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.

continue reading »

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.

continue reading »

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.

continue reading »

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.

continue reading »

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.

continue reading »

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.

continue reading »

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.

continue reading »

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.

continue reading »

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.

continue reading »

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.

continue reading »

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.

continue reading »

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.

continue reading »

Microsoft v. Mal-Ads—a Summary of Unfolding Action Against Internet Marketing Abusers

On September 17, 2009, Microsoft Corporation (Microsoft) filed five lawsuits in the Superior Court of King County, Washington, alleging that malicious online advertisements, "malvertisements," caused users of Microsoft products to purchase and download malicious software, or "scareware" onto their computers, resulting in damage to consumers as well as to Microsoft's business. Microsoft has requested relief in the form of damages and injunctive relief.

All five suits name anonymous defendants, as Microsoft has been unable to locate the true identities of the persons driving this alleged activity. Microsoft has, however, identified the individuals by the fictitious business names believed to be used by the unknown individuals, namely, DirectAd Solutions, Soft Solutions Inc., Qiweroqw.com, ITmeter Inc., and ote2008.info, noting that Microsoft will amend the complaints once the true identities of the individuals behind the alleged activities are known. The discussion below is limited to the discussion of Microsoft's complaint against DirectAd Solutions.

Microsoft alleges in its complaint against one defendant, JOHN DOES 1-20, d/b/a DirectAd Solutions ("DirectAd"), that DirectAd posed as an ad agency working on behalf of Global Travel International, a legitimate company. DirectAd allegedly placed an ad with Microsoft for display on the MSN network of websites. Microsoft alleges that, according to information and belief, DirectAd has no affiliation to Global Travel International.

Microsoft alleges that DirectAd used this advertising space to direct consumers to a website which created the impression that the consumer's machine was being scanned for infection by Microsoft security software. The scan returned a list of "dangerous files" and urged consumers to purchase fake security software to eliminate them and protect against future problems. According to the complaint, Microsoft has determined that each scan was preprogrammed, and thus false, as was the furnished software. In addition, Microsoft alleges that DirectAd's website, where the false security software or "scareware" was made available, resembled the "look and feel" of Microsoft's Windows XP operating system, that the website generated a look-alike Windows Security pop-up alert and deceptively used Microsoft's trademarks. Microsoft alleges that these instances created the impression that this website, the warning, and the software available for purchase were associated with Microsoft.

Microsoft's prayer for relief requests temporary and permanent injunctive relief against DirectAd, actual damages in amounts to be proven at trial, disgorgement of DirectAd's ill-gotten profits, statutory damages as available, enhanced damages in an amount to be proven at trial under Washington law, and attorneys' fees and costs. Microsoft's claims against DirectAd, which constitute the force behind Microsoft's prayer for relief, are summarized as follows:

1) Violation of §4 of Washington Computer Spyware Act, alleging that DirectAd induced consumers to install software, deceptively misrepresenting the extent to which the software was necessary. As a result, Microsoft has been adversely affected and is entitled to injunctive relief and actual or statutory damages (whichever is greater) in addition to attorneys fees.

2) Violation of the Washington Consumer Protection Act, alleging that DirectAd's activities in targeting Microsoft's programs and customers constitute deceptive practices affecting the public interest.

3) Breach of Contract, alleging that DirectAd entered into a contractual agreement with Microsoft in purchasing ad space, and that DirectAd's submission of a malvertisement breached numerous terms of the agreement and has damaged Microsoft.

4) Fraud, alleging that DirectAd knowingly and with intent to deceive made false and misleading representations, knowing that Microsoft would rely upon them.

5) Trademark Infringement under the Lanham Act 15 U.S.C. § 1114, alleging that DirectAd's use of Microsoft's trademarks was unauthorized and constituted counterfeits of Microsoft's trademarks to promote, market or sell products and services, thus damaging Microsoft.

6) False Designation of Origin under the Lanham Act – 15 U.S.C. §1125(a), alleging that DirectAd used Microsoft's trademarks in a manner that is likely to cause confusion, mistake or deception as to the origin, sponsorship or approval of such goods or services, thus damaging Microsoft.

7) Unfair Competition/False Advertising under the Lanham Act – 15 U.S.C. §1125(a), alleging that DirectAd has used Microsoft's trademarks in connection with goods or services with false, misleading descriptions in commercial advertising, thereby misrepresenting the nature or qualities of their, or another person's goods or services.

8) Violation of the Federal Computer Fraud and Abuse Act – 18 U.S.C. §1030(a)(2), (4), and (5), alleging that DirectAd knowingly and with the intent to defraud accessed a protected computer without authorization, attempting to obtain value. Microsoft also alleges that DirectAd knowingly caused the transmission of a program or other information via computer with the intent to cause damage, resulting in loss of at least $5000 to one or more persons during a one-year period.

9) Intentional Interference with Contractual Relationships and Business Expectancies, alleging that Microsoft has contractual relationships and business expectations based upon the programs, services and software it provides to consumers; that DirectAd knew of these relationships; that DirectAd promoted and sold scareware targeting Microsoft programs, knowing that this activity would interfere with Microsoft's existing and prospective contracts with consumers.

10) Unjust Enrichment, alleging that DirectAd's conduct constitutes unjust enrichment at Microsoft's expense in violation with Washington common law.

DirectAd's response, as well as the response from the other John Doe defendants has yet to be seen.

In addition to Microsoft's own battle against malvertisements and scareware, in the days before these actions were filed, the New York Times claimed that it unintentionally ran an advertisement on its website for a supposedly legitimate company. This ad redirected consumers to a promotional website for anti-virus software, persuading them to purchase additional protection, much like the activity alleged in the Microsoft complaints.

It has been suggested by some that the incident with the New York Times and the instances involving Microsoft are linked. Whatever the case, these situations point to potential vulnerability in even the most trusted online sources, and raise an increased need for consumers' own skepticism in online marketing. Although safety in exposure to internet marketing has increased substantially, thanks to policing efforts by entities such as Microsoft and the New York Times, among others, if consumers operate with a heightened sense of awareness and responsibility, purveyors of malvertisement and scareware scams will see their profit base dissipate.

continue reading »

Swiss Trademark Special

The Swiss PTO has announced its plans to abolish fee reductions for electronic applications, which will effectively increase the filing fees by 60%. Starting January 1, 2010, official filing fee for a trademark in up to three classes will be CHF 550 instead of the current rate of CHF 350. The fee for each additional class will become CHF 100 instead of the current CHF 60. In light of these changes, brand owners considering applying for trademark protection in Switzerland may wish to file their applications before the end of the year.

The current filing fees date back to 2002 when they had been lowered to encourage electronic filing. Because over 95% of new applications are now filed electronically, the Office feels that the incentive is no longer necessary and plans to use the additional revenue to finance further development of its electronic services.

continue reading »

FCC Proposes Rules That Support Net Neutrality

On September 21, the Federal Communications Commission (FCC) proposed new rules that would require internet service providers to treat all content equally in terms of transmission speed. More recently, an announcement came that the rules may have proponents in Congress— Sen. Byron L. Dorgan (D- North Dakota) and Sen. Olympia J. Snowe (R-Maine) have both announced a possible proposal for new legislation in line with the new rules proposed by the FCC.

The principle of net neutrality is ensuring that consumers have unhindered access to all legal content, regardless of actual subject matter, its source, or the amount of bandwidth it requires. The intent is to ensure that network operators allow access to all content equally, regardless of whether it is bandwidth-heavy (e.g., music or video streamed from YouTube), or , like an SMS text message, only requires minimal amounts of network resources to transmit. The proposed rules attempt to codify principles of openness, beyond the current regulations, which many find problematic because although these regulations require network service providers to enable access to all legal content, they do not mandate that a network operator could not impede certain traffic because of its heavy bandwidth usage.

The issue prominently came to light when Comcast was accused of slowing some peer-to-peer traffic, asserting that it monopolized a disproportionate amount of bandwidth. Comcast maintained that it was not violating any laws and was merely managing its network resources, but nonetheless did change its practice. The proposed rules aim to officially make such action impermissible, whether the access is being hampered on the basis of content or on the basis of bandwidth usage. Another aim is to prevent a network operator from blocking content provided by a competitor. For example, AT&T and Apple have attempted to prevent iPhone users from accessing competitor's VoIP services, blocking access to the internet phone service Skype, maintaining that its use only clogs the network for other users. If proposed rules pass, AT&T may be forced to open up access.

The proposed rules would not only be applicable to ISPs, but also to mobile phone service providers, affecting access to content using mobile phones and other wireless devices. Such new rules would be a boon to content providers like Google, who owns YouTube, but would come under strong objections from network providers, like AT&T and Comcast, who view the proposed rules as a hindrance. Network providers are concerned that new rules may interfere with tiered pricing structures for faster connections and argue that there is no need for interference into how they manage their networks.

Wireless phone carriers are perhaps amongst the strongest objectors, as it often benefits them to slow or block data-heavy sites, so that their networks are not clogged or slowed when users are accessing sites that require a disproportionate amount of bandwidth, as compared to users accessing mobile-specific sites or receiving text messages. For example, many iPhone users in areas with a significant concentration of iPhones are finding that their service is slowing, as the increased use of such devices drains the network resources. AT&T has attempted to approach this issue by blocking access to some bandwidth-heavy applications.

It remains to be seen whether these rules will be adopted. In the meantime, content providers and network operators will continue to debate how to balance unimpeded access against smooth network operation and the need to manage network traffic so as to avoid bottlenecks and slowdowns across the board.

continue reading »

Goodbye to Medinol: Federal Circuit Alters Fraud Standards

The Lanham Act provides that a registration procured by fraud is subject to cancellation. Over the past several years, there has been much discussion and litigation regarding what constitutes fraud egregious enough to subject a registration to cancellation. A 2003 decision by the United States Patent and Trademark Office Trademark Trial and Appeal Board (TTAB), Medinol Ltd. v. Neuro Vasx, Inc., proffered an answer to this question and elucidated a trademark owner's exposure to claims of fraud. In Medinol, the TTAB held that a registration may be subject to cancellation for fraud in situations where a registrant attests that a mark is in use on multiple goods when in fact it is not. The same result would occur where an applicant files a Statement of Use identifying multiple goods, where the mark is not being used on all goods. Under Medinol, any such fraud in the procurement or maintenance of a registration could render the entire registration void. It would not impact any common law rights, but it would make the federal trademark registration and the rights that come with it, disappear.

According to Medinol, attesting that a mark is in use on all goods identified in an application or registration, when it is not, constitutes a false statement. Since registration rights in the United States are based on use of a mark, a statement concerning whether a mark is in use is certainly material in obtaining or maintaining a federal trademark registration. But what knowledge of the falsity of a statement is required? The Medinol decision held that if a registrant knew, or should have known, that a statement made in connection with a registration was false, then the entire registration could be void for fraud. This led to registrants and applicants taking considerable steps to ensure their marks were in use on all goods identified in their filings before attesting to same. This also rendered a number of registrations void due to simple misunderstandings.

In Bose Corp. v. Hexwave Inc., one such misunderstanding caused the TTAB to find a registration void for fraud. There, Bose Corp. had registered the mark WAVE covering several different goods and opposed registration of Hexwave Inc.'s application for HEXWAVE. In the opposition proceeding, Hexwave counterclaimed for cancellation of the Bose WAVE mark on the grounds that Bose committed fraud on the PTO in renewal of that registration.

When Bose sought renewal of the registration, it attested that the mark was in use on all goods identified in the registration. However, Bose had actually ceased manufacture and sales of one type of product contained in the registration before the time to renew. However, the company was still servicing those goods for prior purchasers and Bose believed such service constituted use of the mark. The TTAB disagreed, finding that servicing did not constitute actual use of the mark on such goods. Therefore, the statement that the mark was in use on all goods identified in the registration was false and material to renewal of the registration. Further, since Bose was no longer selling the goods at issue, TTAB found that Bose knew or should have known it was not using the mark in connection with those goods at the time it filed for renewal. Following Medinol, these facts and imputation of knowledge to Bose constituted fraud on the PTO and the TTAB cancelled the WAVE registration in its entirety.

Bose appealed this decision to the United States Court of Appeals for the Federal Circuit. On August 31, 2009, that court issued a decision reversing the TTAB decision and essentially overruling Medinol. Per the Federal Circuit, though a party's knowledge is certainly relevant to the question of whether a statement is fraudulent, the standard is much higher than what the TTAB found in Medinol and applied in Bose. Rather than establishing that a registrant must have "known or reasonably should have known" a statement was false at the time it was made, the Federal Circuit held that establishing fraud on the PTO in this context requires a showing of an actual intent to deceive the PTO supported by clear and convincing evidence.

Looking at the facts in Bose, the Federal Circuit agreed with the TTAB that servicing goods did not constitute actual use of the mark on those goods. Therefore, the WAVE mark was not in use on all goods at the time Bose sought renewal. However, the court did not find any actual intent to deceive the PTO when the renewal was filed. Rather, the renewal was filed on the mistaken belief that service of goods constituted use of the mark on those goods. Because there was no actual intent to defraud, the registration should not have been cancelled, at least not in its entirety.

By dictating a firm standard that fraud on the PTO requires a showing, by clear and convincing evidence, that there was an actual intent to deceive, the Federal Circuit essentially overrules the Medinol decision and significantly changes USPTO fraud jurisprudence. Trademark owners should still take care in their statements to the USPTO in connection with registration or renewal of their marks and should certainly inquire as to use of their marks on all goods identified when attesting to same. However, the fraud standard of actual intent to deceive the PTO will expose far fewer registrations to potential cancellation. If a party has an objective, good faith belief that a mark is in use on all goods identified in a registration or application, then if it turns out later the mark is not in use on some goods, the registration will not be found void for fraud in its entirety.

continue reading »

Microsoft Wordless Following Injunction to Stop Selling MS WORD

In an August 11, 2009 decision (i4i Ltd. vs. Microsoft Corporation) that struck some as rendering Texas justice, and left others with a sense of schadenfreude, Judge Leonard Davis of the US District Court for the Eastern District of Texas entered an order wherein "Microsoft Corporation is hereby permanently enjoined from performing the following actions with Microsoft Word 2003, Microsoft Word 2007, and [similar products]..." The judge's order not only enjoined the further sale of any copies of MS WORD "that have the capability of opening a .XML, .DOCX, or .DOCM file ('an XML file') containing custom XML" in the United States, but also confirmed a jury verdict in favor of the plaintiff in the case, i4i Ltd., awarding past and prospective damages in the amount of $200 million. Even for Microsoft, this is real money.

Microsoft filed the usual post trial motions to overturn the jury verdict, to reduce the amount of damages, to grant a stay of the injunction pending appeal, and others. In its final order, the court denied Microsoft's motions, and entered a permanent injunction. Some district courts, and the US Court of Appeals for the Federal Circuit, have occasionally stayed the effect of injunctions, but not payment of damages, pending the hearing of an appeal. The district court denied this motion but did provide a stay of the injunction order for a period of sixty days to enable Microsoft a period for appeal. Microsoft will be required to post a bond for the damages in the event of an appeal.

Following the district court's final order, and as was widely expected, Microsoft moved the Federal Circuit for an emergency stay pending full hearing on the appeal. Microsoft has briefed its motion, relying in part on the fact that a reexamination was filed and accepted by the US Patent and Trademark Office, and indeed that a "preliminary rejection" of the claims had been instituted against the patent in suit. It has been noted by at least one commentator, however, that reliance on the reexamination rejection is unusual in that the Federal Circuit does not give much weight to USPTO actions in a reexamination. Statistically, in most reexaminations, rejections are usually overcome and at least one of the original claims in a reexamined patent survives the proceeding and is confirmed by the USPTO in a Reexamination Certificate.

Additional grounds supporting the motion also have been relied upon, including the anticipation and obviousness arguments rejected by the jury and the district court at trial. In an appreciation of the urgency of this matter, oral arguments on the merits of the Injunction have been scheduled for September 23, 2009. The Federal Circuit's decision on the emergency stay motion is expected before October 10, 2009, after which the appeal may proceed in due course on the damages issues. In the meantime, Microsoft is most likely working on a patch that will disable the functionality of the .XML applications, which during trial i4i had shown was a possible fix in the event that the injunction is not stayed.

continue reading »

ICANN's Efforts to Combat Domain Name Tasting a Sweet Success

Last year, ICANN, the governing organization for domain names, approved a provision that attempted to combat a common abuse of the five-day Add Grace Period (AGP) called domain tasting, by making it more expensive to register domain names en masse. This move worked, as recent report released by ICANN shows a 99.7% decrease in AGP deletes during the period of June 2008 to April 2009.

Domain name tasting refers to the practice of speculatively registering large quantities of domain names, populating attendant websites with pay-per-click advertising, monitoring incoming traffic, and dropping the names that have not generated enough revenue to justify acquisition at the end of the AGP for a full refund. Registrants whose business models are based on tasting often delete as many as 95.5% of their newly-registered domains within the AGP. Tens of millions of domains were registered speculatively and deleted each month through the loophole of tasting. Frequently, these domain names would include trademarks or misspellings of trademarks and would appear on companies' domain name watch reports.

To combat the abuses of tasting, ICANN made a registrar-level transaction fee of $0.20 per domain name registration non-refundable if the number of domain names deleted each month exceeded the maximum of (i) 10% of the registrar's net new registrations in that month, or (ii) fifty (50) domain names, whichever is greater. This change ended the practice of refunding the full fee for "tasted" domains. For registrants and registrars whose business model was based on these abuses, the change added a significant cost to doing business—the more deletes that would occur each month, the greater would be the expense for speculatively registering domain names. It appears that most registrars instead chose to stop the abusive practice.

Of particular note is a review of the drop in number of deletes at the registry level. Most dramatic is the decrease in .COM monthly deletes, dropping from over 15.8 million deletes in June 2008 to less than 38,000 in April 2009. The .NET registry also saw a significant drop from more than 1.8 million deletes to around 6,200 deletes in the same period. Overall, the reporting gTLDs in the study showed a decrease from 17.6 million deletes to just over 58,000 deletes.

Based on the results of the study, one avenue of domain name abuse appears to be substantially curtailed. As a result, trademark owners should see a significant reduction in expenses associated with reviewing short-lived domain name registrations that took advantage of the goodwill associated with well-known trademarks for the duration of the AGP before being dropped and "tasted" anew.

continue reading »

ACR in Action

In our November 2008 Newsletter, we provided an overview of the USPTO's new Accelerated Resolution Process ("ACR") in trademark oppositions. The ACR process was created as a means to streamline and simplify opposition proceedings and to allow for more timely resolution of same by eliminating trial. In order to take advantage of ACR, the parties must stipulate that, in lieu of trial, the Board can resolve any issues of material fact. Generally, ACR is intended as an avenue of rapid resolution of "simple" cases—where the issues and the facts are clear. Because ACR only went into effect in late 2007, there have been few decisions to judge whether the process indeed yields the streamlined results it is intended to provide.

The ACR fast track is available to TTAB litigants at the outset of a proceeding and generally that is where the decision to take the track is made. However, the rules do allow for the parties to opt in to the ACR process at any time during a proceeding as well. Thus, where discovery reveals the issues between the parties are relatively simple, the parties can opt in to ACR and thus obtain a TTAB decision of their dispute in a relatively short order.

Very recently, the TTAB issued a decision in a case where the parties used ACR. In Eveready Battery Co., Inc. v. Green Planet Inc., Eveready opposed registration of Green Planet's application to register SLICK ULTRA PLUS for disposable razors, basing the opposition on, among other registrations, Eveready's registration for SCHICK for razors, and its family of SCHICK-formative marks for such goods. The opposition was filed in October, 2007, before the ACR rules were in effect. Thus, the case started off on the regular opposition track and the parties conducted discovery. After the close of fact discovery, but before any trial, Eveready moved for summary judgment contending there were no disputed facts as to its priority of use of SCHICK, identity of goods, similarities between the marks and likelihood of confusion. The motion was denied as the Board felt there was a disputed factual issue as to the similarity of the marks.

Following denial of summary judgment, the parties agreed to shift their case to the ACR track. They stipulated to a number of facts, including Eveready's priority of use and also stipulated that the TTAB could render its decision on the merits of the case, resolving fact questions based on a preponderance of the evidence. The various stipulations left only one issue for the TTAB to decide: were SLICK ULTRA PLUS and Plaintiff's family of SCHICK marks so similar as to create a likelihood of confusion. The parties briefed the issue and the TTAB ultimately decided the fact question in favor of Eveready, finding the marks so similar as likely to be confused.

The use of ACR in this case allowed the parties to obtain a final decision on the merits well before they would have, had they stayed on the regular case track and gone through the time and process of a trial. Once the case was fully briefed, the TTAB issued a decision within sixty days. The jump to ACR in this case likely advanced the final decision on the merits by a full year. In addition, by doing away with trial, the parties likely saved tens of thousands of dollars.

The Eveready decision indicates that ACR can and does work. Though not used from the outset, when the parties realized their case was quite simple—were the marks similar—the availability of the process indeed streamlined the litigation. It allowed the case to be resolved faster, by perhaps as much as a year, had the parties not used ACR. Thus, not only should TTAB litigants consider ACR at the outset of a proceeding, but they should also think of opting in to the process where the issues in a case have narrowed or become clear. Given this, ACR appears to function as advertised.

continue reading »

A Sound Investment

In an era where the music industry is continuing to struggle with declining CD sales and other problems due to the movement into the digital age, music publishing, on the other hand, is prospering more than ever.

Investors, such as pension funds and equity firms, are increasingly being drawn to purchasing publishing catalogs, especially of seasoned musicians with proven longevity, which they consider to be promising assets due to the recurring and stable cash flow they provide from the royalties due every time songs are played on the radio, on television, in movies, in video games, in advertising, and online.

With the digital age, the entities that rely on forms of distribution for profit, i.e. labels, are being forced to consider other ways of doing business or risk failure. The internet has largely erased the need for physical copies of prerecorded songs and piracy continues to burden the distribution of music digitally. Publishers, on the other hand, are not reliant on income from distribution of prerecorded music. Rather, publishers collect revenue every time any one of the "sticks" in the "bundle of rights" included in copyright ownership of a particular song is exploited, be it public performance, synchronization of the song with audiovisual content, or print rights. Due to the diverse sources from which royalties are incurred, investment in music publishing is increasingly being considered a stable investment. Investors are attracted to the catalogs because their value does not monetize quickly, like with traditional assets, but rather revenue is constantly and steadily generated over a long period of time as songs are exploited. Moreover, due to the characteristics of the music industry, royalties are generated, most often, on an international basis.

Most recently, First State Media Group acquired Sheryl Crow's publishing catalog for $10 million, including 153 of her songs released from 1993 to 2008, and also rights to her next two albums. First State Media also acquired the DreamWorks Music Publishing catalog back in 2007. Its Media Works Fund I has made over $150 million music-copyright investments since its launch in October 2008, and includes the catalogs of The Carpenters, John Denver, Evanescence, George Benson and Creed.

Other examples include Pegasus Capital, which purchased song publisher Spirit Music Group for an estimated $55 million for its rights to works from artists such as Madonna and Frank Sinatra. Dutch Fund ABP, the world's third largest pension fund, purchased the Rodgers & Hammerstein catalog, containing songs from "The Sound of Music," among others, for an estimated $200 million, and in the biggest deal to date, Vivendi's Universal Music Group purchased Bertelsmann BMG's catalog in 2006 for $2.1 billion in order to repay debt from share repurchases. The catalog includes songs from Coldplay and Barry Manilow.

Further, EMI Group Limited recently considered securitizing its music catalog to refinance its corporate debt, before it decided to use corporate debt financing instead, and the recent death of Michael Jackson has led many to wondering whether the Beatles music catalog will be the next to be collateralized.

Ownership of songs by investors is a twenty-four-hour job. The songs must be constantly promoted and exploited for the revenue to be generated, meaning they need management teams with know-how. Currently, investors are competing with publishing divisions of music companies for ownership of these rights. It does not matter whether the catalog is owned by an investor or publisher, so long as the investor maintains an experienced management team to oversee exploitation of the songs.

For an artist, the upside is having access to a whole management team whose job is to constantly find avenues for exploiting the artist's music. For example, under Crow's deal with First State Media, Crow will work with the management team to promote the use of her songs in television and movies, and, she will also work with First State's existing songwriting teams to co-write bespoke songs for film productions. She retains her songwriter's share of copyright, meaning she will partake in any upside profit generated by First State's management team.

The idea of collateralizing publishing catalogs originated in 1997 with David Pullman's "Bowie Bonds." Pullman, founder and chief executive of Los Angeles-based Pullman Group LLC, issued $55 million worth of 10-year asset-backed bonds to insurer Prudential Insurance Co. on behalf of rock star David Bowie, based on future royalties from 25 of Bowie's albums recorded before 1990. The deal became perhaps the most famous IP securitization of all time, with the securities yielding 7.9%. The bonds were praised for their long life and international and steady income streams. The securitization of the collections of other artists, such as James Brown, Ashford & Simpson and the Isley Brothers, later followed.

It appears Pullman's idea has expanded into a trend, further shaking up the ever-changing music industry. While some fear that the increased interest in publishing catalogs will ultimately drive prices up, for now, more and more songwriters are placing their catalogs on the market and more and more investors are eager to buy. At a time when many asset classes are performing poorly, well-constructed portfolios for institutional investors are increasingly including investments in intellectual property rights.

continue reading »