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.

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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.

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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.

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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.

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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.

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A Sound Exchange for Pureplay Radio

As reported on Pandora's blog on July 7, 2009, "the royalty crisis is over!" After two years of negotiation, three internet webcasters, AccuRadio, radioIO, and Digitally Imported, reached an "experimental" settlement with SoundExchange, the group which collects royalties on behalf of artists and labels. The Settlement affects royalty rates to be paid for the streaming of sound recordings online, and gives "pureplay webcasters" (those that generate a predominant portion of their revenue from the online streaming of sound recordings under a statutory license) an alternative to paying the fees directed in May 2007 by the Copyright Royalty Board ("CRB"). Webcasters had immediately protested the rates set by the CRB, the three judge panel which sets rates for statutory copyright licenses. They argued that the costs would run them out of business. Under the Settlement, artists are essentially providing pureplay webcasters a discount from streaming rates set by the CRB in exchange for a share of the revenue generated by the internet webcasters. Other pureplay webcasters, such as the popular Pandora, are also opting-in to the Settlement's terms.

Previous CRB Decision

The Settlement came just days before a July 10, 2009 decision of the US Court of Appeals for the District of Columbia upholding the royalty rates established by the CRB back in May 2007. The rates were established to comply with the Digital Millennium Copyright Act (DMCA), passed by Congress in 1998, which requires performance royalties to be paid for satellite radio and internet radio broadcasts in addition to publishing royalties. In contrast, traditional radio broadcasters pay only publishing royalties and no performance royalties. Under the Copyright Act, the CRB judges were required to set rates that "most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller." The CRB set the per-play rates for 2006-2010 at $.0008 per play for 2006, set to increase to $.0019 by 2010; also requiring webcasters to pay a minimum fee of $500 for each channel broadcast (though SoundExchange later settled on an annual cap of $50,000). When a group of webcasters, led by the Digital Media Association (DiMA), sought review of the rates, SoundExchange defended the rates by providing expert testimony.

Webcasters argued that the "willing buyer-willing seller" standard used by the CRB was unfair as it did not take into account the potential impact of the royalties on the stability of the businesses that would be subject to them (in this case, webcasters). By contrast, the standard used to calculate rates for satellite radio in a separate decision by the CRB, based on section 801(b) of the Copyright Act, did, assessing not only the economic value of the sound recording, but also the public interest in the wide dissemination of the copyrighted material and the impact of the royalty on the service using the music. This standard resulted in a rate for satellite radio companies of 6-8% of annual revenues, which is much lower than what SoundExchange wanted, and significantly lower than the rate of 40-70% of annual revenue the CRB set for internet radio.

Since the CRB set the internet radio rates back in 2007, webcasters have expressed their opposition, arguing that they could not stay afloat and also pay the rates. Pandora, for example, publicly criticized the rates, pointing out that the fees would take up approximately 70% of its $25 million in revenue, and likely run the company into the ground. Before the 2007 decision by the CRB, internet and satellite radio companies were treated the same as terrestrial radio broadcasters. They were only required to pay composers of songs by purchasing blanket public performance licenses from ASCAP and BMI. The 2007 change was meant, in part, to account for the argument by the recording industry that internet play is a "substitute" for purchase of the actual recording, diminishing the amount of income an artist might otherwise receive.

The Settlement

The July 2009 Settlement between pureplay webcasters and SoundExchange was reached under the authority of the Webcaster Settlement Act of 2009, which granted webcasters an additional thirty days after enactment to negotiate an alternative royalty structure to the criticized rates set by the CRB.

The Settlement applies to all commercially-released sound recordings licensed under Sections 112 and 144 of the Copyright Act, and not just recordings released by members of SoundExchange. It provides an alternative rate structure for pureplay webcasters who elect not to pay the rates set by the CRB. The Settlement is retroactive to 2006 and set to be in effect until 2015 for large pureplay webcasters, and 2014 for smaller pureplay webcasters. The terms of the Settlement were officially entered into the Federal Register on July 17, 2009 (74 Fed. Reg. 34796, July 17, 2009), beginning the 30-day period within which eligible webcasters wishing to join must file a Notice of Election with SoundExchange. Any pureplay webcasters not signing on to the Settlement must continue to pay CRB rates.

Under the Settlement, webcasters opting into the deal are divided into three classes based on the size and characteristics of their business: 1) large pureplay webcasters; 2) small pureplay webcasters, and 3) pureplay webcasters that provide bundled, syndicated, or subscription services. All payments are made by the webcasters directly to SoundExchange, which collects on behalf of the artists and labels.

Large pureplay webcasters, those earning more than $1.25 million in annual revenue, are given the option of paying either 25% of total revenue or a per stream rate significantly discounted from that set by the CRB increasing from $.0008 for retroactive 2006 payments to $.0014 by 2015.

Small pureplay webcasters, those earning $1.25 million or less, have the choice of paying a percentage of revenue or a percentage of expenses. For 2009-2014, the percentage is set at 12% of the first $250,000 in gross revenue and 14% for earnings beyond that. For 2006-2008, retroactive payments of 10% of the first $250,000 and 12% after that are required to be paid. At all times, for small webcasters electing to instead pay a percentage of expenses, the rate is 7%. The Settlement also provides a transitional rate for small webcasters who exceed the $1.25 million revenue cap.

Webcasters providing bundled, syndicated, or subscription services, such as Rhapsody, will pay a set fee per performance equivalent to that set by an agreement previously reached between SoundExchange and the National Association of Broadcasters, discussed below, set at $.0008 in 2006 increasing to $.0025 in 2015.

All pureplay webcasters opting into the Settlement must pay a minimum $25,000 fee annually which can then be applied to their royalties owed, and also must provide SoundExchange with census reports accounting the actual recordings played and total listenership, and retain server logs for at least four years. Small webcasters can opt for less stringent reporting in exchange for a "proxy fee".

Conclusion

The Settlement comes with a sigh of relief in light of the pending doom felt by most pureplay webcasters after passage of the 2007 CRB rates. Although the Settlement was negotiated by only three webcasters, AccuRadio, radioIO, and Digitally Imported, Pandora has already confirmed its intention to sign on, and others are expected to follow. Pandora announced on its blog that it will begin limiting listening to 40 hours per month on the free version of its service. Listeners who use the service for 40 hours per month or more can then opt for unlimited listening for the remainder of that month for a $0.99 fee.

As a result of this Settlement, royalty rates for almost every member of the webcasting community are now shielded from the CRB rates by negotiated deals with SoundExchange. Most public radio stations have now elected to abide by the terms of an agreement between SoundExchange and the Corporation for Public Broadcasting ("CPB") which has introduced reduced rates for those noncommercial stations with a large web audience which were before required to pay at commercial rates anytime their internet audience exceeded 159,140. In addition, eligible commercial broadcasters simulcasting on the internet can now elect the terms under the deal negotiated between SoundExchange and the National Association for Broadcasters, under which new "per performance" rates are slightly lower than those set by the CRB.

Full CRB rates still apply to various religious and educational webcasters that have not reached agreement with SoundExchange. These remaining webcasters have 30 days from enactment of the Webcaster Settlement Act of 2009, which was signed by President Obama on June 30, 2009, to negotiate deals with SoundExchange.

As for other traditional radio companies, the music industry is pushing to create a level playing field for all forms of radio, by requiring all over-the-air radio to pay the performance royalties as well via a new bill called the Performance Rights Act (H.R. 848), introduced in February 2009. Webcasters support the idea, viewing the non-payment by terrestrial radio companies as both unfair to webcasters currently paying the fees, and to the artists left uncompensated when their works are played on traditional radio. The National Association of Broadcasters, however, has launched a campaign to avoid having to pay performance royalties, airing advertisements suggesting that over-the air radio is the life-line for artists, generating substantially more revenue than online webcasters, considering the size of audience, and arguing that any performance fees paid would ultimately end up in the hands of major record labels. Lawmakers in support of this view introduced in February 2009 the Local Radio Freedom Act, a resolution declaring opposition to "any new performance fee, tax, royalty or other charge on radio for music airplay" (House Resolution 49).

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Court-Directed Product Recalls Early in Infringement Litigation

Trademark infringement litigation often starts with a request for preliminary injunctive relief. In the usual case, at the outset of litigation, plaintiff will seek a preliminary injunction ordering defendant to immediately cease its use of plaintiff's mark and stop all sales of potentially infringing goods. In order to obtain preliminary injunctive relief, a plaintiff must establish a) that it is likely to succeed on the merits of its case; b) that it will suffer an irreparable harm in the absence of preliminary injunctive relief; c) that the balance of hardships tilts in its favor and d) that a preliminary injunction is in the public's interest. It is fairly easy to see how cessation of use of an infringing mark and cessation of sales of infringing goods fit within these parameters: infringement destroys plaintiff's goodwill, which could be an irreparable harm; and may cause public confusion, which should be avoided.

If plaintiff ultimately proves its infringement case (or settles) it will likely seek a permanent injunction further barring defendant from use of plaintiff's mark and providing other relief to the plaintiff. Among the more common permanent-injunction provisions is a requirement that defendant recall any infringing product from distributors and resellers.

When, however, would a recall be appropriate at the preliminary stage of litigation? What behavior or facts would support a court-mandated recall at the outset of litigation? A recent decision by the United States Court of Appeals for the Ninth Circuit addressed this very issue.

In Marlyn Nutraceuticals Inc. v. Mucos Pharma GMBH & Co., Mucos owned a federal trademark registration for the mark WOBENZYM, which covered dietary supplements. Mucos manufactured the supplements and distributed them globally. Marlyn was, at one time, the sole US distributor of WOBENZYM. In 2006, a dispute arose between Marlyn and Mucos regarding alleged product changes and Marlyn took it upon itself to manufacture and continue marketing dietary supplements under the mark WOBENZYM pursuant to a different formula.

Mucos brought a trademark-infringement action and among the preliminary injunctive relief sought was a recall of WOBENZYM sold by Marlyn and restitution to customers. After what appears to have been a long, thorough and contested hearing on the preliminary injunction, the U.S. District Court in Arizona granted the injunction and Marlyn appealed.

The appeals court reviewed the question of propriety of the recall order. This was a case of first impression, so there was no prior binding precedent on the issue. The Ninth Circuit first pointed out the distinction between prohibitory injunctive relief, which is intended to prevent additional action by a party and to maintain the status quo and mandatory injunctive relief, which goes further than maintaining status quo by forcing a party to take action. Such mandatory relief is allowed at the preliminary injunction stage only in extreme cases. Here, the Court considered the recall mandatory injunctive relief, since it required Marlyn to take steps to pull product off the market and out of the hands of consumers. Because the relief was mandatory, what standard must be met, if any, to support the recall requirement?

The Ninth Circuit adopted a test first articulated by Third Circuit Court of Appeals which requires a plaintiff to meet threshold requirements before mandatory injunctive relief is granted. In the context of product recalls in trademark-infringement litigation, the additional factors to consider when presented with a recall request include a) whether defendant's infringement was willful or intentional; b) whether the risk of confusion to the public and injury to the trademark owner are greater than the burden of the recall to the defendant; and c) how substantial is the risk of danger to the public due to the defendant's infringing activity. There is no indication as to which factor may be determinative, but all must be considered.

Because this was an issue of first impression, the Appeals Court remanded the matter to the District Court to consider the propriety of the recall in light of these additional factors. As of this date, no decision has been issued by that court. The Appellate decision, however, provides some fairly clear guidance as to what facts are relevant when a plaintiff seeks a recall at the preliminary injunction stage of an infringement action. Due to the drastic nature of the relief, the situation will have to be fairly egregious. Where a defendant's illegitimate motives are clear, or where the public may be in danger—especially where public health and safety are at issue—a recall may be appropriate. This could encompass situations involving counterfeiting and low-quality knockoffs, where motive is fairly clear. Defendants who act in good faith may be able to avoid a recall order. Similarly, some classes of product may lend themselves more readily to a recall, such as foods and drugs or supplements that could impact health, or manufactured goods that might impact safety.

Though the Marlyn Neutraceuticals decision is recent, the standard required to obtain a recall as preliminary injunctive relief has been set. Where a party is considering litigating against an infringer, it should closely analyze the facts to determine whether a product recall at the preliminary injunction stage is appropriate.

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CAFC Requested to Delay Rehearing of Tafas Decision in Patent Rules Reform Matter

On Monday, July 6, 2009, the United States Court of Appeals for the Federal Circuit (CAFC), the sole appellate-level court having jurisdiction over patent appeals in the U.S., granted an en banc rehearing to the parties and has vacated a March 20 decision of a CAFC panel comprising Judges Rader, Bryson and Prost in Tafas and GlaxoSmithKline v. Doll (Commissioner for Patents). The earlier CAFC decision had provided mixed guidance as regards the challenge to the rule changes restricting claims and continuations practice before USPTO which met with wide disapproval of the patent community. In accordance with its procedures, the CAFC had vacated the original decision in order to rehear and possibly overturn or modify that decision by a rehearing before the whole court. The date for oral arguments before the full Federal Circuit court is set for October 7, 2009.

The CAFC panel had crafted a compromise resolution to the issue of whether the USPTO had the power to "enact" by regulatory fiat rules that change substantive rights of prospective applicants as well as those whose applications are already on file with the USPTO. That is, the original decision provided a mixed ruling that could have significantly changed the way most practitioners practice and prosecute patent applications before the USPTO. The prior CAFC decision had remanded the case to the lower District Court for a determination of whether the rules were to be applied retroactively.

From comments posted on blogs and other media, most patent practitioners consider the rule changes as more properly being within the province of the legislative branch, as was held by the District Court below with respect to at least some of the rule changes.

At rehearing, all of the judges of the CAFC, sitting as a single judicial body, will hear the case and decide it anew based on the briefs already submitted by the parties and numerous amici curiae, as well as on limited additional briefs. Appellant's (USPTO) additional brief is due within 30 days (August 5), followed by a 20-day period within which the Appellees (Tafas and GSK) may file a subsequent brief (August 25), followed by a 7-day period within which the Appellant may file a reply (September 1). Additional briefs are limited to 7,000 words and any reply brief is limited to 3,500 words. In a late breaking development, both the USPTO and Appellants have consented to postponement of the briefing schedule until 60 days after the new Undersecretary of Commerce for Patients and Trademarks (David Kappos) is confirmed by the US Senate. This delay is sought to permit the new head of the USPTO a period of time in which to review and perhaps withdraw the new USPTO rules, which are the subject of the litigation.

The issues that the CAFC will decide include the validity of the onerous rule changes that were announced in January 2006, implemented in November 2007, and stayed before they took effect by the lower court pending litigation. The lower court struck down the more egregious rules, but made a determination that some of the proposed rule changes be permitted to take effect as being within the purview of the USPTO regulatory authority. The original CAFC three-judge panel made its own determination, which is now open to further review by the full court.

Several points need be made about the proposed rules. First, the CAFC decision to grant en banc review is considered by some as indicative that the CAFC may overturn all the rules, simply because the court would not have granted the review if only to affirm the three-judge-panel decision. Second, even the en banc decision is open to further review by the US Supreme Court. Finally, even if the USPTO were to prevail on all counts, there is some question whether the USPTO will implement these—or any—rules changes, in view of the pending appointment of a new USPTO head.

The advancement of the arts and sciences is a major concern of the new administration and any decision of the CAFC may be mooted by the new management at the USPTO reexamining the backlog and perceived patent quality problems. Any proposed solutions must formulate a new strategy with the possible cooperation of the broader patent community. The indications are trending toward the new rules not being implemented, and the previous experience of Mr. Kappos as head of the IBM Patent Department should provide some measure of clear thinking about the USPTO's dual concerns, i.e., the severe backlog and the need for more quality patents to be issued by the USPTO.

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Design Patents—An Inexpensive Way to Protect Ideas?

With the economy taking a downturn, many corporate IP departments have been considering alternatives to the usual practice of filing non-provisional, utility applications for patents. While the economic advantages of preparation and filing of design patent applications readily help the bottom line, significant protection is sacrificed. The major difference between the two is that design patent protection extends only to the ornamental, non-utilitarian appearance of a product, and any concepts including utilitarian or technical features are specifically NOT protected. Conversely, utility patent protection provides more comprehensive coverage of the utilitarian idea or concept, beyond its mere appearance, as defined by the claims. Thus, the design patent route may be more appropriate for part designs covering a part of a larger assembly, or for subject matter where any replacement part must look like the original. For example, an OEM may desire to retain the design rights so as to enable the OEM to exclude unauthorized parts suppliers from selling replacement parts, which necessarily would be desired to have an identical appearance to the original part.

An additional consideration in foreign jurisdictions is that some competitors or knock-off copyists are not above filing for and obtaining design patents covering products they are copying. Despite the requirement in the US patent law that only an inventor may be the original applicant for patent, the same consideration may not apply in other jurisdictions. For example, where the applicant is a corporation or other legal entity, no inventor may need to be named. Such a patent, even though improperly-procured, may be used to later threaten existing and prospective customers of legitimate products with infringement litigation. No matter that the defenses against such litigation will ultimately prevail, the idea that patent litigation is even a possibility is anathema to many who have experienced or heard tales of the costs associated with it.

Design patents are becoming popular in other jurisdictions beyond the US. Sometimes, however, the differences in design-patent law between jurisdictions can provide unexpected problems. In one such instance, a Chinese design patent was obtained covering the ornamental appearance of our client's products. The Chinese patent law includes provisions for a reexamination proceeding, permitting a party that believes it has prior rights or prior art to attack the validity of a patent after it issues. A successful reexamination proceeding invalidated the spurious design patent and removed any cloud on the IP relating to the client's products. The take away lesson is two-fold. When dealing with designs in other jurisdiction, it is best to be proactive and register any important designs early. Additionally, it may be prudent to monitor the design patents that are obtained by others with a view of moving to invalidate any design patents on products that are being produced in foreign jurisdictions once a design patent is uncovered that should not have issued.

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Virus-Laden Advertisements

It is no secret that the American consumer reliance on online media has increased significantly over the past decade. The rise of convenience (read: immediacy) has forced online marketers to launch new, faster, and flashier avenues to grab our attention. The frenzy to be "the chosen one" among online advertisements has only increased with the economic downturn, as advertising dollars must go further to achieve big-budget results. While this influx of immediate information is, in most cases, a blessing for busy lives, the security pitfalls in the form of viruses and identity theft are, most certainly, the opposite. We expect, as consumers, to be protected, especially when visiting legitimate, well-known websites. However, the economic climate has created a marketing squeeze that unfortunately allows certain safety checks to fall by the wayside, exposing the less-than-careful busy consumer to viruses and identity theft.

The Wall Street Journal reported on June 15, 2009, that attacks from virus-inundated advertisements are on the rise, as more and more legitimate businesses are finding their website's advertising systems hacked by individuals taking advantage of the increasingly complicated business relationships prevalent in online advertising. The economic downturn has forced web publishers to outsource their website ad sales to middlemen and resellers, creating a long, and ultimately dangerous, chain of vendors, few of whom are subjected to security checks.

This chain begins when a company's website publisher sells advertising space on its forum sections, often visited by millions per month. As noted in the Wall Street Journal, ideally, ad networks who visit these forums purchase the available ad space to sell directly to business marketers. However, if the network fails to sell the space within a given time, the space will be resold to another ad network. In some cases, unused advertising space is auctioned off to the highest bidder. The chain of buyers and sellers becomes longer, reducing the certainty that every step in the buyer/seller process is checked for security purposes. The end result – a hacker who ultimately buys the ad space, posts either a false, virus-laden advertisement, damaging the consumer's operating system, or a false ad redirecting the consumer to a website requesting sensitive, personal information.

Businesses usually discover and remove the dangerous material within hours, however, hours often equal years in internet-surfing real time, and consumers' computers and personal information are often compromised before the fix is implemented.

The business of online advertising continues to march forward, raising questions about privacy and security. Facebook, the popular social-networking site, recently launched new targeting methods for its advertisers, posting 11 new ways to hone in on potential consumers based on information on individuals' Facebook profile pages. These targeting features, available to all businesses who advertise through Facebook, will identify and contact consumers based on (among other factors) the consumer's birthday, listed connections, and geographic location, in addition to gender, age, relationship status, and other parameters.

As noted by Jeff Chester, executive director of the Center for Digital Democracy:

Currently there are no advertising platforms (that I'm aware of) that provide this level of targeting capabilities. With these new features, Facebook will be able to increase revenue while increasing the effectiveness of ads. One thing that has been challenging for Facebook is to receive high conversion levels but with these new targeting features, creative advertisers will be able to increase their conversion levels.

One group that can also benefit from this new ad platform is application developers. Want to get new users that aren't yet using your application? Now you can exclude all users of your existing application and only target those that haven't installed it. This is something that as far as I know, no cost-per-install networks are able to provide yet. Facebook has been heavily focused on improving their advertising offerings over the past few weeks and with this latest announcement, it's clear that Facebook is looking to provide powerful tools for all advertisers.

Full article content is available at: http://www.democraticmedia.org/jcblog/?p=847.

In June of this year, Jeff Chester testified before a House subcommittee on the issue of security and privacy in consumer targeting by advertisers. Chester urged Congress to implement more sophisticated online policing measures to protect consumers' privacy, stating, "As with our financial system, privacy and consumer protection regulators have failed to keep abreast of developments in the area they are supposed to oversee," he explained. "In order to ensure adequate trust in online marketing—an important and growing sector of our economy—Congress must enact sensible policies to protect consumers." Full article content is available at: http://www.democraticmedia.org/release/cdd-testimony-20090618.

While Facebook, and other well-known sites currently have security measures in place, they are not invulnerable to hacking and manipulation. As tools for consumer profiling rise in sophistication and availability, it is essential for businesses and consumers alike to keep security in mind, especially as protective measures for internet privacy may well lag behind.

Best practices include keeping your browser and operating system current by installing software updates and new patches as vulnerabilities become known; using a limited-privileges account for everyday browsing; blocking harmful IP addresses with a firewall; using high-security settings in your browser and taking advantage of browser add-ons, such as NoScript, which prevents untrusted sources from running scripts on your computer without your approval, and Adblock Plus, which prevents advertisements from being downloaded and displayed.

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Supreme Court Declines to Hear Appeal: Cablevision's Remote-Storage DVR Will Stand

The Supreme Court has declined to hear the appeal filed in the case against the cable provider Cablevision, leaving undisturbed the Second Circuit's earlier decision in Cable News Network, Inc., et al., v. CSC Holdings, Inc., et al. Unlike a regular DVR that holds stored programming in a consumer's own home, the network-based remote-storage DVR holds recorded copies on the network's server and "streams" the programming when a subscriber is ready for viewing. The denial of certiorari results in a final ruling that Cablevision's remote-storage DVR service does not make Cablevision liable for direct copyright infringement; that the "buffer" copies that resulted in the course of the recording process are legal; and that the replaying of recorded programming does not constitute an unauthorized performance. Under the leading case, Sony Corp. of America v. Universal City Studios, Inc., such use was found to be a permissible way to allow consumers to view programming at a time of their choosing, and not a violation of the network's rights.

This case was discussed previously in the analysis of the "text-to-speech" function in the latest Kindle, as an example of one approach the various circuit courts have taken when determining whether unlawful copying has occurred. One of the most notable aspects of the Second Circuit's decision was its analysis of the guidelines for when a copy is only "transitory" or when it is sufficiently fixed so as to result in an unlawful copy. Overturning the Cablevision case could very well have made Amazon's position much less clear.

Numerous broadcasters have objected to remote-storage DVRs that allow consumers to store television shows and other programming on the cable provider's video-on-demand server instead of on consumers' own hardware. But does it really matter where a viewer's saved programming resides? As long as each individual request for saved programming results in an individually saved copy that can be viewed, how is this different from the nearly outdated option of recording programming on a VHS cassette that is permitted by Sony? Those opposed to the remote DVR argued that remote storage, as opposed to a physical onsite set box or VHS, crossed an already blurry line. Not only did they claim that remote storage was akin to archiving and re-transmitting their programs, but, as a result of a "storage buffer" created when the program is replayed, the broadcasters claimed that the technology created a new, infringing copy, violating the network's rights in performance. Cablevision clearly took the position that it was no different than the use permitted by the Sony case. Whether requested programming was stored on a user's own box, or whether it was stored remotely, it was only accessible by that viewer, and the choice of what to record, when, and for how long was still dictated by the viewer. If a viewer failed to record programming at its originally-designated time, Cablevision was not enabling access to copies recorded by other viewers or providing an "on demand" service. A copy of a program recorded by a viewer was transmitted to that same viewer, thus, no public performance was made.

The suit was originally filed by Cartoon Network and CNN, among others. After an initial district court opinion in favor of the broadcasters, the Second Circuit overruled the decision, finding that the storage buffer was not unlawful because although a copy is made, it is no longer than 1.2 seconds and is constantly being overwritten. The Second Circuit found that such copy was never more than transitory and thus did not make Cablevision liable for infringement. Furthermore, as a result of any programming only being stored at the command of a customer, Cablevision itself did not actually own any copies of programming, which was considered to be controlled solely by the users. The Second Circuit also made a note that many of the facts that were relied upon by the district court in finding Cablevision liable for the creation of the copies, such as Cablevision's "continuing relationship" with its RS-DVR customers, control over content that could be recorded, and the "instrumental[ity]" of copying to the RS DVR system, are actually more pertinent to a consideration of contributory infringement, rather than direct infringement. Cablevision I, 478 F. Supp. 2d at 618–20. Just as with the long-standing opinion in Sony Corp. of America v. Universal City Studios, Inc., simply because such technology has the ability to be used for an infringing behavior, the court would not block it due to its substantial non-infringing use, and would not find the provider liable of direct infringement.

The denial of certiorari ultimately adopted by the Supreme Court was strongly favored by the Solicitor General, who had been asked by the Supreme Court to render an advisory opinion as to whether the appeal should be heard. One of the points made in the Solicitor General's brief was that a usual reason for granting certiorari—a disagreement among the circuits—was not present. This view also suggests that the seemingly conflicting results reached in the Second Circuit's decision in Cablevision and in Ninth Circuit case MAI Systems Corp. v. Peak Computer, Inc. 991 F.2d 511 (9th Cir. 1993) are not, in fact, irreconcilable. The Second Circuit court held that when just over one second of an audiovisual work, a "buffer," is held on a remote-storage DVR, the copying is only transitory and did not violate copyright holder's rights. This opinion could be seen at odds with MAI in which the Ninth Circuit found that loading a program into RAM makes a copy of the software that can be restricted by copyright, and since such copy could be "perceived, reproduced, or otherwise communicated," it infringed plaintiff's copyright in the software. In its decision, the Second Circuit specifically stated that reliance on MAI and subsequent cases following its rule was not proper in the Cablevision matter, as the MAI court did not address any requirement for duration of the "copy," as it was not necessary to the issues in the case. The Supreme Court appears to agree with this line of reasoning, seemingly making a determination that the outcomes of the two circuits are not at odds.

Also of note was the brief's point that Cablevision took the issues of secondary, contributory infringement off the table, along with issues of fair use. Considering that those two areas are prime for clarification in issues involving network-based digital technology, the Solicitor General took the position that the present case simply did not have the whole scope of legal issues and facts that would make it an ideal case for clarifying the entire panoply of legal questions raised by the new technology. While this is not exactly a ringing endorsement of the Second Circuit's decision, nonetheless, it does allow it to stand, and clarifies the fact that no major split is perceived among opinions issued by different circuits. In fact, the Solicitor General's opinion was critical of certain aspects of the Second Circuit's decision, perhaps most notably its analysis of whether the playback feature of the remote DVR could constitute a "public performance." In the brief, the Solicitor General pointed out that it found certain language questionable as it could imply that a performance would not be "public" unless it could be transmitted to more than one person. Regardless of the fact that such an opinion from the Solicitor General is not legally binding as precedent, the Supreme Court appears to have endorsed these views.

Still, the issue remains far from settled. Was it really that "storage buffer" copy and subsequent replaying that was the problem for the networks, or was this motivated by a perceived loss of ad revenue as a result of fewer viewers watching programming "live" and choosing instead to watch at their leisure and skip the advertisements? Also not resolved are any issues of contributory infringement, and it remains to be seen if any new litigation arises once Cablevision, or other providers, begin to actually provide the services in dispute, and one of the broadcasters may eventually raise a claim for secondary infringement as a result of the misdeeds of the eventual users of a remote storage DVR technology.

For now, the ruling, in conformity with Sony, still requires that the cable provider's servers maintain a separate digital copy for each viewer when so requested, instead of allowing multiple users to access a single central copy. If the ad revenue is really the strongest motivator for the broadcasters, one wonders if this leaves the avenue open for cable providers and networks to come to a compromise to restrict technology that enables viewers to skip over ads in exchange for the right to only maintain one copy of programming, rather than one for each request.

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Timing is Everything: In re PMSI (June 3, 2009)

On June 3rd, 2009, the Trademark Trial and Appeal Board (TTAB) upheld a decision by the Examining Attorney, rejecting the Statement of Use for the mark PMSI MSA on "healthcare cost containment, namely, medical, pharmacy, durable medical equipment and specialty service reimbursements for third party payers under government sponsored programs" in International Class 35. The Examining Attorney concluded that the Statement of Use was ineffective as it was not filed by the actual owner, as the mark had changed hands three days before filing. The TTAB affirmed.

The United States Patent and Trademark Office (USPTO) mailed the Notice of Allowance to AmerisourceBergen Corp. (ABC) for the PMSI MSA mark on April 1, 2008 which required ABC to file its Statement of Use by October 1, 2008.

On September 8th, 2008, ABC completed and signed the Statement of Use for its PMSI MSA application. On that same day, but after signing the Statement of Use, ABC assigned the PMSI MSA mark to PMSI, Inc. (PMSI). The TTAB concluded that the assignment was effectuated the moment ABC signed the assignment document. Nothing in the document stated otherwise, and neither PMSI nor ABC argued with this conclusion by the Board.

On September 10th, 2008, ABC mailed the Statement of Use to the USPTO, which was received by the USPTO on September 12th, 2008. On September 11th, 2008, PMSI recorded the assignment electronically with the USPTO, thus the assignment was recorded on the same date.

The Examining Attorney issued an office action rejecting the Statement of Use several weeks later, on October 9th, after the deadline to file or correct the Statement of Use had passed, concluding that the Statement of Use was improper, as ABC, was not the owner of the application on the date ABC filed the Statement of Use, September 10th, 2008. Neither PMSI nor ABC had filed an extension of time to file a Statement of Use before the deadline lapsed, thus no corrections could be made, and the application was deemed abandoned.

ABC disagreed, arguing that

The Examining Attorney improperly held that ABC was not the owner of the mark when the SOU was filed on September 10, 2008. As of that date, the USPTO records would have shown that ABC, the original Applicant, was the owner of record of the application and entitled to take action, namely to file a SOU to issue the allowed application for registration. The assignment to PMSI was submitted the day after the SOU was filed for the purpose of insuring [sic] that the registration would issue in the name of the assignee of the mark and goodwill pursuant to § 502 T.M.E.P.

PMSI also argued against the refusal, discounting the importance of the timing of the assignment itself, citing Assignment Rule 3.54 which states, in sum, that the Office does not determine the validity of an assignment document recorded with the USPTO, or the effect that the same document has on title of an application. The section also states, however, that, when necessary the Office will determine whether a party cited in the assignment document has the authority to take action in a matter pending before the Office.

PMSI argued that, at the time the Statement of Use was filed, the USPTO records still listed ABC as owner of the mark. Moreover, PMSI's intention was clear, given the sequence of timing in signing the Statement of Use and the assignment.

The Trademark Trial and Appeal Board disagreed, acknowledging that the effect of assignment could not be reconciled with the statutory requirements for filing a Statement of Use in the present situation.

The Board reviewed the assignment document and concluded that the assignment effectuated a complete and total transfer of ownership of the application on September 8th, 2008, as no other intention could be inferred from the language in the assignment, itself. Therefore, PMSI, "stepped into the shoes of ABC as owner of the application. PMSI became, 'the applicant.'"

Trademark Act Section 1(d)(1) requires that the "applicant shall file in the Patent and Trademark Office a verified statement that the mark is in use in commerce." On September 10, 2008, when ABC filed the Statement of Use, ABC was not the applicant, and thus was not in compliance with the statutory requirement.

Even if the assignment had NOT been recorded with the USPTO, the defect could potentially serve as grounds for attack on the resulting registration, according to the Board. Thus, the application was deemed abandoned for lack of a proper Statement of Use.

The Board also acknowledged its regret in the decision, noting that ABC and PMSI acted with "the best intent and even in earnest to secure early issuance of the registration in the assignee's name," but that the lack of compliance with necessary statutory requirements and regulations could not be ignored.

This ruling, though apparently sound in its reading of the relevant regulations, appears to set form over substance. True, ABC could have avoided the problem by waiting to physically assign the application until after the Statement of Use was filed. However, could this result have been avoided if PMSI had physically filed the Statement of Use document signed by ABC? The governing statute for filing a Statement of Use cited by the Board in its decision, 15 U.S.C. § 1051(d)(1), states that the applicant of the mark must file the Statement of Use document, not that the applicant must sign the Statement of Use document. At the time of verification, ABC was the only party that could verify the actual use of the mark, as ABC was the applicant at the time use commenced, namely, October 13, 2006, according to the Statement of Use document filed by ABC.

Though ABC and PMSI stressed their intent as owners of the mark in their respective arguments against the refusal, namely, the parties' intent to bring the application to registration, while ensuring registration would be with the proper party, this intention was seemingly found irrelevant by the TTAB's decision to follow their reading of the respective statute and regulations.

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President Defeated and Tiger Shoots Par in UDRP Decisions

In some recent UDRP domain-name decisions involving personal names and common-law trademarks, world-renowned fame did not guarantee success in obtaining transfer of domain names associated with the names. Former President Clinton was defeated in a UDRP decision involving three domain names similar or identical with his name, while Tiger Woods went 1-1 in securing domain names matching his children's names.

Former President of the United States William J. Clinton and The William J. Clinton Presidential Foundation brought a UDRP complaint against Web of Deception regarding the domain name registrations for "williamclinton.com", "williamjclinton.com" and "presidentbillclinton.com". Each of these domain names provided direct links to the website for the Republican National Committee. Complainant asserted that he had established common-law trademark rights in his name and its variations. It was also alleged that the Respondent was known to have deliberately registered other domain names of politicians, such as President Obama and Senator John McCain, for various nefarious reasons. Respondent asserted that his registrations and use of the domain names constituted a fair use and were therefore not a use in bad faith. Respondent also claimed that he was working with others to promote the idea that some domain names, including the names of famous places and politicians, deserve protection under federal statutes.

In denying the UDRP claim, the Panelist analyzed the three necessary elements of a UDRP and determined that not all of the elements were supported by the evidence. In assessing whether the domain names were identical or confusingly similar to a trademark or service mark in which the Complainant has rights, the Panelist followed the common view of the UDRP policy, in that a trademark registration is unnecessary where Complainant can prove common-law rights by establishing that its mark has acquired secondary meaning. After easily establishing secondary meaning in the WILLIAM CLINTON mark, it was determined that the disputed domain names were confusingly similar to Complainant's mark. The Panelist also determined that the Respondent was not commonly known by the disputed domain names, and that Respondent had no rights or legitimate interest in the domain names. The Panelist opined that the domain names resolving to a website related to the Republican Party were not considered a bona fide offering of goods and services, nor a legitimate noncommercial or fair use.

The decision turned on the last element of a UDRP, as the Panelist decided that Complainant had failed to meet the burden of proof regarding bad-faith registration and use under Policy ¶4(a)(iii). The Panelist noted that the only potentially available claim for bad faith that would apply related to preventing the mark holder from registering the domain, and this element requires a showing of a pattern of conduct. While the Respondent's conduct in registering the names of politicians was considered a pattern, the Panelist summarily determined that the Respondent had adequately rebutted any inference of bad faith. The Panelist further found that the fact the domain names linked to the Republican National Committee website, while possibly giving the impression of an affiliation with its political competitor, was not within the scope of the Policy. The UDRP request for transfer was therefore denied as to all three domain names.

In other recent personal name UDRP cases, Eldrick 'Tiger' Woods attempted to retrieve domain names that matched his minor children's names. While Tiger was able to "birdie" the recovery of the domain name "samalexiswoods.com" in a default UDRP proceeding where the Respondent consented to transfer, he "bogeyed" the UDRP proceeding to transfer the domain name "charlieaxelwoods.com" matching his newborn son's name, Charlie Axel Woods. In each case, Complainant attempted to claim common-law trademark rights based on rights in the TIGER WOODS marks, while also unsuccessfully asserting common-law trademark rights in his newborn children's names.

In the contested UDRP matter, the Respondent had registered the domain name the day after Charlie Axel Woods was born. The Panelist did not reach the issues of rights or legitimate interests, or bad faith registration and use, as the matter was decided based on lack of a trademark or service mark in which Complainant has rights. The key issue was whether the personal name "Charlie Axel Woods" is protectable as a common law trademark or service mark. The Panelist relied on a review of a World Intellectual Property Organization (WIPO) report regarding the Internet Domain Name Process. The report notes that Panel decisions that elected to protect personal names occurred in cases where the law of the particular country recognized the registration of personal names as trademarks or services marks or where countries recognized the common law acquisition of trademarks or service marks through use and the acquisition of a secondary meaning as the source of goods or services.

There is also a split of opinion as to whether the UDRP should be broadened to protect non-commercial uses of personal names. In its advisory report, WIPO has noted that "persons who have gained eminence and respect, but who have not profited from their reputation in commerce, may not avail themselves of the UDRP to protect their personal names against parasitic registrations". Following prior UDRP decision, the Panelist in this case determined that, in a jurisdiction that recognized common law marks, the personal name must be used in connection with a commercial offering of goods and services or that the personal name in question has acquired secondary meaning as the source of such goods or services. Although Tiger Woods attempted to piggyback trademark or service mark rights in his own name, it was determined that his son must have his own rights, as the child's name was not confusingly similar to the TIGER WOODS marks. Since Charlie Axel Woods was a newborn, and no evidence was presented in support of his common law trademark rights, the request to transfer the domain name was denied with no need to consider the other elements of the UDRP policy.

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Understanding Social Networking

Social networking involves using online services (e.g. Facebook, Twitter, Blogger, YouTube) to connect and interact with a community of people through online publishing and discussion.

Social networking allows companies and individuals to increase their online visibility, gain credibility, and build meaningful relationships with others.

Unlike a traditional company website that focuses on the particular company, social-networking websites are portals to a multitude of standardized user profiles belonging to various individuals and organizations. Membership in a social network (in addition to having a traditional website) offers brand owners certain advantages over using a traditional website alone; most notably, complimentary exposure and ability to interact with other network members. There are hundreds of social-networking sites and service providers. Some, like Facebook and Twitter, cater to the general public, while others, like IQONS and Model Mayhem are more niche-oriented (these two focus on fashion and modeling industries respectively).

Popular Social Networking Tools

Service	Description
Badoo	Social-networking website. Allows users to create profiles, upload content and grow their network by inviting or accepting invitations from other users. Offers various communication tools to encourage interaction between users.
Bebo
Facebook
Friendster
MySpace
Odnoklassniki
Orkut
V Kontakte
LinkedIn	Business-oriented social-networking website used for professional networking.
Xing
Meetup	Interest-based networking focused on meeting offline to participate in various activities
Ning	Interest-based networking tool that allows users to join or create networks based on specific interest. Brand owners may create a network around their brand.
Blogger	Blogging platform
Livejournal
WordPress
Meebo	Instant messaging tool that supports simultaneous connection to multiple IM services, allowing user to communicate with other users without having to use the same service.
Tumblr	Microblogging application
Twitter
Flickr	Social-networking website centered around photo sharing
YouTube	Video-sharing platform
Vimeo
FriendFeed	Aggregator service that consolidates updates from social networking websites, blogs, tweets, etc.

What Others Are Doing

General Electric Company

GE has been using a custom-build professional-networking tool called SupportCentral to connect vendors, customers and employees for many years.

GE blogs: http://www.grcblog.com/, http://www.gereports.com/.

GE uses Facebook to attract IT talent and has set up discussion forums for employees and general public. GE was one of the first companies to be granted a namesake URL: http://www.facebook.com/GE.

GE also has YouTube and Twitter profiles used to broadcast company news, http://www.youtube.com/user/GEreports; http://twitter.com/GE_reports.

Exxon Mobil

Exxon Mobil is a prime example of a company with zero involvement in social media and a case study that demonstrates that if you do not manage your online reputation, others will do it for you.

Exxon Mobil is not using Twitter, or any other social media forum to communicate about its corporate operations. Last year, when someone impersonated the brand on Twitter, the incident received a lot of media attention. The offending account was later suspended.

Another well-publicized hoax involving the brand was perpetrated by a Facebook user creating an event called Free Gallon of Gas Day, http://www.facebook.com/event.php?eid=12912038029&ref=nf.

Brand owners should be monitoring the discussion and mentions of their brands in social networks. Brand owners should also consider participating, because, as this case study shows, the power has shifted to those who participate.

Procter & Gamble

Procter & Gamble has challenged itself to understand and master social media tools, regarding social media as the future of marketing. To better understand the power of social media, the company has recently hosted Digital Hack Night, bringing together marketers and social media experts. People were split into four teams of about 40 people and each team had been given a unique newly-created URL to promote and generate t-shirt sales for charity through social networking. The exercise was to be accomplished in four hours.

In 60 minutes through networking, well targeted ads, SMS messaging, and viral videos we have generated 1200 hits for a site that didn't even exist before 5pm tonight.

This exercise illustrated the power of social networks to promote a brand and to generate sales by driving visitors to a traditional website that otherwise may not have attracted any customers.

Sample YouTube videos made in the course of the project can be seen at http://www.youtube.com/watch?v=sU-3WrAx8XI&feature=channel_page and at http://www.youtube.com/watch?v=lrm9pp7F3tk.

Procter & Gamble, like many others, has recently claimed a personalized URL for its Facebook page: http://www.facebook.com/procterngamble.

Overview of Most Popular Services

Twitter (http://www.twitter.com)

Twitter is a micro-blogging service that lets users publish short (up to 140 characters) messages or "tweets" which appear on a user's page (https://twitter.com/USERNAME) and are transmitted to each of the user's subscribers or "followers." Users can restrict their readership to a circle of friends or allow open access to anyone. Users may send and receive tweets via the website or use browser- or smartphone-based applications for added convenience and extra features.

Twitter allows users to add keywords or "hashtags" to their tweets by prefixing a word or phrase with the # symbol. The @ symbol followed by a username is used to direct a tweet to the attention of that specific user. These features are exploited by various applications. For example, Twitterhawk (http://www.twitterhawk.com/) is a targeted-marketing application that sends automated customized responses based on specified keywords and user's location; TweetBeep (http://tweetbeep.com/) keeps track of conversations that mention you, your products, your company, your website or blog, or anything else you want to monitor, and provides hourly reports. There are applications for pre-scheduling tweets to post at a certain time or periodically at a given interval; for managing your followers, for posting updates to other networking sites, for aggregating and organizing your friends' feeds, etc.

Brand owners may use Twitter to communicate with their tech-savvy followers, to build a community of brand supporters, create awareness, draw traffic to company website, gauge customer satisfaction level, get customer feedback and re-tweet praise from customers to potential customers; as well as keep track of competitors and police brand abuse.

Similarly to URLs, having the company name or housemark as the username is desirable for the company. The goodwill associated with the CANON mark, for example, has attracted 1,363 followers (as of this writing) to http://twitter.com/canon, a significant number considering that this user has posted zero updates and is not following anyone else.

Defensively registering every possible combination of company name and trademarks is not practical, in our view, because such "ghost" usernames may detract from the company's official account, diluting a brand's Twitter presence.

Twitter prohibits impersonation and name squatting and is known to honor companies' requests to protect their brands.

Facebook (http://www.facebook.com/)

Facebook is a social-networking website that allows users to create profiles and join networks organized by geographical region, city, school and workplace. Users can share information about themselves, add other users as friends, and communicate with other users in a variety of ways including posting status updates, sending private messages, writing on user's virtual wall, instant messaging, "poking," sending virtual gifts, "tagging," and sending event invitations.

Companies and organizations may set up a company page to provide information about the company, publicize company news and upcoming events, share photos and videos, host discussion boards, and recruit talent. Individual users may then choose to become "fans" of your company, and generate interest in your company among their friends.

Companies and individual users may also create groups—clubs organized around a particular idea or topic. For example, Motorola's fan group bills itself as "The latest and the greatest, of one of the most stylish brands in the telecommunication business!" and, as of this writing, has some 2,844 members.

On June 13, 2009, Facebook has introduced a customized URL feature, allowing users to claim http://www.facebook.com/USERNAME as a link to their profile. Although on a very short notice, brand owners had been encouraged to register their marks to prevent abuse.

Blogger (https://www.blogger.com/)

Blogger is a popular blog publishing platform. Blogs that do not publish to their own websites are hosted by Google as subdomains of blogspot.com, e.g. http://USERNAME.blogspot.com/

Maintaining a blog increases one's online visibility and is a good way to showcase one's expertise and leadership in a particular field or industry.

We do not believe that defensive registrations of company names, marks, or officers' names as usernames are practical and do not recommend creating them. We recommend hosting company blogs on the company's official website(s).

YouTube (http://www.youtube.com/)

YouTube is a video sharing service. Users may upload videos to their profile or "channel" to share; search for other videos; view, rate and leave comments; subscribe to the channels that interest them; tag favorite videos for further reference and embed video files into other sites.

Google markets YouTube to brand owners as "the world's largest focus group."

A brand channel with a strong following can provide tremendous insights into the consumers who interact with your content and your brand.

Google's recent integration of Google Analytics, its web-traffic tracking tool, with YouTube brand channels has the potential of giving brand owners a much richer and deeper understanding of their brand channel's performance, enabling them to track such metrics as how long visitors stay, repeat visits, bounce rate, and page views per visitor. Brand owners wishing to tailor their videos to a specific audience would benefit from knowing where channel viewers are located geographically and what languages they speak—information that Google Analytics provides.

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Lost in [Literal] Translation: Application of the Doctrine of Foreign Equivalents in In re Helen Trimarch and Michael Merr

In a split decision on May 14th, 2009, the United States Trademark Trial and Appeal Board (TTAB) reversed a finding of likelihood of confusion based upon misapplication of the doctrine of foreign equivalents. In In re Helen Trimarch and Michael Merr, the TTAB concluded that the application for ALLEZ FILLES! & Design for certain clothing items would not cause confusion with the registration for GO GIRL, on identical clothing items, despite the literal translation of "allez filles" to "go girls."

The Examining Attorney originally refused registration of ALLEZ FILLES! & Design, in the name of Helen Trimarch and Michael Merr, based upon a 2(d) likelihood of confusion with Registration No. 2227005 for GO GIRL. Both marks cover clothing items in class 25. The Examining Attorney determined that "Allez Filles" was equivalent to "go girl" based upon an online translation, Applicant's submitted translation of the mark, and a message from the USPTO's translator stating that "Allez Filles" translates to "go girls."

Upon appeal, Applicant argued that "allez filles" is, technically, grammatically incorrect French, thus French-speaking consumers would not bother to directly translate the phrase. Applicant contended that, at most, French-speaking consumers may recognize the phrase, "allez filles," to mean "let's go girls," or "allez les filles." This interpretation differed from the phrase "go girl" which, Applicant argued, had a more "urban" connotation in the English language than the invitational "let's go girls."

Two of the three TTAB judges agreed that the doctrine of foreign equivalents would not apply, as French-speaking consumers would most likely ignore the phrase given its grammatical incorrectness. Moreover, while "allez" translates, literally, to "go" and "filles" to "girls," it does not necessarily hold that "allez filles" is equivalent to the meaning of English phrase "go girls," as online translations often do not consider phrasal meanings of words in combination. As the phrases were not, in the Board's opinion, equivalent, the doctrine of foreign equivalency would not apply. The Board reversed the refusal based upon the lack of foreign equivalency which added to the overall differences in sound, appearance, and overall commercial impression between "ALLEZ FILLES! & Design" and "Go Girl."

In his dissent, Judge Drost argued that the doctrine of foreign equivalents would apply in this situation, as "Allez Filles" was "the type of term that prospective purchasers would stop and translate." While "the line between foreign words that consumers would stop and translate is not always clear" Judge Drost argued that the TTAB should assume every individual with a familiarity of the foreign language would translate a foreign term. Moreover, in the present situation, the TTAB's decision allowed two marks covering identical goods to exist on the register, one reading "GO GIRL" and the other having a literal translation to "GO GIRLS," whether or not the literal translation was actually "equivalent." According to Judge Drost the refusal should have been maintained, as the meaning of the marks was similar enough to cause potential confusion in the marketplace.

In re Helen Trimarch and Michael Merr ultimately turned upon whether French-speaking consumers would or would not stop to translate the term "allez filles" and whether literal and equivalent translations are one in the same. This case illustrates the enduring difficulty in applying the doctrine of foreign equivalents, especially in cases where an equivalency would mean the difference between refusal and allowance. The Board's split opinion seems to call for greater clarification in the standards which determine the doctrine of foreign equivalents' application in a given situation. Such clarification may be difficult to accomplish, especially given the already subjective nature of the standard and its requirement to predict the mental decisions of everyday consumers.

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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

Google has announced that it will be amending its AdWords Trademark Policy in June. In a move that will likely not please trademark owners, Google will be changing its AdWords Trademark Policy on how it follows up on complaints regarding trademark use in keywords. Google will also allow trademark terms in ad text in the U.S. These changes come on the heels of recent adverse legal rulings and lawsuit filings against Google regarding its sale of trademarks as keywords in advertising.

Beginning June 4, 2009, Google will no longer restrict trademark use in keywords in an additional 190 countries, conforming to its current policy for the United States, Canada, United Kingdom and Ireland. Keywords that were previously restricted as a result of a trademark investigation will begin triggering ads in the affected regions. While the expansion of this policy covers a significant number of countries, it will still not apply to most of the European Community nor to Australia, New Zealand, or China. With the changes, Google will no longer investigate complaints relating to the use of trademarks as keywords by AdWords advertisers. The result will be that users in these additional countries will see ads in the sponsored links section containing advertising triggered by the trademarks purchased as keywords. A company may purchase a competitor's trademark as a keyword, and a user searching for that keyword will see a greater number of ads, including those of the trademark holder's competitor. Google will continue to perform investigations related to ad text, but will no longer restrict keywords based on a trademark complaint and investigation.

Google also will be making changes to its AdWords policy in the United States, with the effects beginning on June 15, 2009. These changes will only affect ads targeting the U.S. If an ad doesn't comply with Google's trademark policy in other countries, the ad may not be eligible to appear in those other countries. The significant change in policy is that Google will now allow, under certain criteria, the use of trademarks in ad's text, even if the advertiser does not own that trademark and has no explicit approval from the trademark owner to use it. These changes only pertain to sponsored advertising and will not impact natural search results. Ad texts containing trademarks will be allowed if the website: facilitates the sale of goods or services, or sells components, replacement parts or compatible products corresponding to the trademark; contains information about the goods or services corresponding to the trademark; or, when the term is used in a descriptive or generic way and not in reference to the trademark owner. The policy will not pertain to ads containing competitive or critical information about the goods and services corresponding to a trademark.

Allowing additional trademark use in AdWords and text would appear to fly in the face of recent court rulings and lawsuits involving Google. In Google's AdWords program, advertisers bid on and purchase keywords, which may include trademarks of third parties. When an internet user enters 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 particular keywords in the search query. These "Sponsored Links" are paid, contextual advertising that is auctioned for sale through Google's AdWords, with the highest bidder usually having its Sponsored Link listed first.

In the recently anticipated decision in Rescuecom Corp. v. Google Inc., 562 F.3d 123 (2nd Cir.2009), the U.S. Court of Appeals for the Second Circuit determined that Google's sale of trademarks in its AdWords program was considered a "use in commerce" which could subject Google to trademark infringement liability. In that case, Google had sold the RESCUECOM trademark to third parties, including Rescuecom's competitors, through its AdWords program and "Keyword Suggestion Tool". The Court found that Google had recommended, encouraged and sold the Plaintiff's trademark, and therefore made use of the mark. The Court determined that this use was more than just internal use, and was, in fact a use in commerce. However, the Court remanded the matter back to the district court for further proceedings to determine whether Google's use of Rescuecom's trademark caused a likelihood of confusion or mistake, or dilution. The pending outcome leaves trademark owners, keyword purchasers and keyword sellers in the dark as to trademark infringement liability regarding use of the trademarks as keywords. In the meantime, trademark owners are also concerned about possibly having to pay more money to Google so that their ads appear ahead of competitors' ads.

The issue of use of a third-party trademark in Google AdWords advertising has also been hotly debated and contested in the European Community. Preliminary rulings regarding whether Google's AdWords advertising constitutes relevant use of a trademark sufficient for infringement have been inconclusive. These preliminary rulings from the Austrian Supreme Court and the highest French civil court have been sent to the European Court of Justice for determination of whether the use of a third-party trademark as a keyword is infringing. Similarly, three decisions from the German Federal Supreme Court have reached differing results based on differing facts. The German Federal Supreme Court has also sought referral to the European Court of Justice for further determination. These decisions are not expected until the summer of 2010, thereby leaving uncertainty regarding liability for use of trademarks as keywords in Europe.

In a further outcry of some trademark owners disturbed by Google's AdWords policies, two class action lawsuits were recently filed against Google in Federal Court in Texas. While both were filed by the same law firm, the suits are for the protection of two different classes. In the initial lawsuit filed, FPX, LLC v. Google, Inc., the Plaintiff, Firepond, alleges that Google's AdWords policy infringes the trademarks of all Texas trademark owners. The second lawsuit, brought by ‘John Beck Amazing Profits, LLC', is on behalf of all U.S. trademark holders. Whether the Federal Court determines that the trademark issues and parties can sufficiently be joined to be certified as a class action remains to be seen. If a class is certified in these cases, of greater concern to trademark holders may be whether Google decides to settle the cases thereby binding all trademark owners who have not opted out of the class, and eliminating their right to sue.

What is clear from the above matters involving Google's AdWords policy is that uncertainty still exists in the United States and around the world in viewing trademark infringement liability for use of a third-party trademark in one's keyword advertising on Google's websites. It would be prudent for trademark owners and advertisers to keep a close eye on future decisions and developments involving Google's AdWords trademark policies and keyword sales.

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Supreme Court to Review Business Method Patent Bilski Decision

In an order that is sure to have major repercussions for the future of patent law, the U.S. Supreme Court granted certiorari, agreeing to take up for appeal the case of Bilski v. Doll. The order granting the appeal is a discretionary act of the Supreme Court, and is an acknowledgment that patent law principles of the permissible scope of patentable subject matter are in need of further clarification.

Focusing specifically on business method patents, the en banc decision of the Court of Appeals for the Federal Circuit (CAFC), Chief Judge Michel writing for nine of the twelve members of the CAFC opined on the issue of patentable subject matter as widely applied in test from a previous decision, State Street Bank v. Signature Financial Group. The CAFC opinion did not explicitly overrule the State Street decision, but declared State Street's "useful, concrete and tangible" test as being irrelevant to determine whether the claimed method constitutes a statutory "process" under § 101 so as to be the patent eligible subject matter under the Patent Laws.

The basis of the Bilski opinion is grounded in the intent of the Congress in defining what is patentable subject matter. Generally, neither laws of nature, natural phenomena, nor abstract ideas are patentable. The CAFC concluded the claims of Bilski were unpatentable because they failed the new test which was established by the Court. The court held that any process that does not transform physical matter or require performance by machine is not within the definition of "process." "Process" is defined in the 1952 patent statute (35 U.S.C. §100(b)) as "a process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material." In contradistinction, a precedential decision of the Supreme Court found a life form to be patentable, and opined that "everything under the sun made by man" should be considered patentable.

While in Bilski the CAFC reaffirmed generally that both business methods and software are patent eligible subject matter, the decision also reiterated that a more appropriate test is the "machine or transformation" test as set forth above. The patent community had interpreted that test to require a method or software either be associated with a machine or device or alternatively that the method transform a particular article into a different state or thing.

In Bilski, the court affirmed the Examiner's rejection of Bilski's method claims, by affirming the ruling of the Board of Patent Appeals and Interferences. The claims were drawn to a method of hedging risk in the field of commodities trading. The CAFC found that the Bilski claims failed to provide the necessary transformation a particular article into a different state or thing. Now the U.S. Supreme Court has determined that its guidance is necessary for further clarification of what subject matter is patentable under the patent laws enacted by the Congress. It is generally assumed that the U.S. Supreme Court would not have granted certiorari unless it intends to overturn the CAFC decision. However, further clarification of the eligible subject matter will be a welcome result, whatever the outcome. Numerous business method patents have been issued by the USPTO and their validity is in question following the CAFC Bilski decision. As an added variable, timely consent by the Senate to the appointment to the Supreme Court of Judge Sotomayor will allow the case to be heard by a full complement of nine justices, and should also provide some insight into her philosophy regarding patents, something that her prior experience as a prosecutor and judge has not yet revealed.

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