interpreted over the years. The Court rejected this interpretation of Bowles, concluding that it instead stands for the proposition that context is relevant, albeit not dispositive, of the question. The Court further rejected the amicus argument that the Court should nonetheless affirm the Court of Appeals decision on estoppel grounds because the circumstances required for application of the doctrine simply did not exist in this case.

Ultimately, the Court held that Section 411(a)'s registration requirement is simply a precondition to filing a copyright infringement claim, and nothing more. A copyright owner's failure to register his or her work does not restrict a federal court's subject-matter jurisdiction over infringement claims involving unregistered works.

The decision clarifies that class actions for copyright infringement can be filed on behalf of owners of both registered and unregistered works. The Google Books Settlement, however, was amended following the Second Circuit's now reversed 2007 Muchnick decision to specifically exclude owners of unregistered works to avoid this issue. While it is unlikely that they will be added back as a result of the decision, it now raises the question of whether the settlement will be approved as it stands. The Court could ask the litigants to renegotiate the settlement again, to include authors of unregistered works, or the authors themselves could request reconsideration of the settlement along these terms.

Although it is clear that a claim for damages based on an unregistered work will fail, the Court left unanswered whether a district court should sua sponte dismiss copyright cases where the Plaintiff is asserting rights based on an unregistered copyright. As a result of the decision, courts may become more lenient in allowing actions to proceed even if filed while an application for registration of the involved work is still pending. Courts are currently divided on this issue, with some taking the "registration approach" and dismissing those claims where the application is still pending, and others following the "application approach."

Now, it will likely be easier for an alleged infringer to bring a declaratory-judgment action against a claim involving an unregistered work. In addition, it could be less risky for an author to file suit for immediate equitable relief, rather than for damages, based on an unregistered work.

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Trademark Customs Recordal Back on the Menu in the United Kingdom

As of March 10, 2010, British Customs will be able to treat as abandoned for seizure and destruction purposes items where the owner has either consented to destruction or failed to oppose destruction of the goods within 10 days from notice or any extensions granted to that period. The new procedure is set out in the Goods Infringing Intellectual Property Rights (Customs) (Amendment) Regulations 2010.

Historically, Customs measures in the United Kingdom were very favorable to rights owners in that once an objection was received by Customs and upheld, it fell to the owners of the products in issue to bring an appeal against the action of Customs in confiscating the goods. The practice was changed in 2009 as a result of a court action. The amended rules brought British practice into line with that of most other European countries whereby it fell to the objecting rights holder to either obtain consent to forfeiture from the owners of the goods or else to bring a formalized proceeding to have the goods declared counterfeit and seized, something which is onerous and expensive.

Under the latest revision, which became effective on March 10, consent to forfeiture will be presumed if the owner of the goods does not affirmatively object to forfeiture within the specified period of 10 days plus any extensions. While this still puts most of the burden on the rights holder to make sure that the counterfeit goods do not enter the market, it does mean that the owner of the offending goods has to take some sort of action in order to secure release and it cannot just sit back and take a wait-and-see approach. Another problem under the prior regimen was that consignee contact information provided with shipping documents was often bogus and unreliable. The amended rules mean that owners of the goods will have to step forward and potentially expose themselves to direct legal liability for dealing in counterfeits. The new approach makes Customs recordation once more an attractive option insofar as the UK is concerned.

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Federal Circuit Decision Highlights Importance of Full Disclosure between Inventor and Patent Attorney When Conducting Prior Rights Analyses

A recent decision from the Federal Circuit Court of Appeals demonstrates the importance of full disclosure between an inventor and patent attorney hired to conduct a prior rights analysis, such as a freedom-to-operate opinion. Under Section 271(b) of the U.S. Patent Act, "whoever actively induces infringement of a patent shall be liable as an infringer." The "inducer" must have actual or constructive knowledge of the patent-in-suit and must have "specific intent to encourage another's infringement," where specific intent is not defined so narrowly as to allow an accused wrongdoer to actively disregard a known risk. In SEB S.A. and T-Fal Corp. v Montgomery Ward & Co., Inc. et al. the Federal Circuit Court of Appeals established that deliberate indifference of a patent can satisfy the "knowledge of patent" element in an inducement claim and determined that the district court record demonstrated adequate deliberate indifference by co-defendant Pentalpha Enterprises, Ltd. as to the existence of the patent-in-suit. In SEB, the record demonstrated that: (1) Pentalpha had copied SEB's product, (2) Pentalpha had hired a patent attorney to conduct a patent prior-art search, but did not advise the attorney that it had copied the SEB device, and (3) Pentalpha's president was knowledgeable of U.S. patent law. The Federal Circuit concluded that this was "adequate evidence to support a conclusion that [Pentalpha] deliberately disregarded a known risk that SEB had a protective patent."

On appeal from the district court decision of inducement to infringe, as well as willful infringement, Pentalpha argued that SEB had not presented any direct evidence that Pentalpha had actual knowledge of the patent-in-suit before the lawsuit was filed. Pentalpha argued that the Federal Circuit's decision in DSU Medical v JMS supported its position by holding that the "requirement that the alleged infringer knew or should have known his actions would induce actual infringement necessarily includes the requirement that he or she knew of the patent."

The SEB Court embarked in a detailed analysis of the "knowledge" requirement as it pertains to inducement-to-infringe claims, including discounting the cited language from the DSU Medical decision as dicta. While the DSU Medical language certainly appeared to support Pentalpha's position, the DSU Medical decision did not hinge on the "knowledge" requirement as the accused infringer had actual knowledge of the patent-in-suit. The court held that "deliberate indifference" to potential patent rights is sufficient to satisfy the "knowledge" requirement of inducement charges. While the district court record did not include direct evidence that Pentalpha was aware of the patent-in-suit, the record did provide adequate details of Pentalpha's deliberate indifference to SEB's patent rights.

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U.S. Trademark Trial and Appeal Board Vacates 2008 Fraud Ruling in Herbaceuticals, Inc. v Xel Herbaceuticals, Inc., Cancellation No. 92045172

On February 25, 2010, the United States Trademark Trial and Appeal Board vacated its ruling in Herbaceuticals, Inc. v Xel Herbaceuticals, Inc., where a partial summary judgment had been entered on the ground of fraud. Though the finding of fraud was vacated due to procedural reasons, the Board did, sua sponte, review the original fraud pleadings in light of the 2009 Bose Corp. v Hexwave decision that revised the test for fraud on the USPTO. Based on its review, the Board found Petitioner Herbaceuticals, Inc.'s fraud claim legally insufficient.

In the original March 7, 2008 order, the Board granted summary judgment to Petitioner Herbaceuticals, Inc. (HCI) on its pleaded fraud claim, ordering cancellation of four registrations in the name of Respondent, Xel Herbaceuticals, Inc. (Xel). The Board concluded that Xel filed knowingly false Statements of Use, signed by the representing attorney. The XEL HERBACEUTICALS marks were not being used on all goods in the identifications as claimed.

On January 7, 2010, Xel filed a motion to vacate the Board's partial summary judgment on HCI's fraud claim, relying on the Bose decision which set forth, "a trademark is obtained fraudulently under the Lanham Act only if the applicant or registrant knowingly makes a false, material representation with the intent to deceive the PTO." Bose, 91 USPQ2d at 1941.

The Board granted Xel's motion to vacate, as conceded, because HCI failed to respond, in any manner, to Xel's motion. However, the Board also sua sponte reviewed HCI's pleaded fraud claim in the original petition to cancel, finding it legally insufficient under the Bose decision.

HCI's pleaded fraud claim alleged that Xel "knew or should have known that it was not using" the marks on all goods identified in each application when the relevant Statements of Use were filed. However, HCI's claim did not allege that Xel possessed the requisite "intent to deceive" the United States Patent and Trademark Office through its actions. Under Bose, the Board noted that each petitioner must specifically plead "intent to deceive" in raising a claim of fraud. See Bose, 91 USPQ2d at 1941. An allegation of "knew or should have known" will not rise to the level of fraud under the Bose standard. In addition, HCI based its fraud claim on "information and belief" but failed to specify facts to support its belief, which also rendered the claim insufficient.

Thus, while the Board has vacated its partial summary judgment based on fraud, the Board has also allowed HCI thirty days from the mailing date of this decision (February 25, 2010) by which to replead its fraud claim under the Bose standard. As of March 10, 2010, HCI has not yet filed an amended petition to cancel.

In addition to articulating the Bose standard in the present order, the Board also discussed the standard for "intent to deceive" in a footnote, stating, "[t]he standard for finding intent to deceive is stricter than the standard for negligence or gross negligence. Still open is the question whether a submission to the PTO with reckless disregard of its truth or falsity would satisfy the intent to deceive requirement. Bose, 91 USPQ2d at 1942, fn. 2."

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eBay France Faces Sanctions for Misspellings

On February 18, eBay France was unsuccessful in the face of charges that it has enabled the sale of counterfeit goods and harmed Louis Vuitton's reputation, receiving a fine of €200,000 in damages, including an award of €30,000 in costs, and a fine of €1,000 for each future violation.

When we last discussed the online auction giant's French site in 2007, it was facing an objection from the regulatory authority for auction houses in France, the Council of Sales, which sought to hold eBay to the same standards as those that apply to France's traditional auction houses. The latest objection, brought by the owner of the Louis Vuitton brand, LVMH Moët Hennessy Louis Vuitton SA (LVMH) has resulted in a judgment against eBay France.

The basis of the objection stemmed from eBay's payments for certain keywords to generate links to eBay's site in search engines such as Yahoo and Google. The practice of paying for keywords in itself was not the issue. Rather, it was the fact that eBay was paying for misspellings of "Louis Vuitton" (such as "Vitton"), that LVMH asserted are often used to advertise the sale of counterfeits, to generate results pointing to eBay.

The argument for using such misspellings is that potential buyers may simply be unaware of the correct spelling, or inadvertently type the name incorrectly. Rather than have a bad customer experience, eBay sought to ensure that such misspellings still direct the potential buyer to some listings. By the same token, some frequent users of eBay often intentionally misspell designer names in their searches as a deliberate strategy for good bargains, under the theory that the results will be viewed by fewer buyers and they will have less competition in the bidding.

Brand owners, however, object to this practice under the theory that the sellers who utilize misspellings do not have poor spelling skills, but use them intentionally when dealing in counterfeit goods. Consequently, allowing third parties to pay for misspellings associated with counterfeit goods enables the counterfeit marketplace.

In the end, the balance weighed in favor of LVMH. So far, this decision in France is an outlier. In the US, the use of another's trademark as a keyword in Google AdWords has generally not been found to be a violation of trademark law, even when it involves competitor's trademarks. However, this decision in France may very well have turned on the fact that the keywords in question were closely tied with dealing in counterfeits, even though they actually were not protected trademarks of another party.

In its response to the decision, eBay stated that the decision did that very thing which it sought to protect against—it harmed consumers by preventing them from buying and selling authentic items online.

Perhaps the final word on the issue is yet to come in the EU. A decision from the Court of Justice due to issue in late March is expected to provide more clarity as to whether this use of Adwords interferes with the rights of trademark owners.

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What to Make of the Recent Wave of False-Patent-Marking Lawsuits

District courts have seen a recent increase in the number of false-patent-marking lawsuits that could result in recovery of significant windfall monetary awards to plaintiffs. While the current landscape of patent-marking jurisprudence leaves many unanswered questions, careful review of patent-marking policies should be an issue to consider for companies manufacturing products under their own or licensed patents to avoid an adverse false-marking judgment. Section 292 of the U.S. Patent Act covers the improper marking of an unpatented article with the word "patented," or any word or number having the same meaning, for purposes of deceiving the public and provides for fines to be assessed in an amount not to exceed $500 for each offense. Individuals may file suit in federal court pursuant to Section 292 and attempt to recover damages that will be split 50/50 with the government.

The Federal Circuit Court of Appeals decision in The Forest Group, Inc. v Bon Tool Co. outlined the following elements of a Section 292 claim: (1) marking of an unpatented article; and (2) intent to deceive the public. The primary question unsettled before Forest Group was what constituted an offense—a decision to mark a product line, or each marked article put into the stream of commerce. The monetary implications of the answer to this question were significant. In Forest Group, the Federal Circuit held that "the plain language of 35 USC Section 292 requires courts to impose penalties for false marking on a per article basis." The court reasoned that allowing a range of penalties provided district courts with necessary flexibility and discretion to strike a balance between the public policy behind the patent-marking statute, namely, to give the public notice of patent rights, and imposing disproportionately large penalties for small, inexpensive items produced in large quantities. In a case involving inexpensive, mass-produced articles, the district court would have the discretion to determine that a fraction of a penny per improperly marked article is a proper penalty.

With the Forest Group decision, particularly its guidance on determination of damages, courts have experienced a significant increase in the number of lawsuits being filed on false-patent-marking grounds. In the month of February 2010 alone, nearly 60 separate lawsuits were filed in district courts around the country. The next emerging controversy in these cases, the resolution of which is likely to either promote the filing or stem the tide of false-marking lawsuits, will likely focus on what plaintiffs must prove to support the allegation that the defendant marked products "for purpose of deceiving the public." Under the current rule of law, "a party asserting false marking must show by a preponderance of the evidence that the accused party did not have a reasonable belief that the articles were properly marked." An assertion by a party that it did not intend to deceive, standing alone, "is worthless as proof of no intent to deceive where there is knowledge of falsehood."

Another issue that is likely to receive significant attention is the misuse of Section 292 lawsuits by individuals, coming to be known as "patent-marking trolls," seeking a windfall judgment by filing lawsuits against products marked with an expired patent. Some clarity on this issue is likely forthcoming in Pequinot v Solo Cup Co., which is on appeal to the Federal Circuit and has been fully briefed.

The increased occurrence of "patent-marking troll" suits could be curtailed or brought to a halt by Federal Circuit in the Pequinot decision or by Congress (the Senate Judiciary Committee has recently proposed legislation that would require patent false-marking plaintiffs to show actual competitive injury). Until the landscape of Section 292 becomes clearer, the effect of the Forest Group decision mandates that companies have a firm grasp on their patent-marking policies.

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.CO Domain Names Launching at Second Level; Global Sunrise to begin April 26

The ccTLD for Columbia, .CO, is going to be made available for registration on a global basis at second level (e.g., YOURCOMPANY.CO), rather than under previously restrictive terms that limited registrations to third level beneath various second-level domains such as .COM.CO. The Global Sunrise period for trademark holders with exact-match domain names registered prior to July 30, 2008 will run from April 26 to June 10, 2010. There will be subsequent Landrush and General Availability registration periods. In addition to general registrations, the .CO has also created a "Founders Program" for those individuals or companies that meet certain requirements, and pledge to be early adopters and to proactively develop and maintain domains with the .CO extension prior to the public launch in July. There is also a Grandfather Process, available through March 31, 2010, for applicants whose existing third-level domains in the .CO namespace were registered and active on or before July 30, 2008.

The .CO registry was previously run by the University of The Andes in Bogotá, Columbia, with registration mostly limited to Columbian companies who could register their trade name or company as an exact match at the third level. As a result, there were only about 28,000 .CO domains registered. The registry will now be run by a new partnership formed by a Colombian company, and Neustar, Inc., which has been involved in providing expertise for .BIZ, .US, .TRAVEL and .TEL. In addition to continuing to be a country-code TLD for Colombia, the .CO domains are being promoted for use as a mainstream extension to represent a number of CO-formatives, including "COmpany," "COrporation," "COmmerce," "COntent," "COmmunity," "COnsumer," and "COllaborate."

Of potential concern for trademark holders is the use and registration of these domain names as a typo for .COM domain names. An IP Clearinghouse and Trademark Validation process for registered trademarks are being established to assist brand owners in securing their brands in .CO during the Sunrise period. There will also be post-registration procedures available to trademark holders against abusive registrations, including a Rapid Takedown Policy and the UDRP.

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USPTO Will Recalculate Patent Term Adjustments, Fee-Free

In our January 2010 newsletter, we reported on the Federal Circuit's recent holding that the USPTO erroneously calculated patent term adjustments (PTAs) under the "overlap" provision of 35 U.S.C. 154(b)(2)(A). See also Wyeth v. Kappos, No. 2009-1120 (Fed. Cir., Jan. 7, 2010).

The USPTO is now allowing patent holders to request a fee-free recalculation of a patent's PTA, if the request meets the following criteria:

1. The request must state that the sole basis for requesting the recalculation is the USPTO's pre-Wyeth interpretation of 35 U.S.C. 154(b)(2)(A).

2. The patent must issue before March 2, 2010, and the request must be submitted no later than 180 days after issue.

Notably, patents issued before August 2009 and after March 2, 2010 are not eligible for fee-free PTA recalculation. The USPTO has not yet provided a fee-free mechanism to request PTA recalculation under Wyeth for patents issued before August 2009. Also, the USPTO indicates that as of March 2, 2010, a new computer program will calculate PTAs in compliance with the Wyeth holding, so that recalculations of pre-Wyeth PTAs will no longer be necessary.

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Geo Domain Names Transferred to Trademark Owner in Controversial Decision

In a recent Domain Name UDRP decision, Complainant, Hayward Industries, Inc. of Elizabeth, New Jersey, was successful in obtaining a transfer of the domain names HAYWARD.COM and WWWHAYWARD.COM from Respondent, domain investor Chad Wright, aka WebQuest.com, Inc. In the controversial decision, the three-member panel from WIPO included commentary that the value paid for one of the domain names was a factor in determining the third element of a UDRP, namely, registration and use in bad faith.

Complainant sells a variety of swimming pool products under HAYWARD trademark, which has been registered in the United States since 1977. Respondent had purchased the domain names in 2006, paying $20,000 for HAYWARD.COM, allegedly for its value as a geographic domain related to the location of Hayward, California. Hayward is a city of approximately 150,000 located in Northern California. Respondent is the owner of a number of other geographic domain names that provide pay-per-click (PPC) search engines related to the locale. The subject domain name resolved to a parking page with PPC links unrelated to the geographic location and containing links to Complainant's competitors.

Three years after receipt of a demand letter from Complainant in 2006, requesting the transfer of the domain names, Respondent offered the domain name HAYWARD.COM for sale via an online auction in 2009, with an opening minimum bid of $100,000. Respondent claimed that he had rights or legitimate interests in the domain names because "Hayward" is a geographic mark, which also has a number of other meanings and uses, and that PPC sites constitute a bona fide offering of services. Respondent further claimed that he never knew of Complainant, and that Complainant needed to show that it had famous rights or reputation in the name as being associated with Complainant's trade name and trademarks. Respondent also claimed that is was not significant that the parking page was not yet developed in relation to the geographic location.

In the decision, there was no dispute regarding the first element of a UDRP, namely, that the domain names were identical or confusingly similar to the HAYWARD trademark.

In the analysis of the "Rights or Legitimate Interests" element of a UDRP, the Panel agreed with Respondent that "Hayward" is the name of a city in California and that PPC websites are not in and of themselves unlawful or illegitimate. It noted, however, that the websites had yet to be developed in accordance with the claim of Respondent's counsel more than three years earlier that the disputed domain names were related to the geographic location. Because the websites contained links to Complainant's competitors, rather than being used for links solely in connection with the geographic locale, the Panel found that Respondent had no rights or legitimate interests.

The most controversial part of the decision is in regards to whether domain names were registered and used in bad faith. Complainant had specifically alleged that bad faith existed because Respondent acquired the domain names primarily for the purpose of disrupting the business of a competitor. The Panel determined that Respondent was not a "competitor" as contemplated by the UDRP policy, since there was no direct competition. The Panel determined that there was bad faith, however, noting that PPC parking pages built around a trademark that contain or lead to pages with links to trademark owner's competitors (as contrasted with PPC pages built around a dictionary word and used only in connection with the generic or merely descriptive meaning of the word) do not constitute a bona fide offering of goods or services, or a legitimate non-commercial or fair use. The Panel also rejected Respondent's claim regarding the fame of Complainant's mark, stating that "Respondent bears complete responsibility for how the disputed domain names were used and could have taken, but failed to take, steps to ensure that they were not used in connection with goods or services competitive with those offered under the HAYWARD trademark."

In its final analysis, the Panel found it informative, though not decisive, that the Respondent had purchased the domain name HAYWARD.COM for $20,000 and was attempting to sell it for at least $100,000. The Panel claimed that these figures would seem to indicate that Respondent saw some value in that domain name beyond its existence as the name of the city of Hayward, California, and for purposes other than as a PPC parking page which typically would not be expected to earn a return to justify the large investment.

This controversial finding would seem to be adding an additional subjective factor of value paid for a domain name into the determination of whether there is registration and use of a domain name in bad faith for UDRP analysis and decisions. It would appear, however, that the UDRP outcome may have been different if Respondent had developed the domain names into sites that contained PPC links related to the geographic location, within the interim three years after registration, rather than allowing the parking-page sites to remain with links to competitors of Complainant.

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