Well, that's the title of yet another article I came across -- this time in The Motley Fool -- that intentionally or unintentionally spreads lies, untruths and disinformation about the patent system. I'm shocked and outraged. Think of the possible effect on our young people. (Our young people!)

I've been around long enough to be a bit skeptical of coincidence, particularly when it seems to benefit moneyed interests. Is it just coincidence that all these articles denouncing "abuse" of the patent system just happen to coincide with the Senate's consideration of "patent reform"? Hmmm....

Check this out: "But even a system put in place to regulate and encourage fair business and innovation can be manipulated to suit unintended purposes -- with destructive outcomes." Last I checked, Article I, Section 8 of the Constitution speaks of "promot[ing] the progress of science and useful arts," not "regulating and encouraging fair business." And it speaks of doing so "by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries," not, as the author of this article claims, by "businesses us[ing] patents and copyrights to protect their intellectual ideas as a defensive moat." Call me old-fashioned, but I still think it's important -- and even helpful -- to go back to basics once in a while and see what those who set up this country actually had in mind. The Constitution speaks of "authors and inventors" not "businesses" (there is a difference). And it speaks of "securing for limited times...the exclusive right to their respective writings and discoveries." Now tell me again, where is the constitutional basis for the idea that patents are meant only to protect those in business and are only intended "as a defensive moat"?

The author goes on to say, "Often, these organizations [i.e, patent terrorists] purchased the patents or swallowed companies that were going under to acquire the ideas, which is called patent trolling." Let me get this straight -- going out into the open market and "acquiring the [patented] ideas" of a failing business is somehow wrong?

Twenty-something years ago, I made a minor killing by acquiring stock in Chrysler Corporation. This was at a time when Johnny Carson was making jokes ("How cheap was it?" "Cheaper than Chrysler stock!") and "informed" investors said they wouldn't touch Chrysler with a ten-foot pole. Coming from an author writing in a publication for investors, I find it strange that the author of this article can't see the parallels between investing in a troubled business and paying one's hard earned cash for patents that might indeed be worthless. Isn't reward for having vision and taking risk what it's all about? Can't an investor, of all people, see this? Apparently not if you're on the other end of the deal.

Finally, I got a kick out of this line: "Yet there is definitely a code of conduct for the licensing of innovative ideas here in the U.S., and patent terrorists often cross this time-honored line." Having been on the other side of patent disputes for over twenty years, I am well-acquainted with this "code of conduct." I know all about this "time-honored line." That's largely why I now think individuals and smaller businesses deserve a chance.

The supposed problems with the patent system are for the most part created by big business itself. It's not the individual inventors and smaller businesses that stretch patent litigation over several years and run up millions of dollars in legal fees. It's not the smaller inventors and businesses that elect "to leave no stone unturned" in their pursuit to avoid a legitimate patent claim. (Despite stories to the contrary, weak patent cases are quickly and routinely tossed out on summary judgment.) And it's not the smaller inventors and businesses that have the deck stacked in their favor. Far from it. Big business is and always has been the primary beneficiary of the patent system. The cries we hear now are not those of innocents "victimized" by an unfair system. Rather, they are the cries of those who don't like finding out they're expected to follow the laws and live under the same system they have mostly created themselves. Some call that unfair. Others call that justice.

Dr. Nathan P. Myhrvold's recent testimony before the Senate Subcommittee on patent reform makes a strong case for the rights of small inventors and businesses in the patent arena. Coming from a now-wealthy man who could easily join the forces of big business, it's refreshing that Dr. Myhrvold has not rewritten history or otherwise forgotten where he came from.

(Many thanks to J. Matthew Buchanan, publisher of the "Promote the Progress" I.P. blog, for making this and other records of the Subcommittee hearings available at his site.)

Dr. Myhrvvold's testimony is insightful, informative and well worth reading. He makes several valid points to counter the proposed "reforms."

As to the argument that small inventors play only a minor role in technical innovation, he points out that even the largest companies rarely hold more than 10% of the patents in a given field: "[I]f you add them up, universities, individuals and small businesses in aggregate have substantially more processor patents than Intel or IBM -- indeed more than the two combined. Small inventors have more operating system patents than Microsoft, more networking patents than Cisco and more wireless patents than Qualcomm."

Testifying further, he says, "Critics of the patent system sometimes talk derisively about the 'myth of the small inventor', ignoring their contribution. Well, I am here to tell you that small inventors are not only alive and well, but they actually contribute more inventions than the biggest corporations do."

Dr, Myhrvold also makes a strong case why injunctive relief must remain an appropriate remedy for patent infringement. Pointing out that "irreparable harm" is not an appropriate element of permanent injunctive relief, Dr. Myhrvold testified that, "[T]he Committee Print says, in effect, that it is okay to take the property of the patent holder as long as it won't irreparably harm them. This is tantamount to saying it's okay for a squatter to camp on your lawn as long as the harm to you isn't 'irreparable'. This flies in the face of most concepts of property."

As to the claim that there is an explosion of patent lawsuits, Dr. Myhrvold points out that, "The magnitude of the supposed problem is not borne out by the statistics." Pointing out that just over 2% of the patent lawsuits filed over the past 5 years were filed by entities that do not produce products, Dr. Myhrvold testified that, "Those horror stories aren't about an epidemic or situation that is out of control -- it is actually a very minor phenomenon."

Finally and tellingly, Dr. Myhrvold points out that large American companies -- the ones that supposedly produce actual products -- often don't really produce products after all. They do R&D, they come up with brilliant designs, and then, increasingly, they send this intellectual property offshore for actual manufacture elsewhere. "As it stands, it is becoming ever rarer for an American company that 'makes' products to actually do the manufacturing. Instead they design products that are built by others, often outsourced overseas. What is the difference between that, and an inventor who licenses his patents?" Good question indeed.

I'm admittedly biased in this debate, but I think Dr. Myhrvold's testimony is valid and accurately identifies the flaws in these so-called "reforms." Coming as they do from someone who has "been there" and "done that," I think the Senate Subcommittee would be wise to credit Dr. Myhrvold's views and give them considerable weight.

Well, well, well. After calling for "patent reform" and denouncing those who license patents without actually making a product, it seems Microsoft is hedging its bets. At least that's how it appears to a cynic like me.

Oh, I get it. This is different. They are "providing technology," while those who enforce patents without actually making a product are just "trolls." Or is it that they're "outsourcing [their] IP to those better equipped to exploit the relevant technologies" while little guys are just "abusing the patent system"? (I just can't keep this straight.) Anyway, Mr. Gates didn't get rich by being stupid. And any smart gambler looks for a hedge when he can get one. We'll see how this plays out in Congress.

(Years ago, I was a partner in a very successful firm that made sure it supported BOTH candidates in each gubernatorial election. They weren't idiots either.)

Dennis Crouch asks why so many patents seem indecipherable and what can be done about it? Good questions, indeed.

Always willing to speak the truth, however unpleasant it may be, I'm here to provide my answers.

In reality, this is just a variation on the ancient question why supposedly silver-tongued lawyers write in the convoluted, asinine way they do. The answer is, bitter experience demands it.

Consider: You write a simple contract wherein Bob Jones agrees to sell his house and Fred Smith agrees to buy it. All's well until Bob claims that "house" doesn't include the unattached garage -- and the court agrees. (Hmmm, better spell that out clearly next time...) Later, someone else says that "house" and "garage" don't include the tree-house in the back yard -- and again the court agrees. You get the idea. Nothing changes when patents are involved -- prudence and bitter experience suggest you better spell things out in detail.

Until that, too, trips you up.

The dirty little secret of patent prosecution is that clear statements in a patent application are anathema and the clear sign of a rookie drafter. The rules of thumb are legion: "Never use the word 'invention.'" "Never say 'is.'" "Don't call a resistor a resistor -- call it 'an impedance means' instead." The ironic joke is that the language used in patents is supposed to be that of persons "skilled in the art," but I have never once heard a real engineer ask for "an impedance means" or suggest replacing the "active element that preferably, but not necessarily, takes the form of a three-terminal semi-conductor or similar device."

But the real blame for this lies not with patent prosecutors but with a judiciary that, on the one hand, claims it is fully capable of deciding highly technical cases, but on the other refuses to develop the skills needed to do so. As long as courts can be bamboozled into thinking that manganese and magnesium are the same, and that adding 2 plus 3 is somehow completely and materially different from adding 3 plus 2, some lawyers, with the full encouragement of their clients, will continue doing so. And those who have learned the hard way what can happen when they naively assume common sense will prevail, soon learn not to make the same mistake twice. The result is the ineffable twaddle that now passes for the "full, clear, concise, and exact terms" required by law. The courts simply don't require clarity and they punish it when it appears.

On a related subject, why do we still follow the nonsensical rule that a patent claim must be a single sentence? (And yes, I'm aware that it's supposed to be the object of a sentence beginning, "I claim...") Wouldn't it be a lot better for a patentee simply to say in paragraph form, "My invention is this. It includes this. It doesn't include that. It differs from the prior art in that it has this. I consider these to be equivalents."? Why the Patent Office insists on an obscure rule that probably stopped making sense shortly after it was adopted has always left me baffled.

Well, things have been quite busy around here the last month or so, with an oral argument before the Federal Circuit last month and a case going to trial in a couple of weeks. Although I haven't posted in a while, I still find time to keep up with the so-called "patent reform" efforts currently underway before Congress.

An article from the Boston Globe today indicates that there is indeed a serious effort being made by very powerful interests to undermine the effectiveness of patents for individuals and small businesses. Nothing really new here -- just the same old stuff about patent trolls and the basic unfairness of expecting big business to obey the patent laws too. The twist here is that, according to the major software companies, the semi-recent Eolas decision will have the "unintended consequence of sending more tech jobs outside the US."

Funny, I alway thought it was big companies looking for ever cheaper labor who sent tech jobs outside the US.

Who says claim construction is difficult? Who says it's unpredictable? Nonsense! Claim construction is easy! Anyone can do it. You simply follow the clear guidelines set out by the Federal Circuit.

And where do you find those?

That's easy too. The Federal Circuit has helpfully set them out in today's en banc decision in Phillips v. AWH Corporation. Just read it -- all fifty-six pages of it.

Start with the majority opinion by Judges Bryson, Michel, Clevenger, Rader, Schall, Gajarsa, Linn, Dyk and Prost. And check out the additional views of Judge Lourie, who joins with respect to parts I, II, III, V and VI, and those of Judge Newman who joins with respect to parts I, II, III, and V. But don't forget Judge Lourie's dissent-in-part in which Judge Newman joins. And then there's the dissent from Judge Mayer, in which Judge Newman joins. But trust me, it makes sense. It really does. I'm so grateful the court has made things clear.

Seriously, I have not had a chance to do much more than skim the opinion, but my first reaction is, "you've got to be kidding." Although the shorthand description of the holding might well be that "the specification takes precedence over dictionaries when interpreting claims," if the court thinks it has somehow clarified the muddled body of law governing claim construction, it is greatly mistaken. With thirty-eight pages of "clarity" in the majority opinion alone, any moderately creative litigator can find ample support for just about any claim construction argument he'd like to advance. And at the end of the day, even though a majority of the judges claimed to agree on the law of construction, they still parted ways as to how the underlying case should ultimately be decided.

Personally, I think the dissenting opinion of Judges Mayer states far more eloquently than I can what is wrong here. In his words, "Now more than ever I am convinced of the futility, indeed the absurdity, of this court's persistence in adhering to the falsehood that claim construction is a matter of law devoid of any factual component." In a rare moment of judicial honesty, he recognizes that, "any attempt to fashion a coherent standard under this regime is pointless, as illustrated by our many failed attempts to do so."

The judges haven't asked me for advice on how to straighten out this mess, but I'll offer some anyway. How about going back to basics, as Judge Markey did so effectively in the early days of the court's existence? How about defining the scope of the patent by focusing on the words of the claims, not obscure statements in the specification? How about remembering that the Seventh Amendment still exists and once again letting juries decide the factual questions of what a patent actually discloses, what the inventor actually invented, and what his claims actually cover?

It's wishful thinking, of course, to believe the court will ever voluntarily give up its self-created power to make the ultimate decision in every patent case. Judge Mayer's dissent points out in stark terms the reality of modern patent litigation: "But after proposing no fewer than seven questions, receiving more than thirty amici curiae briefs, and whipping the bar into a frenzy of expectation, we say nothing new but merely restate what has become the practice over the last ten years -- that we will decide cases according to whatever mode or method results in the outcome we desire, or at least allows us a seemingly plausible way out of the case."

After a promising start, the Federal Circuit has lost its way in bringing stability and predictability to patent jurisprudence. Today's decision confirms that things are likely to get worse before they get better.

Yet another article on "Patent Reform" today. To listen to some of these guys, you'd think the Microsofts, Intels, Googles and IBMs of the world are at risk of being bankrupted by small patent holders.

In case you missed it the first time, let's try this again.

A patent right is a property right. The essence of a property right is the right to exclude others. "Owning" my home means I can keep strangers and others I don't want from living there. Having a "legal" ownership right means I can call on the legal system for help (e.g. if the strangers in my house are considerably larger than I am). Similarly, if I take a chance and buy a house in a less established area, and a few years later that area gets "hot" and I can now sell it for several times what I paid, is there anything inherently wrong with doing that? (This is, after all, America...) Should the law step in and force me to "rent" my home to any stranger who wants it or, worse yet, simply breaks in and takes it? Should the law step in and force me to do so at reduced rates when that stranger is a billionaire and can easily afford what I'm asking? Why should things be different when the property is a patent rather than a home?

I don't know which of the proposed "reforms" I find most distasteful. (There are so many good choices!) At present, I think the attack on injunctions is what galls me most. If you can't keep people off your property, what makes it either "yours" or "property"?

The author of the subject article asks "why you should care." You should, but perhaps not for the reasons he thinks.

When I was an engineer, I had no intention of spending my life with a huge company. Like most of my contemporaries, I had dreams of just learning the ropes with an established company and then forming my own business around a new idea. Law school and some other things sort of sidetracked that for a while, but I'd like to think today's youngsters still share that dream. If they do, I hope they realize that strong patents, and more importantly a legal system that will enforce them even against powerful business interests, are some of the few things that might give them an even break. If so, they should be fighting these supposed "patent reforms" tooth and nail.

Time will tell.

So the Federal Circuit has spoken. The late Jerome Lemelson gets his comeuppance. And companies around the country breathe a sigh of relief.

Whether Mr. Lemelson goes down in history as a modern day Thomas Edison (and I've sometimes had my doubts about Tom) or as just a shrewd manipulator of the legal system, remains to be seen. But whatever your views, last week's decision in Symbol Technologies v. Lemelson is significant and may well mark the end of an era.

If you haven't already done so, I strongly recommend spending some time at the Squire Sanders lemelsoninfo.com site and poking around the history of this fascinating case. One blog entry cannot begin to cover what's available or address the issues raised. But I'll share what I think are some highlights.

The trial transcripts -- all twenty-seven days' worth -- are instructive. First, it's genuinely refreshing to run across a judge who, in open court, says things like "I really don't give a damn what his knowledge was at the time of the deposition" and "Mr. Fey, what in the hell is going on here?" (Transcript Day 9 p. 20, lines 3-4, and p. 66, line 20.) Admittedly, this was a bench trial, but I think we need a bit more of that. (I like a judge who has the nerve to say what the rest of us are thinking.)

Lemelson attorney Gerry Hosier is one of the best in the business and has a reputation for great cross-examinations. I wasn't disappointed, and thought his cross of Plaintiff's patent expert, Martin Adelman, was pretty humorous. (Transcript Day 19 pages 131-138.) Guess the lessons for experts are: (1) avoid comparing yourself to God, and (2) be careful who you accuse of being a bank robber.

On a more serious note, this case raises important issues of patent law that, frankly, I'm not sure how should be resolved. Lemelson is correct that nothing in the statutory law limits the right to file continuing applications. He is right that procedurally he has done nothing wrong. If his original disclosure supports his later filed claims, the mere passage of time should not render those claims unenforceable (at least under the pre-1995 scheme). If his originally filed specification does not support those claims, that is a defense the accused infringers should prove with clear and convincing evidence.

And yet, there is something inherently strange about introducing claims 39 years after an application is filed. While it's hard to find anything in the statutory law that Mr. Lemelson violated, most observers will sympathize with his opponents here. I wonder if that might be the reason the Federal Circuit, in my opinion, drafted its decision to address the limited, and probably unique, circumstances of the particular case. With patent terms now limited to 20 years from the date of first filing, it's likely we will never see the Lemelson situation again. Perhaps that is what the Federal Circuit is banking on.

Another issue I find significant is Lemelson's objection to the Federal Circuit's practice of prohibiting citation to or consideration of unpublished decisions. He argues persuasively that prohibiting citation to unpublished opinions runs contrary to the idea that similarly situtated litigants should be treated the same and is inherently wrong and unconstitutional. I agree. This business of pretending that unpublished decisions never happened is a dirty little secret and has no place in a nation of laws and open courts. Precedent is precedent, and you can't avoid creating history by saying in advance, "This doesn't count."

Finally, I think Lemelson's arguments against the participation of numerous supposed amici were well taken. Basically, Lemelson argued that, far from being "friends" of the court, the amici were in fact well-coordinated participants in a coalition to defeat the Lemelson patents and that their participation was a thinly-disguised way of beating the page limitation that ordinarily applies to appellate briefs. Although I agree that a weak argument is not likely to get stronger simply by being repeated a dozen times, I do think that Lemelson's objections to the participation of so many "outsiders" had significant merit.

Again, the entire Lemelson saga is something that is probably unique and may well never be seen again, at least not in the same form. Still, I can't help asking whether last week's decision was, in fact, based on sound law. Or whether, collectively, the courts simply decided that, "Well, Jerry, you may be right but we're going to rule against you anyway, because we just don't like what you're doing." Kind of brings us face-to-face with the question of whether we truly do believe in the rule of law, or whether we pick and choose depending on who is involved.

Many thanks to Steve Nipper, who, on today's "rethink(ip)" blog, posts a link to Joseph Hosteny's recent "Litigators Corner" article in the August, 2005 issue of IP Today. Many thanks also to Mr. Hosteny for airing some perhaps unpleasant truths about what goes on inside large law firms.

In case anyone wonders why patent litigation is so expensive, Mr. Hosteny provides some truthful and amusing insights. I chuckle because I know all too well the games that are played, having once been a large firm lawyer myself.

Big firms love patent cases (provided the client is loaded) because they are a license to print money. The opportunities for procedural shenanigans are almost limitless, what with Markman hearings, bifurcation of damages, requests for reexamination and all. And of course, it's absolutely critical to make sure you get all 50 identical copies of the same document as requested, not just the 49 actually provided. (You never know when a crucial admission might be penciled on the margin of the missing copy.) Sure there is a lot of overlap, and it might be hard for laypeople to see what these efforts have to do with anything important, but hey, what's money at a time like this?

What I've always enjoyed about contingent work is that it is lawyering in the purest form -- you don't do something unless it will realistically advance your case. Critics accuse contingent-fee lawyers of driving up legal expenses but I've never seen how that is the case -- even when I was on the other side and billing by the hour. (On the contrary, and more than once, I thought I really owed my contingent-fee opponents at least a case of wine or scotch for having helped me hit my hours for the year -- and then some.)

The truth is, today, with advanced technology, legal fees should be going down, not up. Most courts permit out-of-town lawyers to appear by phone for routine hearings. Depositions can be conducted via video to avoid travel time and minimize expense. PACER and other on-line resources make it easy to access well-researched briefs and memoranda on issues that come up over and over again. Still other on-line services make the expense and burden of a paper-based legal library obsolete too. Finally, is it really necessary that law firms be housed in the most expensive downtown real estate available? (It is, if what the firm is really selling is CYA insurance to nervous in-house counsel who will have a lot of explaining to do if a case goes south.)

The big problem for new contingent-fee lawyers is knowing which battles are, and which are not, worth fighting. It takes a bit of nerve and confidence not to waste time and effort on discovery battles or procedural matters that don't really affect the outcome of a case.

Mr. Hosteny's article is a good education for those just entering the contingent-fee field. Efficiency and economy are vital. It's also educational for those who may be on the receiving end of huge legal bills and wonder how they happen, assuming they care.

getting the sense that the patent system is facing serious problems these days?

When I got into this game in 1983, the then-newly-formed Federal Circuit was supposed to bring uniformity, predictability and even respectability to the patent system. And it did -- for a while.

Under former Chief Judge Markey, the Federal Circuit's decisions made sense. They applied and relied on written statutes -- you know, the kind actually passed by Congress and signed by the President and all. They addressed important issues of patent law and provided clear, practical answers that could be understood and applied in the future. (I didn't always agree with them, but at least you could understand and apply them.) And, most importantly, the decisions appeared to be part of a genuine effort to build a consistent, workable and fair body of law that would resolve disputes justly and promote innovation as intended by the Constitution.

Over the last several years, however, I've wondered whether we are going forward or backward. Is it just me, or is anyone else going crazy trying to figure out what the Federal Circuit is doing?

The good news is that the Supreme Court has taken up the eBay case and granted cert. The question, as I understand it, is whether courts should automatically grant permanent injunctions when infringement is found. Personally, I think they should -- exclusive use is the essence of any property right. But the real significance is the Supreme Court's willingness to provide oversight over the Federal Circuit.

Recently, too, a petition for cert was filed in the Phillips case. Dennis Crouch has a copy of the petition at his Patently-O blog. It's interesting reading. I sincerely hope the Supreme Court takes the case. The reality that any three judge panel of the Federal Circuit can effectively overrule the factual findings of a lower court without any showing of clear error and simply because the panel wants a different result, runs counter to the idea that we are a nation of laws. The petition, in what I see as a courageous move, actually notes that, having appropriated for itself the sole power ultimately to decide what patent claims mean, the Federal Circuit is unlikely on its own to give up that power -- hence the need for Supreme Court intervention. (I love it when other people have the courage to say what the rest of us are thinking!) The idea that claim construction is solely a matter of law devoid of factual underpinnings is a farce and a fraud and should be discarded. (In my view, it also runs counter to the Seventh Amendment but that's another matter. And yes, I'm aware that the Supreme Court in Markman said otherwise.)

Finally, in my own small way, I am, on behalf of one of clients, seeking en banc reconsideration [Download file] of an adverse ruling I received from the Federal Circuit last month. In that case, the Federal Circuit shot down one of our patent claims as lacking written description, even though the claim elements themselves were all indisputably described and the claim itself was an originally filed claim that was allowed and issued without amendment. I'm admittedly biased, but honestly think the Federal Circuit's ruling simply can't be reconciled with prior CCPA precedent holding that originally filed claims automatically satisfy the written description requirement and that "nothing more is necessary." See In re Gardner, 475 F.2d 1389, 1391 (CCPA 1973). The good news is that the petition has not been denied summarily as usually happens. The Federal Circuit has requested and received a response from my worthy opponents. So far, there's been no decision yet on whether to grant the petition. Given that the current law regarding the "written description" requirement is, to put it politely, confused, I am hopeful the Court will soon take the matter up en banc, preferably in my case, but if not, in another.

Hmmm, here's an interesting comment I received today from concerned reader, This e-mail address is being protected from spambots. You need JavaScript enabled to view it :

"And how does your view relate to the millions you spent of LizardTech's money on patent litigation, which was unjustified to begin with and a complete loss anyway? Can you spell hypocrisy?"

Well, I can spell a number of words, but I don't think that's Mr. Bolt's real question.

The truth of the matter is that I handled LizardTech's most recent appeal on a contingency and didn't make a dime on it. (When the company was paying, I was part of another firm and the decisions to proceed were made by others.) I took the case because I believed and continue to believe that the underlying findings of non-infringement and invalidity are wrong. I don't see the need to spell hypocrisy. I put my time, effort and money where my mouth is and came away with nothing. I'm a big boy and those are the risks in this business. But please don't accuse me of ripping-off a client.

As to the merits of the case, I don't see that the case was "unjustified," particularly in light of the fact that the Federal Circuit went LizardTech's way in the first appeal three years ago. Appellate courts don't usually rule in your favor in completely "unjustified" cases.

As to today's decision not to re-hear the case en banc, I still think the Federal Circuit is wrong and failed to follow its own precedent. But that happens. Most lawyers with experience can tell you stories of cases where courts sidestep issues and more-or-less make up facts to support the decision they want to reach. But no one has to take my word for it. The briefs are public record, and anyone who's interested can read them and decide for himself -- assuming he needs a cure for insomnia.

One of my pet peeves has been the rule against even mentioning so-called "non-precedential" or "unpublished" opinions in briefs filed with federal appellate courts. Dennis Crouch and Law.com are both reporting that the Supreme Court has now voted to change long-standing rule and allow citation to such previously off-limits decisions. It's about time.

This whole business of "non-precedential" decisions has always struck me as both silly and dishonest. It's like saying certain historical facts and events are "non-citable" and hence off-limits for inclusion in the history books. Either something happened or it didn't. Either the court decided something or it didn't. If we are going to pay heed to the idea of stare decisis -- and there are serious questions whether we even should -- it's intellectually dishonest to gut the principle by simply pretending certain inconvenient cases were never decided.

Surprisingly, Judge Kozinski of the Ninth Circuit -- a judge whom I respect and usually agree with -- opposes the rule change and supports keeping things the way they are. In his words, "When the people making the sausage tell you it's not safe for human consumption, it seems strange indeed to have a committee in Washington tell people to go ahead and eat it anyway." True. But the real problem lies not with the committee but with the faulty sausage itself. If future litigants shouldn't have to consume the "sausage" of an ill-considered decision, why should the parties to that particular case have to eat it either?

As also reported in the Law.Com article, "Judge Alex Kozinski, the leading opponent of the rule change, said unpublished opinions were so designated for a reason: They are drafted 'entirely' by law clerks and staff attorneys." Thanks for the explanation, Judge. I'm sure that brings great comfort to whoever lost big as a result. (Personally, I suspect this procedure is also true for even the published opinions, but that's a matter for another day.)

Fundamentally, however, the problem is not with who writes the decisions and in what level of detail. The real question is whether all cases, or just some, are going to be decided on the basis of the law and facts by the people entrusted, not to mention paid, by society to do so. Or are we going to tolerate cutting corners and sweeping the problem under the rug by designating the more embarrassing results "non-precedential"? If it's ultimately a matter of overburdened courts -- and it may well be -- then we either have to provide the resources to do the job right or perhaps rethink, and cut back on, what matters should even be delegated to the courts in the first place.

A recent blog entry at Patently-O discusses the economics of so-called "patent thickets" (which, I gather, is the new name for what used to be called "a crowded art"). There's quite a bit of detailed and fascinating discussion concerning, among other things, the recent ebay decision and how patent owners in such a "thicket" will act, given that injunctions are (supposedly) no longer a foregone conclusion.

As I understand it, the question is whether an extensive "patent thicket" might result in more or less patent litigation and whether the ebay case will reduce or even increase patent litigation where such a thicket exits. While I don't purport to know or understand all the economic theory behind the competing views, I was struck by what I think is a misguided emphasis among the commentators. Why all the theorizing over what effect this will have on litigation and the propensity of patent owners to sue? Why all the concern whether this will encourage or discourage so-called "patent trolls"? Is the goal of the patent system simply to make life easier for lawyers and judges? Is it to let large companies steal technology with impunity? And (to be fair all around) is it simply to provide lucrative opportunities for contingent-fee patent trial lawyers like me?

The constitutional justification for the patent system is, of course, to "promote the progress of science and useful arts" -- not to provide patent lawyers with a comfortable living or to make life easier for federal judges. The question I have (and I really don't know) is whether the patent system is or is not fulfilling its mission of promoting the progress of science and useful arts. Has anyone actually done a scientific study of whether patents do promote scientific progress and whether the profound changes in the patent system over the past twenty four years have been effective in actually achieving that goal?

There's no question that the explosion in patent and IP growth has been great for lawyers. It's also been good for companies (both large and small) and even individuals able to exploit their patents. But again, the question is whether progress in science and useful arts has actually been promoted by what has gone on and what is presently going on. Frankly, I'm not sure anyone actually cares about this anymore.

Today the Supreme Court decided NOT to hear the LabCorp v. Metabolite case after all.

Good thing!

Patent law is confused enough already without the Good Justices weighing in on matters scientific.

A question that's always baffled me is why courts and legislatures are so quick and eager to protect copyright holders, while patents, and the unfortunates who own them, get slapped down right and left.

My admittedly untested and no-doubt biased theory is that most judges and lawyers identify far more with "writers" and "artists" than with lowly engineers, scientists and other techno-nerds who often couldn't get dates in high school (including me, alas). It's only natural, I suppose, that they still see the average book, play, Brittany Spears CD, or whatever, as a greater and more deserving creative achievement than, say, the log-periodic antenna.

The dissent in Metabolite demonstrates again that most judges have absolutely no idea of what technology actually is, how basic science actually figures in, or how technical advancements are actually made. Once again we hear the tired platitudes that Einstein's famous equation and Newton's Law of Gravity cannot be patented. But what do these statements even mean? What, precisely, would it mean to "patent" the Law of Gravity? Would it prohibit people from making selling or using it? (And, if so, how does one go about making, importing, selling or offering for sale a scientific law?) Somebody please explain.

Naturally, of course, it's only when someone makes practical use of an idea, such as Einstein's matter/energy equivalence, that patentable subject matter -- at least as defined by Section 101 -- first comes into existence. Once that occurs, why shouldn't those specific applications and uses be patentable, assuming they are new, useful and unobvious?

Turning to the facts of Metabolite and the muddled thinking of the dissenting justices, we're lucky the Court elected not to bless us with their wisdom in this case. The majority thankfully said simply that the original writ of certiorari was "improvidently granted." The dissent, however, elected to demonstrate why federal judges are rarely recruited as research scientists after leaving the bench.

In Metabolite, the inventors discovered a correlation between elevated levels of total homocysteine (whatever that is) and deficiencies of cobolamin or folate in warm-blooded animals (whatever those are -- the chemicals, not the animals). The subject claim recites a "method for detecting a deficiency of cobalamin or folate in warm-blooded animals" by looking for "an elevated level of total homocysteine." In layman's terms, this is similar to assessing someone's health by checking his temperature -- an ancient technique that is based on the natural phenomenon that there is a correlation between elevated temperature and infection. Unless I'm missing something, the basic concept in the Metabolite case is analogous and based on the newly discovered correlation between homocysteine and cobalamin or folate.

According to the dissent, this correlation is simply a "natural phenomenon." I'll accept that. What I don't accept is their nonsensical conclusion that the claimed, specific method based on this phenomenon is "unpatentable" subject matter because it uses this "natural phenomenon."

Huh?

Virtually every invention uses -- and indeed relies on -- the laws of nature and other "natural phenomena." If they didn't, their benefits wouldn't be reproducible by others and no need for a patent would exist in the first place. What's the point of patenting something if the results aren't predictable and repeatable?

And check out the other reason the dissent gives for denying a patent: "the reason for exclusion is that sometimes too much patent protection can impede rather than 'promote the Progress of Science and useful Arts.'" Got it? Your crime, Mr. Inventor, is that you invented "too much." Heretofore, most patents were denied because the inventor invented too little. But now patents should also be denied if the inventor invents "too much." Hmmmm. Guess we better add Goldilocks to the engineering staff so she can tell us what's "just right." (And while we're on the subject of fairy tales, the Court apparently thinks there is no such thing as "too much" protection when it comes to a by now geriatric cartoon rodent. But I'll leave it to someone else to figure that one out.)

Judges often have a romantic view that "inventors" (preferably mad ones!) are some sort of creative geniuses -- artists, if you will -- while real world engineers and scientists who do the actual inventing, are just overgrown grease monkeys. You see this in the "flash of creative genius," "inventive fire," "synergy" and other nonsense the Supreme Court has from time-to-time come up with to justify denying a true inventor his proper reward. (Incidentally, this is why as a plaintiff's lawyer you are well-advised to describe your client to the jury as an "inventor" or "entrepreneur" rather than merely an engineer, scientist or other such "boring" type. Jurors tend to share this bias too.)

While I thank the dissent for entertaining reading, I'm glad the full court did not get their hands on this case. I have quite enough to do keeping up with imaginary claim limitations, disappearing precedents and other mundane problems that crop up in modern patent practice without having also to worry about bull-in-the-china-shop inventors who boorishly invent "too much" and pigishly contribute more than they have any right to to human knowledge and our understanding of the natural world.

Actually, this isn't a crazy idea or even an original one with me.  Recent articles such as this one and this, have questioned whether the Federal Circuit's dominance over patent law has been as beneficial as originally hoped and whether the system might benefit from additional or alternate views from sister circuits.

Personally, I have been a bit disillusioned and disappointed with the Federal Circuit in recent years.  After a promising start under former Chief Judge Markey,  the Court seems to have lost its way, at least insofar as developing a coherent, predictable body of law is concerned.  Seriously, does anyone really know how to construe a patent claim anymore? (Oh, I know, you just apply the clear guidance of Phillips v. AWH Corporation.)  Are you confident enough in your analysis to advise a client clearly and directly when millions or even billions are at stake?  Can you do so without saying "however"?  Or what about the "written description" requirement -- a subject near and dear to my heart after experiencing the joys of LizardTech v. ERM?  Can anyone really claim to understand this stuff?  (And if so, can you tell me how an originally-filed claim that was allowed and issued without amendment can somehow fail to satisfy the written description requirement, particularly in light of the supposedly binding precedent of In re Gardner, 475 F.2d 1389 (CCPA 1973)?)  Do you understand it well enough to see and avoid the next twist in the "written description" requirement even before the Federal Circuit does?  How about abstracts?  How many of you once comfortably  drafted your "Abstract of the Disclosure" secure in the knowledge that what you said in the Abstract would never be held against you in construing the claims?  Think you're likely to fall for that again?

We now effectively have a system wherein twelve lifetime judges decide the outcome of virtually any patent case important enough for the parties to take that far.  While I do not think any of the Federal Circuit judges is intentionally shirking his duties, Lord Acton's famous dictum does come to mind.  And lack of competition does tend to make one lazy.

While the idea of "competition" among circuits might seem strange and even mildly amusing, the concept is not entirely without precedent.  My understanding is that certain venues, such as Chicago, are actively competing for bankruptcy cases, much to the worry of Delaware and New York.  Even in our own chosen field, certain venues are favored for patent litigation, at least among plaintiffs.  And it wasn't all that long ago that the notorious Eighth Circuit was favored among defendants.  Cities and states have long competed for tourists' dollars, political conventions and sporting events.  Why not a bit of competition for the excitement of patent appeals as well?

On a serious level, there's much to be said for having a few hundred appellate judges bring their collective wisdom to patent cases rather than only twelve.  And this is coming from someone who once enthusiastically supported the Federal Circuit and the idea behind it.  With a quarter-century of experience now behind us, it's appropriate to ask whether the reality has met the promise.  There's no question the advent of the Federal Circuit has been great for the patent system and those of us who've devoted our professional lives to it.  But has it really lived up to its promise?  I'm not sure.  After a promising start toward building an understandable, predictable and largely just body of law, recent decisions read more like law review articles than accessible expositions of law meant to be understood by ordinary businesspeople and lawyers alike.

In the final analysis, most businesspeople simply want to know what they can and cannot do, and the lawyer's job is largely to tell them just that.  For a while, we were heading in that direction.  Then along came Markman, Festo, Cybor, Phillips and others.  The mental gymnastics are certainly fun and never boring, and you can make a fine living doing this.  But if the system isn't of real value to those who ultimately foot the bill, are we in danger of cutting our own throats?  How long will businesses continue to pay for bright young lawyers to research and brief the minutiae of needlessly complex procedure that no one understands and the courts don't follow anyway? How long will they continue to pay for patents while the ground rules change in fundamental ways every few years?

Not that long ago, the patent system faced possible extinction because no one took it seriously.  The Federal Circuit  fixed that and we should all be grateful.  Today, however, the principal problem is that people take it way too seriously.  Perhaps it is time to take a step back and reflect on whether a single court of appeals for patent cases is the way to go.  Twenty years ago I thought it was.  Today, I'm not so sure. In all seriousness, this is an important question that deserves serious thought.

Just when it appears things can’t get much worse for patent plaintiffs, the Federal Circuit surprises us with a modest string of decisions actually finding in favor of patent holders.

Just one week after Muniauction, Inc. (pdf) took it on the chin by having its $77 Million jury verdict reversed (that’s reversed as in “you get zip, nada, nothing”), the boys in DC actually decided one in favor of the patentee. (pdf) What’s more they did it by upholding a summary judgment finding of infringement. Hmmm, haven’t seen that in quite a while.

On August 1 of this year, they truly outdid themselves by not only reversing summary judgment findings (pdf) of invalidity, noninfringement, and inequitable conduct (with fees thrown in to boot), but directing that the case be reassigned to a different judge on remand as well. I had to pinch myself to make sure I wasn’t dreaming. I wasn’t – six days later they did it again (pdf) (well, almost – no reassignment to a new judge this time).

Then in short order they (1) reined in a potential infringer who filed an early DJ action, (2) partially upheld a jury verdict in favor of an individual patent holder, and (3) vacated a lower court’s summary judgment finding of no infringement and no liability for damages. What’s truly amazing is that in the second of these (Voda v. Cordis), they actually upheld the jury’s finding of infringement under the doctrine of equivalents – THE DOCTRINE OF EQUIVALENTS of all things! (For you youngsters who’ve never heard of it, just ask anyone in practice before 2002. He might even be able to tell you about phlogiston too.)

Speaking of ancient history, the Eight Circuit at one time was so anti-patent they had an unbroken string of 18 or 19 decisions, each finding the subject patents invalid.  Finally, and no doubt recognizing that this had not gone unnoticed by the bar, they upheld some obscure patent, probably just to get one in the “win” column for a change.

While the cynical side of me says the Federal Circuit is simply doing the same thing here, (after all, even the tightest casinos have to let someone win on occasion) I’d like to think maybe the pendulum is swinging back in favor of patentees once again.  

On a serious note, what I’d truly like to think is that the work former Judges Markey, Rich and others did to deliver patent law from an arcane backwater to the forefront of law has not been wasted.  There is no doubt in my mind that the law has shifted away from protecting individual inventors in recent years and that some on the Court have an agenda in that direction.  Whether they will win out is unclear. 

Perhaps this minor string of cases upholding patent rights signals a real change back to strong patents.  Perhaps they are only a minor aberration.  Or perhaps the real aberration has been the first twenty years of the Federal Circuit’s existence and that what we are witnessing now is merely a reversion of the law back to what it has been all along.  I’d like to think not, but the truth is that for most of the Twentieth Century patents weren’t worth much, if anything. We’ve lived through that before and it could easily happen again.  Are we heading that direction?  Guess time will tell.
 

Count me among the latest to question whether the Eastern District of Texas is still THE venue for bringing plaintiff's patent cases.  A "Rocket Docket" it ain't.

We've filed a fair number of cases in the Eastern District over the years.  Although things used to move with dispatch, in one of our latest, the first available date for a Markman hearing was June 2010.  In another case, we are awaiting a Markman ruling following a hearing in April 2007.

And check out this apparently routine order we just received.  Basically, it requires asking for permission before filing a whole host of motions and on its face plainly states the measures are needed "Due to the large number of patent cases pending on the Court's docket."

This is all no doubt due to the Eastern District's well deserved reputation as a fair and friendly forum for hearing patent cases.  But I suppose there can be too much of a good thing. The backlogs were probably inevitable.

*Yes, I am aware Houston is not actually in the Eastern District.  Just couldn't resist the cheap humor.

The overwhelming majority of cases settle.  What varies is when, how and on what terms they do.  Maybe it has to do with a weakening economy, but we're seeing a definite trend for defendants (or more likely their lawyers) to dig in their heels and fight, rather than take the sensible approach of reaching a deal.

I am not really surprised, given that every day I read of another major firm laying off 50 lawyers or, worse yet, shutting its doors.  Money spent on lawyers is one of the first things cut when cash is tight, and with fewer big ticket litigation matters available to pay the rent, big firm lawyers have a powerful incentive to turn every case into something major.

How do I know?

I used to be a big firm partner working mostly the defense side and know how it goes.

The standard speech always includes an appeal to "principle" and the need to send a strong message that "we will not be pushed around."  As if any plaintiff's lawyer actually takes that into consideration.

There are a lot of questions we consider before taking a case and certainly before filing a complaint.  Most important is, does the case have merit?  Second,  are potential damages sufficient to make it worthwhile?  Very important is whether  the defendant can actually pay if judgment is obtained?  However, one question that NEVER gives us any pause whatsoever is, "will the defendants put up a fight?"  Of course they will.  That is ALWAYS a possibility, and a company's reputation for defending cases vigorously simply does not enter into the calculation.  Facing defense counsel and their defenses is just part of the game.

Having now been on the plaintiff's side for quite some time, I feel somewhat foolish recalling the principled speeches I once gave corporate clients regarding the need to stand up and send a strong message to the plaintiff's bar.  In reality,  my opponents did not care about reputations, "messages" or the perceived nastiness of defense counsel.

I understand a big firm lawyer's need to hit his numbers and bring in the cash.  And fighting cases is what we lawyers do, on both sides.  But rational business decisions by clients should be based on more than silly claims about "messages" and "principle"  and so forth.  You'd think that people smart enough to get rich in the first place would know when their lawyers are blowing smoke. 

Again, the overwhelming majority of cases settle, and they usually do so when when clients wake up to where their true interests actually lie.

A few years back I wrote about what I saw as a developing  "War on Juries" in patent cases.  A couple of recent incidents suggest that the war continues.

Last week we lost a hard-fought case on summary judgment.  That happens, it's part of the game, and the lawyer who never loses most likely never accepts a real challenge either.  But what's humorous about it is that the decision came four days after trial was originally scheduled to have begun.  Given that the whole idea of summary judgment is to increase efficiency and resolve one-sided cases early on, the fact that the case could have been tried to a verdict in less time than needed for summary judgment leaves me scratching my head.

This week, the Federal Circuit (surprise, surprise) overturned yet another lower court decision in favor of a patentee.  In that case, the judges concluded that the invention was "obvious" based on some sort of "common sense" inventive standard.  (Guess that's kind of up there with the "we know it when we see it" standard.)

What strikes me about both developments is all the judicial lip service paid about what "the trier of fact" could and could not reasonably conclude.  Rather than simply present the evidence to the actual trier of fact, i.e., a jury, the courts prefer to spend more time, effort and money guessing about what a jury could find rather than simply presenting the evidence and finding out for real.

The elephant in the room is that juries play little, if any, real role in patent litigation today.  Courts still seat them (if you get that far) as some sort of quaint hold-over from the past, but as far as their decisions actually carrying any weight,  well, given that virtually every important question is now an issue of law, and hence reviewable de novo by the CAFC, the sad truth is that you will win only if the handful of judges there decide to let you win.

Hope I'm wrong about this, but the handwriting is on the wall.  And it doesn't look encouraging.

In recent years, federal district courts around the country have enacted local rules governing patent cases. The  Northern District of California was one of the first, and its local rules are now extensive and detailed. The Eastern District of Texas enacted local rules to speed up the litigation of patent cases, and it is now  the most popular forums for the litigation of patent suits in the country. The volume of patent cases, however, has slowed the E.D. Texas docket considerably.  Other districts have followed suit, including the Western District of Pennsylvania and, most recently, the District of Massachusetts, adopting local rules for patent cases. At least one result (and perhaps an underlying purpose) of those rules has been to encourage the filing of patent cases in those districts.

The Eastern District of Virginia is the original “Rocket Docket” having enacted local rules to speed up cases almost forty years ago. The E.D.Va. continues to be one of the fastest courts in the United States, with an average time to resolution of civil cases of only about six months. The E.D. Va. has also been a relatively popular forum for patent cases, ranking in the top ten of federal district courts for filing patent suits.

The E.D.Va., however, has no local rules for patent cases. Rather, the three divisions of the court, and even judges in the same division, follow different procedures for dealing with their cases and different ways of handling patent cases.  As a result, there is little predictability in the E.D.Va. on issues such as whether tol extend the pre-trial period for patent cases to allow for the greater amount of preparation necessary in such cases, whether the Court will allot more trial days for a patent trial than the two or maybe three days it allows for most trials and whether the Court will incorporate patent-specific procedures, such as the filing of claim charts and the scheduling of a Markman hearing.

There are many potential benefits to adoption of local patent rules. Scheduling can be more uniform, and the litigation can be streamlined. Conducting claim construction early in the case can remove uncertainty and encourage earlier resolution of cases, decreasing the Court’s workload. Given the volume of patent cases filed in the E.D.Va., the Court should consider adopting limited local rules addressing the unique features of patent litigation. Such rules should be simple, and they should be permissive, so that individual judges can adapt them to each judge's docket and the needs of a specific case.

By Dale C. Campbell

Most states have adopted some form of the Uniform Trade Secret Act (the “UTSA”). The USTA provides that “actual or threatened misappropriation may be enjoined.” (See Cal. Civ. Code § 3426.2(a).) However, neither the UTSA nor California’s version of the USTA defines the term “threatened” misappropriation. Unlike other areas of intellectual property law, the protectability of trade secrets is defined by state law. Despite almost nationwide adoption of the USTA, state law differs greatly concerning which acts may be enjoined as “threatened” misappropriations.

Many states have adopted the inevitable disclosure doctrine which allows a trade secret owner to enjoin a former employee from working for a direct competitor despite the trade secret owner’s inability to prove actual or threatened misappropriation of trade secrets. The inevitable disclosure doctrine is based upon a demonstration that “the employee’s new job duties will inevitably cause the employee to rely upon knowledge of the former employer’s trade secrets.” (See Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, 1446.)

California courts have rejected the inevitable disclosure doctrine, finding that it is directly contrary to California’s public policy prohibiting an employer from entering into a noncompetition agreement with its employees. (Bus. and Prof. Code § 16600.) Courts applying California law have routinely found that the inevitable disclosure doctrine would “create an after-the-fact covenant not to compete restricting employee mobility.” (Ibid.)

New York is one of the leading jurisdictions that has adopted and is expanding the scope inevitable disclosure doctrine. The United States District Court for the Southern District of New York recently addressed the inevitable disclosure doctrine and seems willing to expand its scope even beyond other jurisdictions that have adopted the doctrine. (IBM v. Papermaster, 2008 WL 4974508 (S.D.N.Y.).) Many courts that have adopted the inevitable disclosure doctrine treat it as a subspecies of the statutory “threatened” disclosure. However, the Court in IBM v. Papermaster considered the inevitable disclosure doctrine as a third species of proof justifying the issuance of an injunction prohibiting a former employee from joining a competitor. The IBM court found that a former employee may be enjoined from joining a competitor “[e]ven where a trade secret has not yet been disclosed, irreparable harm may be found based upon a finding the trade secrets will inevitably disclosed, where . . . the movant competes directly with the prospective employer and the transient employee possesses highly confidential or technical knowledge concerning marketing strategies or the like.” (IBM v. Papermaster (2008) WL 1974508 at 7, citing Estee Lauder v. Batra, 430 F.Supp.2d 158, 174 (S.D.N.Y. 2006).) The IBM Court specifically found “because [defendant] has been inculcated with some of IBM’s most sensitive and closely-guarded technical and strategic secrets, it is no great leap for the Court to find that plaintiff has met its burden of showing a likelihood of irreparable harm.” (Id. at 8.) The IBM Court cited two additional factors that make the likelihood of irreparable harm more than mere speculation. First, the defendant had acknowledged in his employment agreement that IBM would suffer “irreparable harm” if he violated the noncompetition agreement and that it is inconceivable that the defendant would not draw upon his IBM experiences in making marketing decisions on behalf of his new employer. 

The inevitable disclosure doctrine, especially as adopted by New York, is contrary to California law. Nevertheless, the Fifth District Court of Appeal in Central Valley General Hospital v. Smith (2008) 162 Cal.App.4th 501, recently examined the distinction between “threatened” misappropriation and inevitable disclosure. The defendant in that case argued that California’s rejection of the inevitable disclosure doctrine effectively preempted a court’s ability to enjoin conduct that “threatened” the disclosure of a trade secret. The Court disagreed, stating, “The principle that threatened misappropriation of trade secrets may be enjoined is the law of California despite the rejection of the inevitable disclosure doctrine by California courts.” (Central Valley General Hospital, supra, 162 Cal.App.4th at 525.) The Court then outlined four alternative variations for attempting to prove threatened misappropriation. The first variant is proof that the former employer had protectable trade secrets, that those trade secrets remain in the knowledge of the former employee, and that the former employee has misused or disclosed some of those trade secrets in the past. (Id. at 527.) Evidence that a person has misappropriated trade secrets in the past is evidence sufficient to establish that that former employee may do it again.

The second variant of threatened misappropriation is evidence that the former employee “intends to improperly use of disclose some of those trade secrets.” This variant requires the moving party to establish the actual intent of the employee to misuse the trade secrets.

The third variant for proving threatened misappropriation occurs when the former employee and new employer wrongfully refuse to return the trade secrets after a demand for their return has been made. The Court did not formally adopt this variant as an acceptable means of proving threatened misappropriation; rather, it merely assumed that such evidence might be sufficient to support an injunction, but found no such facts in the record to support such a finding.

The last variant discussed by the Court was whether threatened misappropriation could be established if the only factual showing is the defendant was in actual possession of the trade secrets. The short answer is “no.” The Court expressly found that a claim of threatened misappropriation “requires a greater showing than mere possession by the defendant of trade secrets where the defendant acquired the trade secret by proper means.” (Central Valley General Hospital, supra, 162 Cal.App.4th at 528.)

California refuses to adopt the inevitable disclosure doctrine as contrary to its public policy. However, the doctrine of “threatened misappropriation” remains a viable alternative to enjoin the misuse or the misappropriation of trade secrets before the harm actually occurs. California courts require proof beyond mere possession of the trade secret. However, past misuse, evidence of actual intent, and possibly refusal to return the trade secrets can support an injunction. The sliding scale of evidence from inevitable disclosure to prohibited threatened misappropriation must be carefully considered in preparing supporting evidence and argument to enjoin a threatened misappropriation.

By Audrey Millemann

In Tokyo Keiso Company, v. SMC Corporation, 2009 WL 59769 (Fed. Cir. 2009)the Federal Circuit has again relied on the Supreme Court’s decision in KSR in invalidating a patent for obviousness.

The plaintiff, Tokyo Keiso, is the owner of a patent that covers a volume flow meter that measures the volume of a fluid flowing through a pipe or measuring line. The patent describes the prior art devices as having two measuring heads, one on each end of the measuring line, and using an acoustic signal transmitted through the metal measuring line. The problem with the prior art devices was that the sound travelled faster through the metal than through the fluid, resulting in inaccurate measurements. The invention in Tokyo Keiso’s patent used a measuring line made of plastic, instead of metal, which caused the acoustic signal to travel more slowly through the plastic than the fluid and made the flow meter more accurate. 

Tokyo Keiso sued SMC Corporation for patent infringement in the Central District of California in 2006.  In 2007, SMC moved for summary judgment of invalidity based on obviousness. SMC’s motion was based on two prior art references – a patent and an article – that both disclosed flow meters with plastic tubing.

The district court granted SMC’s motion.  The court found that the prior art references rendered the patent obvious and that, because neither reference had been before the PTO during patent prosecution, the patent’s presumed validity was weakened. 

Tokyo Keiso appealed the decision to the Federal Circuit.  In affirming this district court’s decision, the appellate court quoted from the Supreme Court’s decision in KSR v. Teleflex, 127 S.Ct. 1727, 1745-46 (2007): “The ultimate judgment of obviousness is a legal determination.  Where … the content of the prior art, the scope of the patent claim, and the level of ordinary skill in the art are not in material dispute, and the obviousness of the claim is apparent in light of these factors, summary judgment is appropriate.”  Tokyo Keiso Company, supra, at *3. 

Tokyo Keiso asserted that the district court did not perform a claim-by-claim analysis.  Tokyo Keiso also argued that there were disputed questions of fact, including that the prior art references did not address the specific problem solved by the patented invention and that a person having ordinary skill in the art would not have utilized the prior art references to solve the problem.  Tokyo Keiso also contended that the prior art references did not teach all of the limitations of the patent, that the patent was entitled to a presumption of validity, that the references were cumulative, and that the district court did not give any weight to the secondary considerations of nonobviousness (long-felt need and commercial success).  SMC disagreed with each of Tokyo Keiso’s points and asserted that the district court had properly followed KSR.

The Federal Circuit affirmed the district court’s grant of summary judgment.  The court held that the patent was obvious based on the prior art article combined with the admissions in the patent’s specification that certain limitations were present in the prior art.  According to the court:

“Valid prior art may be created by the admissions of the parties…[A] statement by an applicant during prosecution identifying certain matter not the work of the inventor as ‘prior art’ is an admission that the matter is prior art.”

Id. at *5, quoting Riverwood International Corp. v. R.A. Jones & Co., 324 F.3d 1346, 1354 (Fed. Cir. 2003).  The court found that Tokyo Keiso had admitted that the only difference between its invention and the prior art was the material that the measuring line was made of (plastic).  The court concluded that the prior art article relied upon by SMC disclosed the use of plastic.

The court further found that a person having ordinary skill in the art would have combined the prior art article with the prior art admitted in the patent. 

“When a work is available in one field of endeavor, design incentives and another market forces can prompt variations of it, either in the same field or a different one.  If a person of ordinary skill can implement a predictable variation, § 103 likely bars its patentability.”

Id. at *6, quoting KSR, supra, 127 S.Ct. at 1740.

The court also held that there were no disputed material facts because the prior art article clearly disclosed the limitations not present in the admitted prior art.  Id. at *6.  Lastly, the court held that the secondary considerations of nonobviousness asserted by Tokyo Keiso did not overcome the strong evidence of obviousness.  Id. at *7.

by W. Scott Cameron

Most everyone knows that federal copyright laws protect an author’s expression of an idea. When someone infringes a protected work, either by copying or distributing it without permission, the copyright owner is generally entitled to damages. In Dream Games of Arizona v. PC Onsite, --- F.3d --- (April 2, 2009), the Ninth Circuit addressed a question of first impression in the circuit: Whether illegal use or operation of a work by the copyright owner precludes the award of actual or statutory damages for copyright infringement. 

Dream Games of Arizona is a company that creates, designs, develops, and sells electronic video bingo games, including a game called Fast Action Bingo. In March 2002, Dream Games entered into negotiations with PC Onsite for a software upgrade to Fast Action Bingo. The parties signed a nondisclosure agreement in which it was clear that Dream Games retained all intellectual property in the game. 

PC Onsite created a new version of Dream Game’s Fast Action Bingo, and cleverly called it Fast Action Bingo II. When PC Onsite presented it to Dream Games, however, negotiations for an agreement to go forward with the new game broke down. Immediately thereafter, PC Onsite created Quick Play Bingo I, a game remarkably similar to, and in fact based upon, Fast Action Bingo II. PC Onsite registered the copyright of the source code for its new game, and marketed it through City Entertainment. PC Onsite and City Entertainment agreed to install and operate Quick Play Bingo I in bingo parlors in Utah and Wyoming. Several of the bingo parlors with the Quick Play games already had Fast Action Bingo games, and the two games competed directly.

Dream Games discovered the Quick Play Bingo I games, and not surprisingly, filed suit for copyright infringement, breach of contract, and unjust enrichment. A complicating factor in the case was the fact that gambling is illegal in both Utah and Wyoming. In fact, the Wyoming Supreme Court specifically found that Fast Action Bingo machines were illegal in its state, and several machines had been seized in Utah. During the ensuing jury trial, the district court ruled that Dream Games could not recover actual damages for Fast Action Bingo’s lost profits because the game was offered illegally in Utah and Wyoming. The court did not preclude statutory damages, however, and the jury eventually awarded Dream Games $25,000 in statutory damages. PC Onsite appealed. Dream Games filed a cross-appeal, but apparently did not challenge the ruling that it was not entitled to actual damages.

On appeal PC Onsite first argued that the district court erred when it allowed evidence that included the unprotected elements of the Fast Action Bingo game along with the four elements that were protected by the copyright. The Ninth Circuit had no problem dispensing with this argument, citing case law that held copyright infringement can be based on infringement of a combination of unprotected elements. The court pointed out that in combination, the jury might find these elements protectable, and to allow the possibility of such a finding, the jury must be allowed to see the complete work. It is necessary for the unprotectable elements to be identified to the jury, and the district court did that in its jury instructions. Contrary to PC Onsite’s argument, the Ninth Circuit held that the district judge is not also required to specify the elements which are protectable.

The court then turned to the question of damages. PC Onsite argued, logically, that Dream Games should not be entitled to damages for copyright infringement because the use that it was infringing, bingo parlors in Utah and Wyoming, was illegal. The argument has some initial appeal. If the use by the copyright owner was illegal, then awarding damages for infringement allows the owner to be compensated because the infringer cut into its illegal revenue. This can’t be right, can it?

As it turns out, although it had never addressed the issue before, the Ninth Circuit held that it is right. With a closer look, perhaps that makes sense after all.

The court started by exploring the broad basis for copyright protection, and prior cases holding that fraudulent content of a work was not a basis for denying copyright protection. The court quoted Nimmer on Copyright for “the prevailing view [ ] that no works are excluded from copyright by reason of their content.” It went on to say that “there is nothing in the Copyright Act to suggest that the courts are to pass upon the truth or falsity, the soundness or unsoundness, of the views embodied in a copyrighted work.” Indeed, as the court noted, “the gravity and immensity of the problems, theological, philosophical, economic, and scientific, that would confront a court if this view were adopted are staggering to contemplate.” 

The court also pointed out that the Fast Action Bingo machine, while illegal in Wyoming or Utah, was not illegal in other geographical areas. In the court’s view, “it would be absurd to deny a work the protection of a federal copyright because it is capable of illegal use in one or more states, but capable of perfectly legal use in other states.” One of the purposes of copyright protection is to deter infringement. To preclude damages based on the content of the work would be contrary to this goal, and provide no incentive to avoid copying another’s work. 

The court held that “an award of either type of damages available under the Copyright Act – actual or statutory – is not precluded by evidence of illegal operation of the copyrighted work, at least where the illegality did not injure the infringer.” With this holding, it is interesting that Dream Games did not appeal the denial of actual damages. Had it done so, it is likely that a new trial on damages would be necessary given the ruling. Assuming more than $25,000 in actual damages was at issue, this seems like a costly mistake for Dream Games.

Finally, during the trial the court did not allow PC Onsite to present evidence of illegality to the jury. It ruled that the jury should focus on PC Onsite, and that any possible illegal activity by Dream Games was irrelevant to the willfulness or innocence of PC Onsite’s conduct. PC Onsite objected to the district court’s exclusion of evidence of the illegality of Dream Games’ activity in determining the amount of statutory damages to award, and appealed that ruling as well. The Ninth Circuit seemed to have little trouble dismissing this argument, also, holding that the evidence was properly excluded under Rule 403 due to the possibility of unfair prejudice. “Here, because of the district court’s familiarity with the details of the case and its greater experience in evidentiary matters, it was not an abuse of discretion to exclude evidence of illegal operations.” 

by Jeff Pietsch

Earlier this month, the Tenth Circuit court upheld a preliminary injunction granted in favor of a manufacturer of electronics equipment against a reseller of its goods in a trademark infringement action. (Beltronics v. Midwest Inventory Distribution (10th Cir. April 9, 2009)). The reseller argued that it was able to resell the manufacturer’s goods online based on the first sale doctrine. The court, however, disagreed with this assessment and ruled that the resellers violated the manufacturer’s trademark rights because Midwest’s actions caused consumer confusion.

Beltronics, a manufacturer of electronics equipment, sells its equipment under its trademark. Beltronics has used authorized distributors to sell its products at a specified minimum price. At one point in time, these distributors violated their agreements by selling radar detectors to a reseller. The reseller, Midwest, then resold the radar detectors on eBay. Prior to reselling the goods on eBay, Midwest intentionally removed the serial number label form the radar detector to prevent Beltronics from discovering that Midwest resold their goods. Beltronics learned of the sales when it was contacted by several customers seeking warranties on the products purchased on eBay. Beltronics’ warranty policy, however, only covers products that were purchased with a valid serial number on the product. Because Beltronics would not warranty products purchased on eBay, these consumers became upset with Beltronics. These customers expressed their belief that Beltronics had deceived them. Obviously, these complaints harmed Beltronics’ reputation and goodwill.

Learning of the possible damages to its goodwill, Beltronics filed a suit against Midwest for trademark infringement and sought preliminary injunction to stop further sales. The district court granted the injunction and Midwest filed an appeal.  The issue that the court examined on appeal was whether or not Midwest violated Beltronics trademark rights.

The guiding principle in trademark law is that trademarks are granted in order to protect consumers. Trademarks protect consumers by identifying the source of goods.  If a product is sold in the marketplace that causes confusion to the source of the goods, then the sale may constitute trademark infringement. The more likely the confusion, the more likely infringement has occurred.          

Beltronics argued that the manner in which Midwest sold radar detectors caused confusion in the minds of consumers. Midwest, however, relied on a specific defense to trademark infringement known as the first sale doctrine. The first sale doctrine states that those who resell genuine trademarked products are generally not liable for trademark infringement. The rationale behind this defense is as stated above. Trademark law is designed to prevent sellers from confusing consumers about the source of products. If a genuine article is being resold, this confusion does not exist. If a purchaser of a product does no more than “stock, display and resell a producer’s product under the producer’s trademark” no trademark violation has occurred.

The first sale doctrine, however, does not apply when the reseller sells trademarked goods that are materially different than those sold by the trademark owner. Since a materially different product is not genuine, consumers may be confused as to the source of the products. In order to determine if Midwest could rely on the first sale doctrine, the court determined whether the changes that Midwest made to the product as sold on eBay constituted a materially different product. Midwest argued that its changes were not materially different because the changes revolved solely around the product’s warranty. Midwest claimed that it removed the serial number, so consumers would know that the purchaser would not be covered under Beltronics’ warranty. In addition, on its eBay sales page, Midwest disclosed to potential purchasers that the product was covered by Midwest’s own warranty and not any other. Based on these facts, Midwest argued that the changes to the product were immaterial and that it was protected from any liability under the first sale doctrine.

The court, however, was not persuaded by these arguments. The court held that even though there may have been no physical change in the products, there was a material difference in the nonphysical characteristics associated with the product. Since Midwest did not offer the same warranty as Beltronics did, the court held that this constituted a material difference. The court stated that such characteristics as warranties and customer service must be considered when examining the product as a whole. Since the resale of a trademarked product that is materially different constitutes trademark infringement, the court upheld the preliminary injunction.

On the other hand, the court may have ruled differently if Midwest’s disclosures were more effective. Because several consumers who purchased the radar detectors through eBay eventually came to Beltronics seeking warranty coverage shows that consumer confusion actually did exist. Consumers thought they were purchasing a radar detector that was covered by Beltronics’ warranty and service commitments. What they actually were purchasing was the same physical product but without the nonphysical services associated with the trademark. This led the court to conclude that Midwest infringed on Beltronics’ trademark rights. If Midwest disclosures were effective and consumers were not actually confused, the court may have ruled in favor of Midwest.

by Scott Hervey

It’s been five years since the Trademark Trial and Appeal Board dramatically changed the way Untied States trademark registrations are handled. The case of Medinol Ltd. v. Neuro Vasx, Inc. reflected an analytical shift in the way in which the Trademark Trial and Appeal Board (TTAB) determines whether an applicant committed fraud on the trademark office. The holding also provided those seeking to cancel a trademark registration with a powerful weapon, and created substantial risk for trademark applicants and registrants who overstate the goods or services in their application. The facts of Medinol Ltd. v. Neuro Vasx, Inc. are as follows:

Neuro Vasx, Inc. filed a trademark application for the mark NEUROVASX for “medical devices namely, neurological stents and catheters.” The mark was filed based on Neuro Vasx’s intent to use the mark. Eventually Neuro Vasx filed a Statement of Use which stated that they were using the mark in commerce in connection with the goods and services identified in the application. The Statement of Use concluded with the following required declaration:

The undersigned being hereby warned that willful false statement and the like so made are punishable by fine or imprisonment or both,…and that such willful and false statements may jeopardize the validity of the application or any resulting registration, declares that…the mark is now in use in commerce; and all statements made of his own knowledge are true and all statements made on information and belief are believed to be true.

The Statement of Use was signed by Neuro Vasx’s president and accepted by the trademark examining attorney. In August 2000 Neuro Vasx’s application moved forward to registration. 

In May, 2002, Medinol filed a petition to cancel Neuro Vasx’s trademark registration alleging that at the time Neuro Vasx submitted its Statement of Use it had not used the mark on or in connection with stents and that it had not done so since. Medinol alleged that Neuro Vasx’s registration was procured by knowingly false or fraudulent statements and that “said false statement were made with the intent to induce authorized agents of the Patent and Trademark Office to grant registration, and reasonably relying upon the truth of said false statements, the PTO did, in fact, grant said registration to [Neuro Vasx].”

In answer to Medinol’s cancellation petition, Neuro Vasx responded by requesting partial cancellation of its own trademark registration by deleting the word “stents” from the list of goods. Neuro Vasx admitted that it had not used its mark in connection with stents; it claimed that upon the filing of its Statement of Use, the electronic check box for the goods and services identified in a Notice of Allowance was inadvertently checked and the fact that stents was still included was “apparently overlooked.” 

The TTAB did not accept Neuro Vasx’s excuses. The TTAB found the Statement of Use would not have been accepted, nor would registration have issued but for Neuro Vasx’s misrepresentation and that Neuro Vasx’s request to delete stents from its list of goods does not remedy an alleged fraud upon the USPTO. If fraud can be shown in the procurement of a registration, the entire resulting registration is void. 

The TTAB found that at the time Neuro Vasx filed its Statement of Use, it either knew or should have known that the mark was not being used in connection with stents. (“There were only two goods identified in the Notice of Allowance; the mark was either in use of both, or it was not.”) Further, when submitting its statement of use, Neuro Vasx’s president signed its statement under penalty of “fine or imprisonment…and that such willful false statements may jeopardize the validity of the application or any resulting registration.” The TTAB found that such statements should be investigated thoroughly prior to signature and submission to the USPTO. Based on such findings, the TTAB sua sponte entered summary judgment in favor of Medinol on the issue of fraud and indicated that it would cancel Neuro Vasx’s registration provided Medinol had proved that it had standing the petition for cancellation (which it later did). 

The Lessons of Medinol.

Subsequent to Medinol, the TTAB has made short work of cases in which similar fraud allegations were made; granting little to no relief to those who can not establish use in connection with each and every single item of good or service listed on the mark owner’s application. Further, the TTAB has been freely granting plaintiffs in Oppositions and Cancellation proceedings leave to amend to allege fraud.

Prior to Medinol, some applicants sought to register trademarks for the widest range of goods and services possible. This is particularly true for foreign applicants who follow the practice in numerous foreign jurisdiction of applying for as broad a range of goods or services that appear to cover the entire international class. The registration resulting from such applications may be subject to cancellation if the mark is not in use in the United States with each and every good or service listed in the application.

When filing an application, resist the impulse to be over-inclusive. If the application is based on actual use, only file for goods that are in use. If the application is based on intent to use, a broad scope is OK initially, as long as it has been narrowed to reflect the mark’s actual use by the time the Statement of Use is filed.

A mark owner should also keep good records of the mark’s use; knowing that a potential opposer may challenge the validity of your Statement of Use and supporting evidence.

by James Kachmar

On May 7, 2009, the Ninth Circuit issued its opinion in the case, Barnes v. Yahoo!, Inc. (No. 05-36189), in which it decided the issue of whether the Communications Decency Act of 1996 (“CDA”) protected Yahoo from a lawsuit where it allegedly promised to remove harmful material to the plaintiff from its website but failed to do so. 

In 2004, Cecilia Barnes broke up with her boyfriend and he responded by posting profiles of Ms. Barnes on a Yahoo website. The profiles contained nude photographs of Ms. Barnes and her ex-boyfriend that were apparently taken without her knowledge and the profiles included solicitations to engage in sexual intercourse. The ex-boyfriend also participated in discussions in Yahoo chat rooms in which he posed as Ms. Barnes and directed correspondents to the fraudulent profiles of Ms. Barnes he had created. In response to these profiles, several men contacted plaintiff, including visits to her office, all in the expectation of sex.

Pursuant to Yahoo’s policy, Ms. Barnes mailed Yahoo a copy of her ID and a signed statement denying her involvement with the profiles and requested their removal. When Yahoo did not respond to her statement, she again asked Yahoo to remove the profiles. She received no response.

Ms. Barnes sent Yahoo two more mailings over the following month and a local news program prepared to broadcast a report concerning the incident. One day before the broadcast, Yahoo’s Director of Communications called Ms. Barnes and asked her to fax her the previous statements she had mailed to Yahoo. The Director of Communications told Ms. Barnes that she would “personally walk the statements over to the division responsible for stopping unauthorized profiles and they would take care of it.” Ms. Barnes claimed that she relied on this oral representation and took no further action regarding the profiles. Another two months passed with no action by Yahoo at which point Ms. Barnes filed a lawsuit against Yahoo.  (The profiles were taken down from Yahoo’s website shortly thereafter.) 

The Court construed Ms. Barnes complaint against Yahoo to assert two causes of action: (1) “negligent undertaking” under section 323 of the Restatement 2^nd of Torts; and (2) a theory of promissory estoppel under section 90 of the Restatement 2^nd of Contracts. Yahoo removed the action to federal court and its motion to dismiss the complaint was granted by the lower court which found that, under the CDA, Yahoo was immune from liability as a matter of law. 

The Ninth Circuit began by recognizing that section 230(c) of the CDA provides an affirmative defense and that procedurally, Yahoo should have raised this issue as an affirmative defense and then moved for judgment on the pleadings. Given that the lower court, however, had granted the motion to dismiss, the Ninth Circuit overlooked this procedural irregularity and considered the matter on the merits.

The Ninth Circuit recognized that section 230 of the CDA “protects certain internet-based actors from certain kinds of lawsuits.” The Legislative purpose was designed “to promote the free exchange of information and ideas over the internet and to encourage voluntary monitoring for offensive or obscene materials.” 

Under section 230(c)(1) of the CDA, “[n]o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” Yahoo’s motion to dismiss was based exclusively on this section and it argued that courts were barred “from treating certain internet service providers as publishers or speakers.” Although the Ninth Circuit disagreed with the breadth of Yahoo’s argument, it concluded that section 230(c)(1) “only protects from liability (1) a provider or user of an interactive computer service (2) when plaintiff seeks to treat under a state law cause of action as a publisher or speaker (3) of information provided by another information content provider.” 

The Ninth Circuit focused on whether plaintiff’s two causes of action required Yahoo to be treated as a “publisher or speaker” in order to impose liability. The Ninth Circuit recognized that defamation is the most frequently-associated cause of action with section 230 of the CDA. In fact, the CDA had been enacted in response to a prior case holding an internet service provider liable under a defamation cause of action. The Ninth Circuit concluded, however, that “a law’s scope often differs from its genesis” and that section 230 was not limited in its application to defamation cases. Rather, the Ninth Circuit concluded that “what matters is whether the cause of action inherently requires the Court to treat the defendant as the `publisher or speaker’ of content provided by another.”

As to her negligent undertaking cause of action, plaintiff argued that it did not treat Yahoo as a publisher, but rather, Yahoo was one who undertook to perform a service and did it negligently. The Ninth Circuit rejected this argument and concluded “a plaintiff cannot sue someone for publishing third party contents simply by changing the name of the theory from defamation to negligence.” 

Barnes also attempted to distinguish Yahoo by claiming it was a “distributor” and not a “publisher” of the harmful content. The Ninth Circuit, however, declined to resolve the issue of this distinction and ruled “section 230(c)(1) precludes courts from treating internet service providers as publishers not just for the purposes of defamation law, with its particular distinction between primary and secondary publishers, but in general.” Thus, the Ninth Circuit concluded that the trial court properly dismissed plaintiff’s negligent undertaking cause of action.

The Ninth Circuit concluded differently, however, as to plaintiff’s other cause of action for promissory estoppel theory under contract law. The Ninth Circuit focused on whether this theory of recovery would treat Yahoo as a “publisher or speaker” under the CDA.

The Ninth Circuit recognized that “in a promissory estoppel case as in any other contract case, the duty that defendant allegedly violated springs from a contract – an enforceable promise – not from any noncontractual conduct or capacity of the defendant.” The Ninth Circuit recognized that plaintiff did not seek to hold Yahoo liable under this cause of action “as a publisher or speaker of third party content but rather as the counterparty to a contract as a promissory who has breached.” 

The Court distinguished plaintiff’s promissory estoppel claim from her negligent undertaking claim because “promising is different because it is not synonymous with the performance of the action promised.” The Court reasoned that “contract liability here would not come from Yahoo’s publishing conduct, but from Yahoo’s manifest intention to be legally obligated to do something which happens to be removal of material from publication.” The Ninth Circuit continued by recognizing that under a contract theory there must have been a clear and well defined promise and a meeting of the minds between the parties. Thus, Yahoo could have avoided liability by disclaiming any intention to be bound which it failed to do. The Ninth Circuit concluded “subsection 230(c)(1) creates a baseline rule. No liability for publishing or speaking the content of other information service providers. Insofar as Yahoo made a promise with the constructive intent that it may be enforceable, it has implicitly agreed to alteration in such baseline.” 

As a result, the Ninth Circuit concluded that plaintiff could state a breach of contract claim under the theory of promissory estoppel and that section 230(c)(1) of the CDA did not bar that cause of action. Therefore, the Ninth Circuit reversed the lower court’s granting of the motion to dismiss on that cause of action.

by Zachary Wadlé

Hilton Hotels Corporation and two high-ranking executives are facing a civil lawsuit and a federal grand jury investigation stemming from allegations that they developed Hilton's new luxury lifestyle brand, “Denizen,” using proprietary information stolen from rival hotel company Starwood.

The civil complaint filed in federal district court in White Plains, New York, alleges that Ross Klein and Amar Lalvani, two former Starwood executives who joined Hilton last summer, stole more than 100,000 electronic and paper documents containing Starwood’s trade secrets.

According to Starwood's complaint, Hilton began courting the Starwood executives in February and March 2008. It was at that time, the suit alleges, that Klein “secretly misused his position” at Starwood to compile and steal confidential information. In their last months at Starwood, the two executives allegedly smuggled out thousands of confidential documents via email and in direct shipments from Starwood to their homes and to Hilton. Among the information Starwood claims Klein and Lalvani took was a concept called the “zen den” that Starwood planned to implement at its line of “W Hotels.” Hilton executives have referred to Hilton’s “Denizen” brand as a “den of zen,” the complaint alleges, adding that, “within Starwood the name has a familiar ring.” “This is the clearest imaginable case of corporate espionage, theft of trade secrets, unfair competition and computer fraud,” Starwood asserted in its lawsuit. “The sheer volume of the theft is extraordinary, and may be unprecedented. The materials taken to Hilton by Klein and Lalvani are among Starwood's most competitively sensitive information.”

In a corporate statement responding to Starwood’s civil suit, Hilton said “it believes this lawsuit is without merit and will vigorously defend itself. We fully intend to move forward on the development of our newest brand, Denizen Hotels.”  However, as details of the grand jury investigation recently became known, Hilton changed its tune and agreed to a court injunction in the civil case halting development of the Denizen brand and placed Ross Klein and Amar Lalvani on paid administrative leave, along with members of their team.

The Hilton criminal investigation makes clear that, in extreme cases, misappropriation of trade secrets can go far beyond the civil courtroom and into the criminal justice system. Trade secrets are protected under both federal and state laws. Although the statutory definitions vary somewhat, these statutes all reflect a similar understanding of what constitutes a trade secret, and what constitutes misappropriation of a trade secret.

The Uniform Trade Secrets Act ("UTSA"), which has been enacted in many states, and other state trade secret statutes provide civil penalties for the misappropriation of trade secrets. Liable parties can be required to pay all damages resulting from the misappropriation, as well as, in some cases, multiple damages or punitive damages. In addition, the defendants can be enjoined from using or disclosing the trade secrets. 

The 1996 federal Economic Espionage Act ("EEA") (18 U.S.C. §§ 1831-1839), as well as statutes in various states, including California, can also impose criminal liabilities, including heavy fines and prison terms, for theft of trade secrets. The EEA imparts criminal liability for the theft or misappropriation of trade secrets as well as any attempt or conspiracy to steal or misappropriate trade secrets. Sections 1831 and 1832 of the EEA are directed to different types of defendants. Section 1831 specifically punishes someone who intends or knows that the violation of the Act will benefit a foreign government, instrumentality, or agent, as those terms are defined in Section 1839. In contrast, Section 1832 targets trade secret theft more generally, without regard to its benefits to a foreign entity. Section 1831 applies to the theft of either products or technical skills unrelated to a product, while Section 1832 is more limited to addressing theft of a trade secret "that is related to or included in a product." Each statute uses broad terms to embrace both direct and indirect theft of a trade secret, including its alteration or destruction.

Individuals and organizations convicted of violating Sections 1831 and 1832 are subject to severe penalties. Persons convicted of violating Section 1831 may be fined up to $500,000 or imprisoned up to 15 years, or both, while any organization that commits any offense prohibited by Section 1831 may be fined up to $10,000,000. A person convicted of violating Section 1832 faces a fine of up to $500,000 or a prison sentence of up to 10 years, or both, while any organization that commits any offense described in Section 1832 may be fined up to $5,000,000.

The considerable damages and criminal liability provided for by federal and state statutes underscore the importance of having a trade secret policy for your business. At minimum, all businesses should have written policies in place concerning the use of trade secrets. Instruct new employees that the company will not tolerate violation of prior confidentiality agreements and that employees should not use any information which might be deemed to be their former employer's trade secret. Obtaining representations from new employees can serve as helpful evidence in defending the employer against an EEA claim. Strongly consider having new employees confirm in writing that they understand these obligations. Most importantly, take seriously any allegation of trade secret misappropriation. As Hilton has learned, the stakes in trade secret litigation can quickly escalate, and it is best to ensure that no misappropriation occurs in the first place.

by Dale C. Campbell

Section 43(a) the Lanham Act provides for liability related to unregistered marks. Section 43(a) provides for civil liability for any person who, IN connection with any goods or service uses in commerce any word, term, name, symbol or any combination thereof, or any false designation origin, false or misleading description of fact or false or misleading misrepresentation of which (a) is likely to cause confusion as to the origin, sponsorship or approval of the goods or services by another person or (b) in commercial advertising or promotion misrepresents the nature, character qualities or origin of his or her good, service or commercial activity. Subsection (a) is commonly known as the false origin claim and subsection (b) is commonly known as false advertising claim. In short, one can’t be liable for claims of false origin even if the statements are not made in the course of commercial advertising or promotion as required in subsection (b).

Under 15 U.S.C. § 1117(a), plaintiff is entitled to recover, subject to principals of equity: (1) defendant’s profit; (2) any damages sustained by plaintiff; and (3) the cost of the action. The court shall assess profits and damages or cause the same to be assessed under its direction. In assessing profits, the plaintiff shall be required to prove defendant’s sales only; defendant must prove all elements of cost or deduction claimed.

A plaintiff frequently elects to rely on defendant’s profits rather than attempt to prove its own damages. Defendant’s profits may be greater than the plaintiff’s damages and, perhaps more importantly, reliance on defendant’s profits is often easier to prove and does not require the plaintiff to disclose its own internal financial information or deal with the requirement to prove damages with reasonable certainty; without undue speculation.

The Seventh Circuit Court of Appeal issued a decision in late 2008 which addressed the issues of legal standards for damages under the Lanham Act. WMS Gaming, Inc. v. WPC Productions, Ltd. Plaintiff and defendant were both engaged in internet gaming on an international basis. Defendant had been utilizing plaintiff’s registered trademarks during the years 2004 through 2006.  Defendant predominantly displayed plaintiff’s marks on its website and other marketing materials. Defendants had refused numerous demands to take down the marks and, in fact, refused to defend a lawsuit thereby allowing entry of default judgment. At the prove up hearing, the District Court focused just on plaintiff’s damages based upon its interpretation of the complaint as seeking only damages, rather than an award for an accounting of defendant’s profits. The District Court also found that the evidence plaintiff submitted with respect to defendant’s profit did not identify which portion of that revenue was attributable to the games that infringed plaintiff’s mark. 

The Seventh Circuit Court of Appeal reversed stating that the plaintiff has the alternative of pursuing defendant’s profits or plaintiff’s damages citing a Supreme Court decision from nearly a century ago, in Hamilton-Brown Shoe Company v. Wolf Brothers & Company 240 U.S. 251 (1916). In Hamilton-Brown, the Supreme Court stated: “The owner of the trademark is entitled to so much of the profit as resulted from the use of the trademark.” The Supreme Court ruled that the burden would be on defendant to establish any proper cost to deduct from the entire revenue stream as well as to try to identify any element of profit that was intrinsic to the product, not attributable to the use of the name. The Appellate Court in WMS Gaming found that the District Court improperly placed the burden upon plaintiff to show which of defendant’s sales were attributable to the use of plaintiff’s mark stating: “When a trademark plaintiff offers evidence of infringing sales and the infringer fails to carry its statutory burden to offer evidence of deductions, the plaintiff’s entitlement to profits under the Lanham Act is equal to the infringer’s gross sales.” 

The litigants in a Lanham Act case must be careful not to assume too much with respect to the legal issues related to recovery of defendant’s profits versus plaintiff’s damages. Not all uses of a mark constitutes commercial advertising such as in the WMS Gaming or other leading cases dealing with the option of pursuing defendant’s profits. Subdivision 43(a)(1)(b) of the Lanham  Act requires that the confusing word or phrase be used “in commercial advertising or promotion.” The Circuit Courts which have addressed this issue instruct that a defendant cannot be liable for violating the Lanham Act on a false advertising claim unless, among other things, the complained of communications were part of an overall strategic marketing plan. Fashion Boutique of Short Hills, Inc. v. Fendi USA, Inc. 134 F.3d 48 (2^nd Cir. 2002). In Fendi, various sales persons had made disparaging comments stating that the defendant sold fake merchandise. The Second Circuit found that plaintiffs could only establish approximately 30 such false and misleading comments and therefore plaintiff had not established that the misrepresentations were used in “commercial advertising or promotion.” The court held: “The touchstone of whether a defendant’s actions may be considered ‘internal advertising or promotion’ under the Lanham Act is that the contested representations are part of an organized campaign to penetrate the relevant markets. Proof of widespread dissemination within the relevant industry is normal concomitant of meeting this requirement. Thus, businesses harmed by isolated disparaging statements do not have redress under the Lanham  Act, but instead must seek redress under state law causes of action. Fashion Boutique, Id. at 56.

If a defendant utilizes plaintiff’s mark in something other than a “commercial advertising or promotion” the plaintiff need do more than just establish a few isolated uses of its mark in order to seek all of plaintiff’s profits. The Ninth Circuit has addressed this issue in Lindy Pen Company, Inc. v. Bic Pen Company, Inc. 982 F.2d 1400 (9^th Cir. 1993). The Lindy court found that one of the hallmarks of trademark infringement is that, should a plaintiff be able to infringement, it is only entitled to recover damages directly caused by the infringement. Citing Rolex Watch v. Michel Company 179 F.3d 704, 712 (9^th Cir. 1999). The “plaintiff must prove both the fact and the amount of damage.” Lindy Pen at p. 1407. Furthermore, a jury cannot infer trademark damages based solely on evidence of a decline in sales or willful misconduct; the law requires plaintiffs to distinguish between damages caused by lawful and unlawful conduct. Computer Access Tech. Corp. v. CatalystEnters, Inc. 273 F.Supp.2d 1063, 1074 (N.D. Cal. 2003). 

The Lanham Act provides broad and varying remedies available to a plaintiff. However, the plaintiff must not treat the issue of damages cavalierly by relying on case law affirming defendant’s obligation to present evidence of costs or what elements of gross sales are not attributable to the use of plaintiff’s mark. Lawsuits alleging sufficient wrongful acts constituting commercial advertising or promotions offers plaintiff a wide ranging options to seek either its damages or defendant’s profits. However, in false origin cases or false statement cases not involving commercial advertising or promotion, plaintiff still has the burden of proving the isolated wrongful acts and causal connection between those acts and either plaintiff’s damages or defendant’s profits. The burden shifting provisions of the Lanham Act work well in commercial advertising promotion cases; but cannot be applied in ways to seek all of defendant’s profits from all business activities if plaintiff is only able to establish isolated infringing use of the mark or isolated misleading statements.

By Audrey A. Millemann

A recent decision from the Federal Circuit Court of Appeals has interpreted provisions in patent litigation settlement agreements that grant a covenant not to sue. The case is TransCore, LP v. Electronic Transaction Consultants Corp., 2009 WL 929033 (Fed. Cir. 2009). 

In TransCore, the plaintiff,TransCore, LP, owned several patents covering automated toll collection systems. TransCore sued Mark IV Industries, a competitor, in 2000, for infringement of the patents. The parties settled the case. In the settlement, Mark IV paid TransCore $4.5 million and TransCore released all existing claims against Mark IV and agreed to an unconditional covenant not to sue for future infringement of the patents.

Mark IV later sold its toll collection systems to the Illinois State Toll Highway Authority (ISTHA). ISTHA then hired a consulting firm, Electronic Transaction Consultants Corp. (EPC), to install and test the toll collection systems that it had purchased from Mark IV. 

TransCore then sued ETC in the Northern District of Texas for infringement of four patents. Three of the patents were involved in the TransCore-Mark IV case, and the fourth was issued after the settlement. TransCore sought damages of $20 million.

ETC moved for summary judgment on the grounds that Mark IV’s sales of the toll collection systems to ISTHA were authorized pursuant to the TransCore-Mark IV settlement agreement. ETC argued that the doctrines of patent exhaustion, implied license, and legal estoppel barred TransCore’s claims. 

In 2008, the district court granted ETC’s motion for summary judgment. The court held that the TransCore-Mark IV settlement agreement barred TransCore’s claims as to the toll collection systems sold by Mark IV to ISTHA because TransCore’s patent rights with respect to those systems had been exhausted. 

TransCore appealed to the Federal Circuit. The appellate court affirmed the grant of summary judgment. 

The Federal Circuit explained that under the doctrine of patent exhaustion, “the initial authorized sale of a patented item terminates all patent rights to that item” and that “exhaustion is triggered only by a sale authorized by the patent holder,” quoting the Supreme Court in Quanta Computer, Inc. v. LG Electronics, Inc., 128 S.Ct. 2109, 2115, 2121 (2008). The Federal Circuit held that the issue raised by the TransCore case was “whether an unconditional covenant not to sue authorizes sales by the covenantee for purposes of patent exhaustion.”

TransCore argued that a settlement agreement conveying a license was different from a settlement agreement containing a covenant not to sue, and that the covenant not to sue in the TransCore-Mark IV settlement agreement did not authorize sales. The appellate court disagreed.

According to the court, a patent owner can only convey what it owns, and patent owners only have the right to exclude others from making, using, selling, offering for sale, or importing the patented invention. The court stated: “one cannot convey what one does not own. This principle is particularly important in patent licensing, as the grant of a patent does not provide the patentee with an affirmative right to practice the patent but merely the right to exclude.” Therefore, the court stated that “a patentee, by license or otherwise, cannot convey an affirmative right to practice a patented invention by way of making, using, selling, etc.; the patentee can only convey a freedom from suit.” The court quoted the Supreme Court in stating that “as a license passes no interest in the monopoly, it has been described as a mere waiver of the right to sue by the patentee.” De Forest Radio Telephone & Telegraph Co. v. United States, 47 S.Ct. 366 (1927). 

The appellate court held that a non-exclusive license to a patent is equivalent to a covenant not to sue. The court explained that:

“As a threshold matter, a patent license agreement is in essence nothing more than a promise by the licensor not to sue the licensee. Even if couched in terms of ‘licensee is given the right to make, use, or sell X,’ the agreement cannot convey that absolute right because not even the patentee of X is given that right. His right is merely one to exclude others from making, using or selling X. Indeed, the patentee of X and his licensee, when making, using, or selling X, can be subject to suit under other patents. [Citation omitted.]”

The court noted that the question was not whether a settlement agreement is a covenant not to sue or a license, as both are authorizations, but rather whether the settlement agreement authorized sales.

The court found the covenant not to sue language in the TransCore-Mark IV settlement agreement to be very clear – TransCore agreed not to sue Mark IV for future infringement of any kind. Because there was no limiting language, this meant that all possible infringing acts (making, using, selling, offering for sale, and importing) were permitted. The court indicated that the result might have been different had TransCore used limiting language, such as permitting only “making” or “using” the patented systems. 

Based on the clear, broad language of the settlement agreement, the court held that Mark IV’s sales of the systems to ISTHA were authorized and that TransCore’s patent rights to those systems had been exhausted. 

This case is likely to affect the drafting of both patent litigation settlement agreements and patent licenses. It is not enough to refer to the term as a “covenant not to sue” or a “license.” According to the court, this difference is merely one of form, not substance. Thus, careful drafting is required in order to avoid having a covenant not to sue be interpreted as a license.

? The most-litigated patents made extraordinary use of patent continuations. Litigated patents in the control set had an average of two priority applications ? the original application and one continuation or divisional. And fully half of the patents in the control set filed no continuation applications at all. By contrast, the most-litigated patents had an average of 4.3 applications each, and the median patent in this set had three applications.

? The most-litigated patents are cited more than twice as often as the control set patents. After adjusting the number of forward citations received by patents to account for their different ages, the differences between the two data sets are significant to an exceptional degree.

? The most litigated patents more than 50% more claims than the control set, 39.3 on average compared with 24.5 for once-litigated patents.

? The most-litigated patents cite nearly three times as many U.S. and foreign patents as other litigated patents, and nearly ten times as many non-patent prior art references as other litigated patents.

? The most-litigated patents are overwhelmingly likely to be software patents. Nearly three-fourths of the most-litigated patents are software patents, compared with just over a quarter of the once-litigated patents. Similarly, software-implemented business method patents are overrepresented in the most-litigated patents group (15% vs. 4%).

? Imaging patents are much more heavily represented in the most-litigated category (11% vs. 2%) as well.

? By contrast, mechanical and electronics patents make up the bulk of the once litigated patent cases, but they are only of minor significance in the most-litigated patent set. Mechanical inventions make up only 8% of the most-litigated patents, but 53% of the once-litigated patents; electronics inventions make up only 1% of the most-litigated patents but fully 25% of the once-litigated patents.

? Traditional product companies ? those who are participants in the market in which they are enforcing the patent ? represent 83.3% of the once-litigated patents but only 45.6% of the most-litigated patents.

? More than 80% of the most litigated patent suits are filed by NPEs. Overwhelmingly these are filed by inventor-owned or inventor-developed companies; those companies account for 74.4% of the most-litigated patent lawsuits. The share of suits filed by licensing shops actually falls to 6.7% of all suits. Non-practicing entities are a small share of once-litigated patents, but they represent an overwhelming share of the suits filed on the most-litigated patents.

? NPE's fall almost entirely into only two classes: licensing companies who are in the business of buying up and enforcing patents (?trolls? by virtually anyone?s definition) and companies started by the inventor but which do not make products. Licensing companies account for 11.7% of the most-litigated patent suits, and inventor companies account for 41.7% of those suits.

SEC. 329. PROTECTION OF INTELLECTUAL PROPERTY RIGHTS.

(a) Resources To Protect Intellectual Property Rights- The Secretary of State shall ensure that the protection in foreign countries of the intellectual property rights of
United States persons in other countries is a significant component of United States foreign policy in general and in relations with individual countries. The Secretary of State, in consultation with the Director General of the United States and Foreign Commercial Service and other agencies as appropriate, shall ensure that adequate resources are available at diplomatic missions in any country that is identified under section 182(a)(1) of the Trade Act of 1974 (19 U.S.C. 2242(a)(1)) to ensure--

(1) support for enforcement action against violations of the intellectual property rights of United States persons in such country; and

(2) cooperation with the host government to reform its applicable laws, regulations, practices, and agencies to enable that government to fulfill its international and bilateral obligations with respect to intellectual property rights.

Tomorrow, Saturday, June 13 at 12:01 a.m., Facebook begins allowing users to create personalized URLS for Facebook pages.  A user's Facebook page has previously been designated by a seemingly random number assigned for each user.  But starting just after midnight tonight, users will be able to register more meaningful URLs, such as facebook.com/RDavidDonoghue.  Facebook users are very excited about this and it could be good for business that utilize Facebook, but it also poses a threat for trademark holders.  Facebook users could accidentally or intentionally register site names including your trademarks or terms confusingly similar to them.  To Facebook's credit, they have provided a mechanism to help prevent trademark infringement.  You can click here for an online Facebook form which asks for your name, contact email, company, exact trademark and trademark registration number.  It is unclear whether Facebook will act on common law trademarks that have not been registered.  Additionally, you will need to resubmit the form separately for each trademark you wish to identify to Facebook.  I would encourage trademark owners to register their marks with Facebook and to strongly consider securing personalized Facebook pages with their trademarks to further protect themselves, if you use Facebook with your business or think that someone else might.

By W. Scott Cameron

The Internet is a seemingly endless and ever-expanding collection of information. You can find almost anything on the Internet if you look for it, and look in the right place. To find it, however, you often need the “domain name,” or address, of the web site that has the information you want. Every web page has its own unique domain name, and only one company can maintain the database that keeps track of all the domain names on the Internet. That company, currently VeriSign, Inc., essentially controls the Internet. The way VeriSign got that control, and the way it keeps it, led the Coalition for ICANN Transparency, Inc. (“CFIT”), to file an antitrust lawsuit, CFIT v. VeriSign, Inc. The Ninth Circuit ruled this week that CFIT can go forward with its suit, reversing the district court which had dismissed the suit three times. This begs the question: Will the Ninth Circuit bring down the Internet?

Well, no.  The Ninth Circuit will not bring down the Internet, and neither will CFIT’s lawsuit. But the lawsuit might change the way ICANN, the nonprofit oversight body that coordinates the domain name system (“DNS”) on behalf of the United States Department of Commerce, awards contracts to the company maintaining the DNS registry. In 2001, ICANN awarded VeriSign, a private, for-profit corporation, the contract to maintain the DNS registry for the .com and .net domains. There can only be one registry at a time, so a monopoly is created by necessity with the contract. As a result of this contract, VeriSign sets the price for, and collects on, the registration of every domain name within the .com and .net domains.

In 2005, ICANN renewed the contract with VeriSign for the .com registry without accepting competitive bids for the contract. It also renewed the .net contract, but awarded it to VeriSign after competitive bidding. CFIT’s complaint alleged that prior to the 2005 renewal, VeriSign had harassed, and even sued, ICANN. That lawsuit was dismissed after VeriSign paid ICANN a fee of between $6 and $12 million in exchange for favorable terms on the contracts. In the current lawsuit, CFIT alleged that VeriSign also hired lobbyists to support its position with ICANN, “stacked” ICANN meetings with VeriSign supporters, paid bloggers to attack ICANN’s reputation, and planted stories in the media critical of ICANN, all to further the chances of keeping the .com and .net contracts. The settlement of the VeriSign-ICANN lawsuit required VeriSign to cease all such activity. 

CFIT’s lawsuit claims that VeriSign violated Sections 1 and 2 of the Sherman Antitrust Act in obtaining and keeping the contract. CFIT’s Section 1 claim alleges that VeriSign and ICANN conspired to restrain trade in connection with the terms of the contracts for maintaining both the .com and .net registries. CFIT’s Section 2 claim alleges that VeriSign’s conduct in obtaining the anti-competitive contracts constituted monopolization or attempted monopolization of the .com and .net registration markets. In addition, CFIT claimed there was a separate market for expiring domain names sufficiently distinct from previously unregistered domain names to constitute a separate antitrust claim. 

CFIT’s Section 1claim alleges that CFIT and ICANN conspired to restrain trade. Specifically, CFIT complains that in 2005 ICANN renewed its agreement with VeriSign without any competitive bidding on the contract. Moreover, the new agreement contained a provision that it would automatically renew unless a court issues a final order finding VeriSign to be in breach, and VeriSign fails to cure the breach. Although the district court found no possible antitrust claim there, the Ninth Circuit disagreed, stating that “concerted action between co-conspirators to eliminate competitive bidding for a contract is actionable harm to competition.” CFIT v. VeriSign, --- F.3d --- (9^th Cir. 2009). The complaint also claimed that competition had been eliminated in the renewal of domain names, which the Court noted was “precisely the type of allegation required to state an injury to competition.” CFIT also alleged that this resulted in higher prices to consumers, which the Court agreed was sufficient to state a claim. 

The Court found that the allegations of pricing provisions in the 2006 .com agreement were sufficient to state a claim because the allegations were of concerted action to restrain trade rather than unilateral action. The Court explained that “an entity cannot be held liable for antitrust violations if it simply unilaterally raised prices, absent a showing that it either conspired with another entity in order to restrain trade, or acted in a market in which it holds or is attempting to hold a monopoly.” CFIT v. VeriSign. Here, the complaint was sufficient because it alleged conspiracy along with the anticompetitive pricing.  

The district court had dismissed the Section 2 claims alleging unlawful monopoly because CFIT (1) failed to state a claim for predatory conduct, and (2) failed to allege that expiring domain names are a separate market. The Ninth Circuit reversed on both counts. 

The Court faulted the district court for construing the allegations of predatory conduct as limited to litigation against ICANN. Given all the other predatory conduct alleged against VeriSign, the Ninth Circuit held it was error to limit the allegations as pertaining to just the litigation. The Court also agreed with CFIT that ICANN is essentially a private standards-setting body, and noted that a Section 2 violation may be based on improper coercion of such a standards-setting body. Citing Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988), the Court held that CFIT stated a claim for Section 2 violations regarding the .com contract. The Court noted that commentators had even predicted that Allied Tube would provide a basis for antitrust liability against VeriSign.

The Ninth Circuit agreed with CFIT that expiring domain names are a separate and distinct market for antitrust purposes. Expiring domain names are different from, and more valuable than, previously unregistered domain names because they have a history, and have established traffic. Indeed, the “complaint alleges that every word in the English language is already registered as a domain name, and that desirable domain names can be difficult to come by.” CFIT v. VeriSign, Inc. The expiring domain names are more valuable because all the good names are already taken. The Internet Commerce Association filed an amicus brief agreeing that the expired domain name market exists now, but it did not just a few years ago. In all, the Court found that expiring domain names are a separate market, and the complaint stated a claim for Section 2 claims as to the .com registry. Because the district court had ruled it was not a separate market, the Ninth Circuit reversed on that basis also.

However, the Ninth Circuit agreed that CFIT did not state an antitrust claim as the .net registry under either Section 1 or Section 2. The Court found important that the .net contract was awarded to VeriSign after a competitive bid. Without additional allegations, the complaint did not sufficiently allege wrongdoing as to this contract. The Court did allow CFIT a fourth chance to get it right, and granted it yet another chance to amend its complaint to allege claims for the .net contracts.

If CFIT is successful in it suit, ICANN will likely have to change the way it awards contracts for domain name registries. However, there is little danger that this suit will cause the entire .com and .net domains, the largest on the Internet, to come crashing down. It might just mean that domain names become a bit cheaper to register. These days, lower prices can only be a good thing. Of course, there is a long way to go before this case concludes – the case is back to the district court and still in the pleading stage, more than four years after the complaint was originally filed.

WMH Tool Group, Inc. v. Woodstock Int'l, Inc., No. 07 C 3885, Slip Op. (N.D. Ill. Apr. 8, 2009) (Darrah, J.).

Judge Darrah granted in part defendants' motion for summary judgment as to plaintiff's Lanham Act claims related to plaintiff's trademark for white exteriors applied to woodworking and metalworking machines.  Defendants sought summary judgment based upon the fact that their products were green and tan, and that plaintiff's counsel admitted that green and tan machines did not infringe plaintiff's trademark white color.  But the Court held that summary judgment was not appropriate even if plaintiff admitted the green and tan products did not infringe because the parties disputed which of the products were green and tan and whether defendants also sold green and white products.  Additionally, the Court held that there was a question of fact as to whether the alleged green and white products infringed plaintiff's trademarks.  The Court did, however, grant summary judgment as to plaintiff's dilution claim because plaintiff did not respond to the summary judgment arguments.

Next week, June 21-23, Chicago plays host to IAM's IP Business Congress 2009.  IAM promises that attendees will include "Chief IP Officers from Fortune 500 companies, heads of IP at other major companies, global IP thought leaders and senior policy makers."  And the conference also will include an impressive list of bloggers, including Peter Zura, the anonymous editor of Blawg Review and me, using a generously offered press pass.  The faculty for the event is very impressive, including the following confirmed speakers:

For more information on the event and to register, click here.  You can still register and if you register online using the code WC10, you will get a reduced rate of $1,350, 10% off of the full $1,500 rate.

Finally, whether or not you can make it to the conference, if you are in Chicago Tuesday night, June 23, come to Meet the Bloggers VI at the world famous Billy Goat Tavern.  It will be a great chance to meet law bloggers from Chicago and around the world, and to discuss insights gained at the conference.  I hope to see you at both the conference and the Billy Goat.

MacLean-Fogg Co. v. Edge Composites, L.L.C., No. 08 C 6367, Slip Op. (N.D. Ill. Apr. 14, 2009) (Conlon, J.).

Judge Conlon granted defendants' motion to dismiss.  Plaintiffs (collectively "MacLean") alleged that defendant Edge Composites ("Edge") violated plaintiffs' carbon fiber bicycle wheel patent and together with the individual defendant, a former MacLean employee and current Edge employee, violated MacLean's trade secrets, as well as breaching the individual defendant's nondisclosure agreement with MacLean.  First, the Court held that the MacLean entities that lacked an ownership in the patent when the complaint was filed lacked standing.  It was not sufficient that the MacLean entities entered an agreement creating joint ownership amongst them after the complaint was filed.

The Court also held that it lacked supplemental jurisdiction over MacLean's state law trade secret and breach of contract claims.  The patent infringement claims were based upon manufacture and sale of carbon fiber wheels.  The trade secret and breach of contract claims were based upon defendants' alleged  use of MacLean's trade secrets.  Because MacLean never met its burden of showing how the claims overlapped factually, the Court dismissed the state law claims for lack of subject matter jurisdiction.

The Court also held that it lacked personal jurisdiction over the individual defendant because MacLean did not respond to that part of defendants' summary judgment argument.  The Court also held that it lacked personal jurisdiction over Edge.  Edge was not registered to do business in Illinois, had no facilities in Illinois, had no assets in Illinois, did not advertise in Illinois, and did not do business with Illinois residents.  The only Illinois sales MacLean proved were by its representatives for purposes of this suit.  And Edge's website did not allow viewers to purchase products.

Finally, the Court dismissed MacLean's trade secret claim for failure to state a claim.  MacLean's trade secret misappropriation allegations were all made on information and belief.  The Court held that information and belief alone was not enough, unless the facts were inaccessible to MacLean and MacLean had a reasonable basis to believe the facts were true.  Because MacLean did not provide any grounds for its suspicion, information and belief was not sufficient.

Comment Of Senator Patrick Leahy (D-Vt.),
Chairman, Senate Judiciary Committee,
On The Designation Of David J. Kappos
To Be Undersecretary Of Commerce For Intellectual Property
And Director Of The U.S. Patent And Trademark Office
June 18, 2009

?I am pleased that the President has announced his intent nominate David J. Kappos to be the Undersecretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office.

?His experience both as a development engineer and as a leading intellectual property attorney make Mr. Kappos exceptionally qualified to lead the Patent and Trademark Office. While serving as Vice President and Assistant General Counsel at IBM, Mr. Kappos has managed IBM?s vast patent and trademark portfolios. He also serves on the Board of Directors of the American Intellectual Property Law Association, the Intellectual Property Owners Association, and the International Intellectual Property Society.

?The USPTO faces serious challenges in this difficult economic environment, and the office requires strong leadership. David Kappos is such a leader. I look forward to working with him on issues confronting the USPTO, including reducing the backlog and pendency of patent applications and modernizing the patent system as Congress considers the Patent Reform Act.?

View the press release here (link)

Yesterday, President Obama announced his intent to nominate David J. Kappos as the next Director of the Patent and Trademark Office, also known as Under Secretary of Commerce for Intellectual Property.   Kappos is currently IBM's Vice President and Assistant General Counsel, Intellectual Property.  Kappos earned a degree in electrical and computer engineering from the University of California Davis and received his law degree from Berkley.  Here is some of Kappos biography from President Obama's press release on the pending nomination:

Mr. Kappos serves on the Board of Directors of the American Intellectual Property Law Association, the Intellectual Property Owners Association, and the International Intellectual Property Society. He is also the Vice President of the Intellectual Property Owners Association. He has held various previous leadership positions in intellectual property law associations in Asia and the U.S. He has spoken widely in Asia, Europe, and the U.S. on intellectual property topics. Mr. Kappos received his Bachelor of Science Degree in Electrical and Computer Engineering from the University of California Davis in 1983, and his law degree from the University of California Berkeley in 1990. He joined IBM in 1983 as a Development Engineer and has served as an Intellectual Property Law attorney in IBM’s Storage Division and Litigation group, as IP Law Counsel in IBM Software Group, as Assistant General Counsel in IBM Asia/Pacific, IBM Corporate Counsel and as Assistant General Counsel prior to his current position.

For initial reactions from the blogosphere, check out:  ChipLaw; IPWatchdog; Patent Law Insights; and Patently-O.

by Jeff Pietsch

In April 2009, the Fourth Circuit upheld a summary judgment granted in favor of an online technology system designed to prevent plagiarism in a copyright infringement action. (A.V. v. iParadigms, L.L.C., (4th Cir. Apr. 16, 2009)). The plaintiffs, four high school students who were required to use the system by their schools, sued iParadigms’ for using their written works through the company’s “Turnitin Plagiarism Detection Service.” The plaintiffs argued that Turnitin’s archiving of the students’ works in its system constituted a violation of their copyrights under the Copyright Act, 17 U.S.C. §101 et seq. The court, however, disagreed with this assessment and ruled that the archiving of students’ works falls under the fair use doctrine, which allows the use of copyrighted works for the purposes of criticism, comment, news reporting, teaching, scholarship, or research.

iParadigms owns and operates Turnitin.com, which offers high school and college educators a means to determine the originality of student submitted works. According to iParadigms, when a school subscribes to the service, it usually requires its students to submit their written assignments to Turnitin.com. In order to submit a paper to the service, a student must click on “I agree” under the “Clickwrap Agreement.” After registration is complete, the submitted work is digitally compared to “student papers previously submitted to Turnitin, and commercial databases of journal articles and periodicals.” Furthermore, the participating school may choose the option of “archiving” the submitted works so that Turnitin may store them in its database for future evaluations for originality. The plaintiffs in this case used the passwords provided by their schools to submit their papers as required by school policy. However, each plaintiff included a “disclaimer” objecting to the archiving of his or her written work. Nevertheless, each of these submissions was archived in the Turnitin system despite the expressed objection. Learning of Turnitin’s archiving of their works without permission, the plaintiffs filed suit against iParadigms for copyright infringement. The district court ruled in favor of the defendant, and granted summary judgment. The plaintiffs appealed. The issue that the court examined on appeal was whether digitally storing written works submitted by students was a “fair use” enumerated under the Copyright Act.

The Fourth Circuit analyzed the four nonexclusive “fair use” factors under the Copyright Act: (1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work. Furthermore, whether a given use of a copyrighted material is “fair” is based on a balancing test of these four factors, which are “weighed together, in light of the purposes of copyright.”

First, the court determined that iParadigms’ use of plaintiffs’ works was “highly transformative” and thus a “fair use” because it had a completely different function and purpose than the original works, and served a public interest by discouraging plagiarism. Second, although an unpublished highly creative work is entitled to stricter protection due to the author’s right to first publication, the court reasoned in this case that the website’s use of plaintiffs’ works did not have the “intended purpose” or “incidental effect” of diminishing creativity, or rights to first publication. Third, the court found that iParadigms’ use is limited in scope to electronic comparison purposes, and that its use of the entirety of the plaintiffs’ works did not preclude a finding of “fair use.” Fourth, the court noted that the Turnitin system did not depreciate the market value of plaintiffs’ works, since each plaintiff indicated that selling of such written works was dishonest and that he or she would not sell his or her original work for the objective of plagiarism. Thus, the court concluded that iParadigms’ use of the student works was “fair use” under the Copyright Act and affirmed the summary judgment on the plaintiffs’ copyright infringement claim.

This case is similar to search engine fair use claims, in which third-party works are electronically stored in a very profitable database. Many courts are also finding search engine copyright infringement cases as “highly transformative” and thus a “fair use” because they benefit the public by presenting new information on the Internet. (Perfect 10 Inc. v. Amazon.com Inc. (9th Cir. 2007)). The issue of whether archived copyrighted works in a database to which others can gain access is a “fair use” continues to be prevalent in realm of intellectual property.

Blawg Review #217 is up at Securing Innovation, brought to you by the IP.com team -- click here to read it.  This Review's theme is Father's Day, and it is very well done.  In addition to the heavy IP focus, we learn that although it should be written as plural possessive, Fathers' Day, historically it has been known by the singular possessive, Father's Day.  And it has pictures of many legal blogging fathers and their children, including a shot of me with my father and my son enjoying a Chicago Blackhawks game late this season.  The Review also reminds people to join me at  Meet the Bloggers at the Billy Goat Tavern tomorrow, Tuesday, night after IPBC 2009.

 IP Business Congress 2009 is in Chicago through this afternoon.  Unfortunately, client commitments have kept me from attending as much of the event as I would have liked, but you can see from the following Twitter live microblogs of the event that it was an excellent program:  @DuncanBucknell; @AwakenIP; @IPBC2009; @JackDTodd; and @thinkfireip.  Or check out a search for microblog posts about the event here.  And watch for a few interviews from the event on the Blog over the next few weeks.

And before you leave the IPBC, stop by Meet the Bloggers VI at the world famous Billy Goat Tavern.  The Billy Goat is just down and below the street from the Four Seasons at 430 N. Michigan Avenue.  Go to the Tribune Tower on Michigan Avenue and take the stairs below the sidewalk to find the Billy Goat.  Thanks again to Meet the Blogger creator and Meet the Blogger III host John Welch of the TTABlog for allowing me to use the Meet the Blogger name.

As of June 15, the Northern District of Illinois is requiring that all sealed or restricted documents be e-filed through the Northern District's ECF system.  And sealed documents may only be filed pursuant to a protective order or by leave of court.  Click here for the Court's filing under seal instructions.

The Northern District is also requiring that cases be opened electronically through the Northern District's ECF system.  Click here for the Court's instructions for opening civil cases.

Senate Judiciary Chairman Patrick Leahy and ranking member Jeff Sessions came to the rescue of the Patent and Trademark Office on Wednesday night when they introduced a bill that will allow the agency to use funds designated for its trademark portfolio to be used to address its growing backlog of patent applications. The trademark budget, which is statutorily untouchable, has a $60 million-$70 million surplus. CongressDaily reported this week that Commerce Department and PTO officials had been making the rounds on Capitol Hill to let key lawmakers know how the office was struggling in the recession and offering up legislative ideas like the loan plan.

The PTO, which is funded through fees collected from its users, suspended overtime pay for patent examiners effective Sunday and earlier this year instituted a hiring freeze amid a slump in the number of patent applications filed. Under the bill, the PTO can make use of the money "to support the processing of patents and other activities, services, and materials relating to patents" if the office's director certifies to Congress the use of funds "is reasonably necessary to avoid furloughs or a reduction-in-force." The borrowed money would have to be put back in the trademark basket no later than Sept. 30, 2011.

Read"Leahy Offers Patent Office Bailout Bill" (link)

See also "U.S. patent office shortfall worsens"(link)

The Seventh Circuit's Judge Posner has weighed in on the newspaper crisis at his Becker-Posner Blog suggesting that a fix to the news revenue issue might be to change copyright laws to prevent linking to or summarizing news content (click here to read the post):

Expanding copyright law to bar online access to copyrighted materials without the copyright holder's consent, or to bar linking to or paraphrasing copyrighted materials without the copyright holder's consent, might be necessary to keep free riding on content financed by online newspapers from so impairing the incentive to create costly news-gathering operations that news services like Reuters and the Associated Press would become the only professional, nongovernmental sources of news and opinion.

I see the problem and the danger to society in losing newspapers and their reporters, but it seems unworkable to prevent linking.  Perhaps a system could be implemented requiring sites that link to a news story or to registered and copyrighted material to pay a small fee for each click through from their site.  It could be similar to and even administered by the Copyright Clearance Center which currently offers licenses that grant rights to incidental copying of the copyrighted content of member organizations.

Additionally, preventing summarizing of factual news stories would be exceptionally difficult to implement.  But the newspapers can prevent direct copying of the text of articles from their sites and can always require subscriptions or passwords to get to their content.

But while I am not sure that these suggestions are workable, there is little doubt that newspapers in particular need new avenues to monetize their content in order to maintain economically viable.  And as someone who has three papers delivered to his door daily, I fully support protecting the print news media.

by James Kachmar

On June 15, 2009, the Court of Appeal for the Second District issued its ruling in FLIR Systems, Inc. v. Parrish and affirmed an award of attorneys fees and costs in the amount of $1.6 million to a defendant in a trade secrets misappropriation case. The FLIR Systems ruling demonstrates that a trial court has wide discretion to award sanctions against a plaintiff who brings a trade secrets misappropriation claim in bad faith.

Plaintiffs manufactured and sold microbolometers, which is a device used in connection with infrared cameras, night vision and thermal imaging. The defendants were former employees of plaintiffs and at least one defendant was responsible for creating a significant portion of plaintiff’s technology.

In 2005, the defendants decided to start a new company (“Thermicon”) which would mass produce bolometers and gave notice that their employment would end in January 2006. One of the defendants, Fitzgibbson, had developed a business plan in 1998/99 when he was self employed and the two defendants used that business plan to create Thermicon. 

Before their employment terminated, defendants offered plaintiffs an opportunity to participate in Thermicon. Plaintiffs were unhappy that they were only being offered a non-controlling interest in the new company and declined the offer.

The defendants then entered into negotiations with Raytheon Company to acquire licensing, technology and manufacturing facilities for Thermicon. They assured their former employer that they would not misappropriate any trade secrets and that the new company would use an intellectual property filter similar to the one used by plaintiffs.

Plaintiffs grew concerned that defendants’ new business would undermine their market share and so, plaintiffs filed an action for injunctive relief and damages in June 2006. The action was premised on a trade secret misappropriation claim that defendants could not mass produce low cost microbolometers without misappropriating their former employer’s trade secrets. Upon learning the filing of the lawsuit, Raytheon terminated its business discussions with defendants and in August 2006, defendants advised plaintiffs that they were not going forward with the new business.

Plaintiffs dismissed their claims for monetary damages against defendants and proceeded to trial for a permanent injunction to enjoin defendants from allegedly misappropriating their trade secrets. The Court heard eight days of testimony and then issued its ruling that no misappropriation or threatened misappropriation of trade secrets had occurred. The Court found that it was uncontroverted that defendants did not receive any funding for their new company, did not start the new business, had no employees or customers, did not lease any facilities or develop technology, and did not design, produce, sell or offer to sell any infrared products. The Court continued by finding that plaintiffs’ trade secret claims had been brought in bad faith since they were based on a theory of “inevitable disclosure,” a doctrine that has been rejected by California courts because it contravenes a strong public policy of employee mobility to permit ex-employees to start new entrepreneurial endeavors. As a result, the trial court ordered plaintiffs to pay defendants more than $1.6 million in attorneys fees and costs.

The plaintiffs appealed this decision arguing that the trial court had abused its discretion. The appellate court began reviewing section 3426.4 of the California Civil Code which provides, “If a claim of misappropriation is made in bad faith . . . the [trial] court may award reasonable attorneys fees and costs to the prevailing party.” Although the “bad faith” standard its not defined in the statute, California courts have established a two-prong test for awarding attorneys fees: (1) the objective speciousness of the claim; and (2) the subjective bad faith in bringing or maintaining the action, i.e., for an improper purpose. Section 3426.4 authorizes a trial court to award attorneys fees “as a deterrent to specious trade secret claims.” Furthermore, the trial court “has broad discretion in awarding fees.” 

As to the first prong, the appellate court recognized that “objective speciousness exists where the action superficially appears to have merit but there is a complete lack of evidence to support the claim.” The trial court had found that plaintiffs’ misappropriation claim was objectively specious “because appellants suffered no economic harm and there was no misappropriation or threatened misappropriation of trade secrets.” The court further found that the claim was objectively specious because it was established by evidence that plaintiffs had filed the lawsuit with a “anti-competitive motive.” For instance, plaintiff’s CEO testified that the company could not “tolerate a direct competitive threat” by defendants. He further testified that he had no evidence of any wrongdoing by defendants but was worried by their plan to compete with plaintiffs in the future.

Plaintiffs also argued that an attorneys fees award may not be upheld unless the action was “frivolous”. The appellate court rejected this argument finding that the word “frivolous” does not appear in section 3426.4 and thus would not impose this standard.

In further finding that the claim was objectively specious, the court found it significant that the complaint had alleged that plaintiffs had suffered “actual damages,” however, the evidence clearly showed that there were no damages whatsoever. Furthermore, the court concluded that since the claim was based on the rejected doctrine of “inevitable disclosure,” the claim had been brought in violation of public policy favoring employee mobility. The court further reasoned that “speculation that a departing employee may misappropriate and use a trade secret in a start up business will not support an injunction.” Thus, the Court found that the trial court had properly found that plaintiffs’ trade secret misappropriation claim was objectively specious.

Turning to the prong of subjective bad faith, the Court recognized that “subjective bad faith may be inferred by evidence that appellants tended to cause unnecessary delay, filed the action to harass respondents or harbored an improper motive.” The Court also recognized that the timing of the lawsuit could also raise an inference of bad faith.

The appellate court held that the trial court had found that plaintiffs had filed their claims for an anti-competitive motive in reliance on the rejected doctrine of “inevitable disclosure.” Furthermore, plaintiffs alleged that defendants had misappropriated their trade secrets because one of the defendants had downloaded computer information so that they could work at home. Plaintiff argued that this was sufficient evidence to support its claim for trade secret misappropriation. However, the appellate court rejected this argument finding that “under [plaintiff’s] construction of the law, an employer can bring a trade secret action after an employee downloads a company document and deletes the document from his or her laptop computer at home. A similar action can be brought where company messages are left on the employee’s email or phone answering machine and deleted after the employee changes jobs.” The court recognized that the California Uniform Trade Secrets Act requires an “actual or threatened misappropriation” and that “mere possession of trade secrets by a departing employee is not enough for an injunction.”

The appellate court further found that subjective bad faith had been established by the contradictory testimony of plaintiffs’ executives “who did not want to take responsibility for initiating and maintaining the action.” The appellate court held that the trial court had properly concluded that there had been subjective bad faith by examining plaintiffs’ settlement tactics. The trial court ruled that plaintiffs had engaged in improper settlement tactics by making bad faith settlement demands that “were inflammatory, violated public policy, and were made in bad faith.” The Court found that these improper settlement tactics further supported a finding of subjective bad faith.

Finally, plaintiffs argued that the action was not in subjective bad faith because it had survived defendants’ summary judgment motions. The appellate court rejected this argument and found that plaintiffs’ “cite no California authority that the denial of a summary judgment motion in a trade secret case precludes the trial court from finding, after it has heard all the evidence, that the action was brought or maintained in bad faith.” The appellate court recognized that “if the rule was otherwise, a trade secrets plaintiff could file sham declarations to successfully oppose a summary judgment motion and immunize itself from sanctions.” 

As a final word of caution, the appellate court held that it was not the mere filing of a trade secret claim that could be found to be in bad faith, but also maintaining a trade secret misappropriation claim after the prosecuting attorney is made award of facts that the trade secret claim has no merit. The appellate court ruled that “bad faith may be inferred where the specific short comings of the case are identified by opposing counsel and the decision is made to go forward despite the inability to respond to the arguments raised.” 

The FLIR Systems ruling is another reminder of the possible pitfalls in bringing a trade secret misappropriation claim. The penalties can be quite severe if the defendant is to successfully prevail and show that the trade secret misappropriation claims were found to have been brought in bad faith. 

LexBlog's Kevin O'Keefe picked up on Judge Posner's proposal to make linking and summarizing news stories copyright infringement, which I blogged about Friday.  O'Keefe takes a different approach than I did, based in part upon a post by Jeff Jarvis at the Buzz Machine.  O'Keefe argues that the issue is really that news spreads from newspapers faster today than it used to.  But just as newspapers benefited from word of mouth about their stories twenty years ago, they benefit from links to their stories today.  As a result, linking should not be limited in any way and certainly not just to prop up the newspaper industry:

Because news spreads faster we're supposed to give newspapers a monopoly on the news? That's crazy.

Jarvis makes a compelling point which lawyers advising newspapers ought to think about when counseling newspaper clients.

Schultz and the Marbergers complain about what they call the ‘free-riding’ of aggregators, et al. But they simply don’t understand the economics of the internet. It’s the newspapers that are free-riding, getting the benefit of links.
The framers of our Constitution, including the First Amendment, intended it to endure and cope with the effects of the anticipated changes of our nation.

 

Things have changed - changed quickly. But let's be careful when thinking of following lawyers and Judges who may not understand the nature of the change.

I understand his view, although I am not sure it is the best decision from a policy stand point.  It is important not to lose site of the fact that copyright holders with content on the internet still have significant protection.  Direct copying of the stories is already protected by copyright law, especially if a paper registers its copyrights and can get statutory damages.  Of course, as I pointed out Friday, it is hard to police the use of facts from news stories.  So, it will be difficult to make an infringement case when someone truly summarizes a news story.  But I can see the value in incentivizing traditional news media to continue spending on reporters and reporting.  For example, a system of paying newspapers, and other content providers that would choose to opt into the system, a nominal fee for click-throughs on links from your site to a current news story.  To me that seems like a reasonable compromise which would not cost most websites much, but could provide real economic benefit to news websites, thereby maintaining reporting staffs.  Of course, newspapers could accomplish something similar and maybe even economically better by shifting to subscription-based sites, which has been received with mixed reactions and effects previously.

But more important than which position is correct, is the discussion.  While the Constitution does give Congress the power to protect copyrights, it says little about how to protect them.  That is left to Congress, which enacts copyright laws based upon the technology available when the law is drafted and some limited vision of technology to come.  As a result, it is difficult to effectively apply the Copyright Act of 1976, even with more recent amendments and additions, to every aspect of the internet world.  So, in light of the fast pace of technological change over the last ten to twenty years, an open dialogue about how to make the copyright laws adequately protect authors and the public  is very important.  And as O'Keefe and Jarvis point out, it is a dialogue that requires more than just lawyers, who understand the legal issues, but artists, newspapers, media consumers and many other copyright stakeholders.

Microthin.com, Inc. v. SiliconeZone USA, LLC, No. 06 C 1522, Slip Op. (N.D. Ill. May 6, 2009) (Kendall, J.).

Judge Kendall construed the claims of plaintiff Microthin's patents to non-slip mats and based on the constructions granted defendant SiliconeZone summary judgment of invalidity as to the first claim of each patent. Of particular interest, the Court construed the following terms:

Based on its construction of non-slip, the Court held the first claims of each patent invalid. Microthin's sole argument against the asserted prior art was that it did not teach a non-slip surface because the surface was sticky to the touch. Because the Court construed non-slip without the sticky limitation, the first claims of each patent were invalid.

The Northern District recently sent out the following notice of a memorial service for Judge Moran to all e-filers:

The Judges of the United States District Court
for the Northern District of Illinois
cordially invite you to attend the
Memorial Service
in Remembrance of
Honorable James B. Moran
Monday, July 13, 2009, beginning at 3:30 p.m.
James Benton Parsons Memorial Courtroom
Everett McKinley Dirksen United States Courthouse
Twenty-fifth floor
219 South Dearborn Street
Chicago, Illinois

Reception immediately following in the 25th floor lobby,
Please RSVP by July 9, 2009 via e-mail
To This e-mail address is being protected from spambots. You need JavaScript enabled to view it

by Scott Hervey

A ruling earlier this month by the Ninth Circuit provided three guidelines all marketing experts and their counsel should take note of.   These guidelines address the extent to which the Telephone Consumer Protection Act (“TCPA”) (and most likely other Federal regulations on telemarketing) impacts texting as part of a marketing campaign. 

In the case at issue, Simon & Schuster hired a third party to manage the promotional campaign for a new Stephen King book, including securing a list of 100,000 cell phone numbers from the licensing agent for Nextones. Nextones offers consumers free cell phone ring tones in exchange for the consumer providing various information, including a cell phone number, and agreeing to receive promotions from Nextone, its “affiliates and brands.”

The plaintiff, a person who signed up to receive a free ring tone from Nextones, received a text message from Simon & Schuster and then sued the book publisher for violating the TCPA. The TCPA provides in pertinent part:

It shall be unlawful for any person within the United States, or any person outside the United States if the recipient is within the United States—

(A)   to make any call (other than a call made for emergency purposes or made with the prior express consent of the called party) using any automatic telephone dialing system or an artificial or prerecorded voice (emphasis added) —

(iii) to any telephone number assigned to a paging service, cellular telephone service, specialized mobile radio service, or other radio common carrier service, or any service for which the called party is charged for the call.

The TCPA defines an automatic telephone dialing system as any equipment which has the capacity to store or produce telephone numbers to be called, using a random or sequential number generator.

In its defense Simon & Schuster argued that (1) it did not use an automatic telephone dialing system; (2) that the text sent to the plaintiff was not a “call;” and (3) that the defendant consented to receiving such messages. Each defense highlights individual lessons all marketing professionals should take away from this case.

Lesson One: Do Not Use An Automatic Telephone Dialing System

Simon & Schuster claimed that when it sent out the complained of text message it was sent to specific numbers and not generated randomly. The court correctly identified that the TCPA is not concerned with whether the complained of message is sent out randomly, but rather whether the equipment used to send out the text message is capable  of random generation. There was not enough information presented during the trial for the court to determine whether the machine used by Simon & Schuster’s marketing partner had such capacity. 

The lesson to be learned here is to be certain the equipment used to send text messages is not capable of randomly generating telephone numbers. If the service is contracted out to a third party, marketing experts should be certain that the third party represents and warrants, that they will use equipment that lacks such capability.

Lesson Two: A “Call” Can Also Be A Text Message

Simon & Schuster also raised the defense that the TCPA only restricts “calls” and that the sending of a text message is not a call. The Ninth Circuit, deferring to the Federal Trade Commission’s stated position on the issue, held that under the TCPA a “call” encompasses both voice calls and text calls to wireless numbers. Marketing experts should anticipate that courts will expand this analysis to other legislation dealing with telemarketing restrictions.

Lesson Three: The “Express Consent” Exemption Will Be Narrowly Construed

The TCPA exempts those calls “made with the prior express consent of the called party.” This exception can also be found in other federal telemarketing regulations such as the Telemarketing Sales Rules and the Federal Do Not Call statutes. 

In the instant case, the plaintiff consented to receiving promotional material from Nextones or its “affiliates of brands.” The court determined that Simon & Schuster did not fall under either. The term “affiliate” is a legal term of art referring to a corporation that is related to another corporation by shareholders or other means of control. The record in the instant case confirmed that Nextones did not own or control Simon & Schuster, and Nextones was not a Simon & Schuster subsidiary.

This entire situation could have been avoided had Nextones drafted its opt in/consent to receive promotional material language differently. Had the language read as follows, a lawsuit may have been avoided:

I would like to receive promotions from Nextones, its affiliates, brands, and third parties with whom they do business or have a contractual relationship as well as their affiliates, clients and persons with whom they do business.

Marketing experts and their counsel should ask to review a copy of the express consent language used by the party supplying the telephone numbers. Additionally, marketing experts should require the supplying party to represent and warrant that the intended recipients of the solicitation have expressly consented to its receipt. 

Connetics Corp. v. Pentech Pharms., Inc., No. 08 C 2230, Slip Op. (N.D. Ill. May 8, 2009) (Leinenweber, J.).

Judge Leinenweber granted defendants' motion to amend their answers including new invalidity and unenforceability affirmative defenses and counterclaims in this ANDA patent case involving plaintiff's patented pharmaceutical OLUX.  The Court held that the amended answers and counterclaims were appropriate because they were filed before the Court's deadline for amended pleadings, even though the parties briefed the motion to amend as if the amendment was sought after the deadline.  Furthermore, defendants did not unduly delay in seeking to amend.  The motion to amend was filed within several months of depositions in which new information necessary for the amendments was disclosed.  And the litigation was still in its early stages so the amendments would not cause any prejudice.

Connetics Corp. v. Pentech Pharms., Inc., No. 07 C 2230, Slip Op. (N.D. Ill. May 8, 2009) (Gottschall, J.).

Judge Gottschall granted defendants' motion to amend their answers to include new invalidity and unenforceability affirmative defenses and counterclaims in this ANDA patent case involving plaintiff's patented pharmaceutical LUXIQ.  The Court held that the amended answers and counterclaims were appropriate, although they were sought after the Court's deadline to amend the pleadings for reasons similar to Judge Lienenweber's analysis in a motion to amend adding the same defenses and claims in a related case -- click here to read the Blog's post on that opinion.  Of particular note, the Court held that the delay at issue is delay of the trial, not a party's delay in seeking to amend.  In this case, the Court had recently extended fact discovery.  So, plaintiffs had time to seek discovery on the defenses and counterclaims without delaying the trial date.

by Zachary J. Wadlé

J.D. Salinger, author of the seminal teen angst novel “The Catcher in the Rye,” recently filed a lawsuit in United States District Court in Manhattan for copyright infringement against the author of a purported “sequel” to Salinger’s classic work entitled “60 Years Later: Coming Through the Rye.” Salinger’s lawsuit sought a permanent injunction against publication of the new work in the United States.

The new work was written by Fredrick Colting, a resident of Sweden who writes under the pen name “J.D. California.” The novel is described as “An Unauthorized Fictional Examination of the Relationship Between J.D. Salinger and his Most Famous Character,” and portrays a 76 year old “Mr. C” wandering the streets of New York after having escaped from a retirement home. Although the name “Holden Caulfield” never appears in the book, Mr. Colting’s prose makes clear that “Mr. C” is the famed protagonist, aged 60 years from his first appearance in The Catcher in the Rye. Describing his work, Mr. Colting said: “To me, this is a story about an old man. It’s a love story, a story about an author and his character.”

J.D. Salinger vehemently disagreed with Mr. Colting’s description, stating in his lawsuit: “The Sequel is not parody and it does not comment upon or criticize the original…It is a ripoff pure and simple.” Mr. Colting countered by claiming that his novel was a permissible “fair use” of the classic work which “explores the famously reclusive Salinger’s efforts to control both his own persona and the persona of the character he created.” Mr. Colting added: “In order to regain control over his own life, which is drawing to a close, ‘Mr. Salinger’ tries repeatedly to kill off Mr. C by various means: a runaway truck; falling construction debris; a lunatic woman with a knife; suicide by drowning and suicide by pills.” According to Mr. Colting, his work did not violate copyright laws because it amounted to a critical parody that had the effect of transforming J.D. Salinger’s original work into a new work distinguishable in its own right.

Judge Deborah Batts of the United States District Court in Manhattan rejected Mr. Colting’s arguments. In a strongly worded 37-page decision granting Mr. Salinger’s requested injunction against publication of the purported sequel, Judge Batts stated: “To the extent [Colting] contend[s] that [his work] and the character of Mr. C direct parodic comment or criticism at Catcher [in the Rye] or Holden Caulfield, as opposed to Salinger himself, the Court finds such contentions to be post-hoc rationalizations employed through vague generalizations about the alleged naivety of the original, rather than reasonably perceivable parody.” Judge Batts added: “In fact, it can be argued that the contrast between Holden’s authentic but critical and rebellious nature and his tendency toward depressive alienation is one of the key themes of Catcher [in the Rye]. That many readers and critics have apparently idolized Caulfield for the former, despite – or perhaps because of – the latter, does not change the fact that those elements were already apparent in Catcher [in the Rye]. It is hardly parodic to repeat the same exercise in contrast, just because society and the characters have aged.”

While the case could still go to trial, Judge Batts’ ruling means that Mr. Colting’s book cannot be published in the United States pending final resolution of the litigation, which now appears likely to be in J.D. Salinger’s favor. Reacting to the unfavorable outcome, Mr. Colting stated to the New York Times: “I’m pretty blown away by the judge’s decision…Call me an ignorant Swede, but the last thing I thought possible in the U.S. was that you banned books.” As Mr. Colting now undoubtedly realizes, copyright law in the United States can be a potent weapon for copyright owners against would-be infringers, and prior legal consultation may have averted this result. Paraphrasing Holden Caulfield himself, “What [copyright lawyers] have to do, [they] have to catch everybody [like Mr. Colting] if they start to go over the cliff— I mean if they’re running and they don’t look where they’re going [copyright lawyers] have to come out from somewhere and catch them. That’s all [they’d] do all day. [They’d] just be the catcher in the rye and all.” Unfortunately, there does not appear to have been a “catcher in the rye” looking out for Mr. Colting, and his novel is now unlikely to be available to readers in the United States.

Landon IP has created an excellent new patent search information site and community -- Intellogist.  Among other services, Intellogist offers:

I am a big fan of Landon IP and based on Landon's past great work for me, I would have expected nothing less than the excellent resource they created in Intellogist.

SourceOne Global Partners,  LLC v. KGK Synergize, Inc., No. 08 C 7403, Slip Op. (N.D. Ill. May 13, 2009) (Schenkier, Mag. J.).

Judge Schenkier denied declaratory judgment defendant KGK's motion to dismiss plaintiff SourceOne's declaratory judgment claims of noninfringement and invalidity of KGK's patents.  KGK allegedly asserted its patents against SourceOne's cholesterol fighting drug Cholesstrinol.  KGK argued that the Court lacked subject matter jurisdiction because SourceOne did not, and could not name the co-owner of KGK's patent, the United States government.  The Court held that it had subject matter jurisdiction over SourceOne's patent declaratory judgment claims, reasoning that otherwise the government's co-ownership of a patent would strip accused infringers of ever seeking declaratory actions.

The Court also held that, while the government was a required party pursuant to Fed. R. Civ. P. 19(a), the Rule 19(b) factors weighed in favor of allowing SourceOne's case to proceed despite its inability to join the government.  The Court held that allowing KGK to prevent a declaratory suit because it was not possible to name the government would give KGK too much power as a patent holder:

The approach urged by KGK (and the Government) would allow KGK to threaten legal action against SourceOne (or others) with impunity.  For those who gave into those threats, KGK would receive the benefit of the patent (a cessation of the alleged infringing conduct and perhaps compensation) without the need to do anything more.  For those who might rear up and seek a judicial resolution, KGK could retreat behind the Government's cloak of immunity and prevent the infringement or validity of the '125 Patent from ever being tested in court.

Bajer Design & Marketing Inc. v. Ware Mfg. Inc., No. 09 C 1425, Min. Order (N.D. Ill. Jun 11, 2009) (Kendall, J.).

Judge Kendall denied plaintiff Bajer's motion to reassign its second filed patent infringement suit pending before Judge Zagel asserting the patent in suit to Judge Kendall pursuant to Fed. R. Civ. P. 42 and Local Rule 40.4. The cases met two of the four Rule 40.4(b) requirements for reassignment because both cases were pending in the Northern District and because both cases were at similar stages with defendants having just answered, such that reassignment would not slow progress of the first case. The Court also noted that a single Markman proceeding and set of claim constructions was a benefit of reassignment. But the potential for a uniform claim construction was outweighed by the fact that defendants' accused products and, therefore, noninfringement positions were significantly different. Based upon the differing noninfringement positions and other possible differences in the parties defenses, the Court held that reassignment would not achieve the required substantial savings of judicial time and effort.

by Dale Campbell and Emily Hirsekorn

State rules concerning electronic discovery just got clearer. On June 29, 2009, Governor Schwarzenegger signed the Electronic Discovery Act (the “Act”), which became effective immediately. Just last year, the Governor vetoed an almost identical version of the Act in order to focus more attention on the budget crisis. Of course, we see how well that plan worked. The Act is modeled after the 2006 amendments to the Federal Rules of Civil Procedure. The new rules govern the discovery procedure for electronically stored information (“ESI”) in California civil actions.

The Act broadens the scope of California’s Civil Discovery Act by specifically including provisions relating to ESI and governing the production of ESI pursuant to discovery requests. The Act is the first significant revision of California’s discovery rules in a couple of decades and is a compromise between those who favor in-depth discovery of electronic records and others who want safeguards for information that would be burdensome and costly to produce. 

 The Act’s Most Significant Changes to Existing Discovery Rules

The Act seeks to limit costs of discovery and litigation over discovery disputes. So long as litigants familiarize themselves with the Act and maintain and implement a routine document retention policy, they will have the tools necessary to comply with all applicable provisions of the Act.

Dale Campbell is a shareholder with Weintraub Genshlea Chediak practicing in the firm’s Litigation and  Intellectual Property sections. Dale has a broad range of litigation experience in all areas of business, intellectual property and real estate litigation.

Emily Hirsekorn is a summer clerk at Weintraub Genshlea Chediak who will be entering her third year at McGeorge School of Law.

Gene Quinn has done some great work in developing a list of the top 50 patent blogs at IPWatchdog, based on a combination of objective and subjective criteria -- click here to read the post.  With all of the usual caveats about the value of top blog lists and competitions, I am proud that the Chicago IP Litigation blog came in at number 28 and the top regional US patent blog.  I am honored to be among the top regional patent blogs, including Washington State Patent Blog, California Biotech Blog,* and Georgia Patent Law.  I am also proud to be among the numerous Chicago patent blogs that made the list, including Patent Docs, Orange Book Blog and the 271 Patent Blog.

Here is the top 50:

*  Another blog by LexBlog.

The Northern District of Illinois is seeking applicants for one or more open Magistrate Judge positions.  Magistrates serve eight year terms and the open positions will be located in Chicago.  Chief Judge Holderman expects to appoint a Merit Selection Panel that will screen applicants and make recommendations this fall with the position or positins expected to be filled in the spring of 2010.

The minimum requirements are as follows:

[A]n applicant must be, and have been for at least five years, a member in good standing of the bar of the highest court of a State, the District of Columbia, the Commonwealth of Puerto Rico, or the Virgin Islands of the United States, and have been engaged in the active practice of law for a period of at least five years. The applicant must be less than seventy years of age, and may not be related to a judge of the district court.

Applications and application instructions are available here.  Applications must be received by 4;30 pm on September 11, 2009.

Moreover, the study concludes that the proposed legislation will (1) not improve patent quality,
(2) not reduce the cost of patent litigation, and (3) not speed the determination of patent validity.

The study is made available through the Manufacturing Alliance on Patent Policy, and may be accessed here (link)

Judiciary ranking member Jeff Sessions requested that Shane examine the issue earlier this month as staffers for Leahy and Sessions continue meeting with stakeholders about the topic.

See Tech Daily Dose: "Study: Patent Proposal Could Be Costly" (link)

The e-Office Action program minimizes the possibility of lost or delayed postal mail and makes it faster and more efficient for participants to process and docket USPTO communications in electronic format, thus reducing processing costs. During the pilot, participants were able to retrieve office communications several days faster than postal mail. Participants in the pilot program have also suggested several enhancements to the system which will be under consideration for future implementation as the IT infrastructure is strengthened.

Participation in the e-Office Action program is optional and open to any registered attorney or agent of record, or pro se inventor who is a named inventor, in a patent application associated with a customer number. Program participants also will have the flexibility to opt-out of the e-Office Action program at any time and return to receiving office communications through the postal mail.

The program includes provisional applications and non-provisional applications including utility, plant, design, and reissue applications and national stage applications. International applications, reexamination proceedings, and interference proceedings are not included in the program.

Read the PTO press release here (link)

To access the PTO's e-Office Action page, click here (link)

McDavid Knee Guard, Inc. v. Nike USA, Inc., No. 08 C 6584, Slip Op. (N.D. Ill. Jun. 9, 2009) (Mason, Mag. J.).

Judge Mason denied plaintiffs' motion to disclose defendant's highly confidential technical information to plaintiff Stirling Mouldings' Managing Director ("MD") in this patent case.  Stirling argued that MD, who was also the patent-in-suit's inventor, was a necessary technical expert based upon his extensive experience with the technology.  Nike countered that Stirling had already hired other expert witnesses who had been able to provide technical opinions and that, if granted access to Nike's supplier's alleged trade secret process, MD would not be able to compartmentalize the information and avoid using it in competitive decision-making.  Nike also argued that Stirling was precluded from seeking access to the information for MD because he was specifically excluded from seeing Highly Confidential materials in the Protective Order and because the parties expressly agreed that information from a site visit was to be maintained as Highly Confidential and only show to plaintiffs' counsel. 

The Court held that Stirling was not precluded by prior agreements or orders from seeking access for MD.  But the Court also held that plaintiffs had not met their burden of showing good cause to modify the Protective Order granting MD access to Highly Confidential documents.  First, plaintiffs had already hired outside experts that had provided competent technical opinions and none of those experts had submitted a declaration stating they needed MD's expertise to render an opinion.  Furthermore, Nike showed that disclosing its supplier's technical information to MD would likely cause competitive harm.  It would be impossible for him to fully segregate the technical knowledge he would gain when performing his strategic decision-making role for Stirling.  The Court noted, however, that it did not determine whether the process at issue was, in fact, a trade secret.

Finally, the Court noted that it did not consider plaintiffs' arguments that MD would necessarily hear the technical information during the trial.  The Magistrate Judge did not have jurisdiction over the District Judge's decision of whether to seal the courtroom for trial when technical information is discussed.