Intellectual Property Desk Reference

Transcription

INTELLECTUAL PROPERTY
DESK REFERENCE
PATENTS, TRADEMARKS, COPYRIGHTS AND RELATED TOPICS
6th Edition
© 2011 Kilpatrick Townsend & Stockton LLP. All rights reserved.
ii
INTELLECTUAL PROPERTY
DESK REFERENCE
PATENTS, TRADEMARKS, COPYRIGHTS AND RELATED TOPICS
6th Edition
iii
iv
ACKNOWLEDGEMENT
Introduction and Acknowledgements
The Kilpatrick Townsend Intellectual Property Department is pleased to present you with our
Intellectual Property Desk Reference. This resource is a collection of articles ranging from basic
overviews of legal issues for business people, to more advanced treatment of specialized subjects
for legal practitioners. Articles are organized by topic and level to make it easy to locate the
subject matter of interest to you.
We are committed to the pursuit of our clients’ business objectives. We can best assist our clients
in achieving these objectives when they understand the relevant law and related issues. We like
what we do and enjoy educating our clients and friends in support of their efforts to succeed. We
look forward to the opportunity to assist you in dealing successfully with the specifics of your
intellectual property needs.
The Firm is grateful for the contributions to this work of our 80 plus authors and editors. In
particular we would like to recognize the efforts of our Editor in Chief, Rupert Barkoff, our
Content Editors, George Little, Bonnie Grant, Renae Bailey, and Kristin Garris, as well as our
Content Advisors, James Trigg and Michael Turton.
v
vi
TABLE OF CONTENTS
Copyrights and Trademarks
101
Copyright Questions and Answers �� 1
Joseph Petersen, Robert N. Potter, and W. Andrew Pequignot
201
Why the Corporate ‘Policy’ is No Shield to Multi-Million Dollar
Copyright Liability �� 9
Joseph M. Beck
301
Online Copyright Issues for Websites Offering User-Generated Content � 15
James A. Trigg, Georges Nahitchevansky, W. Andrew Pequignot,
and Rosaleen H. Chou
101
Trademark Questions and Answers �� 25
Miles J. Alexander and Charlene R. Marino
How to Squeeze Into a Crowded Field of Trademarks�� 35
Georges Nahitchevanksy and Stephen J. Coates
Protection of Product Designs�� 45
John S. Pratt, R. Charles Henn, Jr., Alicia Grahn Jones, Lauren T. Estrin,
and Michael A. Bertleson
201
International Trademark Protection�� 71
Olivia Maria Baratta, Christine P. James, Allisen Pawlenty-Altman, and
Jason M. Vogel
Trademark Licensing Basics �� 79
Charles Henn Jr., Alicia Grahn Jones, Lauren Sullins Ralls, and
Lauren A. Linder
Inter Partes Litigation Before the Trademark Trial and Appeal Board�� 87
Theodore H. Davis, Jr., William M. Bryner, Olivia Maria Baratta, Jonathan D.
Goins, and Nichole E. Davis
301
Protecting the Brand in China�� 109
Christopher J. Woods
An Overview of Legal Remedies Against the Trafficking in Goods Bearing
Counterfeit Trademarks and Gray Market Goods Under United States Law
�� 124
Lisa Pearson, Georges Nahitchevansky, Christopher P. Bussert, and
James H. Sullivan, Jr.
vii
301
Internet Branding�� 149
Judith A. Powell, Georges Nahitchevansky, James A. Trigg, Charles H.
Hooker III, and Allison M. Scott
Likelihood of Confusion Surveys �� 173
Jerre B. Swann, William H. Brewster, J. David Mayberry, and
R. Charles Henn, Jr.
Patents
Patent Law Basics: An Overview of Patent Law and Avoiding the Loss of
Rights�� 185
Larry A. Roberts, Cynthia B. Rothschild, Kristin M. Crall, and
Alyson L. Wooten
101
Enforcement of Patents – Injunctions, Pre-Litigation Techniques, Strategy
�� 203
Mitchell G. Stockwell, D. Clay Holloway, and Wilson L. White
Choosing Between Trade Secret and Patent Protection�� 215
Dean W. Russell, Russell A. Korn and Christopher M. Durkee
Patent Portfolio Creation and Management�� 227
James L. Ewing IV, Brenda O. Holmes, Wab P. Kadaba, Michael J. Turton,
and E.J. Joswick
Obviousness Doctrine Post-KSR: Friend or Foe? �� 235
Steven Gardner and Nicole N. Morris
Recent Developments Affecting Acquisition of Meaningful Patent Protection
�� 243
James L. Ewing, IV, Geoffrey K. Gavin, Jason D. Gardner, and
Richard Goldstucker
201
Patentable Subject Matter – Nuitjen, Comiskey, Bilski, and Beyond�� 253
John Alemanni, Eric Zaiser, and Carl Sanders
Inventorship: Navigating the Muddy Waters of Inventorship
Determination and Correction�� 265
Jamie L. Greene, Kathryn H. Wade, and Christopher M. Durkee*
Reexamination Tactics: Present and Future�� 275
Mitchell G. Stockwell and Bonnie M. Grant
Patent Licensing Considerations in Light of Quanta and MedImmune�� 285
Michael J. Turton, Cate E. Hart, and Tiffany L. Williams
viii
301
International Patent Protection �� 293
Brenda O. Holmes, J. Michael Boggs, and J. Jason Link
Patent Opinions after In re Seagate: What You Should Know �� 307
Brenda O. Holmes, Steven Gardner, D. Clay Holloway, and Megan E. Bussey
Other Topics
Advertising Basics �� 315
William H. Brewster, Michael W. Rafter, Tywanda Harris Lord, Lisa Pearson,
and Sabina A. Vayner
101
Sweepstakes and Game Promotions Basics �� 333
David Mayberry, Daniel H. Marti, Tywanda Harris Lord, and Amanda L. McCoy
Franchising Questions and Answers �� 345
Rupert M. Barkoff, Christopher P. Bussert, and Alexander G. Tuneski
301
Applicability of the Common Interest Doctrine for Preservation of
Attorney-Client Privileged Materials Disclosed During Intellectual
Property Due Diligence Investigations�� 357
Michael Pavento, Daniel Marti, Tracie Siddiqui, and Patrick Eagan*
Taxation of Intellectual Property �� 371
Lynn E. Fowler, Don Reiser, and Jerry N. Smith
ix
1
Copyright Questions and Answers
I.
Basics and Formalities
Q.
What is a “copyright?”
A “copyright” is an intangible bundle of property rights in original works of authorship, including
books, music, art, computer software, and logos, among other things. The original right granted
by copyright law is captured in the descriptive meaning of the term: the right to copy. Copyright
law has expanded greatly since its origins to include the rights to distribute; to perform publicly; to
display publicly; and to create “derivative works” (works based on one or more pre-existing works).
Q.
How do I obtain copyright?
You receive a copyright when you create a work that is subject to copyright protection. A work
is “created” when it is fixed in a tangible form that is perceptible either directly or with the aid
of a machine or a device. There is no longer any requirement to place a copyright notice on the
work; nor is there any longer a requirement that you register your copyright with the United States
Copyright Office (“Copyright Office”). There are, however, definite advantages to providing notice
of copyright and promptly obtaining a copyright registration.
Q.
What is “original” for purposes of copyright?
Unlike patent law, there is no requirement that a copyrightable work be sufficiently distinct from
earlier creations. It need only be independently created and possess a spark or minimal degree of
creativity. Even a work that is wholly identical to a prior work could qualify for copyright protection
if the work was the result of independent creation.
Q.
Should I place a copyright notice on the work?
For works published on or after March 1, 1989, copyright notice is not required. However, proper
notice precludes an infringer from asserting an innocent infringement defense. (A successful
innocent infringement defense can lower the minimum recoverable statutory damages from $750
to $200 per work). Thus, it is recommended that a copyright notice be placed on all copyrightable
works.
In the case of a work published without proper notice prior to January 1, 1978, subject to the possibly
saving “doctrine of limited publication,” the copyright is forfeited and the work falls into the public
domain. Copyrights in works published without a copyright notice between January 1, 1978, and
March 1, 1989, are also lost unless one of a few exceptions applies. Even assuming an exception
applies for a work published before March 1, 1989, a plaintiff cannot recover actual or statutory
damages against an innocent infringer misled by the omission of a copyright notice.
Q.
Is there a particular form a copyright notice must take?
If notice appears on the work, it must consist of the following three elements:
Copyright 101
Joseph M. Beck, Joseph Petersen, Robert N. Potter, and W. Andrew Pequignot
KILPATRICK TOWNSEND
(1)
(2)
(3)
The symbol © (the letter C in a circle), or the word “Copyright,” or the abbreviation
“Copr.” If the work is a phonorecord (e.g. a music album or CD), the symbol (the
letter P in a circle) should be used instead;
The year of first publication of the work (with very limited exception); and
The name of the owner of copyright in the work (or a recognizable abbreviation or
generally known alternative designation).
The notice should be affixed to copies of the work in such manner and location as to give reasonable
notice of the claim of copyright (for example, on the cover or title page of a book; for software, the
notice may appear on the user’s screen, on the disk containing the software, or on printouts from
the software).1
Q.
Why should I register my work with the Copyright Office?
As discussed above, copyright protection (for works created after January 1, 1978) vests as soon as
the work is fixed in a tangible medium—registration is not required. There are numerous advantages
to registering a work, however, and it is generally recommended to register a work promptly after
its creation.
Significantly, registration is generally a prerequisite to any copyright infringement suit (for works
of U.S. origin); until a work is registered (or pre-registered, or refused registration), you may not
sue anyone for infringing it. Further, a registration made within five years of the work’s publication
serves as prima facie evidence of the validity of the copyright and the facts stated in the registration
certificate.2 If the work is registered within three months of its publication or anytime prior to its
infringement, the owner is entitled to seek statutory damages (in lieu of the actual damages and
profits otherwise available) and attorney’s fees (in addition to any other damages).3 Finally, as
noted above, in the case of works published without a copyright notice between January 1, 1978 and
March 1, 1989, registration (with an effort to add the notice) may prevent the forfeiture of copyright
in the work.
Q.
What is the scope of copyright protection?
A copyright protects the elements of a work that are original. As explained in further detail, a
copyright does not protect an underlying idea, only the particular expression of that idea.
Q.
How do I register a copyright?
To register a work, the Copyright Office must receive the following:
(1)
(2)
1
2
3
4
A properly completed application form;
A non-refundable filing fee;4 and
See 17 U.S.C. §§ 401–406 (2006); 37 C.F.R. § 201.20 (2008).
17 U.S.C. § 410(c) (2006).
Id. §§ 412, 504–505.
See U.S. Copyright Office, Current Fees, available at http://www.copyright.gov/docs/fees.html for the current schedule of filing fees.
3
A non-returnable deposit of the work being registered (the deposit will generally consist of two complete copies of the work).
The Copyright Office now offers online registration for most works through the “Electronic Copyright
Office,” accessible at http://www.copyright.gov/eco. The advantages of electronic registration
include lower filing fees, faster processing, and the ability to check the status of your registration
online. Some types of deposit copies may be uploaded electronically; for others, a special tracking
label is provided to send separately the hard-copy deposit.
To file manually, the three elements listed above may be mailed to Library of Congress, Copyright
Office, 101 Independence Avenue SE, Washington, DC 20559-6000.
Finally, note that deposit copies are available for public viewing, so trade secret or other sensitive
information should be redacted, to the extent allowed by Copyright Office regulations, before
submission.
Q.
What if the Copyright Office rejects my application?
If the Copyright Office rejects an application submitted with the proper application, fee, and deposit,
the applicant is still entitled to institute an infringement action. However, the applicant must serve
the Register of Copyrights with a copy of the complaint, and the Register may become a party to the
action with respect to the registrability of the copyright claim.
Q.
What are the consequences of errors in a copyright registration?
Generally speaking, there are three primary defenses that could be asserted involving material errors
in copyright registrations: fraud on the Copyright Office, unclean hands, and copyright misuse.
If successful, these defenses can result in losing the presumption of validity usually afforded a
copyright registration—barring an infringement claim (or certain relief) based on the registration—
or even invalidating the registration altogether. In certain situations, the registrant making such
material errors could also be liable for the other party’s attorneys’ fees in a dispute where these
defenses are successfully asserted.
Q.
Can I license only a subset of the rights comprising a copyright, or must I license the entire
copyright at once?
The “bundle” of different rights comprising a copyright may be subdivided and licensed individually,
in groups, or all at once. The choice is entirely up to the copyright owner, who is free to license
individual and specific rights however she or he likes. For example, the owner of a copyright in
a photograph may license its use in a specific book, but not in a poster advertising the book. An
artist may license her painting for use as a poster, but only for a limited time and only in specific
countries. An author may license his script for theatrical production internationally, may grant a
separate license to make the film version, and may license a derivative television show through
someone else entirely. There is essentially no limit to a copyright owner’s ability to license the
individual rights within the copyright.
Copyright 101
(3)
KILPATRICK TOWNSEND
Q.
How are implied licenses treated under copyright law?
While any transfer of, or exclusive license to use, a copyright must be made by virtue of a signed
writing, the same is not true for non-exclusive licenses. A non-exclusive license may be made orally,
or may even be implied through conduct. Generally, an implied license is found when, in the absence
of any other explicit agreement, (1) a person (the licensee) requests the creation of a given work; (2)
a creator (the licensor) creates the requested work and delivers it to the person who requested it; (3)
with the intent that the work will be copied and distributed by the person who requested it.
Q.
Is a U.S. copyright recognized internationally?
There is no “worldwide copyright,” and international recognition and enforcement is for the most
part contingent on the particular laws of the country in which recognition is sought. However, many
countries recognize and offer protection to foreign copyrights under certain conditions, many of
which have been codified by international copyright treaties and conventions. As a general rule,
the holder of a U.S. copyright is entitled to protection in many countries, but not all, throughout the
world.
Q.
How long are my copyrighted works protected?
The answer depends upon when a work was created. Copyright in a work created on or after January
1, 1978, lasts, except as indicated below, for the life of the author plus 70 years after the author’s
death. For an anonymous or pseudonymous work, or a work made for hire, copyright lasts for 95
years from the date of first publication, or a term of 120 years from the year of creation, whichever
expires first.5 For works created before January 1, 1978, the term varies depending upon several
factors. Sections 303 through 305 of the Copyright Act should be reviewed carefully in the case of
works created prior to January 1, 1978.
II.
Ownership
Q.
Does an employer own the copyright to a work created by its employees?
Absent a signed, written agreement to the contrary, an employer owns the copyright to any work
prepared by an employee within the scope of his or her employment.” Such a work is known as a
“work made for hire.”6 It is important to note that, for purposes of works made for hire, the courts
determine whether someone is an “employee” by applying the general common law of agency. To
assess whether a given work was created by an employee within the scope of his or her employment,
courts consider a number of factors including the employer’s control over the manner, means, and
location of the work, the employer’s control over the scope and scheduling of the work assigned,
and whether benefits were provided and/or taxes withheld. The legal definition of an “employee”
may not always match the common understanding of that term, and it is advisable to speak with a
copyright attorney if there are any issues on this point.
Q.
5
6
If I hire a freelancer to create a work, do I own the copyright or does the freelancer?
17 U.S.C. § 302(c) (2006).
Id. §§ 101, 201(b).
The copyright to a work that has been specially ordered or commissioned will, in many cases, belong
to the creator of the work—and not to the person who commissioned it—absent certain conditions.
The Copyright Act identifies certain narrow and specific works that will be considered “made for
hire,” and the copyright to such works will belong to the person who ordered or commissioned them
if the parties expressly so agree in a signed writing.7 If a specific commissioned work does not fall
into one of these enumerated categories (or if it does, but the parties do not sign a related written
agreement), the copyright to the work will belong to the independent contractor who created it. In
such a case, a written assignment will be necessary to convey ownership from the creator to the
commissioning party.
Q.
How do I transfer or acquire a copyright?
A transfer of copyright ownership, unless by operation of law, must be in writing and signed by the
copyright owner or such owner’s duly authorized agent.8
Q.
Should I record the transfer with the Copyright Office?
Recordation is generally recommended because it puts others on constructive notice of the facts
stated in the recorded document. A later transferee may acquire superior rights if he or she records
first and is without notice of the earlier transfer. Because documents filed with the Copyright Office
are available for public inspection, it is generally advisable to execute a separate assignment to
prevent having to record a confidential agreement with the Copyright Office.
Q.
What are termination rights?
Under particular circumstances, authors have the right to terminate a prior grant of rights in the
copyright in such author’s work. The primary goal of giving authors a termination right is to allow
an author to reclaim benefits from her creation after the passage of time allows the true worth of the
work to be determined.
For transfers or licenses executed on or after January 1, 1978, other than by will, the transferor may
terminate the grant “at any time during a period of five years beginning at the end of thirty-five years
from the date of execution of the grant.”9 For transfers or licenses executed before January 1, 1978,
other than by will, termination may be effected at any time during a period of five years beginning
at the end of 56 years from the date the copyright was originally secured, or beginning on January 1,
1978, whichever is later. Those persons authorized to terminate and the requirements for effecting
proper termination, which is quite complicated, are set forth in detail in the Copyright Act.
III.
Infringement
Q.
Who has standing to bring an infringement claim?
7
8
9
This applies only to works used as (1) a contribution to a collective work; (2) part of a motion picture or other audiovisual work;
(3) a translation; (4) a supplemental work (e.g., forwards, afterwards, pictorial illustrations, charts, tables, editorial notes, etc.); (5) a
compilation; (6) an instructional text; (7) as a test; (8) as answer material for a test; or (9) an atlas. See id. § 101.
See id. § 204(a).
Id. § 203(a)(3).
Copyright 101
5
KILPATRICK TOWNSEND
An owner or exclusive licensee of any exclusive right under the Copyright Act is entitled to bring
an infringement claim.
Q.
What must a plaintiff prove to establish infringement?
To sustain a copyright infringement claim, a plaintiff must prove (1) ownership of a valid copyright;
(2) copying by the defendant; and (3) sufficient copying to constitute improper appropriation.
“Copying” in this sense is a misnomer; a violation of any of the exclusive rights granted by
copyright law will suffice. To show that a defendant copied a copyrighted work (other than by direct
evidence, which is often hard to obtain), a plaintiff must establish that the defendant had access to
the copyrighted work and that defendant’s work has probative similarity to the copyrighted work.
Similarities in both protectable and non-protectable expression can be probative of copying.
The test for improper appropriation is “substantial similarity.” Here, only similarities in
copyrightable subject matter are relevant. As a result, highly creative works such as books receive
stronger protection than works entitled to thin copyright protection. For works with thin copyright
protection (e.g., packaging with an original arrangement of otherwise unprotectable text), a court
may require the works to be nearly identical to establish infringement.
Q.
Who can be held liable for copyright infringement?
Of course, individuals or corporations that directly engage in copyright infringement may be
found liable for infringement. However, individuals or entities that are not directly involved in
infringing activity may still be found liable for the infringement under the doctrines of “contributory
infringement” or “vicarious liability.” Generally speaking, there may be contributory liability by
one who, with knowledge of the infringing activity, induces, causes, or materially contributes to the
infringing conduct of another. An individual or entity may be vicariously liable for infringement
when it has the right and ability to supervise the infringing activities and has a direct financial
interest in them.
Q.
If it is on the Internet, can I download or forward it without permission?
No. Content on the Internet is entitled to copyright protection to the same extent as content available
in other forms of media.
Q.
If I am not making any money, can I still be liable for copyright infringement?
Yes. While profiting from a work may affect the copyright owner’s damages, or a fair use analysis,
the profitability of the use is otherwise irrelevant for infringement purposes.
Q.
What remedies are available for copyright infringement?
In any successful infringement suit, a copyright owner may recover its own actual damages and the
non-duplicative profits of the infringer, as well as the costs of the suit. If the infringed copyright was
registered prior to the infringement (or within three months of the work’s publication), the copyright
owner may elect to receive (1) statutory damages (in lieu of the actual damages and profits otherwise
available); and (2) attorneys’ fees (in addition to any other damages available).
7
A copyright owner may also seek temporary and final injunctions against future infringements, and
the destruction of all infringing copies and any materials used to create them.10
IV.
Other Intellectual Property Rights
Q.
Will copyrights protect my ideas?
Copyright protects expression, not ideas. Disputes in this area often arise from stories involving
similar character types or plot lines. Courts carefully scrutinize claims in such works to determine
whether a claimant seeks to protect stock scenes that naturally flow from a common theme, so called
“scènes à faire.” For example, a court rejected a claim that the novel and movie Jurassic Park,
infringed works by an author of children’s books. The court concluded, “[w]hile both the Dinosaur
World books and the Jurassic Park works share a setting of a dinosaur zoo or adventure park, with
electrified fences, automated tours, dinosaur nurseries, and uniformed workers, these settings are
classic scènes à faire that flow from the uncopyrightable concept of a dinosaur zoo.”11
Q.
How are copyrights different from patents and trademarks?
While copyright, patent, and trademark law share certain broad similarities, each covers different
subject matter, has different requirements for protection and infringement, and offers protection for
different terms.
Copyrights protect original works of authorship, and such protection is available as soon as the
work is fixed in a tangible medium of expression. A copyright protects only a particular expression
of an idea, not the underlying idea itself, and is generally not available for words, symbols, logos,
or slogans. Nor does copyright protect the design of useful articles, unless the pictorial, graphic,
or sculptural features of the design exist independently from its useful purpose. Once a work is
copyrighted, no party may create, distribute, perform, or display a “substantially similar” work
without the copyright owner’s permission. Protection under a copyright endures for a limited time
only: for works created after January 1, 1978, copyright protection exists for the life of the author
plus 70 years.
Utility patents prevent others from making use of novel, non-obvious, and useful processes,
machines, product features, or compositions of matter. Design patents afford the same protection to
novel and non-obvious ornamental designs for manufactured goods. Such protection is not available
until a patent is issued by the United States Patent and Trademark Office (“PTO”), and exists only for
a limited time. Generally, a utility patent offers protection for 20 years from the date its application
was filed, and a design patent offers 14 years of protection.
10 See id. §§ 412, 502–505.
11 Williams v. Crichton, 84 F.3d 581, 589 (2d Cir. 1996).
Copyright 101
Available statutory damages, the exact amount of which is determined by the court, range from $750
to $30,000 for all infringements of a given work. If the copyright owner proves the infringement
was willful, the court may increase the award to as much as $150,000; if the defendant proves the
infringement was innocent, the court may decrease the award to as little as $200.
KILPATRICK TOWNSEND
Trademarks protect words, symbols, slogans, and designs used in connection with the sale of goods
and services, and this protection begins as soon as the given mark is used in commerce. Registration
of the mark with the PTO, while advisable, is not necessary to enforce the trademark against
infringers. In general, a valid trademark is infringed when an unauthorized third party creates a
“likelihood of confusion” as to the source, sponsorship, or affiliation of its goods or services visà-vis the goods or services of the trademark owner. There is no set duration for trademarks, which
remain valid so long as they are properly used in commerce by the trademark owner.
Q.
What are “moral rights”?
Many countries, in addition to the economic rights discussed above, also recognize personality
rights, often referred to as “moral rights.” The United States adopted a very limited subset of moral
rights for “works of visual art” in the Visual Artists Rights Act (“VARA”). Section 106A of VARA
grants a limited right of attribution (the right to claim authorship or to prevent the use of an author’s
name on a work he or she did not create) and right of integrity (the right to prevent an intentional
modification to a work that is prejudicial to the artist’s reputation or any destruction of a work
of recognized stature). Anyone contemplating the destruction or modification of a work of visual
art—for example, a sculpture in the lobby of a corporate building—should consider whether these
rights apply.
9
Trademark Questions and Answers
I.
Trademarks
Q.
What is a trademark?
A trademark is a word, symbol, or device used to identify the goods of a manufacturer or distributor
and to distinguish them from those of others. A service mark is a trademark that is used to identify
services. For example, in the computer field, hardware and software are classified as goods, while
installation, instruction, and repair are classified as services. The same mark may serve to identify
both goods and services and the term “trademark” as used in this article also encompasses service
marks. The term “brand” is often used as a synonym for “trademark.”
A trademark can also be non-traditional, such as a color (pink for home insulation) or sound (the
three-note signature signoff of the NBC network). Even fragrances or flavors could function as
trademarks if they meet the traditional criteria of a trademark or service mark.
Just as color and other sensory indicia can serve a trademarks, product design (Cartier jewelry and
watches) and packaging (Haig & Haig bottle shape and Tiffany wrappings) can also function as
trademarks. Collectively, these are often called “trade dress,” which includes the total look of a
product and its packaging, and can even includes the color, design, and/or shape.
The trademark or brand of a business may often be its most valuable asset. If all the tangible assets
of The Coca-Cola Company or PepsiCo., Inc. and its subsidiaries were destroyed tomorrow, the
companies could borrow billions of dollars to rebuild based on the value of the brand equity in its
trademarks.
Q.
What is a trade name?
A trade name is the name of a corporation, partnership, or other entity or organization and symbolizes
the reputation and identity of that entity rather than its specific goods or services. Protection of
trademarks and trade names are intertwined. Thus, use of a party’s name as a mark on its goods or
services may constitute trade name infringement, and the reverse could be true as well. Incorporation
under state law or reservation of a corporate name or recording as a fictitious name does not create
rights that preempt a prior trademark user and federal registrant of a trademark.
A name or symbol that serves as a trademark may also be used as the trade name or corporate name
(or a portion thereof) to identify the business of the owner of the mark. A trade name is similar
to a trademark or service mark but symbolizes the reputation of the business entity rather than
specifically identifying its goods or services (for example, Coca Cola is a trademark while “The
Coca Cola Company” is a trade name and corporate name). It is important under the fictitious name
statutes of many states to record a name under which an entity does business if that name differs
from the legal name of the business, e.g., A&P for Greater Atlantic & Pacific Tea Company.
Trademark 101
Miles J. Alexander and Charlene R. Marino
KILPATRICK TOWNSEND
Q.
Are there other types of marks?
There are “certification” marks that certify the certain quality, geographic, and other requirements
that must be met by the users of the mark who do not own the mark, e.g., certified by Underwriters
Laboratories (UL), the Good Housekeeping Seal, manufactured by a union, originating in Idaho
(potatoes). There are also “collective” marks that indicate membership in an organization, e.g.,
Sigma Chi Fraternity or a UAW local union.
Q.
What is the difference between a trademark, copyright, and a patent?
Although trademarks, copyrights, and patents all concern intellectual property rights and overlap
to some extent, they differ from each other significantly. A copyright concerns literary, and artistic
expression and protects original works of authorship, ranging from books, music, and art, to
computer software and fabric designs. A patent protects functional and design inventions. Almost
any product, process, or ornamental design that is new, useful, and non-obvious is patentable.
There are many other differences that are beyond the scope of this section, including the fact that
copyrights and patents have a finite term, whereas trademarks do not.
On the other hand, a trademark, as noted above, protects commercial source identifiers, such
as words, designs, and virtually any identifier used by a manufacturer, distributor, or others to
distinguish its goods or services from those of third parties.
Q.
How Should Trademarks Be Selected?
The process of selecting a new trademark requires consideration of two separate issues. The first
is “freedom to use” the mark—that is, whether the mark chosen is likely to infringe previously
established rights of others. The second is protectability, or the extent to which others may be
precluded from adopting or using similar marks.
1.
Freedom to Use
It is quite possible to select a mark that may be freely used and is unlikely to infringe the rights of
others but that may be difficult or impossible to protect. For example, if the mark is a common
surname or is highly descriptive of the user’s goods or services, it may be available for use but
would be difficult to protect against use of similar marks for related goods or services. In general,
a distinctive, arbitrary, or fanciful mark is much more likely to be protectable than one that is
descriptive or suggestive of the client’s products or services. Unfortunately this principle of
trademark law is contrary to the natural inclination of marketers to adopt a mark that describes and
therefore “sells” the product. Nevertheless, even though a higher advertisement investment may
be required to establish a unique mark, its long term value generally will be much greater. For
example, marks such as KODAK®, EXXON®, XEROX®, and ROLLS-ROYCE® are enormously
valuable because of their distinctiveness, which enables the owners to prevent use of similar marks
by others even for unrelated goods and services.
It is important in selecting a new trademark to avoid marks that are closely similar to those previously
adopted by others. The statutory standard for determining whether a mark is infringing under state
and federal trademark law is “likelihood of confusion.” In determining confusing similarity, the
spectrum of distinctiveness must be considered. In general, it is permissible to come much closer
to marks that are weak, nondistinctive, or descriptive, and that have not acquired a high degree of
secondary meaning, public recognition, or fame. The rationale for this rule is that the public is
unlikely to assume that all products or services provided under a relatively weak mark originate
from the same source. By contrast, where a mark is extremely strong and famous, the contrary
assumption is likely to be made. For example, in the 1896 “Kodak Bicycle” case, the British House
of Lords ruled that purchasers would be likely to assume that bicycles sold under the mark KODAK
originated with the same company that produced cameras and film.
As a further consideration, both the federal government and most states in the United States have
adopted anti-dilution statutes that protect strong and famous marks from uses that diminish their
distinctiveness without regard to likelihood of confusion. Therefore, even if no one would think
that Rolls-Royce or Kodak Pork Sausage comes from the company that makes the automobiles or
is engaged in the photographic industry, under the federal dilution statutes and those of many states,
there is no doubt that the owners of the famous ROLLS-ROYCE® or KODAK® marks could enjoin
the use of those marks for sausage.
Because of these considerations, it is important to know the industry in which products are to be sold
under a new mark and to identify similar trademarks used by other companies both in related and
unrelated businesses. A company’s sales personnel are often the best source of such information.
The process for screening proposed new marks also generally involves an online United States Patent
and Trademark Office (“PTO”) database search to locate directly conflicting federal registrations.
Online searches may be expanded to cover state registrations, common law references, and directory
and trade name sources, including Dun & Bradstreet listings.
If no direct conflict is found by online searches, it is advisable to obtain a more comprehensive
search from a commercial searching service before making a substantial investment in a new mark.
Such services generally maintain extensive libraries of trade directories and other materials covering
federal and state registrations, as well as common law and trade name sources. Google and other
search engines often provide relevant websites and information regarding potential conflicts.
The evaluation of a search report requires a significant exercise of judgment based on experience
and knowledge of case law. Disputes that may arise if a newly selected mark allegedly infringes the
rights of a prior user may be expensive and disruptive of the business. For example, when Toyota
Motor Company adopted the mark LEXUS for its automobile, it was sued by Mead Data, which
provides databases used by lawyers, for allegedly infringing and diluting its LEXIS® mark. The
trial court ruled in favor of Mead Data on the ground of trademark dilution.1 Although the Second
Circuit Court of Appeals ultimately reversed that decision, the trial court’s ruling must have caused
consternation for the executives who selected the mark.2
1
2
Mead Data Cent., Inc. v. Toyota Motor Sales, U.S.A., Inc., 702 F. Supp. 1031, 9 U.S.P.Q.2d 1442 (S.D.N.Y. 1988), rev’d, 875 F.2d 308 (2d
Cir. 1989).
Mead Data Cent., Inc. v. Toyota Motor Sales, U.S.A., Inc., 875 F.2d 1026, 10 U.S.P.Q.2d 1961 (2d Cir. 1989).
Trademark 101
11
KILPATRICK TOWNSEND
In reviewing trademark searches, it is also important to pay close attention to trade name and
common law uses. Under U.S. law, common law trademark and trade name rights are established
by use and the first user in any geographical area is entitled to exclusive rights to the mark within its
zone of reputation. Consequently, even a small localized business may be able to prevent expansion
of a confusingly similar mark into its territory and may also oppose federal registration of a mark
based on its prior use. For example, L’Oreal was successfully sued by a beauty shop doing business
under the ZAZU name when L’Oreal adopted that mark for a new hair cosmetic product. Discovery
showed that L’Oreal’s trademark searches had disclosed the existence of the beauty shop, but that
L’Oreal had proceeded with adoption of the mark despite its awareness of plaintiff’s existence. In
the well-known “Big O” litigation, a local group of tire dealers successfully sued Goodyear, which
adopted the BIGFOOT mark previously used but not registered by the members of the plaintiff
dealers’ organization for their tires.
It is often necessary to conduct a confidential investigation of common law or trade name users of
similar names or marks in order to fully evaluate the question of whether such uses are likely to
interfere with the right to use or protect a proposed mark in the future. Greater caution is necessary
where a major investment in a proposed new brand is anticipated than where the mark will be used
for a minor or short-lived product and could be abandoned at minimal expense. It is especially
important to avoid potential conflicts where the mark will be licensed or franchised for use by others.
Trademark searches are not perfect and certain types of marks are especially difficult to search
because they may not be likely to show up in trade name or trade directory sources. For example,
style marks for subsidiary products—e.g., shoes that are also sold under the principal brand name
or house mark of the manufacturer, and service marks for particular subcategories of services—are
often difficult to search adequately. Additionally, there are always deficiencies in databases and
indexing of informational sources that can result in omissions. However, such searches and related
industry investigations are the best available means for identifying potentially confusing uses by
others. Failure to obtain comprehensive searches and sophisticated advice before selecting a name
or mark can be penny wise and dollar foolish, resulting in serious potential legal problems.
2.
Protectability
After determining that a mark is available for use, the issue arises as to whether the mark is
registrable and protectable against subsequent use by others. The Lanham Act generally prohibits
registration of marks that are merely descriptive or deceptively misdescriptive of the product, or
that are surnames or geographical terms, unless the applicant can show that the mark has acquired
distinctiveness or secondary meaning in the minds of the public. Although secondary meaning may
be presumed after five years of continuous and exclusive use, it is possible to submit evidence to
support registration of an otherwise nonregistrable mark even in the absence of five years of use. It
also may be possible to combine such a descriptive term with a previously established house mark
or to adopt a design that will lend distinctiveness to the overall combination.
It is generally also advisable to search design marks although design searches are less comprehensive
and more expensive than word mark searches. Under general trademark law principles, design
13
Assuming the new mark is available, the question next arises as to what must be done to acquire
exclusive trademark rights.
Q.
What is the distinctiveness requirement for trademark protection?
A trademark must be sufficiently distinctive to serve as an identifying symbol or brand. Distinctiveness
generally means that the consuming public associates goods or services provided under the mark
with a single source. A mark may be inherently distinctive or may acquire distinctiveness as a result
of use and recognition by the relevant public. The degree of inherent or acquired distinctiveness is
an important factor in determining the scope of protection to which a mark is entitled against use
of similar marks by others. A highly distinctive and famous mark is considered “strong” and will
be protected against use even on unrelated goods, while a nondistinctive or “weak” mark may be
entitled to only limited protection against use of the same or a similar mark on identical or closely
related goods.
Trademark law recognizes a spectrum of distinctiveness. The most distinctive and, therefore,
protectable marks are unique, coined terms that have no inherent linguistic meaning. Examples
of coined marks include KODAK and XEROX, which are invented words. Such invented terms
are accorded a wide scope of protection on the rationale that they do not take anything from the
common language. Therefore, prohibiting their use by others would not deprive competitors or
the public of any freedom of speech. On the other hand, a nondistinctive and “weak” mark may
be entitled to only limited protection against use of an identical mark on similar or closely related
goods, e.g., GOLD MEDAL for foods, athletic equipment, and a variety of other products.
Next in order of distinctiveness are arbitrary marks. These are words or symbols having a common
meaning but no connotation in association with the user’s goods. Examples are ARROW for shirts,
APPLE for computers, AMAZON for an online bookstore, and CAMEL for cigarettes. Arbitrary
or fanciful marks also are entitled to a broad scope of protection because they do not deprive
competitors of the ability to freely describe their own products.
The third category of distinctiveness is comprised of suggestive marks. As the name implies, such
marks suggest some of the qualities of, but do not directly describe, the user’s products or services.
Examples of suggestive marks are WORD® and WORDPERFECT® for word processing software,
COPPERTONE® for suntan lotion, KOOL-AID® for a beverage, EVEREADY® for batteries, and
JOY® for perfume. Suggestive marks are considered to be inherently distinctive and, therefore, like
coined and arbitrary marks, they are entitled to protection against use of similar marks by others
without proof that they have acquired distinctiveness as a result of public recognition. They are
not, however, protected as broadly as coined or arbitrary marks. In general, suggestive marks,
which have not acquired a high degree of fame and public recognition, are likely to be protectable
against use of similar marks for related goods. There is often a close line between suggestive and
descriptive marks.
Trademark 101
marks are considered to be equivalent of the words that they symbolize. For example, the mark
“Lion” for shoes was refused registration on the ground that it created a likelihood of confusion with
a previous registration of the design of a lion’s head also for shoes.
KILPATRICK TOWNSEND
The fourth category of distinctiveness, which is comprised of descriptive marks, is more difficult
to protect. They include surnames, geographical marks, and laudatory marks, as well as those that
directly describe the nature or quality of the user’s products or services. Such descriptive marks,
surnames, and geographical marks are considered to be inherently nondistinctive and are, therefore,
protectable only after they have acquired a “secondary meaning.” The term “secondary meaning”
means public recognition that the name does not refer only to the nature of the user’s products in
a descriptive sense but also serves to identify the source of origin or sponsorship of the goods or
services.
It is possible for a descriptive mark to acquire a high degree of secondary meaning and even become
extremely famous. When that happens, the mark is entitled to a broad scope of protection. For
example, COCA-COLA®, INTERNATIONAL BUSINESS MACHINES®, BAND-AID®, PIZZA
HUT®, BURGER KING®, NEWSWEEK®, and HOLIDAY INN® are marks that may have originally
been descriptive but which, after having become well known as identifications of origin, are entitled
to substantial trademark protection.
In the absence of such a high degree of fame, descriptive marks, even if they have acquired sufficient
secondary meaning to be protectable as trademarks, are generally entitled to protection only against
use of identical marks for closely related goods. For example, in the software field, there are numerous
marks that use the term “soft.” As a result of such widespread use, no single company is entitled
to claim exclusive rights to use “soft” as part of a mark for computer software. Thus, if a producer
named a software product “EASY-SOFT,” it probably could not be able to prevent someone else
from selling a competing product called “SPEEDY SOFT.” Prior users, however, would be entitled
to prevent use of an identical combination mark for closely related goods. Descriptive marks and
their federal registrations are also more readily subject to challenge until five years of continuous
and exclusive use following registration, at which time they can become “incontestable” through
the filing of a § 15 affidavit under the Lanham Act. At that time, marks which might otherwise be
subject to challenge based upon prior use, descriptiveness, or use as a surname or geographic name
can no longer be cancelled on those grounds based upon the notable U.S. Supreme Court case which
foreclosed competitors from challenging or using the PARK ’N FLY® mark.3 However, even an
incontestable registration does not foreclose a competitor from making “fair use” of a descriptive
term in a non-trademark sense.
The final category in the distinctiveness spectrum consists of generic terms that are not trademarks
at all. A generic term may be a word or phrase that is inherently the common descriptive name for
a product or service, such as “software” for computer programs, “computer” for hardware, “car” for
automobiles, or “shoe” for footwear. Alternatively, a generic term may also be a trademark that has
fallen into generic usage and, therefore, lost its distinctiveness as an indicator of source of origin.
Among the famous trademarks that have become generic are “high octane,” “mimeograph,” “cola,”
“kerosene,” “toll house,” “yo-yo,” “linoleum,” “trampoline,” “dry ice,” “lanolin,” “escalator,”
“cellophane,” “aspirin,” “shredded wheat,” and “thermos,” among many others. A generic term
cannot be exclusively appropriated by anyone and may not be protected as a trademark.
3
Park ’N Fly, Inc. v. Dollar Park & Fly, Inc., 469 U.S. 189 (1985).
15
Q.
How are trademark rights acquired?
In the United States, trademark rights are created by usage and the first user ordinarily has priority
of rights within the area where its reputation is known and in applying for federal registration. It
is, however, possible to apply for federal registration of a trademark, even though the mark has
not yet been used, based on a “bona fide intent to use” the mark. This procedure is of particular
importance to start-up companies and business such as pharmaceutical firms, which may have a
name in mind but may not expect to begin marketing the product for some time. The most important
feature of “intent to use” applications is that they establish “constructive use” of the mark and confer
nationwide priority of rights even though the mark has not yet been used. This priority is contingent
upon ultimate issuance of the registration submitting proof of use of the mark. It is important that
at the time of filing the “Intent to Use” application, there is a bona fide intent to make commercial
use of the mark. Failure to be able to establish that there was such an intent for all goods or services
included in the application can result in the applicant being foreclosed from registration for even
those goods or services for which that intent did exist at the time of filing the application.
In the absence of a federal registration, the geographical scope of trademark rights acquired by use
is concurrent with the area to which the user’s reputation has extended. Thus, at common law, it
would be possible for two good faith users to adopt the same mark for the same goods in different
parts of the country and each establish areas of exclusive ownership rights. In addition, a common
law user of a mark prior to the date a third party files an application to federally register the same
or confusingly similar mark on the same or similar goods may foreclose the federal registrant from
entering the geographic area in which the common law user predated the federal registrant. The
Lanham Act provides a procedure under which two or more parties can hold a concurrent use federal
registration, each registration being applicable to a separate geographic area.
In the United States, both state and federal trademark registration may be obtained. Although state
registrations are of limited value after a federal registration is issued, they are usually granted quickly
with a minimal examination and, in many states, may afford additional remedies in litigation. In
addition, state registrations of marks will be disclosed in a comprehensive trademark search and
may serve as a deterrent to a third party adopting the same mark
Q.
What is proper trademark usage?
Trademarks must be used with care, because improper use can destroy a trademark. In order to
preserve trademark rights, a mark owner should heed the following general rules of trademark
usage:
(1)
Avoid incorrect grammatical use. A trademark modifies a generic noun. A trademark
is a proper adjective, it should never be used as a noun or a verb. This is especially
true if a trademark is near either of the far ends of the spectrum of distinctiveness
Trademark 101
Clearly the line between categories of distinctiveness, especially between descriptive and suggestive
marks, is not always easy to draw and can be subject to dispute. That distinction, however, may
become crucial in determining the protectability of marks in litigation.
KILPATRICK TOWNSEND
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(either unique or highly descriptive), or if the product is unique or the dominant product in the industry—e.g., MAC® computer; XEROX® photocopier; KLEENEX® tissue; BAND-AID® adhesive bandages; JELL-O® gelatin dessert; BLUE CROSS® and
BLUE SHIELD® health insurance.
A trademark should never be used as a generic term by its owner. A trademark owner
should also make efforts to police and protest unauthorized generic uses by others.
Misuse of one’s own trademark in a generic fashion can result in forfeiture of trademark rights. The clever word games that ad writers like to play can be highly destructive to trademarks. For example, the type of usage that destroyed the ASPIRIN mark
included slogans like “Take an aspirin for your headache” instead of “Take ASPIRIN®
brand headache remedy for fast relief.” Despite the fact that aspirin is a generic term
in the United States, Bayer was able to avoid that fate in other countries, including
Canada.
Avoid “genericide.” In some cases, it may also be important to add the term “brand”
preceding the generic name of the goods to help protect the mark against “genericide”—
e.g. JELL-O® brand gelatin or BAND-AID® brand bandages. Often, it is also useful
to extend the product lines on which famous dominant trademarks are used.
Use special typography. A trademark should always be capitalized or, even better,
shown in all caps or other distinctive typeface.
Use a trademark notice. The symbol “TM” or “SM” (for service mark) should be used
with a mark that is not federally registered, and the “®” symbol or equivalent designation should be used for federally registered marks.
Avoid variations. A trademark should not change in form throughout its use. For a
word mark, do not change the spelling, insert or delete hyphens, or make one word into
two. For a design mark, keep the design consistent. Changes in the form of a trademark tend to detract from its power as a source-identifier to consumers and weakens
the distinctiveness of the mark. There are circumstances which dictate modernizing
a mark that has become dated because of the style or design of the mark itself. The
multiple iterations of the Betty Crocker design mark (with changing hairdos and appearances), the use of marks in distinctive script or block letters, and the shortening of
marks, e.g., Pepsi and Coke, are examples of changes that developed over the years.
It is often wise to maintain some use of the original form of the mark for historic and
priority registration purposes.
Police other mark usage. The trademark owner must never permit uncontrolled use of
the mark by others. Such use is called licensing in gross and may result in a finding
that the mark has been abandoned because it no longer signifies that the owner controls and stands behind the goods or services provided under the mark. Indeed, even
mandatory disclaimers can be important, through education of the publishers as to the
proper generic term for a product.
Avoid abandonment. Trademarks may also be abandoned by nonuse, unless such nonuse is temporary and the owner has a genuine intention to resume use of the mark. If
a company expands by acquiring companies that have well-known marks, it is impor-
Q.
tant that the acquiring company, whether a bank or a food company, continue to make
bona fide commercial use of the well-known mark of the acquired company. Failure
to do so can result in a third party beginning to operate under the abandoned mark and
thereby trade upon the residual goodwill, e.g., Exxon/Humble oil companies.
How are rights to trademarks protected?
Infringement of a federally registered trademark constitutes a violation of the registrant’s rights that
gives rise to a variety of equitable and monetary remedies. Additionally, even trademarks that are
not registered may be protected under § 43(a) of the Federal Trademark Act which prohibits false
representations, false descriptions, and false designations of origin in the sale of goods and services.
Use of a confusing mark can falsely identify and falsely represent the source and origin of the
products and, thereby, violate this statute.
Trademarks are also protected at common law in all states. In addition, most states have deceptive
trade practices acts, fair business practices acts, false advertising, and/or “little FTC” acts that
prohibit all types of unfair competition, including trademark infringement. There are often issues of
standing to sue, which is sometimes limited to consumers or competitors and/or the state or federal
government. The ability to bring class action suits on behalf of consumers will vary from state to
state.
The owner of a federal trademark registration and a state registration might sue an infringer not
only for federal statutory trademark infringement, dilution, and federal unfair competition, but also
for false representations and false designation of origin under 15 U.S.C. § 1125(a); state trademark
infringement laws; violations of Uniform Deceptive Practices Acts; false advertising statutes;
violations of Fair Business Practices Acts; fraudulent misappropriation statutes; and common law
unfair competition statutes. In addition, unlike the federal dilution statute, state statutes may be
applicable to dilution that occurs only within a single state. As noted above, most states have a
dilution statute intended to prevent the dilution of the distinctive quality of a trademark, even in the
absence of a likelihood of confusion and actual confusion, and, in many cases, in the absence of the
“fame” requirement under the federal dilution statutes.
II.
Conclusion
Selection of a new trademark can create a valuable asset, but also plunge the user into a quagmire
of legal problems. Trademarks should be selected with care to make sure they are both free for
use and protectable. Appropriate steps should be taken to secure and protect trademark rights, and
trademarks must be maintained by careful monitoring.
Trademark 101
17
KILPATRICK TOWNSEND
19
Why the Corporate ‘Policy’ is No Shield to Multi-Million Dollar
Copyright Liability
Joseph M. Beck
Most business executives, if asked, would disapprove of copyright infringement; some might add
that they have a “policy” warning employees not to infringe. But a policy may not be enough
according to a recent decision affirming almost $20 million dollars in damages against a company
whose employees faxed, downloaded, and forwarded online issues of a copyrighted newsletter to
which the company subscribed.
The Problem
Contrary to the common assumption that “if it’s on the Internet, it’s public domain,” in fact much
material on the worldwide web is copyrighted. (Since March 1, 1989, it has been unnecessary to
include a copyright notice on a work; and even items that once were in the public domain may be
protected if they are part of an original compilation or have been revised.) While some copyright
owners freely grant permission to download or forward materials, many licenses severely restrict
any such use. Permission to download may not include permission to photocopy; and authorization
to use within a corporation’s headquarters may not include permission to forward to branch offices,
much less to customers.
Another common assumption—that a company can rely on the “fair use” doctrine when copying
and distributing periodicals for which it has a subscription—also is questionable. References in
the Copyright Act, 17 U.S.C § 107, to possible “fair use” for teaching, scholarship, comment, and
research will not reliably provide a safe harbor for commercial users—even if the use is characterized
as for education or research. 1
II.
The Potential Legal Exposure
A.
Liability
Copyright protection vests automatically in the author of an “original” work (the “originality”
standard is quite low) fixed in a tangible medium of expression (e.g., print, software, video, etc.).
Infringement can be proved simply by demonstrating “ownership” (a prima facie case is made
by offering in evidence a Certificate of Registration of the claim of copyright) and “copying” (an
unauthorized electronic transmission of a protected work from one computer’s memory to another’s
1
The fair use provision in the Copyright Act reads as follows:
Notwithstanding the provisions of sections 106 and 106A, the fair use of a copyrighted work, including such use
by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as
criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research,
is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use
the factors to be considered shall include—
(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.
The fact that a work is unpublished shall not itself bar a finding of fair use if such finding is made upon consideration
of all the above factors.
Copyright 201
I.
KILPATRICK TOWNSEND
generally creates an infringing “copy”). Moreover, as discussed below, defenses such as estoppel,
implied license, and fair use may not shield an employer, even an employer that instructs its
employees never to infringe copyrights. In other words, liability for copyright infringement is often
easy to prove.
B.
Damages
The Copyright Act provides for recovery of three kinds of damages at the election of the plaintiff:
actual damages (e.g., lost licensing revenue); profits attributable to the infringement; or statutory
damages (from $750 to $150,000 for each infringed work). Because each infringed work constitutes
a separate offense for statutory damages purposes, liability can skyrocket, for example, where daily
or weekly newsletters are infringed.
That’s just what happened in Lowry’s Reports, Inc. v. Legg Mason, Inc., 271 F. Supp. 2d 737 (D. Md.
2003) (“Legg Mason 1”), and 302 F. Supp. 2d 455 (D. Md. 2004) (“Legg Mason 2”). In Legg Mason
1, the court granted summary judgment as to liability for copyright infringement where a financial
services firm, which subscribed to the plaintiff’s stock market newsletter, faxed and emailed copies
to branch offices and the brokerage’s research department. The following holdings by the court
deserve attention.
1.
Vicarious Liability of the Employer
The court rejected the defense that because the copying contravened several memoranda from the
defendant’s legal and compliance department warning employees not to infringe copyright, the
employer could not be liable for vicarious infringement. Noting that “liability takes no cognizance
of a defendant’s knowledge or intent,”2 the court added, “[t]he fact that [defendant’s] employees
infringed [plaintiff’s] copyrights in contravention of policy or order bears not on [defendant’s]
liability, but rather on the amount of statutory and punitive damages and the award of attorneys’
fees.”3
2.
Equitable Estoppel
To establish an estoppel defense, defendant Legg Mason had to show, among other things, that
plaintiff Lowry’s, through misrepresentation or concealment, induced Legg Mason reasonably to
believe that Lowry’s did not intend to enforce its rights. The court rejected this defense because
the plaintiff included a copyright notice on its works, finding that “‘[t]he mere affixation of the
copyright notice on copies of the work, if seen by the defendant,’ speaks loudly and clearly enough
‘to counter an estoppel . . . .’”4
3.
Fair Use
The defendant did not even argue that its posting and downloading of copies within its office intranet
constituted fair use, and, as the court observed, “[n]or would such an argument prevail.”5 Rather,
2
3
4
5
271 F. Supp. 2d at 746 (emphasis in original).
Id.
Id. at 747 (quoting Hampton v. Paramount Pictures Corp., 279 F.2d 100, 104 (9th Cir. 1960)).
Id. at 748.
21
the defendant contended that limited copying by paper and email within its research department
was defensible as fair use. The court, however, summarily rejected the defense, holding that the
first, third, and fourth factors under 17 U.S.C. § 107 weighed “heavily” against the defendant.6
“To the extent the [defendant’s] six or more [unauthorized] copies represented additional, potential
subscriptions, the copying within the research department diminished [plaintiff’s] market.”7
4.
Implied License
The court easily rejected the implied license defense because “no rational factfinder could conclude
that [plaintiff] and [defendant] had mutually assented”8 to the defendant’s copying.
Disgorgement of Profits
As mentioned above, a plaintiff can elect to recover, rather than actual or statutory damages, a
defendant’s profits attributable to an infringement. Significantly, a plaintiff need only show
a defendant’s gross revenue; it then falls to the defendant to prove the allowability of each and
every deduction and the elements of profit attributable to factors other than the copyrighted work.
Although the court declined to award a share of Legg Mason’s revenue of more than $4 billion,
it appears that the court might have reached a different conclusion had the plaintiff’s expert, on
deposition, not admitted that “he could not say whether a causal link connected the infringement
to [defendant’s] profits.”9 On the other hand, the court concluded that “[a]lthough it seems that
some of [defendant’s] profits ‘should’ relate to its infringing use . . . the appearance defies reason.
The complex, variable, independent thought processes of hundreds of individual brokers intervene
between the copying and any subsequent gain.”10
6.
Statutory Damages
Noting that the Copyright Act authorizes statutory damages of up to $150,000 for each willfully
infringed work (i.e., for each daily and weekly newsletter), the court held that the issue of
“willfulness” was best left to the jury. In early 2004, following a jury trial on the issue of “willfulness”
in Legg Mason 2, the court upheld a jury verdict of $19,700,000. Legg Mason argued that only
$59,000 of actual harm was shown, and, accordingly, the verdict was so disproportionate as to
violate due process. The court rejected the argument, noting (1) that substantial deference must be
accorded to Congress in exercising its constitutional authority to protect copyrights, and (2) that in
1999, Congress amended the Copyright Act by increasing statutory damages “in order to provide
‘more stringent deterrents’ to copyright violations including those involving computer users and
Internet activity.”11 Observing that Legg Mason’s maximum liability for willful infringement was
$36,000,000, the court concluded:
6
7
8
9
10
11
See supra note 1.
271 F. Supp. 2d at 749.
Id. at 750.
Id. at 752.
Id. (emphasis in original) (citation omitted).
302 F. Supp. 2d 455, 458 (citing H.R. Rep. No. 106-216, at 2–3).
Copyright 201
5.
KILPATRICK TOWNSEND
The jury was not required to believe Legg Mason’s assertions that the repeated infringement
was due to its oversights and set its damages award accordingly. Further, the evidence
indicated that Legg Mason was a sophisticated entity that repeatedly infringed Lowry’s
copyrights, even when asked to stop. In light of this evidence, the Court will not modify
the jury’s award or order a new trial because of its size.12
III.
So What’s an Employer to Do?
The answer will depend upon an employer’s research needs and market strategies—upon how and
how much it uses newsletters, magazines, and other copyrighted works. Before preparing a copyright
compliance policy, therefore, corporate counsel, with the assistance of personnel from information
technology and the corporate library, should identify what kinds of uses are being made of what
kinds of copyrighted works. The policy that evolves can then be tailored to a company’s needs. For
example, a company that relies primarily on a relative handful of scientific journals may want to
pursue licenses with the authors covering the uses needed. Of course, the terms of the licenses will
need to be explained to employees, coupled with a reminder that the company does not countenance
use in violation of the licenses nor other infringement, and that violators will be disciplined.
Companies that rely on newsletters and other limited circulation works may be particularly
vulnerable to infringement claims, and, therefore, particularly in need of an effective compliance
policy. As noted in the House Report accompanying the revision to the 1976 Copyright Act:
It is argued that newsletters are particularly vulnerable to mass photocopying, and that
most newsletters have fairly modest circulations. Whether the copying of portions of a
newsletter is an act of infringement or a fair use will necessarily turn on the facts of the
individual case. However, as a general principle, it seems clear that the scope of the fair use
doctrine should be considerably narrower in the case of newsletters than in that of either
mass-circulation periodicals or scientific journals. The commercial nature of the user is a
significant factor in such cases: Copying by a profit-making user of even a small portion of
a newsletter may have a significant impact on the commercial market for the work.13
What was true in 1976 for newsletter photocopying could prove to be all-the-more true today, given
the widespread opportunity for infringing use of works on the Internet. Indeed, some of this language
from the 1976 House Report was cited by the court in Legg Mason 1 in the course of denying the fair
use defense for online infringement of a newsletter.
Many companies rely upon a wide variety of copyrighted materials; in those cases, individual
licenses for newsletters will not solve the problem of online copying. Nor is a license from the
Copyright Clearance Center (“CCC”) necessarily a complete solution.14 The CCC can only license
rights which it has acquired, and a number of copyrighted works are not available for license through
the CCC. The Legg Mason cases teach that a corporate policy requiring copyright compliance may
12 Id. at 459.
13 H.R. Rep. No. 94-1476, at 73–74 (1976), reprinted in 1976 U.S.C.A.N.N. 5659, 5687.
14 The Copyright Clearance Center is an organization that licenses print and electronic reproduction rights in a large number of books,
journals, and newspapers for use by businesses and academic institutions.
23
reduce the amount of damages—so adoption of a clear, written corporate policy is recommended.
The Legg Mason cases also teach, however, that such a policy will not insulate a company from
millions of dollars in liability if the policy is not followed by employees.15
It will not be enough, therefore, to prepare and disseminate a written policy. In order for copyright
compliance to take root within an organization counsel should ensure that the policy is thoroughly
and repeatedly explained in employee meetings. Participation by senior management and frequent
reminders can build a corporate “culture” of respecting copyright.
IV.
Conclusion
Copyright 201
Copyright protection is a two-way street. Virtually every business creates copyrightable—and often,
quite valuable—intellectual property in the normal course of its daily operations. Protection of that
intellectual property—in particular, protection of the all important remedies of statutory damages
and attorneys’ fees—is relatively simple and inexpensive. Indeed, given the ease and low cost
of securing effective copyright protection (especially in comparison with the cost of patents and
trademarks), companies would be remiss in not inventorying their own copyrightable property in
the course of establishing a compliance policy. An additional dividend, in the author’s experience, is
that companies that protect their own copyrights are much less likely to infringe the rights of others.
15 In fact, newsletter publishers will often aggressively pursue companies whose employees forwarded newsletters to their colleagues.
Several law firms have developed a reputation for seeking millions of dollars on behalf of newsletter publisher plaintiffs.
KILPATRICK TOWNSEND
25
How to Squeeze Into a Crowded Field of Trademarks
Georges Nahitchevanksy and Stephen J. Coates
I.
What is a Crowded Field of Marks?
A frequent problem brand owners face with new marks is that they discover that there are several
other parties using similar marks for similar goods and services. In this case, the field is said to be
“crowded.” A crowded field makes obtaining trademark protection difficult and use of the mark
might risk infringing one or more other parties’ marks. While at first glance, obtaining trademark
protection might appear insurmountable, through consistent and committed action and a welldeveloped strategy, brand owners may still be able to obtain a foothold of protection and reduce the
risk associated with an infringement suit.
There are several obstacles that brand owners face in a crowded field of marks. First is the difficulty
in obtaining trademark protection. With a number of similar marks used on similar goods and
services, it is often difficult to obtain some form of protection. Second, even if protection is obtained,
it is often limited in scope and is regarded as a “weak” mark with a limited form of protection and
ability to preclude other similar marks for similar goods and services. Third, whether protection is
obtained or not, the brand owner might face retaliation from other parties looking to protect their
marks through infringement actions. Fourth, once protection is obtained, a brand owner can begin to
consider slowly expanding the scope of protection. Finally, it is necessary to protect and police the
mark or else face an even more limited scope of protection or loss of the mark.
II.
Surveying a Crowded Field
Many practitioners use the phrase “crowded field” to describe the case where there are several similar
marks registered for and used on similar goods and services. For example, there are many marks
containing the word “green” in connection with environmental goods and services or “natural” or
“organic” in connection with food products. If one begins using a mark that is similar to that of a
third party, it might risk the possibility of an infringement action or face the need of changing the
selected mark. Some of these terms might be descriptive or generic to the goods and services in
question and carry less risk than a distinctive word or element. In order to ascertain what the level
of risk is, it is necessary to evaluate the availability of the proposed mark.
A trademark availability search is an important tool in the process. Such searches often entail a
search of the registry of the United States Patent and Trademark Office (“PTO”) for similar
federal applications and registrations and an online search into common law uses of the exact
Trademark 201
You get a call from the marketing department that has been working tirelessly on a campaign for
the latest product for the company: bottled water. The sales department has been diligently making
sales and the product is ready to ship tomorrow. You find out that the only thing left to do is obtain a
trademark on the product name. What’s the name? ACME WATER. After conducting a search, you
learn that the field of beverages is crowded with other ACME trademarks owned by other parties
for various types of beverages and even more parties using the mark for restaurant and bar services.
With the product launching tomorrow, what does a brand owner do?
KILPATRICK TOWNSEND
mark. However, more thorough searches can be obtained through ordering a full trademark search
performed by a third-party vendor. These full trademark searches include similar federal and state
trademark applications and registrations, common law uses, business names, online databases and
domain names. In some cases, a preliminary search of the federal marks might be sufficient to
analyze the risk associated with the use and registration of a new mark. However, in cases where
the field is crowded, a full search is recommended and will be extremely useful as it also references
similar state marks and common law uses that might pose as obstacles to the use and registration
of the proposed mark. If the mark is to be used internationally, searches of the registries of the
countries of interest would aid in clearing the mark globally.
The first step in evaluating the field of marks is to identify the common elements of the mark. In
our earlier example, the mark ACME WATER contains both the terms “acme” and “water.” Other
marks might incorporate design elements that should be considered. Once you have identified the
common elements, it is then necessary to consider the risk associated with those similarities.
Not all of the common elements will be of concern. Descriptive and generic terms are not as
concerning as coined-terms. In our example, the word “water” is generic for the basic substance
of water, and would thus not be of concern. On the other hand, the term “acme” is arbitrary when
used in connection with bottled water. Therefore, this will be the element of focus in the search.
Terms other than “water,” while not generic, might still be considered descriptive when used with
the term “water.” For example, the term “natural” might be considered descriptive for the quality of
many products, including water. There are hundreds of federal marks on the registry using the term
“natural” for food. However, the term “natural” would not be expected to be considered descriptive
when used in connection with skateboards or watches. The risk associated with terms such as these
should be evaluated by how descriptive they are of the quality of the goods in question and how
many other marks incorporate these terms. Design elements are evaluated similarly. Considerations
when assessing the risk of a design element include how connected to the goods and services is
the mark, and whether consumers have a strong association of the design to a specific company. A
soccer ball design in a mark used in connection with soccer balls might not carry as much risk as
an apple used in connection with computers. While the soccer ball depicts the product that is for
sale, apples would be considered arbitrary when used for computers and there is already a famous
producer of computers using the apple design. Another example of a potentially descriptive, and
therefore weak, mark would likely be NEW YORK FIRST for banking services. The “New York”
portion of the mark describes the geographic location of the mark and the term “first” is associated
with banks. It is unlikely that the owner will be able to prevent other banks from using the terms
“New York” and “First” in similar marks, however it might be able to preclude others from using
the exact phrase “New York First” in their marks.
III.
Weighing the Risk
After determining the number of similar marks, it is then necessary to consider the risk associated
with these marks. Internet search engines such as Yahoo! and Google are helpful tools in the initial
stages of investigating potential problems. A brief internet search can quickly identify whether there
are online competitors already using the mark and the extent of such use, corporate particulars, SEC
27
filings, and annual reports if the company is publicly traded. Once a particular problematic reference
has been identified, a more exhaustive search can then be made on the Internet. For example, one
can learn a lot of information by visiting the website of the brand owner to see whether it is using
the mark and if so, for what products and services. Many brand owners issue press releases on new
products that can be found on various websites through a search on an Internet search engine. You
may also be able to order the products themselves online if further investigation is required. In
addition to information released by the referenced owner, one can often find information in articles,
blogs, government websites and other online sources.
The Internet does have limits in answering these questions. When more information is needed in
evaluating the risk and developing a strategy to overcome an obstacle, a third-party investigation
is needed. There are several third-party investigators that specialize in trademark and anticounterfeiting investigations and are acquainted with the needs and concerns of brand owners. First
and foremost is the need to be discreet when investigating companies and the specific information
needed. Domestic investigations usually cost in the range of $500-600 for a simple investigation,
but depending upon the complexity, can cost more. International investigations usually cost more
due to language and translation issues as well as the increase in communications costs.
IV.
Developing the Strategy
Once you have assembled your list of problematic marks, it is then necessary to develop a strategy
to overcome these obstacles. The brand owner can take an aggressive approach by devising ways
to attack the marks in question or it can take a more passive approach by crafting protection around
the existing marks. Other options might also include acquiring problematic marks or negotiating a
coexistence agreement with third parties.
A.
Amendment of Mark and Scope of Protection
The first option to consider is whether one can use or register the mark by limiting the scope of
protection. When it is feasible from a business perspective and the goods and services of interest
are different to the similar marks, it might be possible in some cases to limit the use and registration
of the mark to the specific items of interest. For example, if computer software is of interest, the
risk of similar third-party marks might be reduced by limiting the software to a specific field such
as software for education of students or software for financial trading. In some product categories,
limitation of the end consumer might be sufficient (e.g., women’s undergarments and men’s
Trademark 201
There are many questions to ask when performing a trademark investigation. Is the mark actually
in use? If the mark is in use, what are the specific goods and services for which it is being used?
In what geographic locations are the products and services being offered? Are they available in
the United States, Europe, or elsewhere? How long does the mark appear to have been in use? Is
the mark being used substantially similar in appearance to the mark on the registry? What are the
apparent resources of the company using the mark? Are they represented by trademark counsel?
Are there plans to expand the mark? Does the company appear to have lost interest in the mark?
How important is the use of the mark to the company in question? Is the mark the company’s house
mark or simply a product mark? How much has the company invested in the mark?
KILPATRICK TOWNSEND
undergarments). Such a limitation will not work in all circumstances. Cases where limitations may
not work are where the prior marks have broad coverage and use, or are well-known or distinctive
to the goods and services of interest.
Another option to consider is to amend the proposed mark to include additional elements that might
further distinguish the mark from senior third-party marks that are similar. This can be done by
adding an additional word or words, changing the spelling or pronunciation of the mark, or giving
the words a stylized font or logo. One might also consider incorporating a distinctive design, colors,
or trade dress to packaging of the product. Another option is to add the company’s house mark to the
proposed mark, such as adding the XYZ Company mark to ACME WATER.
Limitation of the goods and services or amendment of the mark are often the most cost-effective
methods to consider in obtaining protection and reducing the risk associated with a mark. However,
in cases where there is little room to craft protection around existing marks, it may be necessary to
attack the prior marks.
B.
Attacking a Mark
There are several methods for attacking the validity of a mark. Likelihood of confusion is
the standard for most objections to trademarks. The test for likelihood of confusion is whether
consumers would be confused as to the source of the mark. In order to prevail on a likelihood of
confusion basis, one must first establish that it has priority of use. However, in most cases when a
brand owner is seeking protection for a new mark, it has not yet been put to use and no trademark
rights have been established. Further, in many cases the third-party problematic mark might succeed
in a likelihood of confusion case against the proposed mark. Despite the fact that priority might
not be established, and the marks are similar, there are several ways to overcome this seemingly
insurmountable obstacle.
1.
Abandonment Through Non-Use
In some cases, an existing registered mark can be cancelled on the ground that it was abandoned due
to non-use. Three consecutive years of non-use constitutes prima facie evidence of abandonment. In
order to prevail, the brand owner must rebut the presumption that it has no intention to resume use.
However, courts differ on the specific burden the trademark owner must demonstrate to overcome
the presumption. The burden can be rebutted by showing that the owner had some intention to
resume use. It is a fairly lenient standard for brand owners to overcome; thus, it is difficult to attack
registrations on the basis of abandonment. Further, trademark owners are required to demonstrate
and sign a Statement of Use every five years. This limits the number of occasions that one might
attack a registration. Most registrations that are not in use are cancelled due to failure to file the
Statement of Use.
2.
Genericism
A term that is considered primarily as the common class name for a good or service is considered
generic. A generic term might be “water” or “lawyer” for the goods and services they describe.
Generic terms by themselves are considered incapable of denoting source and are unregistrable.
29
Some marks have become generic through widespread consumer use to describe the actual good
or service as opposed to the source of that good or service. Some famous examples of marks that
have become generic are ASPIRIN, ESCALATOR and THERMOS. Generic terms may be used
by anyone. After careful evaluation of the mark for possible infringement actions, a brand owner
might take the position that a mark is generic, simply use the mark and forego seeking trademark
protection for it. If, on the other hand, there is reason to believe that a prior third-party mark has
become generic, it might consider attacking that mark on the basis that it has become generic.
Successful attacks leading to decisions holding that a mark has become generic are rare, but the
threat of a genericism attack against a weak mark can be helpful in settlement discussions.
Fraud on the PTO
Fraud is another line of attack that is frequently being raised in trademark conflicts. Fraud occurs
when an applicant or registrant makes a fraudulent statement to the PTO. In recent years, the PTO
has taken an increasingly aggressive and expansive approach to combating fraud. Trademark
owners must file a statement that the mark is in use for all of the goods and services specified in
the trademark application. These Statements of Use are due every five years. If the owner makes
a fraudulent statement at any point of time, the mark is forever susceptible to challenge by thirdparties and a successful challenge of the mark results in cancellation of the entire class (or classes)
of goods or services for which the fraud was committed.
A frequent case where an applicant has been found to commit fraud on the PTO is when it has
claimed use of a mark on a variety of goods and services, but has not actually offered one of the
goods or services listed in the application at the time the Declaration of Use is signed. If the mark
covers many different goods, but it is found out that the applicant did not have use of one item on the
list as of the time of the signing of the Declaration, the entire class (or classes) of goods or services
for which the fraud was committed will be cancelled.
Once fraud is established, it is very difficult for applicants and registrants to overcome. Failed
defenses raised in recent case law include poor health, English as a second language, failure to
understand the statements in the Declaration, and innocent mistake. The PTO generally finds fraud
where the applicant or registrant “knew or should have known” that the statement was false.
Fraud can be an effective tool in opposition and cancellation proceedings as well as bargaining
power for settlement. If a brand owner’s registration is successfully cancelled, then it might be
forced to rely upon its common law rights to enforce its mark.
C.
Consent or Coexistence Agreement
In some cases, it might be possible to negotiate a consent or coexistence agreement with the applicant
or registrant. If the brand owner is prepared to have its mark coexist with the prior mark, it might
consider negotiating for an agreement with the applicant or registrant. A consent is generally a onesided agreement that one party will agree to the use and/or registration of the mark of another party.
A coexistence agreement is generally a longer and more formal agreement where both parties agree
that their marks will coexist under specific terms and conditions. Negotiations for such an agreement
Trademark 201
3.
KILPATRICK TOWNSEND
can be as a friendly overture to the registrant or it can be the result of settlement after a hostile attack
against the registrant. Either way, there are several things to consider when discussing a consent or
coexistence agreement.
One consideration when negotiating an agreement is whether it will limit the brand owner’s scope
of protection or use of the proposed mark. If the mark is solely to be used on a specific product for
a limited time, then it might not be of concern. However, if the mark is to be used on an expanding
range of products and services or will be used as a house mark, then limitations on the use and
registration of the mark will be of chief concern. It is important to consider the future use of the mark
when considering such limitations.
Other questions to ask during the negotiations for a consent or coexistence agreement are as follows:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
What law will govern the agreement?
What are the arbitration provisions, if any?
What jurisdictions will the agreement cover?
What marks will be covered under the agreement?
Does the agreement cover use and registration of the marks?
Will the agreement limit the use and registration of the marks?
Will the registrant/applicant consent to the past use of the brand owner to clear it of
any possible past infringement claims?
What happens if confusion arises?
What happens if one of the parties stops using a mark in question?
Agreements can be a very effective tool in negotiating settlement in a cost-effective manner.
However, one should always consider whether the agreement will limit future use of the mark, and
whether it will clear the brand owner of any potential claims on past use. Note that coexistence with
a third-party might also dilute the mark in certain cases as more than one party is using similar marks
for similar goods and services affecting the brand owner’s ability to preclude other parties from
using or registering similar marks for similar goods and services. In this sense, it weakens the mark
and the scope of protection might be limited to a very narrow range of goods and services.
1.
Obtaining Leverage Against Prior Marks
Whether you are attacking a mark or negotiating a settlement, obtaining leverage against the owner
of a prior mark is an important step in the process. The owner of the prior mark is often well situated
to succeed in a suit based on priority and likelihood of confusion or dilution. However, there are
several possible ways to obtain leverage against the owner of the prior mark.
a)
Registration for Other Goods and Services
One way to obtain leverage against a prior owner is to obtain protection of the mark for goods and
services that the other user does not already have protection for. For example, the brand owner
might seek protection for goods and services for goods that are often used for marketing tools, such
as t-shirts, CDs, mugs, calendars, and keychains. This might push the prior owner to settle as it
31
increases the likelihood that it might infringe the brand owner’s new mark. However, there is some
risk that the brand owner will trigger an infringement action depending upon the similarity of the
marks or whether the owner of the prior mark is using its mark on these goods.
b)
Seeking Foreign Registration Many brand owners seek foreign registration in order to obtain leverage in a suit or settlement.
Many foreign jurisdictions do not require use to register a mark and do not recognize common law
rights. In these jurisdictions, the first to file an application has priority. The brand owner can seek
foreign registration of its mark in key jurisdictions such as Canada, the European Union (Community
Trademark), Brazil, Australia, Japan, and China. If the owner of the prior mark uses its mark in the
country but does not have prior protection for the mark, the brand owner can initiate a suit against
it. It can also seek protection in jurisdictions where the owner of the prior mark may have an interest
in expanding. This can be especially helpful in prompting settlement and negotiating an agreement
with the owner.
Purchase of Mark
If a third party appears to have insurmountable rights in a mark and amendment and limitation does
not appear viable, a brand owner might consider acquiring that party’s mark or the prior rights of
another party’s mark, if any are available. In some cases when the mark does not appear to be able
to coexist and litigation does not appear viable, it might be more cost-effective to purchase the thirdparty mark outright in order to eliminate the problem. Further, there might be another party with
registered or common law rights in a mark that are prior to the blocking party’s rights. Acquisition
of these rights can sometimes offer priority in the mark in question or at least bolster the likelihood
of success of a challenge. In such cases, it is necessary to perform due diligence on third-party
marks to know whether there are any potential liabilities or current litigation attached to the rights
in question. There might also be tax consequences to consider.
Another important issue to consider when acquiring a pending application is the filing basis. If the
filing basis is based on intent to use, it is necessary to obtain the goodwill associated with that mark,
which might entail purchasing the entire business concern. If the goodwill associated with that mark
is not purchased, the mark may be susceptible to cancellation, regardless of whether it issues to
registration or how long the mark is put to use. In this case, the priority date of the application might
not be able to be relied upon to attack other prior similar marks.
In cases where the acquisition of trademark rights are of interest, it is important to consider whether
an anonymous overture would be more beneficial. This is especially important for prominent brand
owners and where the third party might exploit its advantage against a company with deep pockets.
In certain limited circumstances, direct negotiations might be more prudent, such as entities with
pre-existing business relationships or where similarly situated companies wish to negotiate a
settlement in the most cost-effective manner possible. Another consideration in the purchase of
marks is whether the third party will require a phase-out period to eliminate any existing inventory
of products and materials.
Trademark 201
D.
KILPATRICK TOWNSEND
E.
Relying on Common Law Use
In some cases it might make sense to rely upon common law use of the mark and forego registered
protection. Where a mark is highly diluted or generic, it might make sense to simply use the mark.
For example, the term “first” is highly diluted as to banking services. If a bank wished to adopt
the word “FIRST” along with the brand owner’s house mark, it might not make sense to obtain
protection of the mark if the brand owner has adequate protection under the house mark alone. If a
brand owner decides to rely upon common law use, it might consider foregoing registration of the
mark, as filing an application infers that the brand owner acknowledges that the mark is eligible for
trademark protection. However, registered protection of trademarks is always preferred and offers a
host of benefits and remedies not available to common law users.
V.
Policing the Mark and Expanding the Scope of Protection
Once you have registered protection of the mark, it is necessary to police the mark from similar
marks and dilution and consider expanding the protection of the mark.
A chief concern of brand owners is dilution of its brand. It is necessary to preclude others from using
and registering similar marks for similar goods and services or the brand owner might be in the same
crowded field situation it was in before protection was obtained. In these cases, the mark might be
considered diluted and the brand owner might not be able to preclude others from using similar
marks on those goods and services. Policing marks usually comes in the form of objecting to the
applicant’s mark and requesting it to amend its mark or withdraw the mark in its entirety. Another
option is to initiate an opposition proceeding before the Trademark Trial and Appeal Board and/or
filing suit in state court for unfair competition claims.
A brand owner might face a host of similar marks that it might consider possible obstacles. A
policing strategy is effective in helping to determine what marks it should or shouldn’t object to. A
strategy focuses on what distinctive elements of the mark are the most important to protect and how
large of a scope of the registry can the brand owner carve out for itself. By focusing on these specific
items, the brand owner can develop effective litigation objectives while avoiding spending money
on unnecessary legal costs.
Another concern of brand owners is genericness. A mark is considered generic when it is considered
to define the goods and services covered in the mark, such as “water” for bottled water, discussed
earlier. Furthermore, a registered mark can become generic if the public uses it to define the product
of concern. For example, ASPIRIN and ESCALATOR have become generic for their products. In
order to prevent one’s mark from becoming generic, it is necessary to preclude others from using
one’s mark to describe their products. By policing the registry, objecting to third-party usage of the
mark, and educating the public in proper use of the terms, a brand owner can attempt to avoid its
mark from becoming generic. It is especially important for a brand owner to be consistent with the
way it uses its marks so as to avoid any descriptive use of them. A set of guidelines can be a useful
tool for internal purposes in educating the brand owner’s employees, licensees, and affiliates in how
to properly use its marks.
33
As times goes on and the brand owner continues to police its marks, the number of similar marks
might expand or contract. It is important to periodically reevaluate the policing strategy. If there
are additional similar marks on the registry, there is the concern that the common elements may be
becoming more diluted or generic. If there are fewer similar marks on the registry, then the brand
owner might consider expanding its scope of protection and carving out a larger piece of the registry.
As time goes on, owners will drop marks that are no longer valuable and the brand owner’s marks
become stronger and the scope of protection will expand.
VI.
Conclusion
Trademark 201
There are several options and possibilities for a brand owner facing a crowded field of marks to
obtain protection. Through searching and investigating an owner can consider the potential risk
associated with these obstacles and then develop a strategy in overcoming them through crafting
protection around the prior marks, attacking the prior marks, or acquiring them outright.
KILPATRICK TOWNSEND
35
Protection of Product Designs
John S. Pratt, R. Charles Henn, Jr., Alicia Grahn Jones, Lauren T. Estrin,
and Michael A. Bertelson
As a result, legal prohibitions on copying of products, whether the function, appearance, or some
other aspect of the product is copied, are relatively narrow exceptions to the general policy of United
States law that product copying is a benefit to the public and is to be encouraged.2 Apart from
restrictions on the manufacture, sale, or use of the products that originate in safety-related concerns
(such as those applicable to drugs), attorneys generally think in terms of only four categories of
exceptions, which are often referred to as “intellectual property:” patents, trademarks and trade
dresses, copyrights, and trade secrets. Generally, it is necessary to identify rights that have been
infringed in one or more of these types of intellectual property to obtain assistance from the U.S.
legal system in stopping, or securing compensation for, unauthorized copying of a product design.3
Patent, copyright, and trade secret rights will typically be fully available when copying occurs
only if appropriate steps have been taken in advance to establish or protect these rights. Almost
paradoxically, the trade dress rights that are the most important aspect of trademark and unfair
competition protections against certain types of design copying cannot be fully created in advance,
but are acquired only with the passage of time and development of public recognition. Nevertheless,
other aspects of trademark and trade dress rights can be established from the beginning, and planning
can make a critical difference in the development of valuable rights.
As a result of the need to act in advance, many designers and manufacturers are unable to do anything
about the first instance where their designs or products are copied. Planning, often motivated by that
first experience, can, however, dramatically enhance the designer’s or manufacturer’s ability to
respond when later products are copied.
I.
Patents
Patents are frequently the strongest protection against product or design copying. In the United
States, patent protection comes in two forms: “utility” patents and “design” patents.
1
2
3
See, e.g., Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 151 (1989) (“The attractiveness of [the patent system’s grant of
monopoly in return for disclosure], and its effectiveness in inducing creative effort and disclosure of the results of that effort, depend
almost entirely on a backdrop of free competition in the exploitation of unpatented designs and innovations.”).
Id. (“[F]ree exploitation of ideas will be the rule, to which the protection of a federal patent is the exception.”)
There are modest exceptions such as the protection of boat hull designs under Vessel Hull Design Protection Act and aspects of electronic
chip design under the Semiconductor Chip Protection Act.
Trademark 201
The United States was founded in part on the notion that people should generally be free to do
as they please, and that concept is central to this country’s approach to design copying. Among
the fundamental assumptions of American jurisprudence is the belief that the public is best served
if there is free competition, the widespread dissemination of ideas, and a legal environment that
encourages product copying, so that innovations will be widely available and the public will be
benefited as the most economical producers are rewarded.1
KILPATRICK TOWNSEND
A.
What Patents Protect
Utility patents are available for virtually anything made by the hand of a human.4 They can protect
how a thing is made, what it is (in the case, for instance, of a chemical composition of a drug),
how a thing is done, or how it works.5 As a general proposition, utility patents do not protect the
appearance of products except to the extent that appearance is a consequence of a protected process
of manufacture or a protected function. The drawings in utility patents serve to assist in describing
the invention, but the scope of utility patent protection is established by written descriptions of the
invention, called “claims.”
By contrast, design patents protect solely the appearance of products, specifically the ornamental
aspects of the appearance of articles of manufacture.6 Design patents consist principally of drawings,
and those drawings determine the protection that a design patent establishes. Accordingly, a utility
patent would be sought on a new manufacturing process for producing a chair, a carpet tile, a new
backing structure for carpet, or a new tilting mechanism for a swivel chair, for example. A design
patent would be sought to protect the appearance of a new design for a Windsor chair, a chest of
drawers, or a new multi-height yarn pile carpet pattern. Portions of examples of both design and
utility patents are reproduced at the end of this article. Under current U.S. law, and subject to certain
limited exceptions, utility patents issuing from applications filed on or after June 8, 1995, generally
remain in force for twenty years from the application filing date,7 while design patents have a term
of fourteen years from the date the United States Patent and Trademark Office (“PTO”) issued the
design patent.8
B.
What Patents Are
Patents are often described as a grant by the government of the exclusive right to make the product
or practice the invention covered by the patent.9 This description is not entirely accurate, however,
because the fundamental assumption in the United States is that no one needs permission to make a
product—apart from exceptional situations. Consistent with that assumption, a U.S. patent is instead
a grant by the U.S. government to the patent owner of the right to exclude others from making,
using, importing, or selling that which is covered by the patent.10 Thus, patents are neither selfenforcing nor enforced by the government. A patent owner can choose to seek enforcement of his
right to stop others from practicing his invention, but need not do so. Another consequence of the
fact that a patent is merely a right to exclude others is that possession of a patent does not insure
that its owner can manufacture or sell the product covered by it without objection by others. For
Diamond v. Chakrabarty, 447 U.S. 303, 309 (1980).
35 U.S.C. § 101 (2000) (including a “process, machine, manufacture, or composition of matter, or . . . improvement thereof”).
Id. § 171 (“Whoever invents any new, original and ornamental design for an article of manufacture may obtain a patent therefor, . . . .”).
See id. § 154(a)(2). Under certain circumstances, the term of drug patents can be extended to compensate for regulatory delays associated
with approval of new drugs for marketing. Id. § 156 (2000 & Supp. V 2005). Moreover, the term of any utility patent issuing from an
application filed on or after June 8, 1995, that refers to an earlier filed application under 35 U.S.C. §§ 120, 121, or 365, will be twenty
years from the date of the earliest application filed.
8 35 U.S.C. § 173 (2000).
9 See, e.g., Jerry Lazar, What Means What, Metropolis, Oct. 1990, at 65.
10 35 U.S.C. §§ 154, 271 (2000 & Supp. V 2005).
4
5
6
7
37
instance, the product may also be covered by a patent owned by another or it may be the subject of
safety-related regulations such as those applicable to drugs.
C.
Inventions that are Patentable
Both design and utility patents are available only with respect to inventions that are new, which
means that exactly the same thing has not been done before, and non-obvious, which means that,
taking into consideration what was known and done before the invention, it would not have been
obvious at the time of the invention to one of ordinary skill in the relevant art to make the invention.
Determination of whether an invention is non-obvious is frequently complex. It is safe to assume,
however, that any design or invention that one believes to be new, in the sense that one is not
aware of anything exactly the same having been done before, is potentially patentable. Whether
a new invention is “sufficiently innovative” to be patentable is typically not something someone
unfamiliar with patenting can determine.
When a Patent Must be Sought
It is of critical importance that a U.S. patent be applied for (if at all) within one year after the first
sale, offer for sale, or public use of the invention in the U.S., or publication of a description of the
invention anywhere in the world. Under the laws of most commercially important countries other
than the U.S., this one year “grace period” is unavailable, and a patent must be applied for (in at
least one country) before any such commercial activities or public disclosure occurs. As a result,
if a patent is not sought early, it cannot be obtained at all. Moreover, if a new invention is sold or
otherwise publicly disclosed without filing a timely patent application, as a general proposition,
that invention is “dedicated to the public” and may freely be copied by anyone. There are, however,
circumstances in which trade dress rights or copyrights are infringed by copying, and those types of
intellectual property can be asserted despite the absence of a patent.
E.
The Value of Patents Today
While both design and utility patents went through a long mid-twentieth century period during
which they were held in relatively low esteem by the business and legal communities, that
situation has changed decidedly in recent years. There is today a substantial amount of litigation
involving patents, which have become powerful competitive tools. Although some litigation results
in determinations that the patents are invalid, the validity of patents is more frequently upheld,
and multi-million dollar verdicts in favor of patentees have become relatively common. Far more
patents prevent or stop copying, or earn license royalties, because their validity and applicability are
never challenged.11
F.
Design Patents
Most patents obtained and asserted in litigation continue to be utility patents; however, design
patents are the subject of substantial recent activity and have been found in certain fields, such
as athletic shoes, flashlights, lighting fixtures, and furniture, to be very attractive mechanisms for
11 The fate of patents in litigation is not a direct indicator of their validity or value generally, because strong, clearly infringed patents rarely
go to trial. Those patents are either respected without litigation or in pretrial settlements.
Trademark 201
D.
KILPATRICK TOWNSEND
thwarting copying.12 Reasons for such recent interest in design patents include the facts that they are
relatively easier and less expensive to obtain than utility patents and, because they consist largely
of drawings, they can be easier to litigate. The court and jury can simply compare the drawings to
the accused product and typically need not be educated in the arcane details of a manufacturing
technology, as is often the case in utility patent infringement cases.
The test for infringement of a design patent was stated by the U.S. Supreme Court in Gorham
Manufacturing Co. v. White:13
[I]f, in the eye of an ordinary observer, giving such attention as a purchaser usually gives,
two designs are substantially the same, if the resemblance is such as to deceive such an
observer, inducing him to purchase one supposing it to be the other, the first one patented
is infringed by the other.14
When comparing the resemblance between two products, the trier of fact must view the patented
design in its entirety as it is claimed: “[T]he ultimate question requires determining whether ‘the
effect of the whole design [is] substantially the same.’”15
The U.S. Court of Appeals for the Federal Circuit has recently clarified that the Gorham test for
substantial similarity is not always limited to just a comparison between the patented and accused
designs, but can also take into account any prior art designs that are close to the patented design.
In Egyptian Goddess v. Swisa, the Federal Circuit stated that “[w]here there are many examples of
similar prior art designs . . . differences between the claimed and accused designs that might not
be noticeable in the abstract can become significant to the hypothetical ordinary observer who is
conversant with the prior art.”16
Although applications for design patents submitted to the PTO often remain pending for periods
on the order of one to two years, they are frequently granted without any initial rejection by the
patent examiner, which is rare in the case of utility patents. This may be the case in part because the
test applied by the examiner to determine whether a design sought to be patented is obvious (and
therefore not patentable) is not very rigorous:
In considering patentability of a proposed design the appearance of the design must be
viewed as a whole, as shown by the drawing, or drawings, and compared with something in
existence—not with something that might be brought into existence by selecting individual
features from prior art and combining them, particularly where combining them would
require modification of every individual feature, . . . .17
12 See, e.g., Avia Group Int’l, Inc. v. L.A. Gear Cal., Inc. 853 F.2d 1557 (Fed. Cir. 1988), abrogated by Egyptian Goddess, Inc. v. Swisa,
Inc., 543 F.3d 665, 88 U.S.P.Q.2d 1658 (Fed. Cir. 2008); see also Perry J. Saidman & Mark B. Mondry, Sneakers, Design Patents and
Summary Judgment: Opening a New Era in the Protection of Consumer Product Designs., 71 J. Pat. & Trademark Off. Soc’y 524 (1989);
35 U.S.C. § 171 (2000).
13 81 U.S. 511 (1871).
14 Id. at 528.
15 L.A. Gear, Inc. v. Thom McAn Shoe Co., 988 F.2d 1117, 1125 (Fed. Cir. 1993) (second alteration in original) (citations omitted).
16 Egyptian Goddess, Inc. v Swisa, Inc., 543 F.3d 665, 678, 88 U.S.P.Q.2d 1658, 1668 (Fed. Cir. 2008) (Fed. Cir. 2008) (en banc).
17 In re Rosen, 673 F.2d 388, 391 (C.C.P.A. 1982) (quoting In re Jennings, 182 F.2d 207, 208 (C.C.P.A. 1950), overruled by, 590 F.2d 911
(1979)).
39
The patent examiner rejected the application, arguing that the design was an obvious modification
of the following desk:
The patent examiner also called attention to two circular tables, including the following:
Trademark 201
The In re Rosen case, quoted above, involved an application for a design patent and illustrates
the type of analysis conducted in determining whether such patents should be granted. Mr. Rosen
sought a design patent for his design for this coffee table:
KILPATRICK TOWNSEND
and to a display stand having thin V-shaped legs having slots to receive the top, arguing that these
taught the features of the Rosen coffee table design not included in the desk:
The court of appeals reversed the examiner, ruling that the Rosen design for a coffee table was
patentable. Among other things, the court rejected the examiner’s argument that the new design was
a mere “regrouping” of known furniture elements because there was not a previous design that this
purported “regrouping” might modify.18
The Federal Circuit has also stressed the importance of comparing an accused design to the claimed
patent design, and not to a commercial embodiment of the claimed design.19 In Payless Shoesource
Inc. v. Reebok International Ltd., the lower court was held to have improperly considered
“commercial embodiment” features not included in the patentee’s claimed shoe design in finding
that the counterclaim defendant’s design was non-infringing.20 In another case, the Federal Circuit
reversed a finding of infringement where the lower court relied upon similarities between the
18 Id. at 389, 391.
19 998 F.2d 985, 990 (Fed. Cir. 1993).
20 Id. at 990–91.
41
defendant’s design and unclaimed design elements in the commercial embodiment of the patentee’s
jack-o-lantern lawn bags.21
Other techniques for broadening the scope of design patent drawings include showing less detail in
the drawings or showing fewer views of the product design. For instance, if the underside of a chair
or the back of a dresser is not a significant component of the product’s ornamental design, those
drawing views can be omitted from the drawing sets submitted to the PTO.23
Although the damages available to a patent owner for infringement of a utility patent under 35
U.S.C. § 284 can be substantial,24 damages may be awarded for infringement of a design patent
under both the general damages provision of § 28425 as well a special damages provision (§ 289)
applicable only to design patents.26 This further enhances the potential attractiveness of design
patents in preventing product copying.
II.
Trade Dress and Unfair Competition
A.
Causes of Action Under the Federal Lanham Act
After utility and design patents, the most significant avenue of protection available to owners of
distinctive product designs lies in the portion of trademark law relating to “trade dress” infringement.
As one court has defined this term, “‘[t]rade dress’ involves the total image of a product and may
21
22
23
24
25
26
Sun Hill Indus. v. Easter Unlimited, 48 F.3d 1193, 1196 (Fed. Cir. 1995).
617 F.2d 261 (CCPA 1980).
See, e.g., Contessa Food Prods., Inc. v. Conagra, Inc., 282 F.3d 1370 (Fed. Cir. 2002).
See 35 U.S.C. § 284 (2000).
Id. § 289.
Id.; see also Landes Mfg. Co. v. Chromodern Chair Co., 203 U.S.P.Q. 337, 340–41 (C.D. Cal. 1978) (awarding compensatory damages
measured by reference to the patent owner’s lost profits, plus compensatory damages measured by reference to the infringer’s sales and
profits plus attorneys fees because the defendant was found to have deliberately copied patented designs for a bar stool and chair); Pac.
Furniture Mfg. Co. v. Preview Furniture Corp., 626 F. Supp. 667 (M.D.N.C. 1985), aff’d, 800 F.2d 1111 (Fed. Cir. 1986) (awarding the
patent owner three times actual damages against infringer of design patents on chairs and enjoined further infringement of the patents);
Schnadig Corp. v. Gaines Mfg. Co., 200 U.S.P.Q. 453,456–57 (W.D. Tenn. 1977), aff’d in part, rev’d in part, 620 F.2d 1166 (6th Cir.
1980) (calculated damages by reference to the infringer’s profits plus attorneys’ fees were awarded where a design patent on an L-shaped
sectional sofa was infringed).
Trademark 201
Patentees often exclude design elements from the drawings submitted to the PTO in order to broaden
the scope of the resulting patent. For instance, in accordance with the court’s holding in In re Zahn,22
portions of the design can be shown in broken lines to indicate that those portions of the design are
excluded from the scope of the patent. Thus, U.S. Design Patent No. 257,511, for a “Drill Tool or the
Like,” covers any drill tool that has a shank substantially similar to the shank shown in the figures
of that patent, regardless of whether the accused device has a substantially similar cutting portion:
KILPATRICK TOWNSEND
include features such as size, shape, color, or color combinations, texture, [and] graphics.”27 Although
most trade dress cases involve simulation of product packaging, protectable trade dress can even
consist of the product itself under rare circumstances. Products or parts of products protected under
§ 43(a) of the Lanham Act have included such widely varying items as fishing reels, lounge chairs,
lamps, tables, truck bodies, and kitchen appliances.
The primary source of trade dress law in the United States is the federal Lanham Act, which is
generally coextensive with similar state laws governing the competitive process. In keeping with
the U.S. policy of encouraging healthy competition and the dissemination of ideas, however, trade
dress protection is not available to all designers and manufacturers. Rather, to enjoy the benefits
of the Lanham Act and equivalent state laws, trade dress must meet a two-part test to qualify for
protection: it must be primarily nonfunctional, and it must possess secondary meaning.
1.
The Trade Dress Must be Primarily Nonfunctional
The first element of a successful trade dress infringement claim is a demonstration that the trade
dress in question is “nonfunctional.”28 If the trade dress is found to be “functional” by a court, it is
eligible only for patent protection. As the Supreme Court has observed, “[I]f a product’s functional
features could be used as trademarks . . . a monopoly over such features could be obtained without
regard to whether they qualify as patents and could be extended forever (because trademarks may
be renewed in perpetuity).”29
The nonfunctionality requirement often is the most difficult obstacle for parties seeking to protect
product designs. The fact that an underlying product serves a function, e.g., a chair provides support
for sitting individuals, weighs in favor of a finding that the product itself is functional. This does
not, however, necessarily render its design ineligible for protection under § 43(a).30 Rather, “[i]n
trademark law, ‘functional’ means not that a feature serves a function; it means that the feature is one
that competitors would find necessary to incorporate into their product in order to be able to compete
effectively.”31 This inquiry requires addressing “whether the trade dress as a whole is functional,”
not whether individual features composing the dress are functional.32
To determine whether a claimed trade dress is necessary for effective competition and therefore
ineligible for protection, courts typically look at a number of factors. The factor of perhaps greatest
significance is the existence of a utility patent bearing on the design, as the Supreme Court has held
that the disclosure of a related utility patent is “strong evidence” of the functionality of the underlying
27 Reader’s Digest Ass’n v. Conservative Digest, Inc., 821 F.2d 800, 803 (D.C. Cir. 1987) (citation omitted); see also Two Pesos, Inc. v.
Taco Cabana, Inc., 505 U.S. 763, 765 (1992) (recognizing that a Mexican restaurant was entitled to trade dress protection for inter alia “a
festive eating atmosphere having interior dining and patio areas decorated with artifacts, bright colors, paintings and murals”); Vaughan
Mfg. Co. v. Brikam Int’l Co., 814 F.2d 346, 348 n.2 (7th Cir. 1987) (“A product’s trade dress is the overall image used to present it to
purchasers; it could thus include, to give a partial list, the product’s size, shape, color, graphics, packaging, and label.”).
28 See 15 U.S.C. §§ 1125(a)(3), 1125(c)(3)(2006).
29 Qualitex Co. v. Jacobson Prods. Co., 514 U.S. 159, 164–65 (1995).
30 Fabrication Enters. v. Hygenic Corp., 64 F.3d 53, 55 (2d Cir. 1995) (“The design of a product may serve at least two purposes. It may
identify the source of the product, and it can serve a utilitarian purpose.”).
31 Vaughan Mfg. Co. v. Brikam Int’l Co., 814 F.2d 346, 349 (7th Cir. 1987).
32 Tools USA & Equip. Co. v. Champ Frame Straightening Equip., Inc., 87 F.3d 654, 658 (4th Cir. 1996).
43
device.33 Thus, for example, one case has held that “where a disputed product configuration is part
of a claim in a utility patent, and the configuration is a described, significant inventive aspect of the
invention, . . . so that without it the invention could not be fairly be said to be the same invention,”
the trade dress necessarily is functional and therefore not entitled to protection.34 In another case, a
federal appeals court overturned a jury finding of nonfunctionality on the ground that the plaintiff’s
claimed trade dress was coextensive with a utility patent covering the same device.35 A plaintiff
claiming trade dress protection in a product covered in some manner by a utility patent thus may do
so at its peril.36
Courts also may consider whether a product’s trade dress allows it to be manufactured more
economically than competing alternatives. In one case, for example, the court found that the
plaintiff’s “F-style” jug was cheaper to manufacture than other styles and on the basis of this
determination concluded that the jug’s shape was functional.41 On the other hand, evidence that
alternative designs would cost less to produce weighs strongly in favor of a finding that the trade
dress in question is nonfunctional.42
2.
The Trade Dress Must Possess “Secondary Meaning”
The second requirement that a product design owner must satisfy is a showing that his or her trade
dress is distinctive and therefore distinguishable from that of other producers in the same field.43 A
trade dress owner may satisfy the distinctiveness requirement by demonstrating that his trade dress
possesses “secondary meaning.” Although the concept of secondary meaning defies easy definition,
courts will generally find it to exist if there is evidence that the consuming public associates the trade
dress in question exclusively with its owner. Thus, for example, the producer of a distinctively33
34
35
36
37
38
39
40
41
42
43
Se TrafFix Devices, Inc. v. Mktg. Displays, Inc., 532 U.S. 23, 29–30 (2001).
Vornado Air Circulation Sys., Inc. v. Duracraft Corp., 58 F.3d 1498, 1510 (10th Cir. 1995).
Elmer v. ICC Fabricating, Inc., 67 F.3d 1571, 1579–80 (Fed. Cir. 1995).
See In re Telesco Brophey Ltd., 170 U.S.P.Q. 427, 428 (T.T.A.B. 1971) (“[A] utility patent comprehending the configuration in question is
adequate evidence to establish that the configuration is indeed functional in character.”).
See, e.g., Valu Eng’g, Inc. v. Rexnord Corp., 278 F.3d 1268, 1276 (Fed. Cir. 2002).
Brunswick Corp. v. Spinit Reel Co., 832 F.2d 513, 519–21 (10th Cir. 1987).
Fisher Stoves, Inc. v. All Nighter Stove Works, Inc., 626 F.2d 193, 195–96 (1st Cir. 1980).
Brunswick Corp. v. British Seagull Ltd., 35 F.3d 1527, 1530 (Fed. Cir. 1994).
Union Carbide Corp. v. Fred Meyer, Inc., 619 F. Supp. 1028, 1032 (D. Or. 1985), aff’d sub nom., First Brands Corp. v. Fred Meyer, Inc.,
809 F.2d 1378 (9th Cir. 1987).
Sundor Brands, Inc. v. Borden, Inc., 653 F. Supp. 86 (M.D. Fla. 1986).
See Wal-Mart Stores, Inc. v. Samara Bros., Inc., 529 U.S. 205 (2000).
Trademark 201
Another factor that historically has played a significant role in the functionality analysis is the
availability of commercially feasible alternative designs.37 Thus, for example, although the inner
workings of a fishing reel, e.g., gears, a handle, and line, are necessarily closely similar in all reels,
there are a number of alternative shapes for an exterior housing for these elements and therefore a
cone-shaped cover may be protected under § 43(a).38 In contrast, however, if there are no alternatives
to a particular stove design that create the same heating efficiency, then the design is likely functional
and hence unprotectable.39 Likewise, if a particular color makes a particular product feature less
obtrusive, it may also be deemed functional, and therefore unprotectable.40
KILPATRICK TOWNSEND
shaped trailer bed was successful in protecting its trade dress after presenting surveys demonstrating
that consumers recognized trailers with that shape as having been manufactured by the producer.44
Other factors indicating that a particular trade dress has achieved secondary meaning generally
include: (1) long and exclusive use by its owner; (2) extensive sales of products featuring it; and (3)
evidence of substantial promotional efforts by its owner, in particular promotions that call attention
to the trade dress feature sought to be protected.45 Some well-known examples of products that
could easily make a showing of secondary meaning are Bose’s Wave Radio and Apple’s ubiquitous
iPod music player, both of which are subject to federal trademark registrations for their distinctive
product design.
3.
Causes of Action Available to Owners of Protectable Trade Dresses
Assuming that a plaintiff can demonstrate that its trade dress is both nonfunctional and a distinctive
indicator of origin, there are two primary theories under which it may seek protection.
a)
A Likelihood of Confusion Between the Plaintiff’s and the
Defendant’s Trade Dress
Although virtually all states have enacted similar provisions, the most important laws by far in the
area are §§ 32 and 43(a) of the Lanham Act,46 each of which provides for liability if a defendant has
introduced a trade dress that is confusingly similar to the plaintiff’s. Because § 32 is restricted to
trade dress owners that have secured federal registrations, the more commonly invoked provision is
§ 43(a), which provides for liability against:
44 Truck Equip. Serv. Co. v. Fruehauf Corp., 536 F.2d 1210, 1218 (8th Cir. 1976).
45 See generally Imagineering, Inc. v. Van Klassens, Inc., 53 F.3d 1260, 1264 (Fed. Cir. 1995); Major Pool Equip. Corp. v. Ideal Pool Corp.,
203 U.S.P.Q. 577, 582–85 (N.D. Ga. 1979).
46 15 U.S.C. §§ 1114(1), 1125(a)(1)(A) (2006).
45
Any person who, on or in connection with any goods or services, or any container for
goods, uses in commerce any word, term, name, symbol, or device, or any combination
thereof, or any false designation of origin, false or misleading description of fact, or false
or misleading representation of fact, which . . . is likely to cause confusion, or to cause
mistake, or to deceive as to the affiliation, connection, or association of such person with
another person, or as to the origin, sponsorship, or approval of his or her goods, services,
or commercial activities by another person.47
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
the fame (or lack thereof) of the trade dress sought to be protected;
the similarity of the parties’ trade dresses;
the similarity of the products featuring the parties’ trade dresses;
the similarity of the parties’ purchasers and channels of trade;
the similarity of advertising media used by the parties;
the degree of care purchasers are likely to exercise when purchasing the parties’ products;
the intent of the subsequent user in adopting its trade dress; and
evidence that consumers actually are confused, e.g., consumers purchasing one party’s
goods attempt to return them to the other party.48
Although not essential, a showing of intent to copy a trade dress and/or actual confusion is generally
the strongest evidence that confusion is likely.49 Nevertheless, even if these factors are present, it
may still be possible in the product configuration context for a defendant to escape liability if it can
demonstrate that its use of labeling precludes any consumer confusion as to the source or origin of
the product.50
b)
A Likelihood to Dilute Distinctiveness
Separate and independent of causes of action (such as that under § 43(a) of the Lanham Act) that
depend on a showing of likely confusion, federal law and that of approximately half the states
recognize the ability of plaintiffs to protect the distinctiveness of their trade dresses. On October
47 Id. § 1125(a)(1)(A).
48 See, e.g., Univ. of Ga. Athletic Ass’n v. Laite, 756 F.2d 1535, 1539, 1542 (11th Cir. 1985); Roto-Rooter Corp. v. O’Neal, 513 F.2d 44, 45
(5th Cir. 1975); In re E.I. Du Pont de Nemours & Co., 476 F.2d 1357, 1361 (C.C.P.A. 1973).
49 See, e.g., Sun-Fun Prods., Inc. v. Suntan Research & Dev. Inc., 656 F.2d 186, 190 (5th Cir. 1981).
50 See generally Kellogg Co. v. Nat’l Biscuit Co., 305 U.S. 111, 119 (1938); Fisher Stoves, Inc. v. All Nighter Stove Works, Inc., 626 F.2d 193,
195 (1st Cir. 1980); Bose Corp. v. Linear Design Labs, Inc., 467 F.2d 304, 310 (2d Cir. 1972).
Trademark 201
Assuming that a particular trade dress is protectable by virtue of having met the nonfunctionality
and distinctiveness requirements set forth above, when may those rights be asserted? As the text
of § 43(a) suggests, the standard for determining whether impermissible copying of a trade dress
has occurred is whether an appreciable number of ordinarily prudent purchasers will be mislead or
simply confused as to the source of the goods in question. Although the precise formulation of the
test for determining whether confusion is likely varies from jurisdiction to jurisdiction, courts most
frequently consider the following factors:
KILPATRICK TOWNSEND
6, 2006, the Trademark Dilution Revision Act (“TDRA”),51 which amended the Federal Trademark
Dilution Act of 1996 (“FTDA”), was enacted. The language of § 43(c) of the Lanham Act now
provides that:
[T]he owner of a famous mark that is distinctive, inherently or through acquired
distinctiveness, shall be entitled to an injunction against another person who, at any time
after the owner’s mark has become famous, commences use of a mark or trade name in
commerce that is likely to cause dilution by blurring or dilution by tarnishment of the
famous mark, regardless of the presence or absence of actual or likely confusion, of
competition, or of actual economic injury.52
The TDRA, among other things, expressly incorporated the “likelihood of dilution” standard for
liability, bringing federal law closer to state statutes. For example, under Georgia law:
[A]ll courts having jurisdiction thereof shall grant injunctions to enjoin subsequent use by
another of the same or any similar trademark, trade name, label, or form of advertisement
if there exists a likelihood of injury to business reputation or of dilution of the distinctive
quality of the trademark, trade name, label, or form of advertisement of [a] prior user,
notwithstanding the absence of competition between the parties or of confusion as to the
source of goods or services [associated with the plaintiff’s designation] . . . .53
Unlike the previous dilution statute, the TDRA expressly provides for trade dress protection against
dilution for unregistered trade dress that is nonfunctional and famous.54 Thus, to demonstrate that
it is entitled to trade dress protection, a party in a civil action asserting trade dress protection for
unregistered trade dress must prove: (1) the claimed trade dress, taken as a whole, is not functional and
is famous; and (2) if the claimed trade dress includes any mark or marks registered on the Principal
Register, the unregistered matter, taken as a whole, is famous separate and apart from the fame of
the registered marks. Section 43(c), as amended, brings the Lanham Act more in concert with state
legislation55 and rulings of the Supreme Court, which has held in other contexts that protection for
trade dress word marks under the Lanham Act is coextensive with that available for word marks.56
Thus, it is apparent that relief against the introduction of similar product configurations is, at least in
theory, available under a dilution theory.57
The ease with which plaintiffs may successfully prosecute a claim for trade dress dilution, however,
remains to be seen. As the TDRA expressly states, dilution protection applies to trade dress that is
inherently distinctive or has acquired distinctiveness. Most notably, however, the TDRA changed
51 Trademark Dilution Revision Act of 2006, Pub. L. No. 109-312, 120 Stat. 1730 (effective Oct. 6, 2006) (codified at 15 U.S.C.A. § 1125(c)
(1) (West Supp. 2008)).
52 15 U.S.C. § 1125(c)(1)(2006).
53 O.C.G.A. § 10-1-451(b) (2000).
54 15 U.S.C. § 1125(c)(4) (2006).
55 Until the 2006 amendments to the Lanham Act, state laws were more broadly worded than the express text of the Lanham Act, and thus,
their reach has long been extended to include product packaging, giving plaintiffs recourse under state law. See, e.g., Robarb Inc. v. Pool
Builders Supply of the Carolinas, Inc., 21 U.S.P.Q.2d 1743, 1754–55 (N.D. Ga. 1991), aff’d, 996 F.2d 1231 (11th Cir. 1993).
56 Two Pesos, Inc., 505 U.S. 763, 772.
57 See Sunbeam Prods. Inc. v. West Bend Co., 39 U.S.P.Q.2d 1545, 1549, 1555–56 (S.D. Miss. 1996), aff’d, 123 F.3d 246 (5th Cir. 1997).
47
the standard set forth by the Supreme Court in Moseley v. V. Secret Catalogue, Inc.,58 now requiring
only a likelihood of dilution by blurring or tarnishment rather than proof of actual dilution for
injunctive relief.59
Also, protection against dilution is available only to famous designations of origin. Section 43(c)
now defines a famous mark as one that is “widely recognized by the general consuming public of
the United States,”60 and sets forth guidelines for determining whether a designation of origin is
sufficiently famous to warrant protection:
In determining whether a mark possesses the requisite degree of recognition, the court may
consider all relevant factors, including the following:
(i)
[t]he duration, extent, and geographic reach of advertising and publicity of the
mark, whether advertised or publicized by the owner or third parties.
(ii)
[t]he amount, volume, and geographic extent of sales of goods or services offered
under the mark.
(iv) [w]hether the mark was registered under the Act of March 3, 1881, or the Act of
February 20, 1905, or on the principal register.61
Assuming that its trade dress is sufficiently famous to warrant protection against dilution, a plaintiff
may prevail by making one of two showings. First, the plaintiff may demonstrate impermissible
dilution if the defendant has utilized a similar trade dress in a manner that is likely to “tarnish” the
fame associated with the plaintiff’s dress.62 Second, and probably far more likely in the product
configuration context, a plaintiff may demonstrate that the defendant’s introduction of a similar
product shape is likely to “blur,” or “whittle down,” the distinctiveness of the plaintiff’s trade
dress.63 Under this theory of relief, “[e]ven though there may be no confusion, the distinctiveness
of a famous [trade dress] may be debilitated by another’s use and this is the essence of the wrong.”64
As a practical matter, however, relief against dilution under federal law may be difficult to secure
for most product design owners, and the case law applying the revised standards of the TDRA is
still in its infancy.
B.
Federal Registration of Trade Dresses
As set forth above, a design owner seeking to bring suit against an infringer under § 43(a) must first
prove that its trade dress is, in fact, protectable, i.e., that it is nonfunctional and viewed by the public
as a distinct identifier of origin for his goods. If, however, he believes that he can prove these elements
58
59
60
61
62
63
64
537 U.S. 418, 432–33 (2003), superseded by statute, 15 U.S.C. § 1125(c)(1).
15 U.S.C. § 1125(c)(1) (2006).
Id. § 1125(c)(2)(A) (2006)
Id..
See, e.g., Pillsbury Co. v. Milky Way Prods., Inc., 215 U.S.P.Q. 124, 134–35 (N.D. Ga. 1981).
Original Appalachian Artworks, Inc. v. Topps Chewing Gum, Inc., 642 F. Supp. 1031, 1039 (N.D. Ga. 1986).
Augusta Nat’l, Inc. v. N.W. Mut. Life Ins. Co., 193 U.S.P.Q. 210, 221 (S.D. Ga. 1976).
Trademark 201
(iii) [t]he extent of actual recognition of the mark.
KILPATRICK TOWNSEND
prior to being faced with infringement by another party, he should consider applying to register his
trade dress with the PTO in the same way that a word mark or logo may be registered. Taking this
precautionary step often can dramatically increase the chances of success in later litigation.
Applications for federal trade dress registrations are subject to various technical requirements.
In brief, once the PTO has received an application, it grants a filing date to the applicant. The
application then is reviewed by an examining attorney to determine registrability, including conflicts
with existing registrations.65 If the examining attorney refuses an application, the applicant may
respond in writing.66 If the objection is overcome, the application is published in the PTO’s Official
Gazette, after which other parties who also may be using the same or a similar design will be given
the chance to oppose the application.67 If the objection is not overcome, or if another party opposes
the application, the applicant has the opportunity for administrative and judicial appeal.68
The federal government keeps two different lists, or “registers,” on which trademarks, service
marks, and trade dresses may be registered: the Principal Register and the Supplemental Register.
1.
The Principal Register
The Principal Register is reserved for marks and trade dresses whose owners can demonstrate
nonfunctionality and distinctiveness at the time they file their application. For example, although
trademark registration of an ice cream cone design for a “container for holding baby pants” was
initially refused, the PTO subsequently found that “if a label which is inherently distinctive is
registrable on the Principal Register, a package inherently distinctive is similarly registrable.”69
Additionally, The Coca-Cola Company was able to register on the Principal Register its distinctively
fluted bottle design and McDonald’s its Golden Arches, after years of advertising drawing attention
to these features created secondary meaning for them.
If these two requirements can be established—and assuming there are no conflicts with existing
registrations—the ensuing registration of a trade dress on the Principal Register confers a number of
benefits on its owner. These include:
a)
Use of the ® Symbol and Other Notices
Federal registration entitles the registrant to use the distinctive ® symbol in connection with his
mark or trade dress, as well as the notations “Registered in U.S. Patent and Trademark Office” and
“Reg. U.S. Pat. & Tm. Off.”70 Because prominent affixation of these notices often is impractical in
the case of products that depend on an attractive appearance for their sale, a trade dress owner with
a federal registration alternatively may choose to place on his packaging a legend such as “The trade
dress of the enclosed product is a federally registered trademark.” These notices alone often provide
a significant deterrent to copying.
65
66
67
68
69
70
See generally Glenwood Labs., Inc. v. Am. Home Prods. Corp., 455 F.2d 1384, 1387 (C.C.P.A. 1972).
See 15 U.S.C. § 1062 (2006).
37 C.F.R. § 2.80 (2008).
See 15 U.S.C. §§ 1070–71 (2006); 28 U.S.C. § 1295 (2000).
In re Int’l Playtex Corp., 153 U.S.P.Q. 377, 377–78 (T.T.A.B. Apr. 13, 1967).
15 U.S.C. § 1111 (2006).
49
b)
Constructive Notice
Another important benefit of a federal registration is that it provides “constructive notice” of the
registrant’s use of its trade dress.71 That is to say, because federal law assumes that all designers in
the country have access to the Principal Register and will consult it prior to beginning use of their
own designs, a subsequent user of a registered trade dress cannot escape liability for infringement
by claiming that he was unaware of the registrant’s prior rights.72
c)
Evidentiary Presumptions
Moreover, after the fifth anniversary of the issuance of a registration, its owner may move the PTO
to declare the registration “incontestable.”75 At this point, the registration becomes “conclusive”
evidence of its owner’s rights to the trade dress covered by the registration.76 The owner of an
incontestable registration, therefore, no longer needs to demonstrate at all that its trade dress is either
inherently distinctive or has secondary meaning.77 In addition, the mere fact that a registration has
passed its fifth anniversary also has the effect of preventing a defendant in an infringement action
from challenging the registration by claiming prior use of the trade dress.78 Incontestability, however,
does not foreclose challenges on certain grounds, including functionality, fraud, abandonment, and
certain equitable principles (including laches, estoppel, and acquiescence).79
2.
The Supplemental Register
In part because trade dress owners frequently were and are unable to meet the requirement for
registration on the Principal Register that their trade dresses are either inherently distinctive or have
secondary meaning, the Lanham Act also established the Supplemental Register. In contrast to the
strictures of the Principal Register, an applicant seeking registration on the Supplemental Register
need only demonstrate that its trade dress: (1) is capable of acquiring secondary meaning (but not
71
72
73
74
75
76
77
78
79
Id.
Mesa Springs Enters., Inc. v. Cutco Indus., Inc., 736 P.2d 1251, 1253 (Colo. Ct. App. 1986).
15 U.S.C. §§ 1057(b), 1115(a) (2006)
See generally Aromatique, Inc. v. Gold Seal, Inc., 28 F.3d 863, 869 (8th Cir. 1994); Mech. Plastics Corp. v. Titan Techs., Inc., 823 F. Supp.
1137, 1145 (S.D.N.Y. 1993), aff’d without op., 33 F.3d 50 (2d Cir. 1994).
15 U.S.C. § 1065 (2006).
See id. § 1115(b); see also Park ‘N Fly, Inc. v. Dollar Park and Fly, Inc., 469 U.S. 189, 196, 205 (1985).
See, e.g., Kransco Mfg., Inc. v. Hayes Specialties Corp., 33 U.S.P.Q.2d 1999, 2001 (E.D. Mich. 1994), aff’d in part, vacated in part, 77
F.3d 503 (Fed. Cir. 1996).
See 15 U.S.C. § 1064(3) (2006).
Id. § 1115(b)(1)–(9) (2006).
Trademark 201
Ownership of a registration on the Principal Register for a particular product design also makes the
registration “prima facie” evidence that the trade dress is distinctive (whether inherently distinctive
or possessed of secondary meaning) and nonfunctional.73 Thus, in contrast to actions to protect
unregistered trade dress under § 43(a), in which the burden is on the first user to prove that his trade
dress meets these requirements, the burden to prove otherwise can shift to the allegedly infringing
party in actions to protect registered trade dresses.74
KILPATRICK TOWNSEND
that the trade dress necessarily has done so); and (2) was in use prior to the time that the applicant
filed its application.80
Although obtaining a registration on the Supplemental Register is significantly easier than doing so
on the Principal Register, the benefits of registration are correspondingly reduced. For example, the
owner of a registration on the Supplemental Register does not enjoy the evidentiary presumptions
set forth above. The owner does, however, have the right to affix notices of the registration to its
product or its packaging. Moreover, after five years of substantially exclusive and continuous use
of his mark or trade dress, the owner can amend its registration to the Principal Register even in the
absence of a showing that its trade dress has achieved secondary meaning.81
C.
Available Remedies to Successful Trade Dress Infringement Plaintiffs
Once a trade dress owner has established infringement, such a finding gives rise to a variety of
equitable and monetary remedies. These typically include: (1) recovery of all or a portion of the
infringer’s profits; (2) compensation for any damages sustained by the trade dress owner; and (3)
recovery of the costs of legal proceedings. In addition, the court may award up to treble damages
and, in exceptional cases, recovery of attorneys’ fees to the prevailing party. These remedies are
available not only for trade dress infringement, but also for federal unfair competition or false
advertising under § 43(a).82
III.
Copyrights
This section deals with the extent to which the configuration of a product may be eligible (or
ineligible) for copyright protection.
A.
Proving Nonfunctionality for Product Design Under Copyright Law
Would-be copyright owners face the same hurdle of proving that their designs are nonfunctional as
do designers seeking trade dress protection.83 Consequently, although the design of a useful article
can be subject to copyright protection to the extent that its pictorial, graphic, or sculptural features
can be identified as existing independently of the utilitarian object, designs for useful articles, such
as vehicular bodies, boat hulls, wearing apparel, household appliances, and the like typically are not
protectable by copyright. As Congress noted of these types of useful articles in passing the bill that
became the 1976 Copyright Act:
[A]lthough the shape of an industrial product may be aesthetically satisfying and valuable,
the Committee’s intention is not to offer it copyright protection under the bill. Unless the
shape of an automobile, airplane, ladies’ dress, food processor, television set, or any other
industrial product contains some element that, physically or conceptually, can be identified
as separable from the utilitarian aspects of that article, the design would not be copyrighted
under the bill. The test of separability and independence from “the utilitarian aspects of
80
81
82
83
Id. § 1091.
Id. § 1052(f).
Id. §§ 1116, 1117.
See 17 U.S.C. § 101 (2006).
51
the article” does not depend on the nature of the design—that is, even if the appearance
of an article is determined by esthetic [sic] (as opposed to functional) considerations, only
elements, if any, which can be identified separately from the useful article as such are
copyrightable. And, even if the three-dimensional design contains some such element
(for example, a carving on the back of a chair or a floral relief design on silver flatware),
copyright protection would extend only to that element, and would not cover the over-all
configuration of the utilitarian article as such.84
A more difficult case arises if the feature sought to be protected is necessary to the functioning of
the underlying product. For example, one applicant to the Copyright Office was refused registration
for its “artistic design for lighting fixtures” after the Register of Copyrights determined that the
application encompassed the entire lighting assembly, including the base, housing, electrical fixture,
and light bulb. Although on the applicant’s appeal the court of appeals acknowledged that the
applicant might have been entitled to protection had it only sought to protect the external housing
of its fixture, the court nevertheless held that the applicant’s claim to the other purely utilitarian
features precluded registration of its design.86
If, however, a designer seeks only to protect nonfunctional embellishments of an underlying product,
his chances of success are considerably greater. In the first major case to arise in the design copying
area under the 1976 Copyright Act, the plaintiff sought to protect belt buckles featuring alternating
raised and depressed areas allegedly creating a unique artistic work. The defendant sought to escape
liability by arguing that the claimed purely decorative elements of the buckle would fall apart if the
functional elements were removed. The court, however, rejected the defendant’s argument that the
features sought to be protected had to be capable of existing independently of the utilitarian aspects
of the article. Rather, the court relied on the congressional committee language quoted above to hold
that the features were copyrightable if they were merely conceptually separable.87
Not surprisingly, the distinction between functional and nonfunctional works can produce varying
results. In one case involving the alleged copying of a drawer pull for furniture, for example, the
court held that the defendants could not be held liable for copyright infringement if they had copied
the functional three-dimensional drawer pull itself. Nevertheless, the court concluded, the defendants
could be held liable if they had manufactured their pull by copying the plaintiff’s copyrighted twodimensional (and presumably nonfunctional) plans.88
84
85
86
87
88
H.R. Rep. No. 94-1476, at 55 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5668.
See, e.g., Collins & Aikman Corp. v. Carpostan Indus., Inc., 720 F. Supp. 561, 564–66 (D.S.C. 1989), aff’d, 905 F.2d 1529 (4th Cir. 1990).
Esquire, Inc. v. Ringer, 591 F.2d 796, 806 (D.C. Cir. 1978).
Kieselstein-Cord v. Accessories by Pearl, Inc., 632 F.2d 989, 993–94 (2d Cir. 1980).
Keeler Brass Co. v. Cont’l Brass Co., 862 F.2d 1063, 1066 (4th Cir. 1988).
Trademark 201
Applications of this standard have reached varying results. At one end of the spectrum are cases
involving copyrighted features that clearly are unrelated to the underlying functional nature of the
product in question. For example, although a manufacturer ordinarily would be unable to monopolize
particular items of furniture, the pattern on decorative upholstery generally is protectable.85
KILPATRICK TOWNSEND
B.
Prosecuting Copyright Infringement Suits
A designer seeking to protect his design through copyright law generally must meet two criteria.
First, he must demonstrate that he holds a valid copyright and a valid copyright registration in the
material sought to be protected. Second, he must demonstrate copying by the defendant what are the
requirements for demonstrating impermissible copying.89
As defendants rarely will admit that they have copied a plaintiff’s copyrighted work, courts
generally have accepted circumstantial evidence to create a presumption of copying. To raise this
presumption, the plaintiff must show that the alleged copier had access to the copyrighted design
and that the original design and the alleged copy are “substantially similar.”90 In keeping with the
general presumption underlying U.S. law that copying of ideas is to be encouraged except under
relatively limited circumstances, however, the fact that a defendant may have intended to come as
close as possible to a copyrighted design is irrelevant to a determination of whether two works are
“substantially similar.” Rather, as one court has observed:
“Copying” is a concept without statutory definition. Those courts which have had occasion
to consider the issue distinguish between copying an idea and the expression of that idea.
Only the latter constitutes infringement. Even if the defendant has sedulously borrowed
each of the plaintiffs’ ideas, that alone is not violative of the copyright statute. The plaintiff
can only prevail if the overall aesthetic impressions created by the designs are substantially
the same.91
Consequently, there is no “copying” in the absence of substantial similarity, even if the accused
designer intended to create a design similar to that of the copyright owner.92
Moreover, even if the plaintiff can succeed in establishing access and substantial similarity, these
showings create only the presumption that impermissible copying has occurred. If the defendant
fails to introduce evidence to the contrary, the plaintiff will prevail. But the defendant still may
defeat this presumption by a showing that he created his design separately and independently of the
plaintiff’s design.93 If the defendant can do so, the presumption in the plaintiff’s favor vanishes and
the case typically will boil down to a so-called “swearing contest,” decided according to the court’s
view of whose account of the creation of the allegedly infringing design is more credible.
C.
Remedies for Copyright Infringement
A successful copyright plaintiff potentially may enjoy a variety of remedies. Like a successful trade
dress plaintiff, he is entitled to an injunction against further copying that is “reasonable to prevent
or restrain infringement,”94 as well as his damages and the defendant’s profits, to the extent that
89
90
91
92
93
94
See generally Benson v. Coca-Cola Co., 795 F.2d 973, 974 (11th Cir. 1986).
Keeler Brass, 862 F.2d at 1065.
Manes Fabrics Co. v. Miss Celebrity, Inc., 246 F. Supp. 975, 977 (S.D.N.Y. 1965) (citations omitted).
See, e.g., Condotti, Inc. v. Slifka, 223 F. Supp. 412, 415 (S.D.N.Y. 1963).
See, e.g., Sheldon v. Metro-Goldwyn Pictures Corp., 81 F.2d 49, 54 (2d Cir. 1936).
17 U.S.C. § 502(a) (2006).
53
those profits are not included in the plaintiff’s damages.95 Similarly, the court also may order all
unauthorized copies of the plaintiff’s design to be seized and destroyed.96
A successful copyright plaintiff who registered his copyright prior to the defendant’s infringing
actions has the option of recovering “statutory damages” in lieu of actual damages and profits.
Depending on how egregious the defendant’s actions were in infringing the plaintiff’s design,
these damages may range from $750 to $30,000.97 Where the court finds that the infringement was
committed willfully, it may award up to $150.000.98 Plaintiffs in this class may also be entitled to
costs and attorneys’ fees.99
Trade Secrets
Trade secrets are information used in a trade or business and known only to the user.100 Although a
classic trade secret is a formula or secret recipe, various types of information can have the status of
a trade secret under the right circumstances, including information about costs or sources of supply,
manufacturing processes, and even not-yet-revealed business plans.101 Because information that
can be determined by examining a publicly-available product generally cannot be a trade secret,
relatively few trade secrets are embodied in products or product designs that are on the market.102
Even for businesses that sell products that are easily “reverse engineered,” once they are on the
market, trade secret protection can be valuable in connection with products not yet introduced to the
market, both in keeping competitors in the dark and to insure that potential patent rights are not lost.
State laws, rather than federal laws, protect against the misappropriation and improper use of trade
secrets.103 Those laws can be invoked if a competitor breaks into the company’s safe to steal the
secret formula, but they more often come into play when an employee goes to work for a competitor
and discloses or uses trade secrets of his former employer. Successful invocation of trade secret
95 Id. §§ 504–05.
96 Id. § 503.
97 Id. § 504(c)(1).
98 Id. § 504(c)(2).
99 Id. § 505.
100 See, e.g., Restatement (Third) of Unfair Competition § 39, at 425 (1995).
101 Georgia has statutorily defined trade secrets very broadly:
“Trade secret” means information, without regard to form, including, but not limited to, technical or non-technical
data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial
data, financial plans, product plans, or a list of actual or potential customers or suppliers which is not commonly
known by or available to the pubic and which information:
(A)
Derives economic value, actual or potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value from its disclosure or
use; and
(B)
Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
O.C.G.A. § 10-1-761(4) (2000).
102 The best known exception is the Coca-Cola formula, which is supposedly still a trade secret despite public availability of the product for
more than 100 years.
103 The law of trade secrets is part of the “judge-made” or common law inherited from England and extensively further developed in the
United States. Many states have also adopted “legislature-made” statutes relating to trade secrets. Quite a few have adopted a version of
the Uniform Trade Secrets Act. Despite the existence of fifty separate bodies of trade secret law, there is substantial uniformity in trade
secret principles throughout the United States.
Trademark 201
IV.
KILPATRICK TOWNSEND
rights can result in the award of damages and issuance of an injunction preventing the continued use
of misappropriated trade secrets.
The law will protect trade secrets only if the owner has taken appropriate measures to prevent
disclosure. Accordingly, planning is important to maintain the possibility of using trade secret
principles to protect product designs, methods of manufacture, or other aspects of a business activity
that may appropriately be accorded protection. The most important planning is simple communication
with employees of the business about the importance of protecting its confidential information.
Employee confidentiality agreements are often important both in communicating to employees the
need to protect trade secrets and in establishing legally protectable rights. Such agreements also
typically include provisions establishing the employer’s ownership rights with respect to inventions
and copyrightable works created by employees in the course of their employment. Many employers
require each of their employees to sign such agreements, and virtually every business that may
have trade secrets or other confidential information, or whose employees may invent or create
copyrightable works in the course of their employment, should utilize such agreements.
V.
Conclusion
Only relatively narrow exceptions to the general rule—that competition should be unfettered—are
available to prevent design copying. Such copying nevertheless frequently can be stopped or at
least limited, and with appropriate planning and timely efforts to establish intellectual property
rights, very substantial barriers to such copying can be established. For those who follow the legally
encouraged practice of copying existing product designs, understanding of the prohibitions on such
copying can avoid conflict.
Curiously, many business people who would never base other critical business decisions, like ones
relating to tax planning or accounting matters, on the advice of amateurs routinely draw conclusions
about the protectability of designs and the possibility of stopping copying (or that their own
copying can be stopped) without accurate information. Those who base business decisions relating
to intellectual property on facts rather than myths, however, enhance the likelihood of long term
business success.
55
EXCERPTS FROM EXAMPLES OF
DESIGN AND UTILITY PATENTS
Design patents can protect the appearance of chairs:
a building to house an automatic bank teller machine:
Trademark 201
KILPATRICK TOWNSEND
a restaurant building:
a cardboard container:
a shoe:
57
a portable computer:
Trademark 201
a shoe sole:
KILPATRICK TOWNSEND
and a woodworking tool called a mortise marking gauge:
Utility patents have been granted to protect
the structure or function of a knock-down furniture fitting:
59
a commercial shelving support structure:
Trademark 201
KILPATRICK TOWNSEND
a patternmaker’s vise:
and a fixture for making bent wood laminations, such as those used in millwork:
gn.
61
International Trademark Protection
Olivia Maria Baratta, Christine P. James, Allisen Pawlenty-Altman, and Jason M. Vogel
I.
Introduction
Unfortunately, trademark protection around the world largely remains a patchwork system of
national laws and registries, requiring a country-by-country approach. However, there have been
several key developments that have internationalized and harmonized trademark practice over the
past ten to fifteen years, including: (1) the introduction of the European Community Trademark
(“CTM”) system in 1997; (2) the adoption of the Trademark Law Treaty in 1994 (and the accession
of the United States in 2000) which reduced many of the formalities of trademark registration; and
(3) the recent expansion of the Madrid Protocol to include jurisdictions such as the United States in
2003 and the European Union in 2004. These developments, while reducing costs and procedural
obstacles to the international protection of trademarks, have introduced a new level of complexity
into trademark portfolio management as they present a number of new options and strategies for
protecting marks, each with a complex set of advantages and disadvantages.
II.
Evaluating Your Trademark Portfolio
Conducting regular trademark audits is the key to evaluating whether a portfolio of trademark
registrations is meeting the needs of a brand owner. First, identify the key brands that require
protection. The usual first tier of marks, in terms of importance, includes house marks which are
used across the full range of products or services offered by the company. The second tier includes
important product or service names which are used in all of the company’s markets. The third tier
consists of sub-brands, regional brands, or marks used on a limited range of goods or services.
Rounding out the fourth tier are slogans, marks that will be used for only a limited duration, and
nontraditional marks such as product configurations, color marks, and the like.
Second, identify the jurisdictions in which it is important to have protection. As mentioned above,
this falls into three categories: (1) the countries which are the present and near-term projected
marketplaces for a company’s products and services; (2) the countries in which branded products
Trademark 201
Globalization is perhaps the most significant factor that has affected trademark portfolio practice
over the last ten years. Whereas U.S. companies a decade or so ago were primarily focused on key
marketplaces in the United States, Canada, Western Europe, Japan, and Australia, much of the focus
now has shifted to a more global marketplace. Currently, even smaller companies in the United
States are looking to move manufacturing activities to lower cost countries throughout the Pacific
Rim, Latin America, India, or Eastern Europe, and new marketplaces have opened up for the sales of
many companies’ products and services throughout much of the world. One negative aspect of this
growth is that counterfeiting has grown to epic proportions as IP protection has lagged behind the
growth of manufacturing capability and sophistication in many countries. Thus, whereas trademark
protection may have only been necessary in key markets previously, insuring that your brands are
adequately protected now requires securing registration in a far broader number of countries—
potentially including those where your goods are sold, those in which your manufacturing occurs,
and those where counterfeiting may be a problem.
KILPATRICK TOWNSEND
are manufactured; and (3) the countries which are hotspots for counterfeiting. Next, consideration
should be given to which marks need to be protected in which territories. Having gathered this
information, a review can be made of the trademark portfolio with an eye to identifying holes in
coverage to be patched by new filings, as well as filings that may no longer be necessary and can be
allowed to lapse.
A further consideration to bear in mind when conducting an audit is the fact that trademark
registrations in most countries become vulnerable to challenge if not used within a grace period
for use of, typically, three to five years after registration. Accordingly, one should note those
registrations that have moved beyond this grace period and confirm that the marks are in use in
the relevant region. If not, and protection is desired, the filing of new applications to insure valid
protection may be needed.
III.
Expanding Your Trademark Portfolio
Sometimes a trademark owner may decide to expand its trademark portfolio with the addition of
one or more entirely new trademarks. For instance, a new product launch or a company’s desire
to update its branding may motivate a trademark owner to seek new trademarks. When expanding
a trademark portfolio, one of the first and most important steps is to assess the suitability of the
proposed new trademark. From a branding perspective, a good trademark will identify the source
of a product without immediately describing the products or services associated with it. Descriptive
trademarks, while sometimes initially attractive, often end up being very costly and difficult—if
not impossible—to register and enforce. In addition, for trademarks that will be used and registered
outside the United States, a trademark owner should determine whether the proposed trademark
has any meaning or connotation in local languages and dialects. Local counsel, while sometimes
costly, can provide invaluable advice on this topic and help trademark owners avoid embarrassing
situations arising from unintended meanings or connotations.
Equally important is assessing the availability of the proposed new trademark for adoption, use,
and registration in the trademark owner’s countries of interest. Generally speaking, an “available”
trademark can be distinguished from all claims of prior trademark rights, including both registered
trademarks and, in countries that recognize “common law” trademark rights, unregistered
trademarks.1 In today’s global market, clearing a proposed trademark may involve searching and
analyzing trademark use and registration data from a variety of sources, including national trademark
registries, business name records, domain name records, and commercial usage. Fortunately,
the Internet offers a wide range of easily accessible tools used in assessing the availability of a
proposed new trademark. For preliminary searching, informal searches of Internet search engines
such as Google, Yahoo, or AltaVista may reveal potentially problematic prior uses of the proposed
new trademark or a similar trademark. For more formal searching, trademark owners may turn
1
“Common law” trademarks are use-based trademark rights recognized in jurisdictions which trace their legal heritage to Britain. Examples
of countries that recognize “common law” trademark rights include the United Kingdom, the United States, Australia, Canada, India, and
other former colonies of the British Empire.
63
to subscription databases such as Trademarkscan or Saegis,2 online records of national trademark
offices,3 or consolidated international screenings searches offered by commercial search vendors.4
For commercially significant trademarks, such as new brands or spin-off brands, a trademark owner
also may decide to obtain in-depth availability opinions from local counsel in foreign countries.
IV.
Trademark Filing Strategies
2
3
The Saegis database currently covers the United States (federal), United States (state), Canada, Mexico, Brazil, Austria, Benelux,
the Czech Republic, Denmark, Estonia, Finland, France, Germany, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Monaco,
Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, the United Kingdom, CTM, Australia, China, Japan,
South Korea, and the International Register.
Many trademark offices have websites through which trademark records can be searched. The following is a sampling of some of those
sites:
European Community: The Trademarks and Designs Registration Office of the European Union, Searching the Community
Trade Mark Database: CTM-ONLINE, http://oami.europa.eu/ows/rw/pages/QPLUS/databases/searchCTM.en.do (last
visited Mar. 19, 2009).
Australia: Australian Government, IP Australia, http://www.ipaustralia.gov.au/trademarks/search_index.shtml (last visited
Mar. 19, 2009).
New Zealand: IPONZ – Intellectual Property Office of New Zealand, http://www.iponz.govt.nz/cms/trade-marks/banner_
template /IPTM (last visited March. 19, 2009).
United Kingdom: Online Trademark Services, http://www.ipo.gov.uk/types/tm/t-os.htm (last visited Mar. 19, 2009).
Canada: Canadian Intellectual Property Office, Canadian Trade-marks Database, http://www.ic.gc.ca/app/opic-cipo/trdmrks/
srch/tmSrch.do?lang=eng (last visited Mar. 19, 2009).
Hong Kong: Intellectual Property Department, Government of Hong Kong, IPD Online Search System, http://ipsearch,ipd.gov.hk/index.
html (last visited Mar. 19, 2009).
Singapore: Intellectual Property Office of Singapore, eTrademarks Search, http://tmsearch.ipos.gov.sg/eTMSearch/
eSearchOption.jsp (last visited Mar. 19, 2009)
International Register: World Intellectual Property Organization IP Services, Madrid Express Database, http://www.wipo.int/madrid/en/
services/madrid_express.htm (last visited Mar. 19, 2009).
Examples of consolidated commercial screenings searches include: the KISS (Country Identical Screening Search, searches for identical
marks in any jurisdiction); the RISS (Regional Identical Screening Search, searches for identical marks in one of the following geographic
regions or a “custom” region: Asia and Australasia; Europe; European Union; Madrid Agreement and Madrid Protocol; Middle East and
Africa; the Americas: South America, Central America, the United States and Canada; Eastern Europe and Former Soviet Republics); and
the WISS (Worldwide Identical Screening Search, searches for identical marks in all jurisdictions and registers).
It is advisable, if not critical, to file as soon as possible. In most jurisdictions, priority of trademark rights is determined by the filing date;
thus, the first party to file an application to register a mark has priority, regardless of use in that country or elsewhere. Even if priority
is determined by use, not filing, as in the United States, it still is advisable to file as soon as practical, as the filing date establishes a
“constructive use” date throughout the country. Under the Paris Convention, it is possible to file applications in jurisdictions which are
parties to the Paris Convention up to six months after the filing date of a first-filed application for the mark and still claim as an effective
filing date the filing date of the home country application. As priority in most countries is based on filing date, this enables the applicant to
secure a filing date by applying to register its mark in one principal country, and then determining the other countries of most importance
in which to seek protection.
4
5
Trademark 201
Once a trademark has been selected and cleared for adoption, use, and registration, a trademark
owner must decide where to file for registered protection.5 As mentioned above, key countries for
registered protection fall into three categories: (1) the countries which are the present and near-term
projected marketplaces for a company’s products and services; (2) the countries in which branded
products are manufactured; and (3) the countries which are hotspots for counterfeiting. In the end,
obtaining the desired coverage may involve a multiple-country filing program reaching across the
globe. Even though there have been notable steps towards harmonization of trademark practice and
protection in recent years, a trademark owner still must employ a patchwork approach to secure
KILPATRICK TOWNSEND
such coverage. As discussed in greater detail below, the following consolidated filing mechanisms
can provide huge cost savings and bring much-desired simplicity to a multiple-country trademark
filing program.
A.
The Madrid Protocol System
One of the most significant developments over the last several years impacting trademark filing
strategy is the recent accession of the United States, the European Community, and a handful of
other commercially significant countries to the Madrid Protocol. The Madrid Protocol is a treaty that
establishes a multinational trademark filing and registration system. At present, there are over 70
countries that are members of the Protocol, including, aside from the United States and the European
Union, most of the individual European countries; the Asia-Pacific countries China, Japan, South
Korea, Singapore, and Australia; most of the former Soviet Union countries; and a number of Middle
East and African countries. Notably absent from the Madrid Protocol are a number of Western
Hemisphere countries, including Canada and virtually all of Latin America.
To take advantage of the Madrid Protocol system, a company must first file an application or have
a registration in its home country. Then, an application for an International Registration (“IR”)
is filed with the home country trademark office, which certifies the application and sends it to
the International Bureau of the World Intellectual Property Organization (“WIPO”). Following
examination, the WIPO grants the IR, and then transmits it to the trademark offices of as few or as
many of the member countries of the Madrid Protocol as are designated by the applicant. The local
trademark offices then examine the IR as if it were a national application filed through standard
channels, and the resulting extension of protection is equivalent to a national registration.
The key advantage to this system is that it potentially provides a huge cost savings over direct
international filing with the national registries. Under the Madrid Protocol, an IR covering 70-plus
countries costs well under $20,000, whereas comparable national filings could cost as much as
$100,000 or more. Additionally, the procedural aspects of filing and maintaining an IR are greatly
simplified over national applications in that there is essentially only one application to file, one
registration which issues, and one renewal which must be docketed and coordinated at the end of a
single unified registration term. Moreover, there are no translation, power of attorney, or document
legalization requirements, which represents a further time and cost savings.
However, this system is not without its disadvantages. A key feature of the Madrid Protocol is
the concept of dependency. The IR remains dependent upon the owner’s underlying home country
application or registration for a period of five years, which can result in several significant
consequences, particularly for U.S. trademark owners. First, the Madrid filing cannot cover a
broader range of goods and services than the underlying U.S. filing. Since the United States has very
strict and narrow goods and services specification requirements, IRs based on U.S. applications or
registrations generally cover a much narrower range of goods and services than comparable national
filings would cover. Second, if the underlying home country application or registration becomes
invalid for any reason, or if the goods and services are restricted during the dependency period, the
same invalidation or restriction will apply to the IR. So, for a U.S.-based trademark owner, if there
65
is any concern that the home country application will not register, either because of failure to bring
the mark to use within the allowance term or because of prior marks which could cause a risk of
objection in examination or opposition, then the Madrid Protocol may not be the best way to secure
international protection for the mark. If any of these problems come to fruition, it could significantly
impact the international portfolio and not just the U.S. rights. Third, a Madrid registration must be
used in each designated country in order to insure against cancellation actions and other invalidation
actions based on “non-use” being brought against it. As a result, careful evaluation of this filing
technique is required before a decision is made to use it.
B.
The Community Trademark System
Key advantages of the CTM system include the significant cost savings obtained in lieu of filing
27 individual national applications, and the unified right extending to all 27 countries provided
by virtue of a single CTM registration. The CTM registration process also is relatively quick and
easy to administer, with applications maturing to registration well within a nine-month window,
barring any extraordinary circumstances or oppositions. Additionally, use of the trademark in any
single member country protects the entire registration from cancellation or invalidation based on
“non-use” of the trademark, meaning in practical terms that use in one country extends protection
to an additional twenty-six countries.7 Finally, filing a CTM application can be a good way to get a
quick assessment of the availability of a proposed trademark in Europe, since the CTM Office gives
applicants the opportunity of ordering copies of national trademark search reports for an additional
fee.8
Not surprisingly, the CTM system also has disadvantages. One huge disadvantage is that an objection
lodged on the basis of a single national trademark registration, such as a German national trademark
6
7
8
Members of the European Union as of January 31, 2009, include: Austria, Belgium, Bulgaria, Cyprus, the Czech Republic, Denmark,
Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland,
Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom.
However, this rule is not explicitly set forth in the CTM Regulation and there have been efforts in the European Commission to change
the rule so that use would be required in a substantial portion of the EU to sustain a CTM that is subject to use requirements.
This is particularly true when an initial preliminary screening search for the CTM database and/or EU member countries does not disclose
any serious obstacles to adoption of a mark in Europe. Ordering and reviewing comprehensive searches in the EU member states can be
extremely expensive, and often the cost of filing a CTM application and requesting copies of national search reports comes in well below
this. And, because all member states, except France, Italy, Germany, Cyprus, Estonia, Latvia, Malta, and Slovenia, undertake national
searches for CTM applications, the national search reports offer a fairly decent geographic coverage of the EU member states. Of course,
national search reports often will provide only very basic information about cited marks and therefore ultimately may be minimally
helpful in identifying serious conflicts. Nevertheless, they can provide a decent point of reference for evaluating the presence of thirdparty marks in the member states.
Trademark 201
A second important and relatively recent development is the establishment in 1997 of the
Community Trademark (“CTM”) registration which protects a trademark in all member states of the
European Union (“EU”), which now includes 27 members.6 Unlike the Madrid Protocol system,
which extends protection to designated countries in a hub-and-spoke type mechanism, the CTM
application serves as a single, unified filing covering all EU member states. The CTM system is
available to all members of the Paris Convention, which includes almost all countries in the world.
Because of this, the CTM system affords a unique filing opportunity to companies and individual
citizens of most countries, including the United States.
KILPATRICK TOWNSEND
registration, can hold up the entire CTM registration process. If this happens, the applicant has the
option of converting its CTM application into various national applications in lieu of allowing the
entire CTM to lapse. However, the costs involved with such conversion would eliminate any cost
savings gained by filing the CTM in the first place. In addition, given the number of countries covered
by the CTM and limitations of national search reports, it can be difficult to assess whether a CTM
application will draw third-party objections.9 Finally, a trademark owner may desire protection in
European countries that do not belong to the European Union, such as Norway or Switzerland. In
that case, the trademark owner must supplement its CTM filing by also filing national applications
in the non-EU countries of interest.
C.
Regional Filing Options in Africa
In addition to the Madrid Protocol and Community Trademark systems, trademark owners also
may take advantage of other consolidated trademark filing mechanisms, including regional filing
arrangements. In Africa, for instance, trademark applicants may pursue consolidated protection
through either the African Industrial Property Organization (“OAPI”) or the African Regional
Industrial Property Organization (“ARIPO”). The first option, OAPI, serves as a consolidated
office for applications covering the following Francophone African countries: Benin, Burkina
Faso, Cameroon, Central African Republic, Chad, Congo, Gabon, Guinea, Guinea-Bissau, Ivory
Coast, Mali, Mauritania, Niger, Senegal, and Togo. Like the CTM unified right, OAPI registrations
also provide a unified right, and use in one country constitutes use for all countries. The OAPI
system is well-recognized and well-administered. The second option, ARIPO, covers the following
English-speaking African countries: Botswana, Lesotho, Malawi, Namibia, Swaziland, Tanzania,
Uganda, and Zimbabwe. It functions as a collection of national rights, and it is not well-recognized
or well-administered. Because certain ARIPO member countries have not yet passed implementing
legislation, the ARIPO system may not be a viable option for trademark protection, and national
trademark applications still offer the soundest mechanism for protection in ARIPO member
countries.
V.
Trademark Enforcement
Consistency is one of the most important features of an effective global IP enforcement strategy.
One way to ensure consistency is to define very carefully a circle of protection around the client’s
mark and develop a clear set of criteria for deciding which matters fall within the circle and therefore
should be challenged, and those which are outside the circle and should not be challenged. The
stronger the trademark (i.e., the more distinctive and well-known) and the greater the resources
the client is willing to commit to the mark, the wider the circle can be. On the other hand, for
a marginally distinctive mark for which the client does not wish to expend a great deal of time
and money in enforcement, the circle should be smaller. There is a virtually limitless supply of
9
Because the CTM office, called the Office of Harmonization for the Internal Market (“OHIM”), will not refuse to register a mark on the
ground that it is confusingly similar to another mark, it is incumbent on prior applicants or registrants themselves to object to later-filed
applications. Theoretically, the search reports permit CTM applicants to identify marks that may pose problems for their applications, thus
providing an opportunity for applicants to address issues preemptively by withdrawing their applications or attempting to negotiate with
prior mark owners. More often than not, however, applicants must simply “wait and see” whether their applications draw any third-party
objections.
67
infringement, counterfeiting, and objectionable trademark filing out there. Deciding when it makes
sense to take action and when not to do so is a key function on which trademark counsel advise their
clients. The more clearly defined the criteria are for this decision, the better outside counsel can
ensure that they are in step with the client’s needs. An additional benefit is that you can avoid taking
inconsistent positions in different cases, such as arguing that two marks are confusingly similar only
to find that such arguments are used against you in a different case involving an analogous mark that
has priority over the client’s mark.
Effective global IP enforcement requires vigilant monitoring of trademark registers, marketplaces,
and domain name registries. There are many commercial vendors which enable trademark counsel
to monitor each of these areas for potentially objectionable trademark usage. In terms of trademark
applications, one can employ trademark watching services, which provide notices to the trademark
owner of any applications which arguably are close to a watched mark. These services can generate
a huge number of watch notices, and it is important to vigilantly review these notices on a timely
basis since the deadlines are sometimes immediate. For domain names, there are similar monitoring
services. And for general brand surveillance, there are services which monitor usage of trademarks
on the Internet. Again, particularly in certain jurisdictions which are rife with counterfeiting, there
is a virtual limitless supply of objectionable uses of well-known trademarks. Deciding which of
these infringements to proceed against, and which do not warrant such an investment, can involve a
difficult line-drawing process. To the extent that you can develop clear criteria for such decisions, it
can greatly assist in cutting through the vast number of such reports efficiently. Finally, the client’s
business people on the ground in overseas jurisdictions can be one of the best sources of information
concerning counterfeit and infringing products. Consequently, it is always a good idea to counsel
clients to maintain open lines of communication with their local business people in key jurisdictions
and to educate them to look for infringing activity, to report such activity as soon as possible, and
to keep detailed records and evidence, including most particularly any evidence of actual confusion
which may arise.
A final important strategy in global enforcement is to work with Customs Offices in key jurisdictions
to assist them in identifying and seizing infringing articles crossing the borders. Many jurisdictions,
including the United States and the European Union, have customs recordal procedures for
registered trademarks. Taking advantage of such recordal systems is usually a highly effective
strategy for catching infringing products before they make it into the marketplace. Additionally, in
many countries it may be possible to have training sessions with customs officers to educate them
on your key trademarks and to help them to identify genuine and infringing articles. Cooperation
Trademark 201
Conducting regular IP audits, as discussed above, is also a key part of a global enforcement strategy.
This ensures that the client has the tools it needs to enforce its rights in its countries of interest. The
costs of trademark registration are comparatively far lower than the costs of trying to enforce an
unregistered mark in an important country against an infringer. Most costly of all, of course, is being
shut out of a potential market because another party has registered the client’s mark first. The bottom
line is that the cost incurred in securing trademark rights is usually money well-spent when it comes
time to enforce such rights.
KILPATRICK TOWNSEND
with customs officers is always a good idea since it can significantly increase their effectiveness and
interest in assisting your company police its brands at the borders.
VI.
Conclusion
For any trademark owner, navigating the complexities of various foreign trademarks laws and
practices can prove a daunting experience. Regardless of the stage, whether it is trademark portfolio
audit, selection, and clearance, filing and registration, or enforcement, a trademark owner can benefit
greatly from the expert assistance of experienced trademark counsel.
69
Trademark Licensing Basics
R. Charles Henn Jr., Alicia Grahn Jones, Lauren Sullins Ralls, and Lauren A. Linder
Trademark licensing is a popular and successful practice that can provide a trademark owner
with numerous benefits. Through licensing, an owner can expand the scope and geographic reach
of its brand and, in turn, maximize revenue. Although licensing can have many positive results,
it is important to be aware of licensing pitfalls as well, which can have serious and permanent
repercussions for a brand. This article provides a basic introduction to trademark licensing and will
examine (1) the fundamentals of trademark licensing; (2) considerations when drafting a trademark
license; and (3) issues, such as abandonment, which may occur if the licensing process goes awry.
I.
Fundamentals of Trademark Licensing
A trademark license is an agreement, oral or written, between a trademark owner (the “licensor”)
and another person or entity (the “licensee”) in which the licensor permits the licensee to use its
trademark in commerce.2 When a trademark owner grants a license, it only transfers limited rights,
not the entire interest in the mark.3 Indeed, the hallmark of any license is that any goodwill acquired
by the licensee inures to the benefit of the licensor, not to the licensee.4
A license is necessary in many situations. A trademark owner may license its trademark to be used
in connection with the manufacture of products for which the trademark owner does not have the
capacity to manufacture and distribute. For example, many colleges and universities have wellestablished licensing programs, that manage the use of the trademarks in connection with products
such as apparel, toys, glassware, and paper products that are manufactured and distributed by the
licensee. In addition, licenses frequently are used to expand a licensor’s brand into product or service
areas that it had not previously offered. Brand-expansion licenses seek to maximize revenue and
achieve broad advertising for the merchandising property. A classic example of brand-expansion
licensing is when a celebrity licenses the use of her name and likeness in connection with perfume
or fashion apparel.
In co-branding situations, where the parties’ trademarks appear side-by-side on the product or in
advertising, licenses are also necessary. Co-branding is frequently used in joint venture products
and services. For example, Diamond Walnut Growers, Inc., owner of the mark DIAMOND for nuts,
1
2
3
4
See 15 U.S.C. § 1127 (2006).
While a trademark license may be oral, a trademark assignment must be written. See Lanham Act § 10, 15 U.S.C. § 1060 (2006).
Exxon Corp. v. Oxxford Clothes, Inc., 109 F.3d 1070, 1076 (5th Cir. 1997).
Bunn-O-Matic Corp. v. Bunn Coffee Serv., Inc., 88 F. Supp. 2d 914, 923 (C.D. Ill. 2000) (“A licensee’s prior claims of any independent
rights to a trademark are lost, or merged into the license, when he accepts his position as licensee, thereby acknowledging the licensor
owns the marks and that his rights are derived from the licensor and enure to the benefit of the licensor.”).
Trademark 201
A trademark is any word, color, symbol, device, or any combination thereof, used by a person to
identify and distinguish that person’s goods from those of others and to indicate the source of the
goods.1 Where a licensing agreement is in place, a trademark may be used by a person or company
other than the owner of the mark (or the source of the goods) to expand the reach of a brand and
increase revenue related to the mark.
KILPATRICK TOWNSEND
and Sunsweet Growers Inc., owner of the mark SUNSWEET for dried fruits, created a joint venture
to distribute gift packages of walnuts and dried fruits under the composite mark DIAMOND/
SUNSWEET.5 Co-branding uses the goodwill and reputation of one mark to support another mark.
Co-branding frequently uses famous trademarks that generate loyalty and encourage consumers to
purchase the co-branded product.
Trademark licenses are also the cornerstone of franchising agreements. Most franchise agreements
grant the franchisee the right to use one or more of the franchisor’s trademarks in connection with
certain goods and services, together with a system of distributing and marketing those goods and
services in accordance with established standards and practices.6 In return, the franchisor obtains
new distribution markets, new sources of capital, and motivated vendors of its products or services.7
Franchise agreements are known to be used frequently in the restaurant industry, but franchise
agreements extend into a wide range of other industries as well.
II.
Drafting an Effective Trademark License
A trademark license can vary in its complexity depending on the parties and the goods or services
involved. Every trademark license, however, should include certain fundamental elements.
A.
Fundamental Elements of a License
1.
Preliminary Matters – Parties, Effective Date, and the Trademarks at Issue
At the outset, as in most contracts, the agreement should identify general information such as the
parties, the territory covered in the license, and the effective date of the license. The recitals should
identify the trademarks being licensed, either in the form of a list or chart, and should identify any
registrations covering the marks.
2.
Exclusivity and Scope of Rights
The license agreement should clearly establish the scope of the rights that the licensor is granting
to the licensee. For example, the agreement should address whether the agreement is exclusive
or non-exclusive.8 A trademark may be licensed exclusively to a single licensee or licensed nonexclusively to more than one licensee.
In a non-exclusive licensing arrangement, the licensor retains rights to use the trademark itself, to
license it to others, or both. In an exclusive license, only the licensee may use the trademark and
even the licensor may be foreclosed from using the mark on the goods or services covered by the
license. A frequent result of non-exclusive licensing is a market where there is competition between
multiple parties licensing a single mark.9 One benefit of exclusive licenses is that the products and
services offered under the licensed mark are likely to have a more consistent level of quality than
5
6
7
8
9
In re Diamond Walnut Growers, Inc., 204 U.S.P.Q. 507, 509 (T.T.A.B. 1979).
Rupert M. Barkoff & Andrew C. Selden, Fundamentals of Franchising 4 (3d ed. 2008).
Id.
Richard Raysman et al., Intellectual Property Licensing: Forms and Analysis § 4.11[2] (1999).
In addition to addressing whether the license is exclusive, a license agreement will frequently address whether the license may be assigned
or transferred by the licensee.
71
those offered under a non-exclusive licensing arrangement. Additionally, a licensor is able to charge
a higher royalty rate in an exclusive license. With a non-exclusive license, considerations are given
to account for the decreased value of the license due to market saturation. If a trademark owner
grants multiple non-exclusive licenses, it should consider the possibility of market saturation, which
may dilute the value of a brand.
Another important consideration is whether the licensee will be permitted to sublicense the marks.
For a licensee to receive sublicensing rights, the license agreement must be explicit in its grant of a
right to sublicense.10 If a sublicense is allowed, a licensor should ensure that the license agreement
includes provisions for notification prior to granting a sublicense as well as some form of “veto”
power over potential sublicenses. Absent these provisions, it can become difficult for the licensor to
monitor the quality of the goods or services being offered under the mark.
Royalty and Compensation
There are a variety of ways in which a trademark owner can be compensated for use of its mark and
the form of the compensation clause will vary according to the type of licensing fee established.
One option is for the license to provide for a single, one-time, flat fee. Alternatively, the license
may provide that the licensee pay the licensor a use-based royalty.11 A royalty rate may be fixed
or variable. A variable royalty rate may be sales driven, whereby the rate increases or decreases
based upon net sales of the licensed product. A royalty rate is traditionally higher for “hot market”
products. The royalty rate may also be higher in cases when the royalties are paid to more than one
trademark owner (for example, in a co-branding situation).
When a royalty will be used as the form of payment, the license should set forth a royalty amount
or the manner in which to calculate the royalty. Traditionally, royalties are based on net sales (gross
sales minus returns, discounts, and allowances) so that the licensee pays royalties on the actual sales
revenue it receives. It is not uncommon for the licensor to retain the right to audit the books and
records of the licensee to ensure that the royalties due are being paid. The licensor also may establish
a minimum guaranteed royalty payment by the licensee as an “incentive” to the licensee to generate
sales. A variation of a use-based royalty scheme requires the licensee to pay a guaranteed minimum
royalty at the outset, and then supplement that amount as additional revenue targets are achieved.
The process of determining a royalty rate should include an analysis of many factors, including
valuation of the trademark.12 A licensor often will look at comparable rates in the industry to set a
royalty rate that will be reasonable to a licensee. Obviously, a licensee will often want to negotiate
for lower royalties or lower guaranteed minimums, in order to maximize profit on sales of the
licensed products.
It is common for license agreements to provide for upfront payments and royalty or other forms of
payments.
10 Raufast S.A. v. Kicker’s Pizzazz, Ltd., 208 U.S.P.Q. 699, 703 (E.D.N.Y. 1980) (holding that exclusive licensee was not authorized to
sublicense mark).
11 When a license is royalty-free, this is usually stated explicitly in the license.
12 See Gregory J. Battersby & Charles W. Grimes, Licensing Royalty Rates § 1.02 (2008) (discussing four methodologies for valuing
intellectual property: market approach, cost approach, income approach, and 25% rule).
Trademark 201
3.
KILPATRICK TOWNSEND
4.
Licensing Term
The duration of the license, often called its “term,” should also be set forth in the agreement. A
license may be perpetual and extend indefinitely; however, many licenses set a fixed term for the
license and the conditions under which the license may be: (a) renewed for an additional period of
time under stated conditions, (b) terminated automatically after the expiration of one or more fixed
terms, or (c) terminated for breach of the license conditions. The license should state explicitly the
date on which the license commences (i.e., the effective date of the agreement itself) and the term
for which the license is applicable. The term is particularly important because once a license has
expired, use of the formerly licensed trademark constitutes infringement.13 In addition, some states
provide that a license without a term may be terminated at will by either party.14
5.
Quality Control
It is important that the licensor create a mechanism to exercise control over the quality of the
goods or services provided under the licensor’s mark. Because of the importance of this issue, it is
discussed in detail in Part III below.
6.
Termination
Finally, the license should include a termination provision. Termination might occur upon expiration
of the license under the agreed term or upon an earlier breach of the license agreement. The license
should establish whether the breaching party will have an opportunity to cure any such breach prior
to termination of the license. Often a trademark license will provide that failure to comply with the
quality control provisions of a license constitutes a material breach triggering termination.
In any case, the termination provision should establish clear guidelines for the end of the licensing
relationship, including the return of material, disposition of inventory, subsequent use or nonuse of
the mark, and the like. The agreement may provide for varying extremes of resolution depending
upon the manner in which the agreement was terminated. For example, the licensor may be required
to buy back the inventory from the licensee in case of an amicable termination, but require the
licensee to destroy the inventory in case of the licensee’s breach.
B.
Additional Concerns
When drafting a license agreement, it is often important to examine other issues such as
indemnification or enforcement of trademark rights against third-party infringers.
1.
Indemnification
One method for protecting the integrity of a licensor’s brand is the inclusion of an indemnification
clause. To insure itself against liability, a licensor may require the licensee to indemnify it for any
defects or injury stemming from its goods or services. On the other hand, a licensee should seek
13 U.S. Jaycees v. Phila. Jaycees, 639 F.2d 134, 143 (3d Cir. 1981).
14 See e.g., Dial-A-Mattress Operating Corp. v. Mattress Madness, Inc., 847 F. Supp. 18, 19 n.1 (E.D.N.Y. 1994) (explaining that a license
with no defined term may be terminated by either party with reasonable advance notice); Italian & French Wine Co. v. Negociants U.S.A.,
Inc., 842 F. Supp. 693, 699 (W.D.N.Y. 1993); Werner v. New Balance Athletic Shoe, Inc., 824 F. Supp. 890, 893 (D. Minn. 1993).
73
assurance (in the form or representations and warranties) from the licensor that it is the legal owner
of the trademarks, and that it will indemnify the licensee for any claims of trademark infringement
arising out of its use of the trademark under the scope of the license agreement.15 An example of a
clause indemnifying a licensor is below:
Licensee hereby agrees to be solely responsible for, to defend, and indemnify Licensor and
its respective officers, agents, and employees, and to hold each of them harmless from all
liability claims, demands, causes of action, or damages, including reasonable attorneys’
fees, caused by or arising from workmanship, material, or design of any products, articles,
logos, characters, etc., bearing the Trademark produced by or on behalf of Licensee and/
or caused by or arising out of any action by the Licensee in connection with its use of the
Trademark.
Enforcement
Unless the license agreement expressly states otherwise, only a trademark owner can bring suit for
trademark infringement under the Lanham Act.16 Accordingly, the parties should determine who is
in a better position to enforce the trademarks at issue, and if it is the licensee, structure the agreement
to give the proper party authority to sue for infringement.17 The license agreement also may contain
notice provisions requiring the parties to keep the other apprised of infringements and enforcement
actions. Regardless of who bears the responsibility, the agreement should specify which party is
responsible for the costs of an enforcement action, and the parties ought to consider how any awards
or damages received from enforcement actions should be distributed.18
3.
Transfer of Rights and Responsibilities
Because trademark licenses are construed as personal services contracts, the licensee cannot transfer
its responsibilities under the agreement (i.e., sublicense the trademark rights) without the consent
of the licensor.19 There may be some situations (e.g., a merger or acquisition) in which a different
party will be legally entitled to assume the role of the licensee.20 Accordingly, an effective license
agreement should anticipate issues that may arise from such reorganizations.
III.
Concerns with Licensing: Quality Control and Abandonment
A trademark licensor has a duty to control the quality of the goods or services offered by a licensee
under the mark. If the trademark license does not contain quality control provisions, or if no quality
15 In such a situation, the licensor may also require the licensee to notify it promptly of any infringement action and require that the licensee
not make any substantive response.
16 Lanham Act § 43(a), 15 U.S.C. § 1125(a) (2006).
17 Raysman, supra note 8, § 4.11[6].
18 Id.
19 Tap Publ’ns, Inc. v. Chinese Yellow Pages (New York) Inc., 925 F. Supp. 212, 281 (S.D.N.Y. 1996). See also Miller v. Glenn Miller Prods.,
318 F. Supp. 2d 923, 937–40 (C.D. Cal. 2004); 4 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition, § 25.33 (4th
ed. 2008).
20 Raysman, supra note 8, § 4.11[10].
Trademark 201
2.
KILPATRICK TOWNSEND
control is exercised, the license may be considered a “naked license.”21 Naked or uncontrolled
licensing may result in several possible effects: abandonment of rights in the mark; a break in the
chain of continuous use necessary to prove use over another; or a finding that the license is void or
that the licensor is estopped from challenging the licensee’s uncontrolled use.22 This section will
focus on the most common problem resulting from naked licensing: abandonment.
A.
Abandonment Generally
A trademark carries with it a message that the trademark owner is controlling the nature or quality
of the goods and services, and customers rely on this reputation in making purchasing decisions.23
If a trademark owner fails to exercise reasonable control over the use of a mark by a licensee,
the trademark may cease to function as a symbol or quality and controlled source, leading to an
involuntary loss of trademark rights.24 This effect is often characterized as an “abandonment” of the
trademark and, equivalently, the licensor may be estopped from complaining about infringement.
Courts often have found marks to have been abandoned if the licensor does not exercise sufficient
quality control. In CNA Financial Corp. v. Brown, the court found that a parent corporation that
licensed its mark to a subsidiary without any quality control “lack[ed] the requisite control over
the services connected with its marks and, therefore, forfeit[ed] its rights in the mark.”25 The court
noted that the plaintiff’s naked licensing constituted abandonment of any rights and, therefore,
denied the plaintiff a preliminary injunction against an alleged infringer. Likewise, in Ritchie v.
Williams, the court held that the mark had been abandoned where there was no evidence of control
over the licensee.26
B.
How Much Quality Control is Necessary?
The amount of quality control necessary varies and it is difficult to define in the abstract exactly how
much control and inspection is needed to satisfy the requirement of quality control over trademark
licensees.27 The level of control often depends on the types of goods or services at issue. For
example, control that is sufficient for licensing the use of a mark on a coffee mug may be inadequate
for licensing a trademark for use on prescription drugs. Generally, however, the goal is that the
licensor exercise sufficient quality control to meet the reasonable quality expectations of consumers
when they see the mark in the marketplace.
At a minimum, a trademark license should contain express terms giving the licensor the power to
engage in quality control. It is common for a trademark license to contain a clause that establishes a
right of the licensor to inspect and review the goods and services offered by the licensee in connection
21 Susan Progoff, Trademark Licensing Appendix: Sample Licensing Provisions, in Understanding the Intellectual Property License
2007, at 141 (PLI Course Handbook Series No. 11389, 2007); see, e.g., Barcamerica Int’l USA Trust v. Tyfield Imps., Inc., 289 F.3d 589
(9th Cir. 2002); Stanfield v. Osborne Indus., Inc., 52 F.3d 867 (10th Cir. 1995).
22 McCarthy, supra note 19, § 18:48.
23 Id.
24 Id.
25 922 F. Supp. 567, 574 (M.D. Fla. 1996).
26 395 F.3d 283 (6th Cir. 2005).
75
with the mark. The inspection may be routine or random. Such a provision should delineate the
process by which a licensor would reject goods or services deemed unacceptable. Below is an
example of a fairly simple quality control clause:
Licensor shall have the right, on an annual basis and with reasonable notice, to inspect
Licensee’s goods and services, including marketing or promotional materials, bearing the
Trademark to ensure that Licensee is in compliance with [the previously defined quality
control standards]. In the event Licensor believes in good faith that Licensee is not offering
goods or services in compliance with [the previously defined standards], then Licensor
shall provide written notice to Licensee. The parties will work diligently and in good faith
to ensure that any deficiencies are remedied within a reasonable period of time. In the
event the deficiencies cannot be remedied after such good faith effort, Licensor shall have
the right to prohibit Licensee’s use of the Trademark in connection with those goods or
services not in compliance with [the previously defined standards].
(1)
(2)
(3)
(4)
Being involved in the design process for the product;
Reviewing early models and prototypes;
Reviewing packaging, advertisements, labels, and other materials to ensure that the
mark is used properly and appears in a manner consistent with the licensor’s trademark
guidelines; and
Requiring access to the licensee’s facilities, raw material, finished products, personnel,
and records to monitor the licensee’s adherence to the licensor’s quality standards.
The extent and manner of control will vary according to the industry and/or the products at issue.
Accordingly, the quality control provision can be broadened or narrowed to the extent necessary for
the individual circumstances. Although it is highly recommended that any licensee contain express
quality control provisions, it is important to note that in some situations, the nature of the parties’
relationship and conduct may also serve as evidence of sufficient quality control depending on the
court.28
At the other end of the spectrum, licensors must also be careful not to exercise too much control
over the operations of the licensee.29 If the level of control is deemed “significant,” such as requiring
the licensee to follow specified operating procedures or to purchase ingredients from designated
suppliers, the license may be construed as a franchise agreement, subjecting the licensor to stringent
federal and state franchise rules and potential penalties for failure to comply with those rules.30 For
28 Doeblers’ Pa. Hybrids, Inc. v. Doebler, 442 F.3d 812, 824 (3d Cir. 2006) (noting that defendant did not meet the high burden of proof for
showing insufficient control).
29 Progoff, supra note 21.
30 Id.
Trademark 201
In contrast, other quality control provisions go on for pages and may address the numerous practical
provisions that a licensor can request to ensure adequate quality control and prevent abandonment,
such as:
KILPATRICK TOWNSEND
this reason, we strongly recommend clients speak with a franchise-law expert in connection with
any planned license.
C.
Proper Trademark Usage
In addition to inspecting the actual quality of the goods, a licensor should also take precautions to
ensure proper usage of the mark itself. The licensor can provide usage guidelines that carry strict
requirements for how the trademarks are to be used. For example, in order to prevent “genericide,”31
a licensor may outline best practices for proper trademark usage, such as avoiding use of the
trademark as a noun or verb. In the same vein, the licensor may require the licensee to use the
mark in combination with the ®, TM, or SM symbols. Additionally, the licensor may require that the
trademark be preserved in a certain aesthetic form using only certain colors, fonts, or designs.
IV.
Conclusion
When drafted and enforced correctly, a trademark license can be a useful and lucrative asset to a
trademark owner. Careful policing and monitoring of the licensee’s use will further ensure that the
license benefits rather than weakens the impact of the brand.
31 Genericide occurs when trademark ceases to function as an indicator of source because the consuming public understands the term to be
the name of the product or service. See McCarthy, supra note 19, § 12:1.
77
Online Copyright Issues for Websites Offering User-Generated Content
James A. Trigg, Georges Nahitchevansky, W. Andrew Pequignot,
and Rosaleen H. Chou
I.
Introduction
With the creation and expansion of the Internet, copyright law continuously faces challenges in
protecting copyright owners from infringement in an ever-changing medium, while at the same time
allowing parties developing new and legitimate technologies to harness the vast communicative
power of the Internet without fear of excessive liability exposure. The public accessibility of a
copyrighted work over the Internet does not mean that the work is in the public domain where users
are free to copy the work. With the passage of the Digital Millennium Copyright Act (“DMCA”) and
many decisions applying copyright law in the Internet context, it is clear that copyright law applies
in full force to online activities, though the DMCA attempts to place limits on the liability exposure
for parties engaging in beneficial, legitimate conduct.
Moreover, copyright owners likely can obtain damages for online copyright infringement just as
easily as in more traditional mediums. Copyright infringement from unlicensed downloading,
copying, forwarding, or displaying of copyrighted works over the Internet may entitle the owner to
recover damages and the infringer’s profits, and in some cases, statutory damages up to $150,000
per work and attorneys’ fees.4 In Lowry’s Reports, Inc. v. Legg Mason, Inc., the defendant Legg
Mason was accused of infringing Lowry’s Reports’ copyrighted stock market reports. Only one
Legg Mason employee had a subscription to the daily reports, which specifically prohibited the
unauthorized copying or dissemination of the reports or their contents. Despite these prohibitions,
Legg Mason employees freely shared the content of the reports throughout the company. The reports
were posted on the firm-wide intranet and even distributed via email. The jury found Legg Mason
liable for copyright infringement and awarded approximately $20 million in statutory damages for
willful copyright infringement, which the court later affirmed in denying Legg Mason’s motion for
1
2
3
4
See, e.g., Marobie-FL, Inc. v. Nat’l Ass’n of Fire Equip. Distribs., 983 F. Supp. 1167 (N.D. Ill. 1997) (holding that posting copyrighted
“clipart” graphic files on Web without permission constitutes direct copyright infringement); Playboy Enters., Inc. v. Frena, 839 F.
Supp. 1552 (M.D. Fla. 1993) (finding operator of a bulletin board service that included files containing digitized copies of the plaintiff’s
copyrighted photographs liable for unauthorized public distribution).
See, e.g., Metro-Goldwyn Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913 (2005); In re Aimster Copyright Litig., 334 F.3d 643 (7th Cir.
2003); A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1022 (9th Cir. 2001).
See, e.g., Frena, 839 F. Supp. 1552; Sega Enters. Ltd. v. MAPHIA, 948 F. Supp. 923 (N.D. Cal. 1996) (uploading and downloading of
computer program files from a bulletin board service held to violate federal copyright and trademark law).
See, e.g., 17 U.S.C. § 504 (2006); Lowry’s Reports, Inc. v. Legg Mason, Inc., 302 F. Supp. 2d 455, 457–58 (D. Md. 2004).
Copyright 301
In light of emerging technology and the Internet, many decisions have made clear that copyright
law applies to every aspect of Internet-related activities, including websites, emails, news, videos,
images, and music. Posting copyrighted material on the Internet has been held to violate the rights
of distribution and public display.1 Certain high-profile cases have held that secondary liability for
copyright infringement applies to online file-sharing services.2 Courts have also been willing to
apply copyright principles to other online services, especially bulletin board services.3
KILPATRICK TOWNSEND
a new trial. Thus, even in the online context, ordinary copyright infringement laws apply and courts
will award statutory damages against parties found to be willful copyright infringers.
With copyright law applying in full force in the Internet context and increased liability exposure for
parties developing innovative technologies or operating websites with third party content, copyright
law needed to adapt to protect the interests of copyright owners without stifling business and
technological growth. The DMCA seeks to address changes in technology and provides protection
for website operators by shielding them from copyright liability, while also providing certain
remedies for copyright holders. This protection, however, is not absolute and is limited to parties
engaging in activities specifically defined in the Act. Since website operators can seek protection
under the Act, the best practice for operators who allow third parties to post content on their websites
to protect themselves from copyright liability is to ensure compliance with the DMCA.
II.
Liability for Third-Party Content
Website operators and other service providers who allow third parties to post content on their
websites or who host third-party content may face liability for copyright infringement. Although
courts have held that website operators who merely host third-party content are not directly liable
for copyright infringement, enabling third parties to engage in copyright infringement may create
secondary infringement liability under the theories of vicarious liability, contributory infringement,
or inducement liability. Certain of the cases involving music file-sharing have provided high-profile
examples of this.5
Although the trend in copyright law appears to be moving toward providing greater protection from
liability for website providers who host third-party content, this area of copyright law is constantly
evolving. With the passage of the DMCA and the relatively small amount of interpreting case law,
the liability of a website provider who hosts third-party content is still relatively uncertain.
III.
Digital Millennium Copyright Act
The DMCA provided much-needed change in online copyright law for many reasons. The Internet
brought about greater opportunities for copyright owners to exploit their works, but simultaneously
provided third parties with myriad opportunities to misappropriate copyrighted works. Computers
enabled users to easily access websites featuring articles, pictures, and music, and made the copying
of such materials easy to accomplish, all the while providing more means and mediums to infringe
copyrighted works. With such rapid technological advances and the creation of a global marketplace
over the Internet, copyright law needed to adapt to address these issues.
A.
Background
In 1998, Congress passed the DMCA, which implemented two international treaties addressing
deficiencies in online copyright protection—the WIPO Copyright Treaty and the WIPO Performances
and Phonograms Treaty. The DMCA, which contains five titles, made significant changes to copyright
law in the Internet context: two of its most important titles address online copyright infringement.
5
See e.g., Metro-Goldwyn Mayer Studios, 545 U.S. 913; In re Aimster Copyright Litig., 334 F.3d 643; A&M Records, Inc. v. Napster, Inc.,
239 F.3d 1004, 1022 (9th Cir. 2001).
79
As noted in the Senate Report to the DMCA, Congress sought to strike an adequate balance between
offering protection to owners of copyrighted works, while at the same time limiting exposure to
those parties who had created innovative online technologies and websites.6
Title I of the DMCA provides the necessary copyright protection for protecting foreign works
and provisions against circumventing protective technology. In addition, the DMCA outlaws the
manufacture of devices or software designed to circumvent protective security measures created for
the Internet and other electronic environments.
Title II of the DMCA adds § 512 to the Copyright Act of 1976, creating four new limitations on
liability or “safe harbors” for copyright infringement by online service providers (“OSPs”). The
DMCA includes a process to help copyright owners ensure rapid removal of allegedly infringing
material from the Internet while guaranteeing OSPs a safe harbor from direct and secondary liability
for a third-party Internet user’s act of copyright infringement. The DMCA also provides incentives
for copyright owners to give notification of infringing activity, and for service providers to “take
down” infringing material in response.
B.
Safe Harbor Provisions Under § 512
Section 512 provides OSPs with four safe harbors from liability for copyright infringement: (1)
transitory digital network communications; (2) system caching; (3) information residing on systems
or networks at the direction of the users; and (4) information location tools.7 All four limitations
provide a complete bar to monetary damages and they restrict the availability of injunctive relief.8
These four safe harbors are discussed in greater detail below.
Additionally, in order to qualify for protection, a service provider must adopt, “reasonably
implement,” and inform subscribers and account holders of a policy terminating the accounts
of subscribers who are repeat infringers.10 The OSPs must also accommodate and not interfere
with standard technical measures.11 “Standard technical measures” are defined as measures that
copyright owners use to identify or protect copyrighted works and (a) have been developed pursuant
to a broad consensus of copyright owners and service providers; (b) are available to any person
on reasonable and nondiscriminatory terms; and (c) do not impose substantial costs on service
providers or substantial burdens on their systems or networks.12
See S. Rep. No. 105-190 (1998).
See 17 U.S.C. § 512 (2006).
Id. § 512(j).
Id. § 512(k)(1)(B); see also Hendrickson v. eBay, Inc., 165 F. Supp. 2d 1082, 1088 (C.D. Cal. 2001) (explaining that “eBay clearly meets
the DMCA’s broad definition of online ‘service provider”).
10 17 U.S.C. § 512(i)(A).
11 Id.
12 Id. § 512(i)(B).
6
7
8
9
Copyright 301
To qualify for protection under any safe harbor, the website operator must be a “service provider” as
defined in § 512(k) of the DMCA. Under the Copyright Act, the term “service provider” is defined
broadly to mean “a provider of online services or network access, or the operator of facilities
therefor.”9
KILPATRICK TOWNSEND
If the copyright owner requests information about the alleged infringer from the service provider,
then the service provider must provide the identity of the alleged infringer. Section 512 establishes a
procedure by which a copyright owner can obtain a subpoena from a federal court ordering a service
provider to disclose the identity of a subscriber who is allegedly engaging in infringing activities.13
The DMCA also provides special rules for limiting the liability for nonprofit educational institutions,
including not imputing to the institution the knowledge of a faculty member or graduate student
employee performing a teaching or research function.14
1.
Transitory Digital Network Communications Under § 512(a)
The first safe harbor limits the liability of service providers for transitory communications.
Service providers have limited liability when they act merely as data conduits that transmit digital
information on a network at another’s request. The term “service provider” is defined more narrowly
for this safe harbor. As used in this limitation, “service provider” is defined as “an entity offering
the transmission, routing, or providing of connections for digital online communications, between
or among points specified by a user, of material of the user’s choosing, without modification to the
content of the material as sent or received.”15 Examples of transmission and routing services include
broadband, DSL, dial-up, and high-speed Internet access providers. For these services, the OSP is
acting as a “mere conduit” through which information flows.
In order for a service provider to be eligible for this limitation, the transmission must be initiated
by someone other than the provider and must be carried out by an automatic process. The service
provider must not determine the recipients of the information, must not make intermediate copies
available to anyone other than the intended recipients or retain them for longer than reasonably
necessary, and must not modify the transmitted material.
2.
System Caching Under § 512(b)
The second safe harbor provision limits the liability for system caching, which is defined as the
“intermediate and temporary storage of material on a system or network controlled or operated by
or for the service provider.”16 Under this safe harbor, service providers can retain, for a limited
time, copies of material that another user has made available online until it is later transmitted at the
user’s direction. This limitation is subject to numerous requirements. The intermediate or temporary
storage by the service provider must be carried out through an automatic technical process and the
material must not be modified. The service provider must also comply with certain rules regarding
“refreshing” the material by replacing copied material with material from the original location,
and limiting access to the material through, for example, password protection. Additionally, the
service provider must not interfere with technology informing a person who posts information how
many “hits” were received. Where the service provider has been notified that the information was
13 Id. § 512(h). The subpoena provision does not extend to providers of transitory digital network communications under § 512(a). See
Recording Indus. Ass’n of Am. v. Verizon Internet Servs., 351 F.3d 1229 (D.C. Cir. 2003).
14 Id. § 512(e).
15 Id. § 512(k)(1)(A).
16 Id. § 512(b)(1).
81
removed or blocked at the originating site, the service provider must act expeditiously to remove or
block any information posted without the copyright owner’s authorization.
3.
Storage Providers Under § 512(c)
The third safe harbor limits liability for storing information on systems or networks at the direction
of users. Storage at the direction of users has been held to include automated functions (e.g., creation
of Flash files) that facilitate access to user-submitted content.17 Moreover, software functions such
as (1) the reproduction of works through the creation of “chunked” copies of uploaded videos, (2)
the public performance of works when users access videos via streaming, and (3) the distribution of
works when users access videos via downloading have been held to fall within this safe harbor even
though they do not technically constitute storage at the direction of users.18 These questions were
addressed in UMG Recordings, Inc. v. VEOH Networks, Inc.19 Because the software functions only
made it easier for users to view and download movies and affected only the form and not the content
of the movies, and streaming and downloading were different means of accessing the uploaded
videos, the court found that the software functions were narrowly directed toward providing access
to materials stored at the direction of users; thus, the software functions were within the scope of
§ 512(c) and the safe harbor applied.20
Section 512(c) has the broadest application of all the safe harbor provisions and includes hosted
content such as websites, forums, and social networking profiles. Service providers have limited
liability for posting infringing material on websites hosted on their systems. There are three major
requirements under this section. The service provider must: (1) lack the requisite knowledge of
the infringing activity; (2) comply with the notice and takedown procedure set forth in the statute;
and (3) derive no financial benefit if the service provider has the right and ability to control the
activity.21 Additionally, the service provider must designate an agent to receive notification of
claimed infringements, provide the agent’s name and contact information to the Copyright Office,
and display the information on its website.22
Section 512(c)(3)(B) establishes proper procedures for copyright owners to notify service providers
of infringing activity. Under this procedure, a copyright owner submits a notification identifying the
17
18
19
20
21
22
23
24
Io Group, Inc. v. Veoh Networks, Inc., 586 F. Supp. 2d 1132, 1148 (N.D. Cal. 2008).
UMG Recordings, Inc. v. Veoh Networks, Inc., No. CV07-5744AHMAJWX, 2008 WL 5423841, at *6 (C.D. Cal. Dec. 29, 2008).
Id. at *10.
Id.
17 U.S.C. § 512(c)(1).
Id. § 512(c)(2).
Id. § 512(c)(1).
See Io Group, 586 F. Supp. 2d at 1148.
Copyright 301
For service providers to qualify for this limitation, the provider must not have actual knowledge of
the infringement or facts or circumstances from which infringing activity is apparent.23 The latter
has been referred to as “red flag” knowledge and requires evidence that a service provider turned a
blind eye to red flags of obvious infringement.24 Upon gaining knowledge of infringing material, the
service provider must promptly take down or block access to any infringing material.
KILPATRICK TOWNSEND
copyrighted work and the infringing material to the designated agent. If the copyright owner fails
to comply with the notification procedure, then the notice will not be considered in determining
the requisite level of knowledge by the service provider.25 However, where the notice substantially
complies, the service provider must provide assistance to the copyright owner to assist in the receipt
of a proper notice that fully complies with the notice and takedown procedure.26
To prevent against frivolous or fraudulent notifications, the notifications must include a statement
that the copyright owner has a good faith belief that the material is infringing and a statement
that the information is accurate under penalty of perjury.27 Persons who materially misrepresent
that the material is infringing or that the material was removed or blocked through mistake or
misidentification are potentially liable for damages incurred by the alleged infringer, the copyright
owner, or the service provider.28 In Lenz v. Universal Music Corp.,29 the plaintiff Lenz brought
an action for misrepresentation under § 512(f) of the DMCA, asserting that defendant Universal
Music Corporation had issued a takedown notice without consideration of fair use. In Lenz, the
plaintiff had uploaded a video onto YouTube.com of her children dancing to Prince’s song “Let’s
Go Crazy,” which was playing in the background. The defendant copyright owner sent YouTube
a takedown notice under the DMCA, and, in turn, YouTube removed the video and notified the
plaintiff that repeated incidents of copyright infringement would lead to a deletion of her account
and her videos. The court found that a copyright owner must consider the fair use doctrine before
issuing a takedown notice under the DMCA and refused to dismiss the case. The court noted that
fair use is not an infringement of a copyright and held that the plaintiff’s allegation of bad faith in
issuing the takedown notice without considering fair use constituted sufficient grounds to state a
misrepresentation claim under § 512(f) of the DMCA.
Upon receiving proper notice, the service provider must: (1) act expeditiously to remove the
infringing material or risk losing the protection of the safe harbor; (2) notify the alleged infringer
that the material has been removed; and (3) forward any counternotices from the alleged infringer
filed in response to the notice to the copyright owner. (Alleged infringers are given an opportunity
to respond to a takedown notice by filing a counternotification.)30
Service providers are generally protected from liability arising from their good faith removal
of material based on such notifications.31 However, if a counternotification is filed, the service
provider must reinstate the alleged infringing material within 10-14 business days after receipt of
the counternotification unless the copyright owner files an action seeking a court order restraining
the alleged infringer from engaging in infringing activity.32
25
26
27
28
29
30
31
32
17 U.S.C. § 512(c)(3)(B)(i).
Id. § 512(c)(3)(B)(ii).
Id. § 512(c)(3).
Id. § 512(f).
572 F. Supp. 2d 1150 (N.D. Cal. 2008).
17 U.S.C. § 512(g)(2).
Id. § 512(g)(1).
Id. § 512(g)(2).
83
To be eligible for § 512(c) immunity, the service provider must not have the right and ability to
control the infringing activity and must not receive a financial benefit from it. Despite § 512(c)’s
seemingly strong protection for OSPs, the DMCA’s language concerning “financial benefit” and
“right and ability to control the infringing activity” creates potential uncertainty, particularly in view
of the relative lack of case law interpreting this language.
a)
Right and Ability to Control Infringing Activity
Courts interpreting the “right and ability” to control have opined that a service provider’s mere
ability to control or block access to its website does not remove it from the DMCA’s safe harbor.33
“[T]he ‘right and ability to control’ the infringing activity, as the concept is used in the DMCA,
cannot simply mean the ability of a service provider to remove or block access to materials posted
on its website or stored in its system. To hold otherwise would defeat the purpose of the DMCA and
render the statute internally inconsistent.”34
Nor does the service provider have the “right and ability to control” based on voluntary efforts to
combat piracy. As the legislative history indicates, the DMCA “is not intended to discourage the
service provider from monitoring its service for infringing material. Courts should not conclude
that the service provider loses eligibility for limitations on liability under § 512 solely because it
engaged in a monitoring program.”35 33 See, e.g., CoStar Group, Inc. v. LoopNet, Inc., 164 F. Supp. 2d 688, 704 (D. Md. 2001).
34 Hendrickson, 165 F. Supp. 2d at 1093; see Corbis Corp. v. Amazon.com, Inc., 351 F. Supp. 2d 1090, 1110 (W.D. Wash. 2004) (“Merely
because Amazon could identify the . . . defendants and terminate their accounts does not mean they exercised the type of right and ability
to control that would disqualify them from § 512(c) safe harbor.”).
35 H.R. Rep. No. 105-796, at 73 (1998), as reprinted in 1998 U.S.C.C.A.N. 639, 649; see also Perfect 10, Inc. v. CCBill, LLC, 340 F. Supp.
2d 1077, 1105 (C.D. Cal. 2004) (“[T]he [c]ourt finds that merely because [defendant] reviews its sites to look for blatantly illegal and
criminal conduct is not sufficient to close the safe harbor to [defendant]. Such a reading of the statute would not be in line with the purpose
of the DMCA to encourage internet service providers to work with copyright owners to locate and stop infringing conduct.”), rev’d on
other grounds, 488 F.3d 1102 (9th Cir. 2007), cert. denied, 128 S.Ct. 709 (2007).
36 Compare Perfect 10, Inc. v. Cybernet Ventures, Inc., 213 F. Supp. 2d 1146, 1181–82 (C.D. Cal. 2002) (explaining that “something more”
must be shown, and finding “something more” based on the fact that the defendant “prescreens sites, gives them extensive advice,
prohibits the proliferation of identical sites, and [controls the infringing activity] in the variety of ways”), with Corbis, 351 F. Supp. 2d
at 1110 (“Amazon does not preview the products prior to their listing, does not edit the product descriptions, does not suggest prices, or
otherwise involve itself in the sale.”), and Hendrickson v. Amazon.com, Inc., 298 F. Supp. 2d 914, 918 (C.D. Cal. 2003) (“Amazon was
not actively involved in the listing, bidding, sale or delivery of the [infringing product].”).
Copyright 301
Service providers should be able to take certain steps to combat copyright infringement and
otherwise monitor their sites for infringing or illegal material without losing protection under the
DMCA. However, they should bear in mind that the more control service providers exercise over the
content, the greater the risk they will be found to exercise such right and ability to control infringing
activity, thus potentially losing the protection afforded by the DMCA.36 The point at which a service
provider’s actions will jeopardize its qualification under the DMCA is unclear. Obviously, service
providers will want to have the ability to preview content posted on their sites in order to screen
for blatant problems. This is a fine line, however, because the greater the degree of input provided
by service providers, the more likely they will be found to be exercising control over the content.
KILPATRICK TOWNSEND
b)
Financial Benefit Directly Attributable to the Infringing Activity
In CoStar Group, Inc. v. LoopNet, Inc., the court held that the defendant did not receive a financial
benefit directly attributable to the infringing activity.37 In that case, the defendant did not charge
any fee for posting real estate listings or photographs, but earned revenue through other aspects of
its website. The CoStar court approvingly cited the legislative history of the DMCA, which “stated
that it would not be considered a direct financial benefit ‘where the infringer makes the same kind of
payment as non-infringing users of the provider’s service.’”38 Similarly, in Ellison v. Robertson,39
the court noted that “the central question of the ‘direct financial benefit’ inquiry in this case is
whether the infringing activity constitutes a draw for subscribers, not just an added benefit.”40
In Perfect 10, Inc. v. Cybernet Ventures, Inc., however, the court found that the defendant’s revenues
were tied to the number of users who signed up for the defendant’s service from infringing sites. The
more visitors an infringing site attracts, the more such visitors sign up for the defendant’s service
and, accordingly, the more money the defendant makes. Given these facts, the court held that the
plaintiff was likely to show that the financial benefit to the defendant was sufficiently direct so as to
remove the defendant from the safe harbor.41
If a court concludes that the service provider does not generally have the right and ability to control
infringing conduct, any financial benefit would be irrelevant to the § 512(c)(1)(B) requirement.
Further, if the service provider functions primarily as a non-commercial bulletin board for discussion
of public interest topics, this will improve its chances under the “financial benefit” prong of the
analysis.
4.
Information Location Tools Under § 512(d)
The fourth safe harbor limits the liability of service providers referring or linking users by use
of information location tools to a site containing infringing material. Information location
tools include hyperlinks, online directories, and search engines. To qualify for this safe harbor,
§ 512(d) requires essentially the same conditions be met as under § 512(c). As discussed above,
service providers must not have knowledge that the site contains infringing material. If the service
provider has the right and ability to control the infringing activity, the provider must not receive
any financial benefit from the activity and the provider must promptly take down or block access to
any material upon information that the material is infringing. Moreover, the service providers must
comply with the notice and takedown procedures set forth in the DMCA.
IV.
Conclusion Although copyright law has evolved to some extent to address the emerging issues posed by the
Internet, this area of law is still changing and remains uncertain. In light of the DMCA and the
37
38
39
40
41
164 F. Supp. 2d 688.
Id. at 705.
357 F.3d 1072 (9th Cir. 2004).
Id. at 1079 (finding that the record lacked evidence that AOL attracted or retained subscriptions because of the infringement).
Cybernet Ventures, 213 F. Supp. 2d at 1181; see also Marvel Enters., Inc. v. NCsoft Corp., No. 04-9253, 2005 WL 878090, at *4 (C.D. Cal.
Mar. 9, 2005) (finding that plaintiffs had “clearly pled” direct financial benefit deriving from increased revenues and increased user base).
85
Copyright 301
relatively limited amount of interpreting case law, website operators who host third-party content
need to comply with the Act’s safe harbor provisions and takedown notice procedures in order to
qualify for protection. In addition, website operators should maintain clearly-stated terms of use and
terms of service making clear that objectionable content may be removed, with or without receipt
of a § 512 takedown notice.
KILPATRICK TOWNSEND
87
Inter Partes Litigation Before the Trademark Trial and Appeal Board
Theodore H. Davis, Jr., William M. Bryner, Olivia Maria Baratta, Jonathan D. Goins,
and Nichole E. Davis
Practice before the United States Patent and Trademark Office’s Trademark Trial and Appeal Board
(“TTAB” or “the Board”) is both similar to, and different from, federal court practice. The rules
followed by the TTAB include the Federal Rules of Civil Procedure, the Trademark Rules of Practice
set forth in title 37 of the Code of Federal Regulations, and the rules set forth in the Trademark
Board Manual of Procedure. Although amendments in 2007 to the Trademark Rules of Practice
were designed to make Board inter partes proceedings more closely resemble civil actions brought
in the federal district courts, significant differences remain between the two contexts. Litigants and
counsel alike should therefore pay detailed attention to how these similarities and differences will
affect their practice before the Board.
I.
Inter Partes Litigation: An Introduction
The TTAB is an administrative tribunal within the United States Patent and Trademark Office
(“PTO”). It is staffed with Administrative Law Judges, who hear both ex parte appeals from refusals
to register marks and inter partes proceedings in which adverse parties litigate the eligibility of
particular marks for registration. There are two principal types of inter partes proceedings before the
Board: (1) opposition proceedings against applications for registration, and (2) cancellation actions
filed against previously issued registrations.1
Opposition Proceedings
1.
Publication
After an application for registration on the PTO’s Principal Register is examined and approved by the
assigned examining attorney, it is passed to publication in the PTO’s Official Gazette.2 Applications
to register marks on the Supplemental Register are not published for opposition.3 For intent-to-use
applications, the publication and the time for filing of an opposition occurs prior to the time that
the applicant is required to submit evidence of use.4 Following publication in the Official Gazette,
interested parties who believe they may be harmed by issuance of the registration are allowed thirty
days in which to file a notice of opposition or request an extension of time to do so.5 To initiate
an opposition or to request an extension of time in which to do so, a trademark owner obviously
must be aware of the objectionable application in the first instance, either by reviewing the Official
Gazette itself or by subscribing to one or more outside watch services.
1
2
3
4
5
Although the Board also hears concurrent use proceedings and interferences initiated by the Commissioner for Trademarks, these
proceedings are so sufficiently rare that they are not addressed by this article.
15 U.S.C. § 1062 (2006).
Id. § 1092.
Id. § 1063(b)(2).
Id. § 1063(a).
Trademark 301
A.
KILPATRICK TOWNSEND
2.
Extensions of Time to Oppose
The Board will automatically grant a thirty-day extension of time for filing a notice of opposition,
so long as a request for such an extension is filed prior to the expiration of the thirty-day opposition
period.6 Extensions totaling up to 120 days following the publication date may be obtained by
making a showing of good cause.7 After this period of 120 days, either the applicant’s consent
or a showing of “extraordinary circumstances” is required for a single additional extension of 60
days.8 The potential opposer must be identified in the request for an extension, but the basis of the
opposition does not need to be stated.9
Many trademark practitioners routinely apply for ninety-day extensions, identifying the need to
investigate the matter and consult with their clients to evaluate the question of whether to oppose
as “good cause.” Those requests are generally approved; as a technical matter, however, the TTAB
is authorized to evaluate whether the reasons given for such a request actually constitute sufficient
“good cause” for allowing the extension. Approaching the opposing party to request consent to an
extension beyond 30 days can be a good means of initiating settlement discussions before the parties
become embroiled in litigation. For the same reason, it is frequently worthwhile for an applicant
receiving a copy of a request for an extension of time to oppose to call the potential opposer’s
counsel to discuss settlement or to try to persuade the party that there is no need to oppose.
3.
Contents of the Notice of Opposition
Under Trademark Rule of Practice 2.104(a), the only requirements for a notice of opposition are
that it “set forth a short and plain statement showing why the opposer believes it would be damaged
by the registration of the opposed mark and state the grounds for opposition.” In practice, however,
the TTAB is sometimes a stickler for technical pleading and “magic words.” Therefore, factual
and legal conclusions such as “functionality,” “lack of secondary meaning,” “genericness,” and
“descriptiveness” should be explicitly stated to avoid the risk that the TTAB may hold that a pleading
has insufficiently stated the factual and legal bases for an opposition.
Independent of the requirements of Trademark Rule 2.104(a), a notice of opposition must also
demonstrate that the opposer has standing to contest the application because it has an interest in the
outcome greater than that of the general public.10 To show standing, the opposer usually demonstrates
that it is entitled to use the same mark for which registration is sought or a confusingly similar one.11
In Lipton Industries v. Ralston Purina Co.,12 however, the Court of Customs and Patent Appeals
(which heard appeals from the TTAB prior to the creation of the present Court of Appeals for the
Federal Circuit) listed a variety of other circumstances under which standing in TTAB inter partes
6
7
8
9
10
11
12
37 C.F.R. § 2.102(c) (2008).
Id. § 2.102(c).
Id.
Id. § 2.102(b).
See generally Books On Tape, Inc. v. Book Tape Corp., 836 F.2d 519 (Fed. Cir. 1987).
Id. at 520.
670 F.2d 1024 (C.C.P.A. 1982).
89
cases has been found,13 including: (1) the blocking of the importation of a petitioner’s products by
a registration;14 (2) the prior use of copyrighted appearance of doll;15 (3) the pecuniary interest of
a trade association;16 (4) prior registration but not priority in use;17 (5) protection of a subsidiary’s
mark;18 (6) descriptive use of a term in the registered mark;19 and (7) advertising emphasizing the
American origin of the associated goods.20
Not all oppositions are brought by persons with an equal or superior right to use the term in question
commercially. Some are initiated by individuals or groups attempting to prevent registration on
the ground that the applied-for mark “consists of or comprises immoral, deceptive or scandalous
matter.”21 For example, in Bromberg v. Carmel Self-Service, Inc.,22 the Board held that two women
had standing to oppose registration of the slogan mark “Only a Breast in the Mouth is Better Than a
Leg in the Hand” for restaurant services based on their allegation that the mark was degrading and
harmful to women generally.23
If the opposer can show any basis for standing, it may oppose the application on any additional
ground that would prevent registration.24 In Lipton, Ralston asserted that its injury arose from the
citation of Lipton’s registered mark against Ralston’s application to register its own mark.25 Ralston
ultimately obtained cancellation of Lipton’s registration on the ground of abandonment.26 Although
Lipton was a cancellation action, the standards for determining standing to oppose a registration or
to petition to cancel are the same.27
4.
Grounds for Opposition
Assuming that a potential opposer can demonstrate that it will be damaged by the registration of an
applied-for mark, the Lanham Act (the “Act”) contains both absolute and conditional prohibitions
on the registration of which the opposer can avail itself.
a)
Absolute Prohibitions on Registration
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
Id. at 1029.
See Plastilite Corp. v. Kassnar Imps., 508 F.2d 824, 826 (C.C.P.A. 1975).
See Knickerbocker Toy Co. v. Faultless Starch Co., 467 F.2d 501, 508–09 (C.C.P.A. 1972).
See Tanners’ Council of Am., Inc. v. Gary Indus., 440 F.2d 1404, 1407 (C.C.P.A. 1971).
See King Candy Co. v. Eunice King’s Kitchen, Inc., 496 F.2d 1400, 1402–03 (C.C.P.A. 1974).
See Universal Oil Prods. Co. v. Rexall Drug & Chem. Co., 463 F.2d 1122, 1123 (C.C.P.A. 1972).
See Golomb v. Wadsworth, 592 F.2d 1184, 1186 (C.C.P.A. 1979).
See Singer Mfg. Co. v. Birginal-Bigsby Corp., 319 F.2d 273, 1385–86 (C.C.P.A. 1963).
15 U.S.C. § 1052(a) (2006).
198 U.S.P.Q. 176 (T.T.A.B. 1978).
Id. at 179.
Lipton, 670 F.2d at 1029.
Id.
Id.
See 15 U.S.C. § 1063 (2006).
Trademark 301
Under § 2 of the Act, a trademark cannot be registered if it:
KILPATRICK TOWNSEND
(1)
(2)
(3)
(4)
(5)
(6)
“[c]onsists of or comprises immoral, deceptive, or scandalous matter; or matter that
may disparage or falsely suggest a connection with” individuals, institutions, beliefs,
or national symbols;
“[c]onsists of or comprises the flag or coat of arms or other insignia of the United
States, or of any State or municipality, or of any foreign nation,” or any simulation of
those items;
“[c]onsists of or comprises a name, portrait, or signature identifying a particular living
individual” except with his or her written consent;
is primarily geographically deceptively misdescriptive;
is likely to be confused with a prior-used or registered mark; or
consists of functional material.28
Some of these provisions are straightforward. The most common ground among them for opposing
an application is the existence of a likelihood of confusion, under § 2(d) of the Act, between the
applicant’s mark and the opposer’s mark.29 To oppose on this ground, the opposer must plead either
prior use or prior registration of a similar name, symbol, or device.30 A junior user does not have
standing to oppose an application for registration of a confusingly similar mark unless the junior
user has previously acquired a federal registration.
Other relatively self-explanatory grounds for opposition appear in §§ 2(a) through 2(c) of the Act.
For example, one basis for rejection of an application is that the mark in question consists of a flag
or governmental insignia that is unregistrable under § 2(b).31 Similarly, § 2(c) prohibits registration
of a mark that falsely suggests a connection to persons living or dead, institutions, or national
symbols.32 In oppositions based on these grounds, the opposer does not have to show priority of use
of the same or a similar name, symbol, or mark as a trademark, but only a right to use the claimed
mark at issue, even if that use is in the mark’s primarily descriptive and non-trademark sense.33
Other absolute bars to registration are more complex. For example, § 2(a) of the Act authorizes
oppositions to applications to register marks that are “deceptive.” In an opposition proceeding under
the deceptiveness prong of § 2(a), the opposer bears the burden of establishing that the applicant
does not have the right to register the mark because (1) the term is “misdescriptive of the character,
quality, function, composition, or use of the goods;” (2) “prospective purchasers [are] likely to
believe that the misdescription actually describes the goods;” and (3) the misdescription is “likely to
affect the decision to purchase.”34 A finding of deceptiveness is an absolute bar to registration; as a
consequence, any secondary meaning attaching to the mark is irrelevant.
See 15 U.S.C. § 1052(a)–(e) (2006).
See id. § 1052(d).
Id.
Id.
Id. § 1052(c).
Levi Strauss & Co. v. Genesco, Inc., 742 F.2d 1401, 1404 (C.C.P.A. 1984); Best Lock Corp. v. Schlage Lock Co., 413 F.2d 1195, 1198
(C.C.P.A. 1969); DeWalt, Inc. v. Magna Power Tool Corp., 289 F.2d 656, 661 (C.C.P.A. 1961); Cummins Engine Co. v. Cont. Motors
Corp., 359 F.2d 892, 895 (C.C.P.A. 1966); LaMaur, Inc. v. Computer Styles, Inc., 169 U.S.P.Q. 495, 497 (T.T.A.B. 1971).
34 In re Budge Mfg. Co., 857 F.2d 773, 775 (Fed. Cir. 1988) (refusing to register the LOVEE LAMB mark for automotive seat covers).
28
29
30
31
32
33
91
In addition, marks that are “primarily geographically deceptively misdescriptive” may be barred
from registration.35 Under § 2(e)(3) of the Act, a mark may not be registered if the mark primarily
conveys a geographic connotation and consumers are likely to mistakenly believe the goods come
from that geographic place.36 A registration will be refused if the opposer establishes that “(1)
the primary significance of the mark is a generally known geographic location, (2) the consuming
public is likely to believe the place identified by the mark indicates the origin of the goods bearing
the mark when in fact the goods do not come from that place, and (3) the misrepresentation was a
material factor in the consumer’s decision.”37 Proof of secondary meaning is not a defense to such
oppositions, unless secondary meaning can be establish prior to December 8, 1993, the effective
date of the North America Free Trade Agreement.38
Certain other absolute bars to registration do not appear in § 2 of the Act. For example, § 13 of
the Act allows any interested party to challenge the registration of a mark that it believes is likely
to “dilute” the distinctiveness of its own mark.39 And some grounds for opposition are wholly
extrastatutory in nature. Thus, for example, an opposition may be based on a claim that the applicant
is contractually prohibited from seeking registration of its mark.40
Further, an opposer may also challenge an application on the ground that there was no bona fide use
of applicant’s mark in commerce prior to the filing of the use-based application for its registration
under § 1(a) of the Act,41 or that there was no bona fide intent to use the mark in connection with the
recited goods or services as of the filing date of the application under § 1(b) of the Act.42 Indeed, the
applicant simply cannot make fraudulent statements in the course of prosecuting its application.43
As in federal court litigation, Federal Rule of Civil Procedure 9 requires fraud to be pleaded with
particularity.44
35 15 U.S.C. § 1052(e)(3) (2006).
36 In re Cal. Innovations, Inc., 329 F.3d 1334, 1341 (Fed. Cir. 2003) (vacating the Board’s finding that applicant’s mark was primarily
geographically deceptively misdescriptive).
37 Id. at 1341.
38 In re Wada, 48 U.S.P.Q.2d 1689, 1691 (T.T.A.B. 1998).
39 15 U.S.C. § 1063(a) (2006); see id. §§ 1052, 1064, 1092; see also Trademark Trial and Appeal Board Manual of Procedure (“T.B.M.P.”)
§ 309.03(c)(15).
40 See, e.g., Bausch & Lomb Inc. v. Karl Storz GmbH & Co. KG, 87 U.S.P.Q.2d 1526 (T.T.A.B. 2008).
41 15 U.S.C. § 1051(a) (2006). See T.B.M.P. § 309.03(c)(5); see also Paramount Pictures Corp. v. White, 31 U.S.P.Q.2d 1768 (T.T.A.B.
1994) (nonprecedential op.) (“use in commerce” involves the bona fide use of a mark in the ordinary course of trade, and not made merely
to reserve a right in a mark), aff’d, 108 F.3d 1392 (Fed. Cir. 1997).
42 15 U.S.C. § 1051(b) (2006). See T.B.M.P. § 309.03(c)(6); see also Commodore Elecs., Ltd. v. CBM Kabushiki Kaisha, 26 U.S.P.Q.2d
1503, 1504 (T.T.A.B. 1993).
43 15 U.S.C. § 1052 (2006).
44 T.B.M.P. § 311.02(b).
45 See, e.g., F.R. Le Page Bakery, Inc. v. Roush Bakery Prods. Co., 851 F.2d 351, 353 (Fed. Cir. 1988).
46 In re Fla. Citrus Comm’n., 160 U.S.P.Q. 495, 498 (T.T.A.B. 1968).
Trademark 301
Finally, applications to register collective marks and certification marks are subject to special
potential grounds for opposition. For example, a claimed collective membership mark will be denied
registration if its owner is actually a member of the collective, rather than the collective itself.45
Likewise, a certification mark will be unregistrable if the mark’s owner is making a trademark (as
opposed to certification mark) use of the mark.46
KILPATRICK TOWNSEND
b)
Conditional Prohibitions on Registration
Consistent with the general hostility under United States law to claims of exclusive rights to
descriptive terms, § 2(e) of the Act conditionally prohibits the registration of any mark that is (1)
merely descriptive or deceptively misdescriptive, (2) primarily geographically descriptive, or (3)
primarily merely a surname.47 An applicant can overcome a rejection on these grounds, however, by
demonstrating that its mark has acquired “secondary meaning,” or, in other words, that consumers
in the relevant market associate the mark exclusively with the applicant. In addition to relying on
evidence of substantial and longstanding sales and advertising expenditures, the owner of a mark
falling within one of these prohibited categories may also create a presumption of secondary meaning
through five years of the mark’s continuous and exclusive use.48 These conditional prohibitions
contrast with the absolute bars to registration, under which marks are not registrable even if they
have acquired secondary meaning.49
B.
Cancellation Actions
The same grounds which constitute bases for opposing an application for registration may also be
asserted as grounds for cancellation of the registration during the first five years following the date
of registration.50 Additionally, a trademark or service mark registration can be cancelled on the
ground that the mark has been abandoned or has become generic since its registration.51
After five years following the date of registration of a mark under the Act, or the date of publication
of a mark registered under a prior Lanham Act, a petition for cancellation may only be based on the
four grounds specified in § 14(3) of the Act, except for marks covered by § 14(4) (applicable to marks
registered prior to the effective date of the 1946 Trademark Act and not published under § 12(c)),
or § 14(5) (applicable to improper use of certification marks).52 Thus, after the fifth anniversary of
a registration’s issuance, only the following four statutory grounds may be used to cancel a mark:
(1) the mark has become generic, (2) use of the mark has been abandoned, (3) the registration was
obtained fraudulently, or (4) the mark is being used by, or with the permission of, the registrant so
as to misrepresent the source of the goods or services on or in connection with which the mark is
used.53 Grounds such as priority of use, likelihood of confusion, or nondistinctiveness of a mark
which is claimed to be merely descriptive, geographically descriptive, a surname, or any other
ground not specifically enumerated in § 14(3) are no longer available as grounds for cancellation.54
Whether particular registrations are subject to fraud-based attacks is a subject that has increasingly
been addressed by the Board in recent years. Under § 14(3), “obtained” has been interpreted to mean
not only the procurement of the initial registration, but the maintenance of, renewal of, and pursuit of
47 15 U.S.C. § 1052(e) (2006).
48 Id.
49 See, e.g., Am. Speech-Language Hearing Ass’n v. Nat’l Hearing Aid Soc’y, 224 U.S.P.Q. 798, 808 (T.T.A.B. 1984); In re Charles S. Loeb
Pipes, Inc., 190 U.S.P.Q. 238, 241 (T.T.A.B. 1975).
50 15 U.S.C. § 1064(1) (2006).
51 Id. § 1064(3); see also T.B.M.P. § 309.03(c)(12).
52 15 U.S.C § 1064 (2006).
53 Id. § 1064(3).
54 See id.
93
incontestability status for that registration.55 “Fraud in procuring a trademark registration or renewal
occurs when an applicant knowingly makes false, material representations of fact in connection with
his application.”56 The TTAB has synthesized this standard to three elements: statements that are
(1) “false,” (2) “material,” and (3) made “knowingly.”57 As reflected in such decisions as Mister
Leonard, Inc. v. Jacques Leonard, Couture Inc.,58 the Board’s focus in this area has tended to center
on whether or not the false statements at issue were “made knowingly.”59
Prior to 2003, the Board employed a loose interpretation of these words that weighed against findings
of fraud. The Board explained in one case that “[f]raud in a trademark cancellation [proceeding]
is something that must be ‘proved to the hilt’ with little or no room for speculation or surmise;
considerable room for honest mistake, inadvertence, erroneous conception of rights, and negligent
omission; and any doubts resolved against the charging party.”60 Nevertheless, the TTAB did find
fraud in two cases during this era. For example, in First International Services Corp. v. Chuckles,
Inc.,61 the Board reached a finding of fraud after the applicant signed a pre-ITU-era application for
“shampoos, hair conditioner preparation and scalp massage treatment preparations” when, in fact, at
the time of the application’s filing, the mark was used only on “shampoo and hair setting lotion.”62
Similarly in Mister Leonard, the Board found fraud based on filings stating that the registered mark
in question was in continuous use on “bathing costumes for men” when the mark had only been used
on women’s clothing.63
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
See Torres v. Cantine Torresella S.r.l., 808 F.2d 46, 48–49 (Fed. Cir. 1986).
Id. at 48.
Id.
23 U.S.P.Q.2d 1064 (T.T.A.B. 1992).
Id. at 1065–66.
Yocum v. Covington, 216 U.S.P.Q. 210, 216 (T.T.A.B. 1982).
5 U.S.P.Q.2d 1628 (T.T.A.B. 1988).
See id. at 1629, 1637.
Mister Leonard, 23 U.S.P.Q.2d at 1066.
See Medinol Ltd. v. Neuro Vasx, Inc., 67 U.S.P.Q.2d 1205 (T.T.A.B. 2003).
Id. at 1205.
Id. at 1206.
Id.
See id.
Id.
Trademark 301
In 2003, the Board diverged from what had been its traditional practice.64 In Medinol Ltd. v. Neuro
Vasx Inc.,65 the registrant had filed an ITU application to register a mark for “medical devices,
namely, neurological stents and catheters.”66 Following the issuance of a notice of allowance, the
registrant filed a Statement of Use, signed by its CEO, that stated the “[a]pplicant is using the mark
in commerce on or in connection with the following goods/services: Those goods/services identified
in the Notice of Allowance in this Application.”67 At the time the Statement of Use was filed,
however, the registrant was using the mark only on catheters and not on stents.68 The registrant’s
registration nonetheless issued for “medical devices, namely, neurological stents and catheters.”69
KILPATRICK TOWNSEND
The petitioner sought cancellation of the registration on the ground that the registration had been
fraudulently procured.70 The registrant sought to amend its registration to delete “stents,” proffered
payment of the appropriate fee for such an amendment, and then moved for summary judgment to
dismiss the cancellation petition.71 In support of that motion, the registrant claimed the electronic
check-box for “those goods/services identified in the Notice of Allowance” was inadvertently
checked, and the fact that stents was still included was “apparently overlooked.”72
The TTAB denied the registrant’s motion for summary judgment on the ground that “deletion
of the goods upon which a mark has not been used does not remedy an alleged fraud upon the
Office.”73 The Board went on to hold that “even if ‘stents’ were deleted from the registration, the
question remains whether or not respondent committed fraud on the PTO in the procurement of its
registration.”74 The Board then sua sponte entered summary judgment against the registrant, and
indicated that it would cancel the registration in toto, provided the petitioner could prove that it had
standing to petition for cancellation.75
The decision in Medinol was in stark contrast with the Board’s precedent to that point in time,
and the Board has been somewhat schizophrenic on the issue since the decision. On the one hand,
the Medinol approach has been affirmed on analogous facts in a number of subsequent published
and unpublished TTAB opinions.76 Indeed, in Grand Canyon West LLC v. Hualapai Tribe,77 the
Board found fraud as a matter of law, even though the applicant accepted the Examiner’s suggested
amendment, which contained an “if applicable” qualifier, when the applicant later conceded it was
not using the mark on all of the services listed in the amended description.78 On the other hand,
there have been some indications that the Medinol approach might not always be followed, at least
Id.
Id. at 1207.
Id. at 1206–07.
Id. at 1208.
Id.
Id. at 1209–10.
See generally Standard Knitting, Ltd. v. Toyota Jidosha Kabushiki Kaisha, 77 U.S.P.Q.2d 1917, 1928 (Fed. Cir. 2006) (ordering cancellation
of opposer’s registrations despite attempt by opposer to delete unused goods); Univ. Games Corp. v. 20Q.net Inc., 87 U.S.P.Q.2d 1465,
1468 (T.T.A.B. 2008) (pre-publication amendment creates only a rebuttable presumption of no intent to commit fraud); Hurley Int’l LLC
v. Volta, 82 U.S.P.Q.2d 1339, 1344 (T.T.A.B. 2007) (“It is irrelevant, despite what applicants would have us believe, that a registration has
yet to issue for the applicant’s mark. The timing of the misrepresentation is immaterial.”); Hachette Filipacchi Presse v. Elle Belle LLC,
85 U.S.P.Q.2d 1090, 1094–95 (T.T.A.B. 2007) (ordering cancellation of registration despite amendment to delete goods for which mark
had not been used); Sinclair Oil Corp. v. Kendrick, 85 U.S.P.Q.2d 1032, 1346 (T.T.A.B. 2007) (applicant cannot “cure” fraud by postpublication amendment of § 1(a) basis to a § 1(b) basis, even if such a motion is granted as a means of mooting a “non-use” ground for
opposition); Bose Corp. v. Hexawave, Inc., Opposition No. 91157315, 2008 WL 1741913, at *3 (T.T.A.B. Nov. 6, 2007) (unpublished op.)
(cancelling opposer’s registration based on fraudulent renewal papers); Turbo Sportswear Inc. v. Marmot Mountain Ltd., 77 U.S.P.Q.2d
1152, 1155 (T.T.A.B. 2005) (granting motion for leave to allege counterclaims for fraud due to false statements in opposer’s § 8 and 15
affidavits); Nougat London Ltd. v. Garber, Cancellation No. 9204046, 2003 WL 21206253, at *4 (T.T.A.B. May 14, 2003) (unpublished
op.) (cancelling registration based on fraudulent averring that the mark was in use on “goods identified in the application” as opposed to
“the goods” or “all the goods”).
77 88 U.S.P.Q.2d 1501 (T.T.A.B. 2008).
78 Id. at 1508–09.
70
71
72
73
74
75
76
95
when it comes to subjective misunderstandings about what does or does not technically constitute
“use in commerce.”79
The Board also has taken inconsistent approaches to the issue of what steps an applicant can take to
“cure” an application or registration that contains an inaccurate recitation that the mark in question
is in use with particular goods or services. Where a multi-class application is concerned, the
Board suggested in Herbaceuticals Inc. v. Xel Herbaceuticals Inc.80 that partial cancellation of the
registration’s coverage of particular classes may be an appropriate remedy, rather than cancellation
of the registration in its entirety.81 That dictum subsequently became law in G&W Laboratories,
Inc. v. G.W. Pharma Ltd.,82 in which the Board allowed a registrant to escape a finding of fraud by
deleting a “problem” class in its entirety. According to the Board:
[A] multiple-class application can be viewed as a series of applications for registration of a
mark in connection with goods or services in each class, combined into one application. . . .
[E]ach class . . . must be considered separately . . . , and judgment on the ground of fraud as
to one class does not in itself require cancellation of all classes in a registration.83
79 See, e.g., Tri-Star Mktg. LLC v. Nino Franco Spumanti S.R.L., 84 U.S.P.Q.2d 1912, 1915–16 (T.T.A.B. 2007) (no fraud if the general
product terminology encompasses the specific product terminology in the identification of goods, and there is use on the specific product);
Maids to Order of Ohio, Inc. v. Maid-to-Order, Inc., 78 U.S.P.Q.2d 1899, 1907 (T.T.A.B. 2006) (denying motion for summary judgment
based on registrant’s belief that purely intrastate use satisfied requirement that mark be used in interstate commerce); Haldex Brake Corp.
v. Zikry, Opposition No. 91160715, 2006 WL 2645217, at *6 (T.T.A.B. Sept. 5, 2006) (unpublished op.) (rejecting finding of fraud on
ground that pro se applicant “may well have been unaware of the technical requirements for an allegation of ‘use in commerce’ under the
Lanham Act”); LIOC Endangered Species Conservation Fed’n v. Long Island Ocelot Club, 2002, Opposition No. 91160291, 2006 WL
1559662, at *2 (T.T.A.B. June 6, 2006) (unpublished op.) (finding genuine issue of material fact as to “whether applicant knowingly filed
a use-based application when the use of the involved mark may not have been sufficient to support the filing of a use-based application,”
noting in a footnote that “[c]ases involving questions of intent are generally ill-suited for resolution by summary judgment”).
80 86 U.S.P.Q.2d 1572 (T.T.A.B. 2008).
81 See id. at 1577 (dictum).
82 89 U.S.P.Q.2d 1571 (T.T.A.B. 2009) (precedential op.).
83 Id. at 1574.
84 In any event, time will tell whether the G&W Labs decision will provide any practical relief to trademark owners. One could argue that
G&W Labs. has removed some of the risk to owners of multi-class applications and registrations, as proof of fraud within a class will not
void the remaining classes. Although there are certainly many strategic reasons to continue to file single-class applications, at least one of
the primary risks of multi-class applications and registrations has been removed for now. The decision also opens the door to a potential
“cure” for multi-class applications and registrations that cover goods and services with which the claimed mark has never been used.
85 82 U.S.P.Q.2d 1339 (T.T.A.B. 2007).
86 Id. at 1344 n.5; see also Herbaceuticals Inc., 86 U.S.P.Q.2d 1572; Hachette Filipacchi Presse, 85 U.S.P.Q.2d 1090; Sinclair Oil Corp. v.
Kendrick, 85 U.S.P.Q.2d 1032.
87 87 U.S.P.Q.2d 1465 (T.T.A.B. 2008).
Trademark 301
Nevertheless, because the Board has declined to recognize the concept of partial cancellation in the
single-class application and registration context, G&W Laboratories may be of limited usefulness
once such a claim has been published for opposition.84 For example, in Hurley International LLC
v. Volta,85 the Board allowed the amendment of an application to delete a claim of actual use of the
underlying mark and to substitute a claim of a mere intent-to-use the mark. The Board then sustained
the opposer’s fraud claim on the ground that the applicants had failed to request the amendment
prior to publication.86 Then, in University Games Corp. v. 20Q.net Inc.,87 the Board declined to
adopt a bright-line rule that a pre-publication amendment to an application renders any original
KILPATRICK TOWNSEND
inaccuracy immaterial.88 Instead, it held that “the fact [an applicant] amended its identification of
goods during ex parte prosecution constitutes [only] a rebuttable presumption that [the applicant]
lacked [a] willful intent to deceive the office.”89 As a consequence, a post-publication amendment
to a single-class application is likely to prove fatal, and even a pre-publication amendment may not
carry the day.
How far the TTAB will extend the Medinol rationale beyond that decision’s particular fact pattern of
“use on some identified goods, but not on others” remains to be seen. If the TTAB extends Medinol
to other aspects of the registration process, there arise any number of additional possibilities for a
claim of fraud. For example, it could be fraudulent to file a § 1(b) intent-to-use application, or an
application with a § 44 basis, or an application to extend protection to the United States under the
Madrid Protocol, if the applicant has no bona fide intention to use the applied-for mark in the United
States in connection with all of the goods identified in the application.90
The result of this jurisprudence may engender a sense of mutually assured destruction among
competitors. If portions of one party’s portfolio are vulnerable, portions of the other party’s
portfolio are likely similarly vulnerable. The 2007 amendment to Trademark Rule 2.133(a) has
made the situation even more difficult. Under the revised Trademark Rule 2.133(a), amendments to
a registration or an application for registration that is the subject of an inter partes proceeding must
be approved by the Board, even if made upon consent.91 Thus, even if an applicant can obtain the
consent of an opposer to amend the applicant’s application, the Board may deny the request, leaving
the applicant vulnerable to a fraud-based attack. Going forward, fraud issues should be an important
component of any litigation strategy in prosecuting or defending TTAB proceedings.
C.
Filing and Serving the Notice of Opposition or Petition for Cancellation
The filing date of a notice of opposition submitted in hard copy form is the date a completed
opposition is stamped “received” in the PTO mail room,92 unless it is filed with a Certificate of
Mailing under Trademark Rule 1.8,93 or with a Certificate of Express Mailing under Trademark Rule
1.10, and the mailing requirements of those rules are met.94 The filing date of a notice for opposition
submitted electronically through the Board’s ESTTA system is the date, using Eastern Time, the
complete ESTTA filing is received on the PTO server with any required fee.95
The same general rules of standing, pleading, filing, payment of fees, and notification applicable
to a notice of opposition also govern cancellation proceedings before the Board, including the
88 Id.
89 Id. at 1468. Judge Walsh dissented, observing that “[i]n my view, opposer’s corrective action should preclude a fraud claim: (i) because the
action effectively negated the intent required to establish fraud, if such an intent ever existed, and (ii) because the allegedly false statement,
once deleted, was not material to the Office’s later approval of the application.” Id. at 1469 (Walsh, J., dissenting).
90 See Intel Corp. v. Emeny, Opposition No. 91123312, 2007 WL 1520948 (T.T.A.B. May 15, 2007) (unpublished op.) (finding several
circumstances supporting conclusion that applicant lacked the requisite bona fide intention to use the mark in commerce).
91 37 C.F.R. § 2.133(a) (2008).
92 Id. § 2.195.
93 Id. § 1.8.
94 Id. § 1.10.
95 Id. § 2.195.
97
rules governing e-filing.96 Nevertheless, unlike a notice of opposition, a petition for cancellation is
assigned a filing date as of the date it is stamped as received in the PTO mail room and the Certificate
of Mailing procedure of Trademark Rule 1.8 is not applicable.
A notice of opposition filed after an extension of time has been obtained must be filed in the name of
the same party who obtained the extension.97 A request for extension of time is required to identify
the potential opposer “with reasonable certainty.”98 While an opposition may be accepted if there
was a mistake in the name of the potential opposer or if the opposer is in privity with the person who
obtained an extension of time, a different party who did not obtain an extension would not be in a
position to oppose.99 If multiple opposers wish to file a Notice of Opposition, extensions should be
obtained on behalf of all such parties.100
Every paper filed in the PTO in inter partes cases must be served on the opposing party. Service
therefore must be effected on the attorney or an authorized representative of the applicant or
registrant.101 If no attorney or other authorized representative is provided, service may be made on
the opposing party itself by any of the means listed in Trademark Rule 2.119, which include service
by standard U.S. mail, as well as electronic service if the parties have agreed that such service is
acceptable.102 If the plaintiff can show that service is not practicable, service may be accomplished
under certain circumstances through a notice of proceeding published in the Official Gazette.103
Proof of service must be made for a plaintiff to receive a filing date for its opposition or cancellation
proceeding.104 A signed statement by plaintiff’s attorney or other authorized representative attached
to the original paper stating the date and manner of service will be accepted as prima facie proof of
service.105 If any service copy of the opposition or petition to cancel is returned to the opposer as
undeliverable, the plaintiff must notify the Board within ten days of receipt of the returned copy.106
The failure to serve an opposing party with an opening pleading will result in the dismissal of the
action.107
96 See Id. §§ 2.111–2.115.
97 In re Spang Indus., 225 U.S.P.Q. 888 (Comm’r Pat. 1985).
98 Id. at 888.
99 See id.
100 See id.
101 37 C.F.R. § 2.119(b) (2008).
102 Id.
103 Id.
104 Id. §§ 2.10, 2.113, 2.119.
105 Id. § 2.119(a).
106 Id. §§ 2.101, 2.111.
107 See Schott AG v. L’Wren Scott, 88 U.S.P.Q.2d 1862 (T.T.A.B. 2008) (precedential op.).
108 37 C.F.R. § 2.6(1) (2008).
109 Id. § 2.101(d)(3).
Trademark 301
The notice of opposition must be accompanied by the required filing fee, currently $300 per each
class covered by the application or registration.108 If the fee is not submitted or the amount is
insufficient, the opposer will be allowed to remedy the omission within a specified period of time
set by the Board.109 If multiple parties oppose the same application for registration in the same
KILPATRICK TOWNSEND
action, an additional fee for each mark and class must be paid.110 If the fee is insufficient to cover all
of the classes and the opposer does not elect which class to oppose, the opposition will go forward
against the lowest numbered class.111 Under Trademark Rule 2.104 (b), multiple applications for
registrations may be joined in a consolidated opposition, but separate fees must be paid for each
application and class against which the opposition is filed.112 This procedure is most common where
the applicant is seeking to register a number of related marks at the same time.
D.
Post-Filing Proceedings
Once a notice for opposition or petition to cancel is received in proper form, with proof of service
and the applicable fees, the Board will prepare and forward to the parties a notice identifying the
title and number of the proceeding, the applications or registrations involved, and a deadline for the
applicant or registrant to file an answer.113 The notice will be sent to either the applicant’s counsel
or the applicant’s domestic representative. If neither has been appointed, notice will be sent to the
applicant.114 In the case of an opposition, the TTAB will normally have a current correspondence
address for the applicant. In a cancellation action, the TTAB will send the notification to the person
or company shown by the PTO records to be the owner of the mark.115
Problems sometimes arise, however, with service of cancellation petitions. Assignment records in the
PTO, especially on the computerized database of the Office, are frequently inaccurate or out-of-date.
Additionally, although it is important for a registrant to notify the PTO when its address changes,
it is fairly common for changes of address not to be accurately recorded against a registration. To
resolve such issues, “the Board in its discretion may join or substitute as respondent a party who
makes a showing of a current ownership interest in such registration(s).”116 Additionally, where the
petition itself identifies the current owner of the registration as a party other than the owner shown in
the PTO records, a courtesy copy of the petition “shall be forwarded with a copy of the notification
to the alleged current owner, which may file a motion to be joined or substituted as a respondent.”117
If a notice sent by the Board to any applicant or registrant is returned as “undeliverable,” the Board
may provide additional notice by publication in the Official Gazette.118
If no answer is filed to a notice of opposition or a petition for cancellation within the time set by
the notice, then a default judgment may be entered.119 Nevertheless, the Board’s present practice is
to send out a notice of default that allows the applicant or registrant a specified time to remedy the
default and then, if no curative action is taken, to enter a default judgment in favor of the opposer
or petitioner.
110 Id. § 2.101(d)(1).
111 Id. § 2.111(c).
112 Id. § 2.104(b).
113 Id. §§ 2.105, 2.113.
114 Id. § 2.105(c).
115 Id. § 2.113(c).
116 Id.
117 Id. § 2.113(d).
118 Id. § 2.118.
119 Id. §§ 2.106(a), 2.114(a).
99
A notice of opposition or petition for cancellation may be withdrawn without prejudice before an
answer is filed.120 If the withdrawal occurs after the answer is filed, the notice of opposition or
petition for cancellation is dismissed with prejudice, unless the opposing party consents in writing.121
1.
Contents of Answer and Counterclaims
As a general matter, an answer to a notice of opposition or petition for cancellation should state
in short and plain terms the applicant’s or registrant’s defenses to each claim asserted and should
admit or deny the averments on which the opposer or petitioner relies.122 An answer may assert any
defense, including affirmative defenses of unclean hands, laches, estoppel, acquiescence, fraud,
mistake, prior judgment, or any other matter constituting an avoidance or affirmative defense.123
When the opposition or cancellation is based on claims that the mark is generic, the affirmative
defense of laches is unavailable.124
A defense attacking the validity of any one or more of the registrations pleaded in the notice of
opposition or petition for cancellation is a compulsory counterclaim if grounds for such counterclaim
exist at the time the answer is filed.125 Where such grounds come into existence after the answer is
filed, the counterclaim should be pleaded promptly.126 However, if the counterclaim is the subject
of another proceeding already pending between the same parties or parties in privity, including, for
example, in federal court litigation, the assertion of such a counterclaim is not required.127 In the
absence of such a counterclaim or a separate action seeking cancellation, an attack on the validity
of a registration pleaded by an opposer or a petitioner for cancellation will not be heard in the
proceeding.128 The registrant or applicant cannot counterclaim for claims and remedies that are
outside the scope of the TTAB’s jurisdiction (e.g., for infringement or for monetary and equitable
relief). Thus, it is not uncommon for the party in the position of a defendant to respond to an
opposition or cancellation by filing a suit in federal court where a claim for cancellation may be
joined with any other state or federal claims between the parties.129 When pending federal court
litigation may be dispositive of the issues in an inter partes proceedings before the Board, the
TTAB proceeding is usually suspended under Trademark Rule 2.117 at the request of either party,
or sometimes sua sponte by the Board.130
120 Id. §§ 2.106(c), 2.114(c).
121 Id.
122 Id. §§ 2.106, 2.114.
123 Id. §§ 2.106(b)(1), 2.114(b)(1).
124 See, e.g., Bausch & Lomb, Inc. v. Leupold & Stevens, Inc., 1 U.S.P.Q.2d 1497, 1499 (T.T.A.B. 1986); Consol. Foods Corp. v. Big Red, Inc.,
226 U.S.P.Q. 829, 832 (T.T.A.B. 1985).
125 37 C.F.R. §§ 2.106, 2.114 (2008).
126 Id. §§ 2.106, 2.114.
127 Id. §§ 2.106(b)(2)(i), 2.114(2)(i).
128 Id. §§ 2.106(b)(2)(ii), 2.114(b)(2)(ii).
129 15 U.S.C. § 1119 (2006).
130 37 C.F.R. § 2.117 (2008).
Trademark 301
If a counterclaim is filed, the Board will issue an order setting a time not less than thirty days from
the mailing date of the order for filing a reply to the counterclaim. Additionally, if because of the
filing of the counterclaim or for any other reason either party seeks to amend its pleadings, the
KILPATRICK TOWNSEND
Board may allow such amendments under the same standards applied in civil actions in the federal
courts.131
2.
Discovery and Motion Practice Before the TTAB
a)
Discovery Procedures
Under Trademark Rule 2.116, except as otherwise provided, inter partes proceedings in the TTAB are
governed by the Federal Rules of Civil Procedures, including the discovery rules. 132 All discovery
mechanisms are available to parties in federal court litigation may be used in inter partes cases.
In addition, the TTAB recently amended its rules to implement a “modified disclosure regime”
patterned after Federal Rule of Civil Procedure 26(a).133 Under this regime, four new requirements
are mandated, namely: (1) an initial discovery conference; (2) initial fact disclosures; (3) expert
witness disclosures before the opening of the testimony periods; and (4) final pre-trial disclosures.134
The Board’s initial scheduling order specifies the due dates for a number of the requirements.
Specifically, the order will identify the following deadlines: (1) the due date for the defendant’s
answer; (2) the deadline for the initial discovery conference; (3) the opening and closing of the
discovery period; (4) the deadline for initial disclosures; (5) the deadline for disclosure of expert
testimony; (6) the deadlines for the parties’ pre-trial disclosures; and (7) the opening and closing of
the parties’ testimony periods.135
Trademark Rules 2.120(a)(1)-(2) require a “conference of the parties to discuss settlement and
to develop a disclosure and discovery plan.”136 This conference must occur before the discovery
period opens, and “the parties must discuss the subjects set forth in Federal Rule of Civil Procedure
26(f) and any subjects set forth in the Board’s institution order.”137 A Board interlocutory attorney
or administrative trademark judge may participate in the conference if a party requests such
participation no later than ten days before the conference deadline.
Trademark Rules 2.120(a)(1)-(3) require the parties to exchange the initial disclosures identified in
Federal Rules of Civil Procedure 26(a)(1)(A)(i) and (ii).138 Thus, before commencing traditional
discovery, and absent modification of this requirement either by a stipulation approved by the
Board or through a motion granted by the Board, parties must identify persons with discoverable
information that they may use to support their claims or defenses, and either identify or produce
the documents in their possession, custody, or control, that they may use to support their claims or
defenses.139 Initial disclosures will usually be required to be made 30 days after the discovery period
131 Id. §§ 2.107, 2.116.
132 Id. § 2.116.
133 Id. §§ 2.120, 2.121.
134 Id.
135 Id. §§ 2.120(a), 2.121(a).
136 Id. §§ 2.120(a)(1)–(2).
137 Id.
138 Id. §§ 2.120(a)(1)–(3).
139 Id.
101
opens.140 A party’s failure to make timely and/or adequate initial disclosures may be the subject
of a motion to compel, which must be filed before the close of the discovery period.141 At trial,
mandatory disclosures will be treated as information received through traditional discovery methods
such as responses to written discovery requests.
In addition to the initial fact disclosures, the Trademark Rules also provide for “[d]isclosure of
expert testimony . . . in the manner and sequence provided in Federal Rule of Civil Procedure 26(a)
(2).”142 This Trademark Rule thus requires service of a detailed report from any testifying expert no
later than 30 days before the close of the discovery period.143 Experts retained solely for purposes of
rebuttal must be disclosed within 30 days after the initial expert disclosure has occurred.144
If a party retains a testifying expert after the deadline for expert disclosures, the party must promptly
file a motion for leave to use expert testimony.145 Upon a party’s disclosure of plans to use expert
testimony, whether before or after the deadline for disclosing expert testimony, the Board may issue
an order regarding expert discovery and/or setting a deadline for any other party to disclose plans to
use a rebuttal expert.146 A party’s failure to make timely and/or adequate expert disclosures may be
the subject of a motion to compel, which must be filed before the close of the discovery period.147
Under Trademark Rule 2.121(e), certain aspects of the final pre-trial disclosure requirements
contained in Federal Rule of Civil Procedure 26(a)(3) have been included.148 This Rule provides
that each party, no later than 15 days before the opening of its testimony period(s), must provide
certain identifying information for each witness from whom it intends to take testimony or may take
testimony if the need arises, and must provide a general summary or list of the types of documents
which may be introduced as exhibits.149 If a party does not plan to take testimony from any witnesses,
it must so state in its pre-trial disclosures.150
140 Id. § 2.120(a)(3).
141 Id. § 2.120(e).
142 Id. §§ 2.120(a)(1)–(3).
143 Id.
144 Id.
145 Id. § 2.120(a).
146 Id.
147 Id.
148 Id. § 2.121(e).
149 Id.
150 Id.
151 Id. § 2.123(e)(3).
152 Id.
153 Id.
Trademark 301
Under Trademark Rule 2.123(e)(3), if an opposing party’s pre-trial disclosures are untimely or
inadequate as to any witness, a party may cross-examine that witness under protest while reserving
the right to object to the receipt of such testimony into evidence.151 The party must file a motion
to strike the challenged witness or portions of the testimony promptly after the testimony is
completed.152 The party may also seek to exclude, in whole or in part, testimony from any witness
for whom pre-trial disclosures were not adequately made.153
KILPATRICK TOWNSEND
The discovery and trial periods generally will be liberally extended by TTAB so long as both parties
consent to such extensions. If a consent order extending any of these deadlines is filed, the Board
prefers for the order to specify all of the recent dates and not just the immediate deadline which
may have prompted the requested extension. For example, Trademark Rule 2.121(c) provides
that testimony and rebuttal periods “may be extended by a stipulation of the parties approved
by the Trademark Trial and Appeal Board, or upon motion granted by the Board, or by order of
the Board.”154 Trademark Rule 2.121(d) provides that when parties stipulate to an extension of
discovery or of testimony periods “a stipulation presented in the form used in a trial order” should be
submitted either signed by both parties or signed by one party and including a statement that every
other party has agreed.155 In addition to the original, enough copies to serve all other parties to the
proceeding should be filed.156
Some of the more important special provisions of the Trademark Rules are as follows:
(1)
(2)
(3)
(4)
As noted above, discovery requests and responses are not filed with the Clerk of the
Board unless they are actually used or relied on by a party in connection with a motion
or trial of the proceeding.157
The deposition of a natural person shall be taken in the federal judicial district where
the witness resides or is regularly employed unless the parties stipulate otherwise.158
Discovery depositions of natural persons residing in foreign countries must be taken
in written form in accordance with Trademark Rule 2.124 unless the TTAB upon motion for good cause, orders, or the parties stipulate, that the deposition will be taken on
oral examination.159 Under traditional practice, this has meant that whenever a foreign
party is or will be, present in the United States or any territory under the control and
jurisdiction of the United States during the discovery period, the deposition may be
taken by oral examination.160 More recently, however, one federal appellate court
has held that even foreign parties may be required to testify in the United States in
response to a subpoena issued by a federal district court.161
Depositions of opposing parties under Federal Rule of Civil Procedure 30(b)(6) or of
the officers, directors or managing agents of the party may be simply noticed. Depositions of nonparties may be compelled by securing the issuance of a subpoena by the
federal district court in the district where the deposition is to be taken.162 The procedure for obtaining issuance subpoenas in TTAB proceedings is essentially the same as
154 Id. § 2.121(c).
155 Id. § 2.121(d).
156 Id.
157 Id. § 2.120(j)(8).
158 Id. § 2.120(d).
159 Id. § 2.120(c)(1)–(2).
160 Id. § 2.120(c)(1)–(2).
161 See Rosenruist-Gestao E. Servicos LDA v. Virgin Enters. Ltd., 511 F.3d 437 (4th Cir. 2007), cert. denied, 128 S.Ct. 2508 (2008).
162 37 C.F.R. § 2.120(b) (2008).
103
(5)
(6)
that applicable under Federal Rule of Civil Procedure 45(d) as provided by statute in
35 U.S.C. § 24.163
In the absence of a stipulation of the parties or authorization of the Board, the number
of written interrogatories served in an inter partes proceedings shall not exceed seventy-five including subparts.164 Nevertheless, Trademark Rule 2.120(d)(1) has been
amended to provide that the Board must approve any motion or stipulation to exceed
the discovery limit of seventy-five interrogatories, counting sub-parts.165
Production of documents and things pursuant to a request under Federal Rule of Civil
Procedure 34 will occur at the place where they are usually kept in the absence of other
agreement by the parties or order of the Board.166
For all inter partes proceedings, the Board’s standard protective order is automatically applicable,
unless an alternative order is entered either by agreement of the parties or by motion.167 This rule
makes clear that “[n]o material disclosed or produced by a party, presented at trial, or filed with the
Board, including motions or briefs which discuss such material, shall be treated as confidential or
shielded from public view unless designated as protected under [the terms of whatever protective
order is applicable in the specific proceeding].”168 Consequently, parties may no longer object to
discovery requests on the ground that responsive information or documents are confidential and will
only be disclosed later upon entry of a protective order.169 Instead, an objecting party must likely
explain why the Board’s standard protective order is insufficient for the particular circumstances
presented, and file a motion seeking entry of a more suitable protective order.170
b)
Discovery Motions
Under Trademark Rule 2.120(e), the Board has the power to enter orders compelling discovery.171
Before filing a motion to compel, the party seeking discovery must make a good faith effort to
resolve the issues raised by the motion to compel with opposing counsel.172 Any motion to compel
must be supported by a written statement from the moving party that such efforts were made and that
the parties were unable to agree on the matters which are presented to the Board.173
163 Fed. R. Civ. P. 45(d).
164 37 C.F.R. § 1.120(d) (2008).
165 Id.
166 Id. § 2.120(d)(2).
167 Id.
168 Id. § 2.116.
169 Id.
170 Id.
171 Id. § 2.120(e).
172 Id.
173 Id.
Trademark 301
A motion to compel must include a copy of the request or of the relevant portion of the discovery
deposition and of any answer or objection on which the motion is based or where the issue involves
production of documents, a list and brief description of the documents or things that were not
KILPATRICK TOWNSEND
produced in response to the request.174 In ruling on a motion to compel, the Board has the power to
“make any appropriate order including any of the orders provided in Federal Rule of Civil Procedure
37(b)(3) except that the Board cannot hold parties in contempt or award any expenses to any party.”175
The Board may on its own motion or on request of one or both parties hold a telephone conference
regarding discovery or other pre-trial matters.176 Such conferences are conducted generally either
by an attorney examiner assigned to the TTAB staff or by a single designated judge of the Board.177
However, such conferences are exceptional and most proceedings are conducted in writing.178 Even
rarer are conferences in person with a member of the TTAB or an attorney examiner.179 The Board has
power to order such conferences under Trademark Rule 2.120(i)(2) where the pre-trial proceedings
“have become so complex that their resolution by correspondence or telephone conference is not
practical,” with the proviso that such meetings at the Board’s offices will be ordered only “under
circumstances which will not result in undue hardship for any party.”180
c)
Other Pre-Trial Motions
In addition to discovery motions, parties in inter partes proceedings have available any and all
motions authorized by the Federal Rules of Civil Procedure, including motions to dismiss, for more
definite statements, for judgment on the pleadings, and for summary judgment.181 Under Trademark
Rule 2.127, all motions must be in writing, should contain a brief statement of the grounds, and
should be accompanied by a supporting brief.182 Where the opposing party fails to file a response,
the Board may treat the motion as conceded.183
Under Trademark Rule 2.127(d), the filing of any motion “which is potentially dispositive of a
proceeding” will result in the suspension of all proceedings in the case, and no papers not germane
to the motion should be filed during the suspension.184 After ruling on such a motion, the Board will
set new dates for the remaining proceedings in the case unless the case is entirely disposed of as a
result of the motion. All pre-trial motions, including motions to compel discovery, should be filed
prior to the opening of the first testimony period because that constitutes the beginning of trial of the
case. Any motion filed after that date may be denied as untimely.185
As in federal court, motions for summary judgment may be supported by “written disclosures or
disclosed documents, a discovery deposition or any part thereof with any exhibit to the part that is
filed, an interrogatory and answer thereto with any exhibit made part of the answer, a request for
174 Id.
175 Id. § 2.120(g).
176 Id. § 2.120(i).
177 Id.
178 Id. § 2.120(i)(1).
179 Id. § 2.120(i)(2).
180 Id.
181 Id. § 2.116(a).
182 Id. § 2.127.
183 Id. § 2.127(a).
184 Id. § 2.127(d).
185 Id. § 2.127(e)(1).
105
production and the documents or things produced in response thereto, or a request for admission and
any exhibit thereto and the admission (or a statement that the party from which an admission was
requested failed to respond thereto).”186 A motion for summary judgment may not be filed until after
the moving party has made its initial disclosures, however, unless the motion asserts claim or issue
preclusion or lack of jurisdiction.187
On a procedural note, prior to December 27, 2006, it was the policy of the Board that opinions
not designated as precedential should not be cited and, if cited, were to be disregarded.188 The
Board has changed that policy. In announcing the change, the Board stated that it will continue its
current practice of designating all final decisions as either precedential or not precedential; and that a
decision designated as not precedential is not binding upon the Board but may be cited for whatever
persuasive value it might have.189
3.
Trial
a)
Testimony
The most important thing to remember about trial of an inter partes case before the TTAB is that,
while it is somewhat similar to a trial in federal court, all of the testimony is taken by deposition
and all of the proceedings are in writing except final oral argument after closing briefs have been
filed by the parties.190 Relevant portions of the Federal Rules of Civil Procedures and the Federal
Rules of Evidence govern the proceeding.191 The only evidence which is automatically in the
record is the file wrapper history of the application which is opposed or the registration sought to
be cancelled.192 However, the specimens in the application file are not evidence on behalf of the
applicant or registrant unless specifically identified and introduced into evidence as exhibits.193 All
other evidence must be entered into the record by the party who wishes to rely on it.194
186 Id. § 1.127(e)(2).
187 Id. § 2.127(e).
188 See Gen. Mills Inc. v. Health Valley Foods, 24 U.S.P.Q.2d 1270, 1275 n.9 (T.T.A.B. 1992).
189 See Citation of Opinions to the Trademark Trial and Appeal Board (T.M.O.G. Jan. 23, 2007), available at http://www.uspto.gov/web/
offices/com/sol/og/2007/week04/patcita.htm.
190 37 C.F.R. § 1.123 (2008).
191 Id. § 1.122(a).
192 Id. §§ 1.22(b)(1)–(2).
193 Id. § 1.122(b)(2).
194 Id. § 1.122(c).
195 Id. § 1.123(a)(1).
196 Id. §§ 1.123(i)–(k).
Trademark 301
Testimony is taken in an inter partes proceeding by way of deposition either on oral examination
or by written questions.195 Discovery depositions are admissible only to the extent they would
be allowed into evidence under the Federal Rules of Civil Procedure.196 Therefore, even though
witnesses of one party may have been deposed in discovery by opposing counsel, their testimony
cannot be used by that party; rather, that testimony ordinarily may be used only by the party taking the
KILPATRICK TOWNSEND
deposition as part of its case in chief or for impeachment purposes.197 The discovery depositions of
other witnesses normally will not be admissible except where the witness is shown to be unavailable
under circumstances specified in Trademark Rule 2.120(j)(2) or by Board order.198 As a general rule,
rebuttal testimony by the party in the position of plaintiff in inter partes proceedings is limited to the
scope of the direct testimony on behalf of the applicant or registrant rather than any materials that
support the opposer’s or the petitioner’s case in chief.199
The parties may stipulate to admissibility of any testimony which would not otherwise normally be
admissible including testimony in the form of affidavits.200 Occasionally when both parties want to
save money, they will stipulate that all discovery depositions may be used as testimony depositions
in the case.201 Testimony in other litigation between the same parties or those in privity may be used
subject to the right of any adverse party to recall the witness.202
b)
Other Evidence Introduced by Notice of Reliance
Other than testimony, all evidence in the trial of an inter partes case is introduced by way of a Notice
of Reliance.203 The notice must be filed before the end of the testimony period of the party that files
the notice.204 Evidence introduced by a Notice of Reliance may include documents produced by the
opposing party in discovery that have been authenticated by testimony or otherwise shown to be
admissible, interrogatory answers and responses to requests for admission, printed publications of
general circulation, official records, and other admissible documents and things.205
c)
Briefing and Oral Argument
After the end of the trial, the brief of the opposer or petitioner is due 60 days after the close of rebuttal
testimony and, without prior leave of the Board, is not to exceed 55 pages in length, including any
tables of contents and authorities.206 The brief of the applicant or registrant is due 30 days later and
a reply brief is due not later than 15 days after the due date of the defendant party’s brief.207 Reply
briefs are limited to 25 pages.208 All tables of contents, indices of cases, descriptions of the record,
statements of the issues, recitations of the facts, arguments, and summaries “count” toward the
applicable page limit for motions.209 Briefs in response to motions are due 15 days from the date of
service of the motion.210 Where there are counterclaims or consolidated proceedings so that each
197 Fed. R. Civ. P. 30(b)(6).
198 37 C.F.R. § 2.120(j)(2) (2008).
199 Hoyle Knitting Mills, Inc. v. T.J. Manalo, Inc., 12 U.S.P.Q.2d 1720, 1727 (T.T.A.B. 1989).
200 37 C.F.R. § 2.123(b) (2008).
201 Id.
202 Id. § 2.122(f).
203 T.B.M.P. § 704.02.
204 Id.
205 37 C.F.R. § 2.122(e) (2008).
206 Id. § 2.128(a).
207 Id.
208 Id. § 2.128(b).
209 Id.
210 Id.
107
party is in the position of plaintiff on some issues, the Board will set a schedule of briefing dates.211
Two copies of the brief must be filed with the Board and the contents and form of the briefs are
specified in Trademark Rule 2.128(b).212
If either party desires oral argument, a request must be made by a separate notice filed not later
than ten days after the last reply brief in the proceeding.213 Generally, the Board does not hold
oral hearings on motions although such a hearing may be ordered. If granted, oral arguments are
generally heard by a three-member panel of the TTAB and are normally limited to 30 minutes to
each side.214 The Board’s decision is typically entered several months after oral argument of the case
or after final briefing if there is no argument.
II.
Conclusion
Trademark 301
TTAB practice strongly resembles practice in federal courts, especially following the 2007
amendments to the Trademark Rules of Practice; nevertheless, differences do still exist between
them. Thus, parties to TTAB litigation are well advised to pay detailed attention to the intricacies of
litigation before the Board.
211 Id.
212 Id.
213 Id. § 2.129(a).
214 Id.
KILPATRICK TOWNSEND
109
Protecting the Brand in China
Christopher J. Woods
I.
Introduction
Although the economic express train of the past decade, China (in early 2009), may be running out
of steam (in tandem with the rest of the world). That does not in any sense mean that brand owners
should take their eyes off China. Although the dynamics that drove brand owners to China this
century—low cost manufacturing and a rapidly developing market for high end consumer goods—
are suddenly less obviously present or viable, there are plenty of reasons for the brand owner to
continue to invest time, money, and resources in China. That means continuing to file trademark
applications, monitoring third-party applications, taking action against infringers and counterfeiters,
manufacturing goods (particularly more technically complex ones), creating demand for services
locally, and establishing joint ventures and wholly-owned enterprises to market Western-branded
goods to the vast population.
Economic downturns—whether local or global—can never by definition be permanent. Ultimately,
recovery of some kind comes along, and it seems highly probable that, when it does, the Chinese
market for goods and services will be a premier one. There are plenty of reasons for the brand owner
to continue to be active in China.
The economic downturn has not affected China’s status as the preeminent nation for counterfeits. If
anything, it may have enhanced it. It copies, manufacturers, and exports goods in all industry sectors,
from household cleaning materials to computers, and high fashion garments to entire automobiles.
II.
Counterfeits
Counterfeits can be “pure” counterfeits, where there is no legal relationship between the
manufacturer and the trademark owner, or a more insidious type (in some ways) where the product
is completely indistinguishable from the genuine product but is one that has not been authorized
by the brand owner. The latter occurs where—usually, but not exclusively—insufficient attention
has been paid by the trademark owner to the manufacturing process in China. The local factory
owner produces, in addition to the documented numbers of licensed trademarked products, a large
number of undocumented, and therefore unlicensed, trademarked products. Because the products
are coming off the same production line, and made (usually) with exactly the same materials,
they are indistinguishable from the genuine licensed product. These unlicensed products do not
Trademark 301
Counterfeit goods that find their way into Western markets may have followed a circuitous route to
get there. But the overwhelming likelihood is that they started their journey in the People’s Republic
of China. That fact alone is enough to demand that a brand owner remain focused on China. Many
factories in China no longer have full order books from foreign companies to manufacture legitimate
goods. That means that they must look elsewhere for work. Making identical versions of goods that
they were previously contracted to make, or making similar look-alikes, or utilizing the intellectual
property or physical property (such as molds) that had previously been licensed to them provide
obvious outlets for spare or under-utilized capacity.
KILPATRICK TOWNSEND
harm the market in the same way as “pure” counterfeits do—because technically and functionally
the products are as good as the licensed products and therefore are unlikely to create consumer
complaint—but they heavily dilute the market for the licensed product and effectively put intense
pressure on premium pricing. This creates problems at the consumer level and also at the wholesale
and retail level where it is apparent that consumers can purchase through various illicit outlets the
exact same product for half price or less. There is, given the present situation in China, plenty of
opportunity for this kind of counterfeit to proliferate.
As with manufacturing quality control generally, the key (or at least one of the keys) to the latter
problem, today or at any time, is the level of supervision and control which is exercised over the
manufacturing process. Oversight of the process, when it is taking place thousands of miles away is
never easy, and certainly never easy on a continuous and sustained basis. Nevertheless, such control
and oversight is essential, particularly in the more economically challenging times of today. The
temptation to produce “over-runs,” as such excess production is often euphemistically termed, is
great given the reward and relative lack of risk.
As for “pure” counterfeits, they are often regarded by foreign trademark owners and governments
alike as being a problem, if not created by, then at least exacerbated by, the Chinese government.
Although China has a set of modern intellectual property laws, the sense is that the Chinese
government does not push hard enough for those laws to be implemented and for IP enforcement to
be rigorously carried out. The counter-argument to that is that intellectual property rights are private
rights and the obligation of the government is to create an infrastructure within which those rights
can be enforced, but it is then a matter for the IP owner to vigorously enforce those rights.
Plainly there is some superficial attraction and rational sense to this argument. However, the extent
to which a government allows rights to be openly abused in the market, and does not actively
push courts and judges to impose rigorous sentences, and indeed does not create an infrastructure
where sentences and penalties are amongst the highest in the world (in China they are still very low
compared to the Western world) undermines the ability of a government to assert that it has done all
that is necessary and that the onus is now on the rights owner.
Nevertheless, it is certainly true that the ability to reduce the problem is to a great extent in the hands
of the brand owners themselves. Obviously, given the size of China and the volume of goods which
are manufactured there, it is impossible for any brand owner (especially those in industries where
counterfeiting is both rampant and relatively straightforward) to get its arms around the problem.
The size of the problem today is such that no trademark owner can expect to eradicate the problem
either in its own industry or in respect of its own trademarks. However, the extent to which a
trademark owner vigorously enforces its rights in those geographical areas of China where there is a
specialization in those particular goods is likely to impact on the extent to which that trade flourishes
or declines.
III.
Policing and Anticounterfeiting
All of the components of an effective policing and anticounterfeiting program in the U.S. are equally
effective and important when taking action in China. A well thought-out plan must be in place so
111
that, as in the U.S., certain steps are carried out in advance of or in parallel with specific enforcement
activities. That is to say, brand owners should perform the following actions (at least) in China with
as much diligence and planning as would be appropriate to the equivalent steps in the U.S.:
(1)
(2)
(3)
(4)
(5)
(6)
register key marks (English and Chinese versions) and possible variants and transliterations with the Chinese Trademark Office and record those registrations with Chinese customs;
establish procedures for reporting problems encountered on the ground;
ensure that methods and systems are adopted so that genuine goods can easily and reliably be identified and distinguished from fakes;
establish close contacts with their own factories and be willing to spend time there
with owners and managers;
provide training and authentication materials to customs and administrative enforcement officers; and
identify brand owners’ groups and trade lobbying groups that are engaged in anticounterfeiting activities in China.
As part of a proactive approach to counterfeiting, brand owners need to consider who might be
involved in the counterfeiting process, and the possible actions that can be taken. A brand owner
can take action against most of the links in the counterfeit distribution chain (such as manufacturers,
wholesalers, distributors, retailers, and exporters) as direct infringers.
China has a legal system that recognizes and regulates intellectual property rights. China has set up,
and continues to expand, a complex network of organizations and processes to enforce its intellectual
property laws. The constantly developing nature of the legal system itself, the constantly evolving
means of enforcement of IP rights within that system, the changing nature of the economic scenery,
and the ever changing ingenuity and resourcefulness of counterfeiters in China means that, while
protection and enforcement of rights in China is both possible and necessary, a brand owner must
continue to take a proactive and involved interest in China.
IV.
Infringement of a Registered Trademark
The following acts constitute infringement of a trademark (either a national registration or an
international registration designating China):
(1)
(2)
(3)
to use a trademark that is identical to, or similar to, a registered trademark in respect
of the identical or similar goods without authorization;
to sell goods that the seller knows bear a counterfeited registered trademark;
to counterfeit, or to make without authorization, representations of a registered trademark of another person, or to sell such counterfeit representations of a registered trademark without authorization;
Trademark 301
Broadly speaking, the causes of action that are available in China (as opposed to the means of
enforcing such rights) are similar to those available in the U.S., although there is much less protection
for unregistered marks in China than in the U.S.
KILPATRICK TOWNSEND
(4)
(5)
(6)
V.
to replace, without consent, a registered trademark and to put such goods bearing the
replaced trademark on the market again;
to provide transportation, storage, mailing, concealment, or other assistance in order to
facilitate others in the infringement of a registered trademark; or
to cause, in any other way, prejudice to the exclusive right of another person to use a
registered trademark.
Unfair Competition
China’s Anti-Unfair Competition Law provides some protection for unregistered trademarks and
their labeling and packaging, but it is a far from satisfactory law. In short, though, a business may
not, under the provision of the Anti-Unfair Competition Law, use the identical name, packaging,
or trade dress of famous or well-known products, and may not use a confusingly similar name,
style of packaging, or trade dress of a famous product. There are draft revisions to the Anti-Unfair
Competition Law that are meant to strengthen protection in unregistered marks, but such revisions
have been pending for years.
The Trademark Law also extends protection to a “well-known” trademark. Such a mark can be
registered or unregistered. The protection enables a trademark owner to take action against a mark
that is similar to:
(1)
(2)
a mark that is not registered in China but which is being used in China on identical or
similar goods and such mark is capable of causing confusion; or
a mark that is registered in China and that is being used on non-identical or dissimilar
goods and such mark may mislead the public and be likely to prejudice the wellknown trademark.
The Trademark Office grants well-known status upon review of a specific application by the
trademark owner that sets out:
(1)
(2)
(3)
(4)
(5)
VI.
the reputation of the mark in China;
the length of use of the mark;
the duration, scale, and geographical scope of any publicity for the mark;
the owner’s history of enforcement actions taken to protect the mark in China; and
other factors contributing to the reputation of the trademark.
Cease and Desist Letter
Although not always the most obvious step to a foreign trademark owner in China, the first step in
an infringement case is often to consider whether the matter can be resolved through direct contact
with the person or entity making or selling the counterfeit goods.
It is not out of the question, even today, that an infringer may be a small-time operator (albeit
responsible for the production of large numbers of goods) who is essentially ignorant of the law and
its requirements. Copying goods in China has been illegal for nearly three decades and although
113
previously there was a cultural acceptance and encouragement of copying, that is now moving into
the distant past. Most factory owners today, especially of large enterprises, are well aware of the
legal implications of copying western branded goods. Nevertheless, there are still many smaller
operations where the owner is unaware of the illegality of the activity, or is operating under various
misapprehensions as to why its particular activities are not against the law. These misapprehensions
include beliefs that changing a single letter in a registered trademark renders it no longer an
infringement, and that making a specific number of visual changes to the design of a product (the
number is often believed to be five) renders it no longer a copy.
Direct contact with infringing manufacturers, usually via local counsel and in writing (in Chinese),
can sometimes assist in dispelling myths and misunderstandings, and can sometimes achieve more
than might be anticipated. The aim of such contact is often educational and instructive, and the letter
will not use the typical language of an aggressive cease and desist letter. The language, although
firm, will not be inflammatory, and will seek to explain the law to the manufacturer, and how the
law applies to the specific facts. A small-time manufacturer may be ignorant of the law, or may be
ignorant of the fact that his goods are the subject of third-party registered rights. The manufacturer
may know of all the relevant facts, however, but will instinctively view interference by a foreign
corporation as a heavy-handed attempt to exercise unfair and unreasonable restraint on competition.
A well-worded letter (often followed by a telephone conversation with local counsel) can go a long
way towards dispelling this perception.
In some settlements the trademark owner will itself offer some incentive to stop the infringing
activity. This might include working with the factory to become a legitimate supplier or it might
involve a broader range of philanthropic steps (such as a school endowment) intended to help the
town or village as a whole. Forcing a factory to cease producing lucrative (but infringing) goods
often results in unemployment and financial hardship for a broad swathe of people. Achieving
cessation of infringing activities without causing hardship and resentment is a difficult act but one
that can be achieved if a company is prepared to put the time and effort into the program. The
key to achieving a lasting settlement is not only to be as reasonable as is feasible, but also to
remain engaged subsequently. Even if this does not involve any philanthropic engagement with
the local community, it should involve follow-up activity to ensure that the previously infringing
manufacturer is adhering to the terms of the settlement.
For every case that is capable of being settled, however, there are many more (most, in fact) that are
not. Many manufacturers today are engaged in blatant and knowing counterfeiting of trademarks, or
deliberate infringement of marks, and are not intimidated by threats. Warning letters and negotiations
Trademark 301
A follow-up face-to-face meeting can sometimes also be productive. If the process does ultimately
elicit a positive response, a written undertaking to cease manufacturing the counterfeit goods should
be signed in English and Chinese by the counterfeiter. Written details should also be obtained of
customers (either end-user customers or the supplier of the instructions to manufacture), together
with delivery up or supervised destruction of any stock. Those should be the primary elements the
brand owner seeks and expects from settlement. It is very unlikely, however, for the brand owner to
obtain compensation from small scale manufacturers.
KILPATRICK TOWNSEND
will not succeed with institutional or repeat infringers and indeed communication with such entities
can compromise the possibility of successful raid actions by the authorities.
VII.
Administrative Action
Where settlement is impossible, the Chinese government has set up various administrative
enforcement bodies to deal with infringement matters. Today, there are well over 7,000 full-time
trademark administration personnel throughout China.
The Administration for Industry and Commerce (“AIC”) regulates trademark infringement and
unfair competition. Local offices of the AIC carry out the administrative enforcement of trademark
disputes. Brand owners generally file complaints with the AIC in the location where the infringement
occurred, and the AIC does not charge for its work. This apparent cost benefit is quickly undermined,
however, by the consequences of not charging fees. The absence of revenue means that AIC officers
lack (often significantly) the resources—financial as well as headcount—necessary for competent
enforcement action. Trademark owners are often required, out of necessity, to provide missing
resources such as finance, manpower, and transportation.
The procedures vary from region to region. However, an AIC office is bound to take action on the
submission of a proper complaint supported by adequate evidence of infringement, and will often
take action very quickly—usually within a few days, and in some cases within hours. Adequate
evidence usually requires that the brand owner has conducted an investigation into the activities
complained of and submitted a written report to the AIC. If, after consideration of the complaint and
the supporting evidence, the AIC considers there are grounds to conclude that infringements have
occurred, it can take a number of steps.
Trademark owners usually request the AIC to conduct a raid at the premises of the infringer and to
seize or destroy infringing goods. The AIC has a wide range of powers which it can employ to this
end. In particular, it can:
(1)
(2)
(3)
(4)
(5)
(6)
question the infringer;
order the infringer to immediately cease the infringing act;
examine, seal up, seize, and destroy the counterfeit goods;
seize dies, moulds, printing plates, and other tools used in the infringement;
examine and take copies of contracts, books of record, and other business materials
relating to the infringing acts; and
in a non-criminal case of infringement, impose a fine of up to three times the illegal
revenue.
When it is impossible to assess the amount of revenue, the ALC can impose a discretionary fine of
up to 100,000 RMB. The ALC has no power to order compensation to the brand owner. This power
is reserved to the courts. Although there are advantages to AIC actions, particularly their speed and
general cost effectiveness, there are practical drawbacks, especially in all but the most factually
straightforward of cases.
115
AIC officers have now become much less willing to act on a complaint signed by an agent on behalf
of a foreign brand owner, and require a notarized and legalized Power of Attorney from the owner
to the agent before taking action. This can be a long drawn-out process, and often delay is fatal to a
raid action where stock and evidence can disappear very quickly. It makes good sense to anticipate
this issue and to have the paperwork prepared and executed in advance of any possible enforcement
activity.
Although the AIC can impose a fine of up to three times the illegal revenue, the fines levied in
practice are often so low that infringers regard administrative fines as a cost of doing business.
Repeat infringements or infringement in violation of an administrative order to cease infringing
actions rarely carry increased levels of fines.
There is also the issue of local protectionism and corruption. A local AIC office may be very
unwilling (overtly or otherwise) to act where local businesses employ many people in the production
of counterfeit goods.
Even in the absence of corruption, local AIC’s are often only willing to accept infringement cases
which are straightforward. That is, where the goods and mark are identical to the original product
and mark. Where even slight changes to the goods have been made, or the infringer makes goods
bearing an identical mark but on goods which are not identical to goods covered by the trademark
registration, the AIC can be reluctant to act. In addition to the AIC, another administrative body—
the Technical Supervision Bureau (“TSB”)—also has power to act against counterfeit products.
The TSB is, like the AIC, locally appointed. The TSB is a division of the local government, and
is the agency primarily responsible for ensuring that locally made products comply with technical
standards under the Product Quality Law. Counterfeit products are generally taken to be a violation
of the Product Quality Law (no matter how “good” a copy they may be) and accordingly come
within the jurisdiction of the TSB. TSB officers have powers of search and seizure that are similar
to those of AIC officers, and they also have the ability to impose fines and to destroy products and
the means for making them. Administrative agencies also exist in respect of copyright infringement
(the National Copyright Administration) and patent infringement (which is covered by the State
Intellectual Property Office).
Court Action
The Court System is much improved in recent years, and foreign brand owners have begun to file
lawsuits in ever-increasing numbers. The majority have been in the major cities, but many lesser
venues are also seeing greater activity on the IP front. The courts are divided into four primary
levels:
(1)
(2)
(3)
the Basic People’s Court (cases of first instance);
the Intermediate People’s Court (important cases involving foreign parties, and appeals from the Basic People’s court);
the Higher People’s Court (important cases of first instance, and appeals from the Intermediate People’s Courts; and
Trademark 301
VIII.
KILPATRICK TOWNSEND
(4)
the Supreme People’s Court (cases with important issues of law or jurisdiction, and
other significant cases which it wishes to accept).
Each People’s Court is divided up into civil, economic, administrative and criminal chambers. From
an IP enforcement perspective, the most important are the IP Chambers within the civil and economic
chambers. IP Chambers were first established in the Beijing Intermediate People’s Court nearly two
decades ago, and Intermediate People’s Courts in many major cities have subsequently set up the
same type of chambers to handle intellectual property-related cases. The primary benefit of these
chambers within the court system is that they are specially focused on IP disputes. Accordingly,
the judges have specialized backgrounds and training in order to enable them to deal with IP cases
competently and efficiently.
Brand owners can bring action where the defendant lives and does business, or where the infringement
occurred. In order to file suit:
(1)
(2)
(3)
(4)
the plaintiff must have a direct and substantial interest in the matter;
there must be an identifiable defendant or defendants;
there must be a recognizable claim; and
the court must have jurisdiction.
The key requirements for a preliminary injunction in China are relatively straightforward:
(1)
(2)
(3)
the applicant must be the rights holder or an interested party;
the person against whom the injunction is sought is, or will be, committing an infringement of the registered right; and
the infringement will result in irreparable harm (i.e., not readily compensated in damages) to the lawful rights and interests of the rights holder, if not immediately stopped.
The ability to apply for a preliminary injunction exists only in respect of registered marks. There is
no such ability in respect of an action under the unfair competition or well-known trademark laws.
Following an application, the court will make a written ruling within forty-eight hours. If the
application is successful, the applicant is required to provide security in an amount determined
according to the value of the goods in question. A court officer, which can mean the judge to whom
the case was assigned, will immediately serve the injunction. The defendant is entitled to a review
of the injunction, and the plaintiff is required to file civil proceedings within a specified timeframe
following the grant of the injunction.
Civil litigation in China, on behalf of a foreign plaintiff, is relatively fast; most straightforward cases
are resolved in the first instance within six months to a year. After all preliminary steps including
investigation have been completed (which can be costly depending on the facts), a straightforward
trademark infringement case (where there are no complicating factors, and the mark is identical and
117
is used on goods for which the mark is registered) can be carried out for a fraction of the cost of a
similar action in the U.S.
The brand owner must serve the complaint on the court. The court then serves a copy of the complaint
on the defendant within five days. The defendant has fifteen days to serve a defense.
In cases where evidence or property is at risk, the brand owner may seek pre-action orders from
the court immediately upon service of the complaint at the court. The judge assigned the case will
often serve the order personally. If the defendant is some distance from the court (and it is possible
to effectively forum shop in China), the cost can be increased significantly by having to pay to
transport the judge (or sometimes two judges) to and from the defendant’s location. However, there
are physiological advantages in having the judge confront the defendant in the process, and practical
ones, too, as the judge can get a real sense of what is going on and how dishonest (or otherwise) the
business and its personnel seem to be.
While many aspects of litigation in China are, in theory, not dissimilar to the processes elsewhere in
the world, the process of evidence gathering is very different.
Discovery is still, by U.S. standards, non-existent. It is, in common with other civil code jurisdictions,
essentially voluntary. The rules do not permit parties to seek (or demand) discovery from each other.
Accordingly, the evidence generally before the court is evidence that the parties have accumulated
themselves. Where a party cannot obtain evidence that it needs, it can seek the assistance of the
court. This can be by way of an order of the court preserving particular evidence so that it cannot
be removed or destroyed—again, the judge will often travel to the defendant’s premises to execute
such an order and to take the evidence away if it is capable of being moved. Or, the court can order
that the plaintiff be permitted to collect evidence from the defendant through an investigation. The
court can also order an AIC office to turn over evidence obtained by it in a raid action against the
defendant.
In order for evidence created in jurisdictions outside of China to be admitted into evidence, it has to
be notarized, legalized, and translated. This process is not only cumbersome and time consuming,
but can be very costly.
Just as there are no rules as to the collection of evidence, there are no rules as to admissibility of
evidence (which is determined by the court), nor are there specific rules on the probative value of
evidence, the presumptions that can be drawn, or even the requisite burden of proof the parties must
satisfy.
The trial, which is generally in open court, follows a fairly straightforward path:
(1)
(2)
opening statements by the parties;
live witness evidence, written statements of witnesses and documentary evidence;
Trademark 301
Chinese courts follow the “best evidence rule,” which means that original documents must be
submitted in order to be admissible. This is often a very difficult standard to meet for foreign brand
owners.
KILPATRICK TOWNSEND
(3)
(4)
(5)
(6)
expert witnesses;
statements of independent specialists on the evidence;
oral argument by the parties; and
final statement of the parties.
However, the reality is often somewhat less ordered than this would suggest, and where the defendant
is represented by an unskilled or inexperienced lawyer, or is appearing pro se, the process does not
closely resemble a trial but more an argument over a series of often unrelated or irrelevant issues.
It is important for plaintiff’s counsel to try to keep the process focused on the issues set out in the
complaint.
The court renders a written decision subsequently. The written decision sets out the facts and law the
court relied on and will set out the reasoning for the decision. It may make an award of court costs
and will, if the plaintiff was successful, set out the remedies. In most courts, the judgment becomes
a public document. Remedies can include some or all of the following:
(1)
(2)
(3)
(4)
(5)
an injunction;
delivery up and disclosure of information;
a public apology;
damages; and/or
expenses incurred in stopping the infringement, including but not limited to legal and
investigation fees.
The plaintiff elects the basis upon which the court calculates damages and can include:
(1)
(2)
(3)
the actual loss suffered by the plaintiff (plus appropriate expenses incurred in order to
stop the infringements);
the illegal income of the defendant (plus appropriate expenses incurred in order to stop
the infringements); or
an amount not exceeding 500,000 RMB (approximately $60,000 USD) if the plaintiff
cannot establish (a) or (b) above (i.e., statutory damages).
If the defendant does not comply with the terms of the order, the bailiff of the court commences
enforcement of a judgment within fifteen days of a petition to do so. The court is permitted, if it can
locate it, to seize all of the defendant’s property, including personal and real property, save only for
tools of the trade needed by the defendant and his family for their livelihood.
Some courts, as in the U.S., are better than others. Forum shopping does occur, more frequently today
than in the past. Some courts are more pro-plaintiff (or at least are not rampantly pro-defendant).
Some courts, as did the Intermediate People’s Court in Shenyang last year, hold particular sessions
every so often which focus especially on IP cases. During the “IP Week” in Shenyang in Spring 2008,
a number of important IP cases were heard, and the written judgments (available through the court
itself) show an awareness of the issues at stake and the need for effective and decisive judgments.
119
When a court such as this is identified, it makes good sense for a plaintiff with a defendant in a poor
jurisdiction for court enforcement to look for examples of sales of those goods in the jurisdiction of
a more sympathetic court.
The problem with suing a defendant outside its home jurisdiction does mean that, as indicated
above, the judges may have far to travel in order to execute specific orders. Alternatively, if the
judge asks the local court to execute the order on its behalf, the risk of corruption and favoritism
comes back to the forefront.
Corruption and favoritism does exist at all levels in China, where it is rarely seen as such, although
in the more Westernized regions and in the higher courts with educated judges, its prevalence is
much reduced. The lower courts are more infected than the higher courts, so another form of forum
shopping (where the defendant is located in the jurisdiction of a court predisposed to local favoritism)
is to avoid the local intermediate court altogether and bring suit in the Higher People’s Court.
Damage awards are generally limited to the maximum available by statute: 500,000 RMB. Damages
in excess of statutory damages can be awarded, and in some notable cases significantly so,1 but this
is rare. To obtain more than the statutory tariff, it is necessary to show and prove actual damages.
Given the highly restricted approach to discovery, such proof is often extremely difficult to come by.
Most, but not all, cases where significant damages have been awarded have been where the plaintiff
was Chinese.
Another problem in enforcing a judgment, or even bringing an action in the first place, is the
corporate web in which many Chinese companies exist. Many companies are formed with similar
names so that it is hard to know which is the correct party, and there are often, within the web, a
number of Hong Kong companies. The difference in the financial and legal systems between China
and Hong Kong means that defendants can transfer funds easily and can keep money and assets in
Hong Kong to complicate the enforcement process.
It is very difficult to pierce the corporate veil in China and get to the individuals responsible for the
corporation. Individuals can blatantly be carrying out the infringements, and harvesting the rewards,
1
See Christopher J. Woods & Linda Du, A Victory for Yamaha and China, Trademark World, Apr. 2008, at 33 (discussing the damages
award by China’s highest court to Yamaha—8.3 million RMB (approximately $1.1 million USD), the largest award of damages made in
China where a foreign company was involved—due to the unauthorized use of Yamaha’s trademarks by four Chinese companies).
Trademark 301
For most foreign plaintiffs, the purpose of suing is not to collect a substantial damages award
(although where the defendant is itself a large Chinese corporation, this may not be so) but to force
the infringing activity to stop, and to attract significant publicity pursuant to that. Successful foreign
plaintiffs gain a great deal of positive press, in China and worldwide, and this (plus the often enforced
requirement upon the defendant to publish an apology in the process) does create a dynamic which,
to a degree, may discourage copying of that plaintiff’s products. An alternative approach is to settle
the matter just before trial. Enforcement of the terms may still be problematic, but sometimes a
voluntary set of requirements may be more readily complied with than the mandatory requirements
of the court.
KILPATRICK TOWNSEND
yet are doing so behind the shield of a corporation with few assets and, as it later turns out, may be
wholly-owned by a Hong Kong company against which action is difficult or impossible.
As with discovery, Chinese courts lack strong investigative powers. In an asset preservation action,
the court may go to a bank and freeze a certain account number belonging to the defendant. However,
it is not uncommon for the bank to refuse to disclose to the court all account numbers belonging to
the infringer. The success of an asset preservation order will generally depend on timing and luck,
but certainly if luck is on the plaintiff’s side, such an order can be useful.
IX.
Criminal Prosecution
Infringement of trademarks is a criminal offense in China. Different penalties are applicable depending
on the circumstances of the infringement including whether the infringements were “serious” or
“exceptionally serious,” and whether the sale of goods bearing the counterfeit trademarks were
“relatively large” or “very large.” That vagueness hampered criminal prosecutions until the law
was changed to allow prosecutors to pursue criminal charges where a specified threshold amount
is involved. Thus, where the value of infringing products seized and/or sold exceeds the threshold
(the amount depends upon whether the infringer is an individual or a corporation), the brand owner
should seek prosecution. If a repeat offender is caught at least three times, he will be subject to
criminal prosecution if just eighty percent of the threshold figure is reached. In addition to fines, a
convicted infringers can be imprisoned for a period ranging from three to seven years. Where the
AIC or TSB carries out administrative action and discovers that the amounts involved meet the
threshold for a criminal prosecution, the case must be transferred to the Public Security Bureau for
criminal prosecution.
X.
Customs
For the past decade, trademark owners have been able to record and enforce their trademarks through
Chinese customs. Although it is no longer a prerequisite (for seizure of goods) to have the trademark
recorded with customs, it is advantageous to do so since customs can act on its own initiative to
make seizures if the mark is recorded with it.
Customs operates a centralized recordal system at the General Administration of Customs in Beijing.
To record a mark, copies of the trademark certificates and certificate of incorporation need to be
lodged. The General Administration of Customs then decides whether to grant a recordal within thirty
working days, which is effective for ten years or the balance of the term of the registration. Recordal
with customs, although it can take several months to achieve, is inexpensive and straightforward.
Additionally, it is useful for brand owners to offer training courses for Customs officers, as it enables
them to have specific brands in mind and to be able to spot fakes easily.
If the trademark owner becomes aware of possible violations of its rights, in particular the export
of goods bearing counterfeit marks, the owner should make a written application with customs,
requesting it to take specific protective measures. A brand owner can apply for goods to be detained
if it has knowledge of the import or export of infringing goods, or if it has been notified of a seizure
of a shipment by customs acting on its own initiative (where the relevant mark has been recorded). If
121
the trademark owner requests that the goods be detained, the trademark owner is required to provide
a surety or place a bond with customs, not exceeding the value of the goods. If the value of seized
goods is under 20,000 RMB, the amount of the bond is the same as the value of the seized goods,
but if the value of the seized goods is above 20,000 RMB, the bond is equal to 50% of the value up
to 100,000 RMB. A brand owner can post a general bond of 200,000 RMB for multiple seizures.
To qualify for the right to post a general bond, the brand owner must have recorded its marks with
Customs and also have applied for detention of goods several times in the past. The trademark
owner must also reimburse customs for all storage costs incurred in the detention of the goods.
Customs will deduct these costs from the bond if the owner fails to make payment.
Once customs detains the goods, it will conduct an investigation into whether the goods are
infringing. Goods that are non-infringing are returned, unless the trademark owner has made an
application to the People’s Court for a property preservation order and the court has issued notice
to customs to retain the goods. If infringing goods are found, customs will hold them and notify the
trademark owner, who has three days to decide whether to detain the goods. If the owner confirms
the goods are infringing and requests detention, the bond is then payable. If the goods are noninfringing, they will be released with no liability to Customs or the trademark owner.
A seizure by customs is highly effective because it removes the products from commerce, and those
seized products are available to be used in subsequent actions. A seizure is also likely to reveal
information about the intended destination of the goods and the identity of overseas infringers.
Customs seizures are a very important tool for the brand owner, but there are several issues involved,
and it is worth spending time fully understanding the system.
Conclusion
“Protecting the brand in China” may appear to be something of an oxymoron. The concept of a
brand being afforded any protection in China seems, given the dismal reputation that China has for
the protection of IP rights generally, rather unlikely. Historically, the process of copying in China
has been lauded, representing a cultural norm for an apprentice to learn his or her trade by copying
the skills of an acknowledged master. That approach to copying has had a lingering effect in China,
and one that is visible in the approach taken by local manufacturers to foreign-branded goods.
Nevertheless, during the nearly 30 years in which the trademark law has been in effect in China,
there have been significant changes in attitudes of consumers to brands generally (a desire for, and
an ability to pay for, genuine foreign-branded goods) and a steadily increasing recognition by the
government and judiciary of the need to enforce IP rights to protect those brands. Plainly, there is
still a long way to go and it may well be that there is sufficient demand for counterfeit or look-alike
products globally so that China will never lose its status as the primary producer of such goods.
However, there is an infrastructure and a desire in China to assist the brand owner in protecting the
brand in China. With sufficient resolve and financial resources, together with a pragmatic approach,
a brand owner is capable of protecting the brand in China much more ably than would have been
possible ten years ago. Although the system is far from perfect, there are procedures and remedies
that are familiar to trademark owners the world over. A trademark owner has a considerable ability
Trademark 301
XI.
KILPATRICK TOWNSEND
to protect the brand in China if it has the willpower to do so, and a willingness to accept that the
system, and the local approach to it, is still evolving.
123
An Overview of Legal Remedies Against the Trafficking in Goods Bearing
Counterfeit Trademarks and Gray Market Goods Under United States Law
Lisa Pearson, Georges Nahitchevansky, Christopher P. Bussert, and
James H. Sullivan, Jr.
I.
Counterfeit Trademarks and Service Marks
A.
What is a Counterfeit?
Twenty-five years ago, the word “counterfeit” generally triggered associations with bogus currency.
Today, it is more likely to evoke images of fake LOUIS VUITTON bags or ROLEX watches. In
common speech and most dictionaries, the word “counterfeit” means an unauthorized copy of a
genuine article. Reports of counterfeit drugs, food and beverages, airplane and automotive parts,
and other goods that pose a serious threat to the public’s health and safety appear in the media with
ever-increasing frequency.
Are unauthorized perfumes bearing the world-famous, federally-registered ROLLS ROYCE mark
counterfeit products? Most consumers probably would think so, and that the marks would qualify
as a “counterfeit” under the definition in the Lanham Act. Nevertheless, Rolls Royce would find
little solace in the anticounterfeiting provisions of the Lanham Act unless it has registered its mark
for fragrances. Embedded in § 34(d)(1)(B)3 of the Lanham Act is a separate definition of the term
“counterfeit mark,” which is incorporated by reference into the other federal civil anticounterfeiting
provisions. As a result of this separate definition, an ex parte civil action under § 34(d) of the
Lanham Act4 and the availability of treble or statutory damages under §§ 35(b) and (c) of the
Lanham Act5 require that the brand owner’s registered mark be (1) in use; and (2) registered for
the goods or services associated with the counterfeit mark. The federal criminal statute prohibiting
trafficking in counterfeit goods or services contains an analogous definition of “counterfeit mark.”6
The distinction between the terms “counterfeit” and “counterfeit mark” is therefore an important
one, and the terms are not used interchangeably in the relevant statutes or in this article.
1
2
3
4
5
6
15 U.S.C. § 1127 (2006) (emphasis added).
See, e.g., Va. Code Ann. §§ 59.1-92.12–59.1-92.13 (2008).
15 U.S.C. § 1116(d)(1)(B) (2006) (“counterfeit mark” defined as “a counterfeit of a mark that is registered on the principal register in the
United States Patent and Trademark Office for such goods or services sold, offered for sale, or distributed and that is in use, whether or
not the person against whom relief is sought knew such mark was so registered . . .”).
Id. § 1116(d).
Id. §§ 1117(b), (c).
18 U.S.C. § 2320 (2006).
Trademark 301
The federal trademark statute, the Lanham Act, focuses first on the brand, not on the article on which
the brand appears. The definitional section of the statute defines a “counterfeit” as “a spurious mark
that is identical with, or substantially indistinguishable from, a registered mark.”1 It is therefore
imperative for a brand owner to register its trademark or service mark in the United States to take
advantage of federal anticounterfeiting laws. State anticounterfeiting laws generally require federal
or state registration as well.2
KILPATRICK TOWNSEND
Notably, a “counterfeit mark” does not need to be a reproduction of a registered mark. Defendants
may be held liable for placing non-genuine articles in genuine containers, as by refilling genuine
COCA-COLA bottles with another cola drink, or by selling reconditioned equipment bearing
original WESTINGHOUSE labels without disclosing that the equipment is used and reconditioned.7
Likewise, under certain circumstances, the repair of goods with unapproved parts can render the
otherwise genuine trademarks originally affixed to them counterfeit.8
A significant loophole in the civil anticounterfeiting provisions of the Lanham Act is that they do
not address the common situation of the counterfeiter who does not sell finished goods but rather
labels, patches, or appliqués bearing the spurious mark, obviously intending that they will be applied
to finished products further down the distribution chain. This loophole was closed in the criminal
context with the Stop Counterfeiting in Manufactured Goods Act, as enacted on March 16, 2006.9
In the civil context, brand owners may invoke the theory of contributory infringement, discussed
below.
B.
Civil Causes of Action Available Against the Sale of Goods Bearing Counterfeit Marks
The three types of claims most commonly asserted in federal civil cases involving goods bearing
counterfeit marks are not unique to counterfeiting cases. They are the same basic legal theories
brand owners invoke to redress other unauthorized uses of their marks:
(1)
(2)
Infringement of a registered mark under § 32(l) of the Lanham Act and applicable
state law: Section 32(l) specifically prohibits the unauthorized use of a “counterfeit”
in connection with the sale, offering for sale, distribution, or advertising of any goods
or services in a manner likely to cause consumer confusion.10 As one leading treatise
puts it, “counterfeiting is ‘hard core’ or ‘first degree’ trademark infringement and the
most blatant and egregious form of ‘passing off.’”11
Unfair competition under § 43(a) of the Lanham Act and applicable state laws: Section 43(a)12 may provide a claim for relief where the brand owner’s mark has not been
registered in the United States. It is frequently the most viable theory for redressing
counterfeit trade dress.
See United States v. Petrosian, 126 F.3d 1232 (9th Cir. 1997); Westinghouse Elec. Corp. v. Gen. Circuit Breaker & Elec. Supply, Inc., 106
F.3d 894 (9th Cir. 1997).
8 See, e.g., Rolex Watch, U.S.A., Inc. v. Michel Co., 179 F.3d 704 (9th Cir. 1999).
9 Pub. L. No. 109-181, 120 Stat. 285 (2006). As enacted, the Act: (1) modifies the definition of “counterfeit mark” to include a spurious
mark applied to or consisting of a label or packaging of any type designed or intended to be used on or in connection with goods/services
for which the mark is registered in the PTO or that is substantially indistinguishable from such registered mark, and that is likely to cause
confusion; (2) amends the U.S. criminal code to revise provisions prohibiting the trafficking in counterfeit goods/services to include
trafficking in such labels or packaging; (3) clarifies that the statutory prohibition on trafficking in such illegal goods extends to barter or
similar transactions; (4) subjects to forfeiture any article that bears or consists of a counterfeit mark and any property used to violate the
prohibition against counterfeit marks; (5) directs a court to order the destruction of any such article and to order any person convicted of
the offense to forfeit to the U.S. property used in commission of the crime and to pay restitution; and (6) provides for prison terms of up
to 20 years and fines of up to $15,000,000 for repeat offenders.
10 15 U.S.C. § 1114(1) (2006).
11 4 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 25.10 (4th ed. 2008).
12 15 U.S.C. § 1125(a) (2006).
7
125
Trademark dilution under § 43(c) of the Lanham Act and applicable state laws: Because counterfeiters usually choose famous marks to replicate, dilution laws such as
§ 43(c)13 frequently provide an alternative claim for relief, and may be particularly
useful in cases where the spurious mark is used on goods that are not covered by the
brand owner’s registrations, such as the ROLLS ROYCE fragrance example discussed
above.
It may also be useful to analyze whether the conduct violates U.S. copyright law, particularly where
the defendant’s goods copy the plaintiff’s logos, trade dress, package inserts, or other copyrightable
content.
(3)
As previously indicated, the Lanham Act claims itemized above are commonly asserted to protect
a brand owner’s mark and are not unique to counterfeiting actions. The unique aspect of civil
anticounterfeiting actions under the Lanham Act lies in the availability of extraordinary remedies,
not in the claims themselves.
Removing Goods Bearing Counterfeit Marks from the Market During the
1.
Pendency of a Civil Action
Nevertheless, the Lanham Act also provides for ex parte civil seizure orders in actions arising from
use of counterfeit marks. This means that, in appropriate cases, a brand owner may proceed against
a defendant who is selling or distributing goods bearing a counterfeit mark, without notice to the
defendant, and obtain a court order at the outset of the case seizing the goods, the means of making
the counterfeit marks, and related documents, as well as temporarily enjoining other associated
activities.
Section 34(d) of the Lanham Act15 sets forth the requirements the plaintiff must satisfy to obtain such
an ex parte seizure order. Some requirements relate to the facts of the case; others are procedural in
nature. Although daunting in number, they are often easily satisfied in cases involving the intentional
sale of counterfeits or sales by transient sellers, such as street vendors. The key requirements are:
13 Id. § 1125(c).
14 See generally McCarthy, supra note 11, §§ 30:31–:32.
15 15 U.S.C. § 1116(d) (2006).
Trademark 301
Even in routine trademark infringement and unfair competition cases, courts frequently will enter
a temporary restraining order followed by a preliminary injunction to stop the advertisement,
distribution, and sale of infringing goods during the pendency of the action. Different federal circuits
employ different formulations of the test for entry of a temporary restraining order or preliminary
injunction, but the basic considerations are the same: the likelihood that the plaintiff ultimately will
succeed on the merits, whether the plaintiff will suffer irreparable injury absent such relief, whether
a balance of the hardships tips in favor of the plaintiff, whether the requested relief will preserve the
status quo, and whether the injunction is necessary to protect third parties.14 Cases involving the
sale of goods bearing counterfeit marks generally have compelling facts to support temporary and
preliminary injunctive relief.
KILPATRICK TOWNSEND
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
The plaintiff must show that no order other than an ex parte seizure order is adequate.16
The plaintiff must demonstrate it is likely to succeed in showing that the defendant
used a “counterfeit mark” in connection with the sale, offering for sale, or distribution
of goods or services.17
The plaintiff must show that it will suffer immediate and irreparable harm if the seizure is not ordered.18
The plaintiff must show that the harm it will suffer in the absence of the seizure outweighs the harm of the seizure to the legitimate interests of the defendant.19
The plaintiff must show that, if given notice, the defendant or persons in concert with
the defendant would destroy, move, or hide the matter to be seized.20 This is a key element as it relates to the first, third and fourth elements, referenced above. Typically, it
is sufficient to show that similarly-situated defendants have in the past moved, hidden,
or destroyed counterfeit goods to avoid seizure, or evidence that the same defendant
has not complied with court orders or has previously destroyed relevant material.21
Thus, as the Third Circuit has explained, “street vendors, being itinerant and lacking significant assets, have relatively little to fear from the District Court’s contempt
powers,” while “incorporated businesses with inventories, assets, and a fixed physical
presence . . . have much to lose if held in contempt.”22
The plaintiff’s application must identify with specificity the matter to be seized and the
place where it will be located.23
The plaintiff must not have publicized the requested seizure.24
The plaintiff must post a bond in an amount sufficient to compensate the defendant for
damages suffered in the event of a wrongful seizure.25
The plaintiff must notify the U.S. Attorney for the district where the seizure will occur
so that the U.S. Attorney has an opportunity to participate in or object to any seizure
that might affect evidence in a criminal prosecution.26 (The U.S. Attorney rarely, if
ever, does so.)
The application for an ex parte civil seizure order must be supported by a verified complaint or
affidavits establishing the required facts. The application typically includes a proposed form of
order setting forth proposed findings of fact and conclusions of law; a description of the matter
to be seized and the place of the seizure; the time period during which the seizure will be made,
16
17
18
19
20
21
22
23
24
25
26
Id. § 1116(d)(4)(B)(i).
Id. § 1116(d)(4)(B)(iii).
Id. § 1116(d)(4)(B)(iv).
Id. § 1116(d)(4)(B)(vi).
Id. § 1116(d)(4)(B)(vii).
See Lorillard Tobacco Co. v. Bisan Food Corp., 377 F.3d 313, 320 (3d Cir. 2004).
Id. at 321.
15 U.S.C. § 1116(d)(3), (5) (2006).
Id. § 1116(d)(4)(B)(ii).
Id. § 1116(d)(4)(A).
Id. § 1116(d)(2).
127
which must be within seven days of the date of the order; the amount of security to be posted by the
plaintiff; and a date for a hearing no sooner than ten days and no later than 15 days after the order
is issued. The proposed order also specifies the federal, state, or local law enforcement officers who
will serve the order and, upon making service, carry out the seizure.
If the court enters the order, the court will seal the order itself and the plaintiff’s moving papers until
after the seizure takes place. Law enforcement officers, often accompanied by the brand owner’s
private investigators, carry out the seizure. The court takes custody of any materials seized or may
identify a substitute custodian in the seizure order. In appropriate cases, it may impose an order
attaching a building where counterfeit goods are sold, freezing the assets of the alleged counterfeiter,
and/or permitting the plaintiff to destroy counterfeit goods that have been seized. The court also may
enter an appropriate protective order concerning any seized records and require expedited discovery.
The court then conducts a hearing, unless waived by all parties, at which the plaintiff has the burden
to prove that the facts necessary to support the order are still in effect. If the plaintiff does not satisfy
this burden, the court will dissolve or modify the seizure order.
One disincentive to filing an application for an ex parte seizure action is the brand owner’s potential
liability for wrongful seizure. Section 34(d)(11) of the Lanham Act provides that a defendant
who suffers damage by reason of a wrongful seizure has a cause of action against the plaintiff for
appropriate relief, including damages for lost profits, costs of materials, loss of good will, punitive
damages in instances where the seizure was sought in bad faith, reasonable attorneys’ fees absent
extenuating circumstances, and prejudgment interest at the court’s discretion.27 A plaintiff that has
conducted a wrongful seizure obviously also stands to forfeit all, or at least a portion of, any bond
or other security it has deposited with the court to support the seizure.
Monetary Relief Available in Civil Counterfeiting Cases
The Lanham Act provides a comprehensive scheme of enhanced monetary remedies in civil actions
involving counterfeit marks, making it possible for plaintiffs to recover sizeable monetary awards.
For example, in routine trademark infringement and unfair competition cases, a plaintiff is entitled
to recover the defendant’s profits, any actual damages sustained by plaintiff, and the costs of the
action. If the court finds the amount of recovery based on profits inadequate or excessive, it may in
its discretion award an appropriate amount of profits to the plaintiff. In exceptional cases, the court
also may award reasonable attorneys’ fees to the prevailing party.28 Nevertheless, the plaintiff’s
failure to use a trademark notice may, under § 29, deprive it of the right to recover profits and
damages in the absence of the defendant’s actual notice of the registration.29
In cases involving use of a “counterfeit mark,” the plaintiff may elect to recover statutory damages
under § 35(c) in lieu of actual damages and profits, which may be hard to prove; counterfeiters
are not known for their pristine record-keeping. Previously, the statute had authorized the court
to impose such statutory damages in an amount no less than $500 and no more than $100,000 per
27 Id. § 1116(d)(11).
28 Id. § 1117(a).
29 Id. § 1111. A registrant may give notice that its mark is registered by displaying the symbol ® with the mark or by using the words
“Registered in U.S. Patent and Trademark Office” or “Reg. U.S. Pat. & TM. Off.”
Trademark 301
2.
KILPATRICK TOWNSEND
“counterfeit mark” per type of goods or services offered by the defendant, or, if the court found
that the use of the counterfeit mark was willful, no more than $1,000,000 per counterfeit mark
per type of goods or services offered by the defendant, “as the court considers just.”30 However,
a recently enacted law now promises the possibility of enhanced damages and penalties in both
civil and criminal counterfeiting cases. On October 13, 2008, President Bush signed into law the
Prioritizing Resources and Organization for Intellectual Property Act of 2008 (“PRO-IP Act”).31 On
the trademark side, enactment of the PRO-IP Act has doubled the statutory damages available under
§ 1117(c), including between $1,000 and $100,000 per “counterfeit mark,” and up to $2,000,000 per
counterfeit mark per type of goods or services if the counterfeiting was willful.
If the plaintiff establishes that the defendant intentionally used a counterfeit mark in connection with
the sale, offering for sale, or distribution of goods or services, the court has far less discretion, and
enhanced damages are nearly mandatory. Absent extenuating circumstances, § 35(b) of the Lanham
Act directs the court to enter judgment for three times the profits or damages ordinarily recoverable,
whichever is greater, together with a reasonable attorney fee to the plaintiff.32 In its discretion, the
court also may award prejudgment interest.
In a number of cases, courts have found that evidence of “willful blindness” is sufficient to show the
defendant’s knowledge that a mark is counterfeit. A person who suspects wrongdoing and deliberately
fails to investigate is “willfully blind.”33 A retailer who buys “obviously poorly crafted goods from
an itinerant peddler at bargain-basement prices” therefore may have the requisite knowledge of the
counterfeit mark.34 The potential recovery in civil anticounterfeiting actions under the Lanham Act
is significantly greater than in other actions brought under the Act.
3.
Potential Defendants in Civil Anticounterfeiting Actions
A brand owner can sue most of the links in the counterfeit distribution chain (such as manufacturers,
wholesalers, distributors, and retailers) as direct infringers because they have used a counterfeit mark
in connection with the sale, offering for sale, distribution of, or advertising of goods or services. In
recent cases, brand owners have sought to extend liability to third parties who facilitate the sale of
counterfeit goods such as suppliers of parts, flea market owners, landlords of buildings, and Internet
marketplace sites.
30 Id. § 1117(c)(1) (2004).
31 Pub. L. No. 110-403, 122 Stat. 4256 (2008) (to be codified as amended in sections of titles 15, 17, 18, 19, and 42 U.S.C., including
15 U.S.C. § 1117(c)(1)). The underlying bill, S. 3325, passed unanimously in the Senate and nearly so in the House in identical form.
Aside from allowing for enhancement of damages and penalties, the new law has wide-ranging implications in intellectual property
law, including: (a) the creation of an “IP Czar,” a new Executive branch position for “Intellectual Property Enforcement Coordinator,”
to coordinate the efforts of various federal agencies to combat counterfeiting and other forms of intellectual property infringement; (b)
application of U.S. copyright law to exportation and transshipment; (c) increasing interagency coordination and strategic planning; and
(d) creating a grant program administered by the Department of Justice to provide resources to local enforcement agencies to pursue IP
crimes.
32 15 U.S.C. § 1117(b) (2006).
33 See, e.g., Hard Rock Cafe Licensing Corp. v. Concession Servs., Inc., 955 F.2d 1143, 1149 (7th Cir. 1992); Louis Vuitton S.A. v. Lee, 875
F.2d 584, 590 (7th Cir. 1989).
34 Chanel, Inc. v. Italian Activewear of Fla., Inc., 931 F.2d 1472, 1476 n.5 (11th Cir. 1991) (characterizing fact pattern in Louis Vuitton S.A. v.
Lee). But see Tiffany (NJ) Inc. v. eBay, Inc., 576 F. Supp. 2d 463, 515 (S.D.N.Y. 2008), appeal pending (willful blindness may not be found
“unless the defendant knew of a high probability of illegal conduct and purposefully contrived to avoid learning of it, [e.g], by failing to
inquire further out of fear of the result of the inquiry”).
129
Liability may be predicated on a theory of contributory infringement “if a manufacturer or distributor
intentionally induces another to infringe a trademark, or if it continues to supply its product to one
whom it knows or has reason to know is engaging in trademark infringement.”35 Under this test,
courts have imposed civil liability on landlords of flea markets if the landlord knew or had reason
to know that its premises were being used for the sale of counterfeit goods.36 The same rule applies
to landlords of shops selling counterfeits.37 A theory of contributory liability also may help in
reaching parties other than the direct infringer who facilitate the sale of counterfeit goods, where the
third party and the infringer have an apparent or actual partnership, authority to bind one another in
transactions with others, or exercise joint ownership or control over the infringing product.38
To date, U.S. courts have been reluctant to extend liability for contributory infringement to Internet
marketplace sites through which counterfeit goods are sold. For example, in Tiffany (NJ) Inc. v. eBay,
Inc.,39 the Southern District of New York rejected an attempt by renowned jeweler Tiffany to impose
liability on the online marketplace eBay, on a theory of contributory trademark infringement, based
upon the allegedly pervasive sale of counterfeit goods by third parties on its site. Tiffany’s appeal to
the Second Circuit is pending. European courts have issued conflicting opinions in similar cases. In
a case involving the sale of counterfeit perfume, a Belgian court did not hold eBay liable.40 On the
other hand, courts in France and Germany have extended liability in such cases.41
4.
Criminal Prosecution Options in Counterfeiting Cases
Federal criminal prosecutions of counterfeiters are relatively rare in part because such cases are
often perceived to be business disputes that are better addressed through civil channels. In 2007,
for instance, U.S. Attorneys around the country filed a total of 200 cases under all of the federal
criminal anticounterfeiting statutes combined and only 177 cases were resolved or terminated.42
Nevertheless, prosecutors have a number of statutes under which they can indict if they choose to
do so.
Inwood Labs. v. Ives Labs., 456 U.S. 844, 854 (1982).
See Hard Rock Cafe Licensing, 955 F.2d 1143; Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259 (9th Cir. 1996).
Polo Ralph Lauren Corp. v. Chinatown Gift Shop, 855 F. Supp. 648 (S.D.N.Y. 1994).
David Berg & Co. v. Gatto Int’l Trading Co., 884 F.2d 306, 311 (7th Cir. 1989).
Tiffany (NJ) Inc., 576 F. Supp. 2d at 502–18 (S.D.N.Y. 2008). Notably, just two weeks before this decision was announced, a French
tribunal had found eBay liable for guilty negligence for its lack of action in preventing the sale of fake Louis Vuitton leather goods and
Christian Dior handbags, and ordered eBay to pay millions of Euros to those businesses. See S.A. Louis Vuitton Malletier v. eBay, Inc.,
Dkt. No. 2006077799, Commercial Court of Paris, 1st Section B, June 30, 2008.
40 Lancôme Parfums et Beaute & Cie v. eBay Int’l AG, No. A/07/06032, Commercial Court in Brussels, July 31, 2008.
41 See SA Louis Vuitton Malletier v. eBay, Inc., Dkt. No. 2006077799; Christian Dior Couture SA v. eBay, Inc., Dkt. No. RG 2006077807,
Commercial Court of Paris, June 30, 2008; SA Parfums Christian Dior v. eBay, Inc., No. RG 2006065217, Commercial Court of Paris,
June 30, 2008; Montres Rolex SA v. eBay, Inc., German Federal Supreme Court, July 27, 2007.
42 See U.S. Dep’t of Justice, FY 2007 Performance and Accountability Report, App. F Intellectual Property Report–2007, F-4 (2007),
available at http://www.usdoj.gov/ag/annualreports/pr2007/appd/p17-46.pdf.
35
36
37
38
39
Trademark 301
With respect to trademark counterfeiting, the 1984 Trademark Counterfeiting Act made trafficking
in “counterfeit marks” a federal crime for the first time. Section 2320 of the federal criminal code
provides that a defendant who intentionally traffics or attempts to traffic in goods or services and
knowingly uses a counterfeit mark in connection with such goods or services shall: (1) in the case
of an individual defendant, be fined not more than $2,000,000 or imprisoned not more than 10
KILPATRICK TOWNSEND
years, or both; (2) in the case of a defendant who is not an individual, be fined not more than
$5,000,000.43 The statute imposes harsher penalties for repeat offenders. Brand owners and their
legal representatives have a statutory right to submit victim impact statements for consideration
during sentencing and may be entitled to restitution under 18 U.S.C. §§ 3663(a) and 3664(a). Other
remedies, including seizure of the goods bearing the counterfeit mark, vehicles, equipment and
storage facilities, are also available.
The elements of the criminal offense under 18 U.S.C. § 2320 are:
(1)
(2)
(3)
(4)
The defendant trafficked in or attempted to traffic in goods or services. “Traffic”
means “to transport, transfer, or otherwise dispose of, to another, as consideration for
anything of value, or make or obtain control of with intent so to transport, transfer, or
dispose of . . . .”44 (“Use in commerce” under the Lanham Act is a broader concept,
covering, inter alia, the sale or transportation in commerce of goods and the offering
of services in commerce).
The defendant engaged in such actual or attempted trafficking intentionally. This is the
first prong of the intent element in § 2320; the second prong is that the defendant must
knowingly use a counterfeit mark, as discussed in Item 4, below.45
The defendant used a “counterfeit mark” on or in connection with such goods or services. To summarize, a “counterfeit mark” as defined in the Trademark Counterfeiting
Act is analogous to the Lanham Act’s definition discussed in Part I.A. above: (a) a
spurious mark that is used in connection with trafficking in goods or services; (b) that
is identical to or substantially indistinguishable from a mark registered on the principal
register in the U.S. Patent and Trademark Office (“PTO”) and in use for the goods or
services at issue; and (c) that is likely to cause confusion, mistake, or deception.
The defendant knew that the mark so used was counterfeit. It is not, however, necessary for the prosecutor to prove that the defendant knew the mark was registered or
his activity was criminal. The legislative history of the statute describes the requisite
knowledge as “awareness or firm belief to that effect.”46 Here, as in the civil context,
proof that the defendant was “willfully blind” to the fact that the mark was counterfeit
should meet the knowledge requirement.47
U.S. Attorneys turn to other statutes to beef up prosecutions under 18 U.S.C. § 2320, including,
among others:
(1)
(2)
Criminal conspiracy under 18 U.S.C. § 371;
Entry of goods by means of false statements under 18 U.S.C. § 542;
43 18 U.S.C. § 2320 (2006). As noted, supra notes 3–6, the definition of a “counterfeit mark” in the criminal statute is analogous to the
definition of that term in the civil context, 15 U.S.C. § 1116(d)(1)(B).
44 Id. § 2320(e)(2).
45 See United States v. Hon, 904 F.2d 803, 806 (2d Cir. 1990); United States v. Gantos, 817 F.2d 41, 43 (8th Cir. 1987); United States v. Baker,
807 F.2d 427 (5th Cir. 1986).
46 130 Cong. Rec. H12076 (daily ed. Oct. 10, 1984) (Joint Statement on Anticounterfeiting Legislation).
47 Id.
131
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Smuggling goods into the U.S. under 18 U.S.C. § 545;
Mail fraud under 18 U.S.C. § 1341;
Wire fraud under 18 U.S.C. § 1343;
Money laundering under 18 U.S.C. §§ 1956 and 1957, which specifically identify
trademark counterfeiting under 18 U.S.C. § 2320 as one of the types of “specified
unlawful activity;”
The Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961, et seq.,
which specifically lists trafficking in counterfeits as a predicate offense;
Trafficking in counterfeit labels for phonorecords and copies of motion pictures and
other audio-visual works under 18 U.S.C. § 2318; and
Criminal infringement of a copyright under 18 U.S.C. § 2319.
Before 1984, when Congress passed 18 U.S.C. § 2320, criminal enforcement was up to the states.
Today, state criminal anticounterfeiting laws often provide a useful supplement or alternative to
federal law. State law enforcement authorities can sometimes be persuaded to act on a brand owner’s
complaint when federal authorities will not. Further, state criminal statutes on occasion fill in the
gaps in federal anticounterfeiting law where, for example, the mark at issue is not registered, or is
registered for goods and services other than those on which the counterfeit mark appears.
Various states have imposed criminal penalties against counterfeiting, typically under forgery and
criminal simulation misdemeanor statutes. New York, California, and Florida—three states in which
significant counterfeiting activity has occurred—have each enacted modern penal statutes to combat
trademark counterfeiting. Since 1995, numerous other states have followed suit and enacted variants
on the Model Trademark Counterfeiting Bill prepared by the International Anticounterfeiting
Coalition in 1995 (and revised in 2006).48
Interdiction of Imported Goods Bearing Counterfeit Marks by U.S. Customs
Since 2003, two agencies under the auspices of the U.S. Department of Homeland Security have
supplanted the U.S. Customs Service, and both play important roles in preventing the importation of
counterfeit goods: U.S. Customs and Border Patrol (“CBP”) and U.S. Immigrations and Customs
Enforcement (“ICE”). CBP is responsible for inspections and enforcement at the United States
borders to prevent harmful or illegal materials or persons from entering the country, while ICE is
responsible for enforcing customs and immigration laws within the United States and internationally,
as well as investigating those who breach United States border security. ICE thus functions as the
criminal enforcement arm of CBP.
The Tariff Act includes special seizure and forfeiture provisions applicable to imported goods
bearing a counterfeit mark.49 These are implemented through CBP regulations contained in
19 C.F.R. § 133.21 (2008). Curiously, although the Tariff Act defines a “counterfeit mark” by
reference to the Lanham Act definition discussed in Part I.A. above,50 the implementing regulations
48 See generally Trademark Counterfeiting in the United States § 4.05 and Apps. 4.1, 4.2 (Brian W. Brokate & Dawn Atlas eds., 2008).
49 19 U.S.C. § 1526 (2006).
50 15 U.S.C. §§ 1116(d)(1)(B), 1127 (2006).
Trademark 301
C.
KILPATRICK TOWNSEND
do not employ the same definition. Instead, the regulations use the new term “counterfeit trademark”
and define it the same way the Lanham Act defines a “counterfeit,” namely, “a spurious trademark
that is identical to, or substantially indistinguishable from, a registered mark.”51 The regulations
then provide that any articles imported into the United States “bearing a counterfeit trademark shall
be seized and, in the absence of the written consent of the trademark owner, forfeited for violation
of the customs laws.”52 Under this regulation, then, CBP may seize goods even if the brand owner
does not own a registration of the mark covering the same goods on which the counterfeit mark is
used, or does not itself use its mark on such goods.
A brand owner may also obtain information that can be useful in identifying sources and sellers of
counterfeits as a result of CBP seizures. Within thirty days of a seizure of counterfeit goods, CBP
will provide the trademark owner notice of the seizure along with identifying information about the
date, port, merchandise, quantity, manufacturer, exporter, and importer.53 The brand owner also may
obtain a sample of the seized merchandise upon posting a bond.54 Forfeited goods are destroyed
unless the brand owner consents to alternative dispositions.55
At a minimum, brand owners with counterfeiting problems should take the following two basic steps
to enhance their ability to stop counterfeits from entering the country: (1) apply to register its key
marks with the PTO, and (2) record the resulting registrations with CBP. Registration and recordation
are sometimes confused; recordation refers to the process of notifying CBP of the existence of the
federally-registered trademark and supplying certain information to avoid detention of shipments
of genuine products. An applicant for recordation must provide a certified copy of the registration
certificate and information concerning the trademark owner, registration, contact persons, place of
manufacture of genuine goods, and authorized licensees, subsidiaries, and other authorized users or
importers.56 The recordation fee currently is $190 per class recited in the registration.
The trademark registration recordation is entered into a centralized database that is accessible to
CBP officers at all ports. An extract of the recordation information is available on the Internet
at http://www.cbp.gov/xp/cgov/trade/automated/modernization/, where it is possible to search for
recordations by mark or by owner.
While recordation is not mandatory for CBP to seize counterfeit goods, it substantially increases
the likelihood that CBP will act, and it carries several distinct benefits, particularly because port
personnel are not encouraged to enforce unrecorded rights. For example, when CBP officers locate
a suspect shipment, they must decide quickly whether to release, detain, or seize the goods. They
have five days to detain the shipment if the goods appear counterfeit, and thirty days to determine
the authenticity and admissibility of detained shipments. The contact information provided in the
recordation assists CBP in coordinating with the brand owner to make a timely determination
51
52
53
54
55
56
19 C.F.R. § 133.21(a) (2008).
Id. § 133.21(b).
Id. § 133.21(c).
Id. § 133.21(d).
Id. § 133.21(b).
See id. §§ 133.1–.3.
133
whether the detained goods are real or fake. Moreover, if a trademark registration is recorded, CBP
will stop not only counterfeits but all infringing imports (with the possible exception of gray market
products as discussed in Part II.E.1 below).
CBP officers have the resources to inspect only a small percentage of goods entering the country.
They target shipments for examination based on such information as past seizure history, country
of origin, the type of goods, the name and address of the importer and shipper, and the method
of shipment. Brand owners can provide CBP with information about shipments of suspected
counterfeits to improve the chances of intercepting the shipment.
D.
Components of an Effective Anticounterfeiting Program
Anticounterfeiting programs must be customized to meet a brand owner’s specific needs, objectives,
and resources. The discussion that follows highlights some of the basic components of an effective
anticounterfeiting program in the United States.
1.
Establish Means for Identifying Genuine Goods
It is imperative to be able to distinguish easily between real and counterfeit goods. Many brand owners
employ coding, tags or other devices on their products, labels and/or packaging for this purpose.
This is particularly important for companies whose product lines change frequently, because the
characteristics of the genuine product are more difficult to identify as the product designs change.
The first step in any anticounterfeiting program is training company representatives, customs, and
law enforcement officers in identifying the counterfeits. Clear-cut guidelines to authenticate genuine
goods are essential.
2.
Understand the Scope of the Problem in Each Country
3.
Develop a Coordinated Global Approach
Counterfeiting is a global problem, and tackling it can be daunting. It is therefore important for a
brand owner to develop a comprehensive strategy and be prepared to fine-tune it along the way.
A brand owner should define the metrics by which the success of its enforcement program will be
judged. Instruction and coordination of a brand owner’s global enforcement activities should be
centralized to permit it to allocate resources where needed, pursue counterfeiting activity across
borders, and accumulate information and know-how.
Trademark 301
Reacting to isolated reports of counterfeit activity—such as the street vendor spotted by the CEO
on the way to work—rarely puts a dent in the problem. The brand owner should endeavor to collect
as much information as possible about the nature and extent of counterfeiting activities to formulate
effective strategies. Market sweeps and Internet monitoring are two ways to gather information.
Such intelligence can also be gleaned from employees, customers, private investigators, other brand
owners, law enforcement, and customs officials, among others. Training and education of these
parties to sensitize them to anticounterfeiting issues often plays a critical role.
KILPATRICK TOWNSEND
4.
Establish Procedures for Reporting Problems
The brand owner should identify a “point person” within its organization to whom suspected
counterfeits are reported and a form of capturing important information to pursue the problem. It
should follow through by educating people to be on the lookout for suspected counterfeits and to
use the procedures for reporting them. A brand owner should consider posting an Internet page or
establishing a telephone hotline to permit the public to report problems.
5.
Establish Procedures for Documenting Purchases, Maintaining Evidence of
the Chain of Custody, and Authenticating Product
To avoid the loss of evidence, procedures should be established to mark and track suspected
counterfeits. Similarly, persons in the brand owner’s organization should be trained to inspect the
suspected counterfeit, verify whether it is real or fake, identify with specificity the reasons for
that conclusion, and document the foregoing. Appointing a knowledgeable company point person
will also assist customs and law enforcement personnel when they need assistance authenticating
products.
6.
Build a Centralized Database
The brand owner should enter information about sellers and possible sources of counterfeits into a
centralized, searchable database, which should include, where available, the date, product sold, action
taken, relationships with other suspected wrongdoers, and how the seller or source was identified.
While it may be relatively easy to keep track of matters at the outset of an anticounterfeiting program,
doing so becomes increasingly more difficult over time and as matters multiply. Establishing a
useful database at the outset will be invaluable going forward.
7.
Register Key Trademarks in Each Country of Concern
Registration of key trademarks is the cornerstone of a successful anticounterfeiting program.
In many countries, absent a registration, a brand owner cannot take action against even blatant
counterfeiting. A registration program should be closely coordinated with enforcement efforts, and
registrations should be audited periodically to ensure that they are current and adequately cover the
goods and services in all significant jurisdictions where problems are being encountered.
8.
Record Trademark Registrations with Customs
Recordation of trademark registrations with customs, if permitted in the country at issue, increases
the likelihood that customs will assist in enforcement. A brand owner should audit such recordations
periodically to ensure that they are current and cover the goods and services where problems are
being encountered.
9.
Provide Training and Authentication Materials to Customs and Law
Enforcement
While recording trademark registrations with customs authorities in the countries of interest is a
first step, it is also usually advisable to implement a training program. Brand owners that make the
135
effort to provide training and authentication criteria to customs and law enforcement personnel often
observe significant increases in seizures of counterfeit goods. While it is often difficult to get law
enforcement officials interested in acting on a specific complaint, they will frequently act on their
own initiative when they are aware of the counterfeiting problems of a given brand and have the
means at hand to identify fakes.
10.
Assemble a Network of Anticounterfeiting Investigators
Most brand owners with strong anticounterfeiting programs use private investigators as their eyes and
ears in the marketplace, and their liaison with law enforcement. Many of the best anticounterfeiting
investigators work for numerous individual brand owners and split the cost of law enforcement
training and enforcement activities among their clients. Further, they are often retired law
enforcement officers with good connections, and can facilitate criminal investigations and seizures.
Building a network of solid investigators can greatly enhance a brand owner’s anticounterfeiting
program and facilitate joint actions with other brand owners.
11.
Monitor Websites and the Online Market
The Internet is a powerful investigative tool. Because online markets are a haven for counterfeiters,
brand owners should consider incorporating an Internet monitoring program into their overall
anticounterfeiting program. Some brand owners have found that wholesale quantities of counterfeits
of their branded goods are readily available online.
12.
Take Appropriate Action Against Sellers and Sources of Counterfeits
There are many options for pursuing counterfeiters, including customs seizures, civil and criminal
actions, and (in some countries) administrative proceedings. The brand owner and its counsel should
choose an avenue appropriate for each individual case, and then follow through to the extent possible.
The brand owner will have to prioritize its counterfeiting problems and should pursue the most
egregious ones first. It is extremely important to follow through with each suspected manufacturer
and seller of counterfeits once they have been identified. Brand owners who develop a reputation of
being vigilant in enforcing their rights often achieve far better results.
Participate in Brand Owners’ Groups and Trade Lobbying Groups
There are numerous formal and informal groups of brand owners who have banded together to
fight shared counterfeiting problems. Some canvas flea markets on behalf of their members; some
support specific law enforcement efforts; and some organize law enforcement training programs.
Joint efforts, of course, reduce the cost borne by any one brand owner.
II.
Gray Market Goods
A.
Defining “Gray Market Goods”
The phrases “gray market goods” or “gray goods” refer to goods that are legitimately sold abroad
under a particular trademark and then imported into the United States and sold in competition with
Trademark 301
13.
KILPATRICK TOWNSEND
goods offered by the trademark owner. A less pejorative name for these goods is “parallel imports.”
For better or for worse, the more commonly accepted and employed reference is gray market goods.
The typical gray market scenario involves the unauthorized importation into the United States of
genuine goods that are not intended for sale or distribution in the United States, which are then sold
at a price below that of the authorized U.S. goods bearing the identical trademark. For instance,
gray market problems may arise if a trademark owner creates a lower-priced version of a product
that is sold under its trademark in a developing country, and a higher priced (and perhaps higher
quality) version sold under the same trademark in the United States. Similarly, some products are
constructed or formulated in different ways to suit national conditions and standards or to account
for local tastes. Soap sold under a particular trademark abroad, for example, might smell differently
or have less lather than soap sold under the same trademark in the United States.57
The concern over gray market goods is generally threefold: (1) their sale in the United States might
undercut the market for the genuine U.S. version; (2) their sale can disrupt pricing and distribution
relationships in territories where the goods are sold; and (3) their sale can adversely impact the
goodwill associated with the U.S. trademark. Further, counterfeits often enter the market through
the gray market, and brand owners sometimes find mixed shipments of counterfeit and gray market
goods. For these reasons, trademark owners often seek to block the sale of such goods in the United
States under a variety of legal theories.
B.
Legal Grounds for Prohibiting Gray Market Goods
There are four major statutory bases for relief against the importation and sale of gray market goods
into the United States:
(1)
(2)
(3)
(4)
Sections 32 (covering registered marks) and 43(a) (covering unregistered marks) of
the Lanham Act;58
Section 526 of The Tariff Act;59
Section 42 of the Lanham Act;60 and
Section 602(a) of the U.S. Copyright Act.61
Although at first blush it would appear that private parties have a strong arsenal of legal remedies, the
reality is that the available remedies have significant limitations that hinder their utility in stemming
the flow of gray market goods into the United States.
C.
Viability of Claims Against Sellers of Gray Market Goods
A codification of the common law tort of trademark infringement,62 § 32 of the Lanham Act,
provides the owner of a federally registered mark with a cause of action against anyone who uses
57
58
59
60
61
62
See, e.g., Dial Corp. v. Encina Corp., 643 F. Supp. 951 (S.D. Fla. 1986).
15 U.S.C. §§ 1114, 1125(a) (2006).
19 U.S.C. § 1526 (2006).
15 U.S.C. § 1124 (2006).
17 U.S.C. § 602(a) (2006).
See Jordache Enters. v. Hogg Wyld, Ltd., 828 F.2d 1482, 1484 n.2 (10th Cir. 1987).
137
a “reproduction, counterfeit, copy, or colorable imitation” of the mark without the consent of the
owner.63 Similarly, § 43(a) of the Act allows the owners of registered or unregistered marks to
bring infringement actions against defendants using “false designation[s] of origin.”64 The test for
determining whether a plaintiff is entitled to relief under either of these sections turns on whether the
defendant has used a mark likely to cause confusion that its goods are produced, sponsored, certified,
or approved by the plaintiff or, alternatively, that the plaintiff’s goods are produced, sponsored,
certified, or approved by the defendant.65
As a general rule, “[c]ases where a defendant uses an identical mark on competitive goods hardly
ever find their way into the appellate reports. Such cases are ‘open and shut’ and do not involve
protracted litigation to determine liability . . . .”66 Nevertheless, under the “first sale” or “exhaustion”
doctrine, a branded product may be purchased and resold without change, assuming that there is no
deception present in the resale process. Thus,
the trademark owner cannot ordinarily prevent or control the sale of goods bearing the
mark once the owner has permitted those goods to enter commerce. It can be said that the
rights of the trademark owner are exhausted once the owner authorizes the initial sale of
the product under the trademark . . . .67
As one court has described this principle:
Under this doctrine . . . a markholder may no longer control branded goods after releasing
them into the stream of commerce. After the first sale, the brandholder’s control is deemed
exhausted. Down-the-line retailers are free to display and advertise the branded goods.
Secondhand dealers may advertise the branded merchandise for resale in competition with
the sales of the markholder (so long as they do not misrepresent themselves as authorized
agents).68
63 15 U.S.C. § 1114 (2006).
64 Id. § 1125(a).
65 As Justice Stevens has explained:
[T]he test for liability is likelihood of confusion: “[U]nder the Lanham Act . . . , the ultimate test
is whether the public is likely to be deceived or confused by the similarity of the marks. . . . Whether we call
the violation infringement, unfair competition, or false designation of origin, the test is identical—is there a
‘likelihood of confusion?’”
Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 780 (1992) (Stevens, J., concurring) (alteration in original) (quoting New W. Corp. v. NYM
Co. of Cal., Inc., 595 F.2d 1194, 1201 (9th Cir. 1979)).
67 Restatement (Third) of Unfair Competition § 24 cmt. b, at 254 (1995).
68 Osawa & Co. v. B & H Photo, 589 F. Supp. 1163, 1173–74 (S.D.N.Y. 1984) (citations omitted).
Trademark 301
Consequently, “[i]t would be absurd to hold that a manufacturer could sell a branded product to a
[gray market] distributor without restriction and then tell the distributor that it could not resell the
branded goods without either paying for a trademark ‘license’ or removing the trademark.”69
KILPATRICK TOWNSEND
1.
The Significance of Common Control and Materially Identical Goods
The first sale doctrine applies with full force in gray market infringement litigation involving
genuine goods that are identical to their domestic counterparts and that are produced by affiliated
businesses. For example, in NEC Electronics v. CAL Circuit Abco,70 NEC-Japan, a manufacturer of
computer chips, assigned all rights to the registered NEC trademark to its wholly-owned subsidiary,
NEC-USA.71 The defendant subsequently purchased chips from a foreign source72 and marketed
them in the United States under the NEC mark.73 Faced with the undercutting of its domestic
market, NEC-USA brought an infringement action under §§ 32 and 43(a) against the importer.74
The Ninth Circuit, however, denied relief on the ground that no actionable confusion was possible
under these circumstances.
Similarly, in American Honda Motor Co. v. Carolina Autosports Leasing and Sales, Inc.,75 the
defendant imported goods bearing the HONDA mark that had been manufactured in Guam.
Invoking both §§ 32 and 43(a) of the Lanham Act, the plaintiff, a wholly-owned subsidiary of
the Japanese owner of the mark, maintained that it had developed a separate U.S. goodwill in the
mark and therefore was entitled to preliminary injunctive relief.76 The court, however, denied relief
in light of the corporate relationship between the plaintiff and the mark owner.77 Moreover, the
court held, “[t]here is no evidence or contention by the Plaintiff that there is any false designation
of origin, or any false description or representation. The automobiles sold by the Defendants are
manufactured by the registered owner of the trademark—Honda Co.”78 Under cases such as NEC
Electronics and American Honda, therefore, if there is no evidence that the marks affixed to goods
sold by a domestic plaintiff and a foreign manufacturer represent separate goodwill, then the goods’
importation is not actionable.
2.
The Significance of Material Differences in Gray Market Goods
A likelihood of confusion may be found in gray market cases if (1) the gray market good was not
intended to be sold in the United States, and (2) there are material differences between the gray
market good and the domestic version.79 The “material difference” rule protects consumers from
confusion that arises when the consumer does not obtain the “genuine” product, namely, the same
product that the trademark owner has authorized for sale in the United States. The rule also protects
the brand owner’s goodwill from erosion due to the fact that the goods sold do not share the same
characteristics as the owner’s domestic goods. In essence, the unauthorized importation and sale of
70
71
72
73
74
75
76
77
78
79
810 F.2d 1506 (9th Cir. 1987).
Id. at 1507.
The parties stipulated that the chips marketed by Abco were genuine NEC products. See id. at 1507–08.
Id. at 1508.
Id.
645 F. Supp. 863 (W.D.N.C. 1986).
Id. at 866.
Id.
Id.
See, e.g., Original Appalachian Artworks, Inc. v. Granada Elecs., Inc., 816 F.2d 68 (2d Cir. 1987); Société Des Produits Nestlé, S.A. v.
Casa Helvetia, Inc., 982 F.2d 633 (1st Cir. 1992).
139
materially different product will turn an otherwise genuine product into an unlawful one,80 and may
even result in a finding that the good now bears a counterfeit mark.81
Thus, for example, the pharmaceutical company Novartis has succeeded in two separate cases in
blocking the further sale of gray market pet medicine bearing its marks. In the first case, the plaintiff
escaped a finding that it had exhausted its trademark rights by demonstrating to the court’s satisfaction
that the challenged goods differed in numerous respects from their domestic counterparts: (1) they
failed to comply with U.S. packaging requirements; (2) they had different active ingredients; (3)
they were available without a prescription; and (4) they were accompanied with information specific
to the Australian market.82 The plaintiff’s showing in the second case was similar: (1) the imported
goods were not flavored, as were their domestic counterparts; and (2) their labeling failed to comply
with FDA regulations.83
In a case handled by Kilpatrick Townsend, Zino Davidoff SA has established that even a difference
invisible to consumers can be material and transform goods that are otherwise identical to those
authorized for sale in the United States into infringing product.84 In that case, the difference between
the genuine product authorized for sale in the United States and the unauthorized product was the
removal of a unique serial number used for quality control and anticounterfeiting purposes. This case
underscores that brand owners can enhance their ability to prevent the diversion of their products
through unauthorized channels of distribution by implementing a legitimate quality assurance
program that affords ongoing benefits to consumers after the point of first sale.
Whether a difference is indeed “material” for Lanham Act purposes turns on whether consumers
likely would consider the difference to be relevant when purchasing a product. Minimal differences
that are not likely to impact consumers’ expectations do not provide a basis for liability under the
Lanham Act. The differences have to be sufficiently significant to make it obvious to the average
consumer that the origin of the product differs from his or her expectations (i.e., that the foreign
product is not the genuine U.S. product). Moreover, material differences need not be physical, but
can consist of differences in warranty protection, service commitments, add-ons, bonus features, the
80 Société des Produits Nestlé, 982 F.2d 633; see also Martin’s Herend Imps., Inc. v. Diamond & Gem Trading USA Co., 112 F.3d 1296 (5th
Cir. 1997); R.J. Reynolds Tobacco Co. v. Premium Tobacco Stores, Inc., 52 U.S.P.Q.2d 1052 (N.D. Ill. 1999).
81 See Johnson & Johnson Consumer Cos. v. Aini, 540 F. Supp. 2d 374, 387 (E.D.N.Y. 2008).
82 See Novartis Animal Health US Inc. v. LM Connelly & Sons Pty. Ltd., 75 U.S.P.Q.2d 1513, 1516–18 (S.D.N.Y. 2005).
83 See Novartis Animal Health US Inc. v. Abbeyvet Exp. Ltd., 409 F. Supp. 2d 264, 266–67 (S.D.N.Y. 2005).
84 See Zino Davidoff SA v. CVS Corp., No. 06-CV-15332(KMK), 2007 WL 1933932 (S.D.N.Y. July 2, 2007), appeal docketed, No. 07-2872CV (2d Cir. July 3, 2007).
Trademark 301
As these outcomes demonstrate, the existence of material differences will trump the possibility that
the exhaustion doctrine otherwise might preclude relief. Thus, the law is quite clear that in the gray
goods context the first sale or exhaustion rule applies only to the resale of genuine goods that are
essentially identical to those authorized for sale in the United States. The first sale doctrine will not
apply if the gray market goods being challenged differ materially from authentic goods authorized
for sale in the domestic market.
KILPATRICK TOWNSEND
removal of product codes, and the like.85 A number of courts have made clear that the threshold of
materiality is not great.86
Not all differences, though, are material. For instance, a difference in pricing is not a material
difference.87 Similarly, superficial differences in quality control between authorized inspected
imports and unauthorized uninspected imports are unlikely to be sufficient to establish a material
difference.88 Further, the mere fact that goods may be shipped from the United States and then
imported back into the country, absent a clear showing that something happened to the goods in the
course of overseas shipping, will not constitute a material difference.89
D.
Available Remedies in Gray Market Goods Litigation Under Sections 32 and 43(a)
A brand owner that is successful in an action under §§ 32 and 43(a) of the Lanham Act is entitled to
the full panoply of remedies for trademark infringement under the Act, including injunctive relief,
damages, destruction orders, and an award of attorneys’ fees in exceptional cases.90
E.
Other Private Causes of Action Available to Gray Market Plaintiffs
1.
The Tariff Act
Under § 526 of the Tariff Act, a trademark owner can bar the importation of any product that
“bears a trademark owned by a citizen . . . of the United States, and [is] registered in the Patent
and Trademark Office.”91 Although § 526 expressly contemplates only a point-of-entry “shield”
administered by CBP, both the Federal Circuit and at least one federal district court have held that
the statute also creates a “sword” in the form of a private cause of action against importers.92 This
prohibition does not require the trademark owner to show that a likelihood of confusion exists. As
in the context of actions under §§ 32 and 43(a), however, this “extraordinary protection” does not
apply in situations where the U.S. trademark owner and the foreign manufacturer are corporate
affiliates or otherwise are subject to common ownership or control.93 Thus, for example, parallel
85 See, e.g., Société des Produits Nestlé, 982 F.2d at 639 n.7.
86 Id. at 641 (“[T]he threshold of materiality must be kept low.”); Original Appalachian Artworks, 816 F.2d at 73 (finding to be materially
different identical Cabbage Patch Kids dolls licensed for sale in Spain, but sold without accompanying documents provided to American
doll owners such as birth certificates, adoption papers, and birthday cards); Ferrero U.S.A., Inc. v. Ozak Trading, Inc., 952 F.2d 44, 46 (3d
Cir. 1991) (finding a material difference in the one-half calorie difference in composition of TIC-TAC breath mints, plus slight differences
in packaging and labeling); Philip Morris, Inc. v. Allen Distribs., Inc., 48 F. Supp. 2d 844, 853 (S.D. Ind. 1999) (finding material the lack
of redemption program benefit and differences in the storage of cigarettes); Fender Musical Instruments Corp. v. Unlimited Music Ctr., 35
U.S.P.Q.2d 1053, 1056 (D. Conn. 1995) (deeming material the differences in FENDER guitars in the shape of the neck, replacement parts,
available colors, and manufacturer’s warranty terms); Zino Davidoff SA v. PLD Int’l Corp., 56 U.S.P.Q.2d 1753, 1757 (S.D. Fla. 2000)
(finding a material difference in removal of product codes from gray market goods), aff’d, 263 F.3d 1297 (11th Cir. 2001).
87 See, e.g., Mavic, Inc. v. Sinclair Imps., Inc., No. Civ. A. 93-2444, 1994 WL 7703 (E.D. Pa. Jan. 12, 1994).
88 See, e.g., Iberia Foods Corp. v. Romeo, 150 F.3d 298 (3d Cir. 1998).
89 See, e.g., Am. Home Prods. v. Reliance Trading Co., 55 U.S.P.Q.2d 1756 (C.D. Cal. 2000).
90 See 15 U.S.C. §§ 1116–1118 (2006).
91 19 U.S.C. § 1526(d) (2006) (emphasis added).
92 See Vivitar Corp. v. United States, 761 F.2d 1552, 1570 (Fed. Cir. 1985); Osawa & Co. v. B & H Photo, 589 F. Supp. 1163, 1165 (S.D.N.Y.
1984).
93 See, e.g., Weil Ceramics & Glass, Inc. v. Dash, 878 F.2d 659 (3d Cir. 1989); Yamaha Corp. of Am. v. ABC Int’l Traders Corp., 703 F. Supp.
1398 (C.D. Cal. 1988), aff’d in relevant part, 940 F.2d 1537 (9th Cir. 1991). But see Vittoria N. Am., L.L.C. v. Euro-Asia Imps. Inc., 278
F.3d 1076, 1085 (10th Cir. 2001) (evidence of joint decision-making and cooperative efforts “is not evidence of control, but only of [U.S.
importer’s] understandable desire to preserve a good business relationship with [foreign manufacturer]”).
141
imports of goods manufactured abroad by a subsidiary, parent, or affiliate of the U.S. distributor and/
or U.S. trademark owner cannot be excluded under § 526.
To invoke the statute, the brand owner must show that (i) the U.S. trademark is owned and registered
in the United States by a party that is completely independent of the foreign manufacturer and
in which the U.S. party has separate goodwill, and (ii) the U.S. trademark registration has been
recorded with CBP. The remedies contemplated by § 526 include injunctive relief, the destruction
of the gray market goods, and damages.94 An important advantage of a claim under § 526 is that,
unlike claims under the Lanham Act, a trademark owner may be able to exclude gray goods that
are identical to the authorized U.S. goods, not just goods that are materially different, provided
that no common control over the trademark owner and the foreign manufacturer exists. The major
limitation of § 526 is that there is no bright-line test in the statute for determining whether complete
independence exists between the U.S. trademark owner and the foreign manufacturer. Consequently,
a claim under § 526 often can involve much litigation over the U.S. trademark owner’s relationship
with the foreign manufacturer.
2.
Dilution Principles
Independent of the relief available in an infringement action, the owners of certain well-known
marks also may be eligible for protection against the use of the same or similar marks that threaten
the distinctiveness of the senior mark. Relief against this type of injury is authorized by so-called
“dilution” statutes, which are generally available only to the owners of truly famous marks.
Consequently, if a mark has not acquired a high degree of fame and distinctiveness, its owner for the
most part will be limited to causes of action based on the likelihood of confusion standard.95
Subject to the principles of equity, the owner of a famous mark that is distinctive,
inherently or through acquired distinctiveness, shall be entitled to an injunction
against another person who, at any time after the owner’s mark has become
famous, commences use of a mark or trade name in commerce that is likely
to cause dilution by blurring or dilution by tarnishment of the famous mark,
regardless of the presence or absence of actual or likely confusion, of competition,
or of actual economic injury.97
94 See 19 U.S.C. § 1526(c) (2006).
95 See, e.g., Star Mkts., Ltd. v. Texaco, Inc., No. 95-01018BMK, 1996 WL 769210, at *4 (D. Haw. Nov. 8, 1996).
96 See, e.g., Nike Inc. v. Variety Wholesalers, Inc., 274 F. Supp. 2d 1352 (S.D. Ga. 2003), aff’d, 107 F. App’x 183 (11th Cir. 2004) (NIKE
trademark diluted by defendant’s use of NIKE mark on counterfeit goods); Bayer HealthCare LLC v. Nagrom, Inc., No. CIV.A.032448KHV, 2004 WL 2216491, at *4 (D. Kan. Sept. 7, 2004) (ADVANTAGE anti-flea medication for animals found “famous”; court
entered consent judgment holding importation of materially differing gray market product to violate federal dilution statute); Bayer Corp.
v. Custom Sch. Frames, LLC, 259 F. Supp. 2d 503, 509 (E.D. La. 2003) (same).
97 15 U.S.C. § 1125(c)(1) (2006).
Trademark 301
Where a mark is sufficiently famous and distinctive to qualify for protection under a dilution theory,
relief may be available under both state and federal law.96 The current federal dilution statute, which
became effective in November 2006, provides that:
KILPATRICK TOWNSEND
Over half of the states have enacted similar dilution statutes, with others adopting the doctrine by
judicial decree.
The implication for gray market goods cases may arise because the first sale doctrine is available as
a defense to dilution claims arising out of the sale of such goods. For example, in Minnesota Mining
& Manufacturing Co. v. Rauh Rubber, Inc.,98 the court held that the plaintiff’s rights did not extend
beyond the first sale of its products in interstate commerce based on an unusual fact pattern. The
plaintiff, a manufacturer of reflective products sold under the 3M mark, sold scrapped materials to
the defendant, believing that the defendant would undertake only to recycle them. The defendant,
however, sold certain of the materials to third parties for their intended use and apparently under the
plaintiff’s trademark.99 Under these circumstances, the court rejected the plaintiff’s federal dilution
claims, noting the absence of “any cases where a court has found trademark dilution from [the postsale] use of the trademark holder’s own products.”100
3.
Section 602(a) of the U.S. Copyright Act
U.S. copyright laws also may provide an additional weapon in stemming the flow of gray market
goods into the United States. To the extent that the gray market goods involve copyrighted works
(e.g., films, videos, books, or recordings), or aspects of goods that are copyrightable (e.g., packaging
of the goods), that are manufactured abroad, copyright protection may be available to prevent a
seller from importing such goods into the United States.
Under § 602(a) of the Copyright Act, the unauthorized importation of goods acquired outside the
United States into the United States is an infringement of the copyright owner’s exclusive right to
distribute under § 106 of the Copyright Act.101 However, as interpreted by the Supreme Court in
Quality King Distributors Inc. v. L’Anza Research International, Inc.,102 under the first sale doctrine
embodied in § 109(a) of the Copyright Act, goods manufactured domestically and then sold abroad
are not subject to the prohibition on import under § 602(a). Thus, if the gray market goods were
manufactured in the United States and sold abroad, there can be no violation of § 602(a) if the goods
make their way back into this country.
L’Anza, however, did not address the issue of whether the first sale doctrine would apply to ban
the parallel importation of goods of foreign manufacture that also are acquired abroad. Prior to
L’Anza, a number of decisions had held that the sale abroad of foreign manufactured goods did
not terminate the U.S. copyright holder’s exclusive distribution rights in the United States under
§§ 106 and 602(a).103 Accordingly, pre-L’Anza, a copyright holder could rely on § 602(a) to prevent
98 943 F. Supp. 1117 (D. Minn. 1996), aff’d, 130 F.3d 1305 (8th Cir. 1997).
99 Id. at 1122–23.
100 Id. at 1132; see also R.J. Reynolds Tobacco Co. v. Premium Tobacco Stores, Inc., No. 99-C-1174, 2001 WL 526676, at *2 (N.D. Ill. Mar.
22, 2001).
101 17 U.S.C. §§ 602(a) (2006).
102 523 U.S. 135 (1998).
103 Parfums Givenchy, Inc. v. Drug Emporium, Inc., 38 F.3d 477 (9th Cir. 1994); Columbia Broad. Sys., Inc. v. Scorpio Music Distribs, Inc.,
569 F. Supp. 47 (E.D. Pa. 1983), aff’d, 783 F.2d 421 (3d Cir. 1984); T.B. Harms Co. v. Jem Records, Inc., 655 F. Supp. 1575 (D.N.J. 1987);
Hearst Corp. v. Stark, 639 F. Supp. 970 (N.D. Cal. 1986).
143
the importation into the United States of gray market goods that had been manufactured and sold
abroad.
Whether these pre-L’Anza holdings are still valid law is open to debate. There is language in the
majority opinion that suggests the first sale doctrine might apply even to foreign manufactured
goods, but Justice Ginsburg, in a one-paragraph concurring opinion in L’Anza, firmly noted that the
Court’s opinion did not extend to foreign manufactured goods.104
A recent decision in the Ninth Circuit follows Justice Ginsburg’s suggestion. In Omega, S.A. v.
Costco Wholesale Corp.,105 the Court explicitly stated that the first sale doctrine is unavailable as a
defense to copyright infringement actions if an otherwise legitimate item was manufactured and first
sold outside of the United States. The opinion contains a lengthy analysis of the L’Anza decision,
but finds—in light of the majority’s very brief discussion on extraterritoriality, as well as Justice
Ginsburg’s unanswered caveat—that that opinion is not “clearly irreconcilable” with the Ninth
Circuit’s “general limitation of [the first sale doctrine] to copies that are lawfully made in the United
States.”106
At the present time, whether a claim under § 602(a) involving foreign manufactured goods will
succeed appears to be an open issue outside of the Ninth Circuit. Indeed, an earlier decision in the
Southern District of New York disregarded Justice Ginsberg’s admonition regarding the application
of § 602(a) to foreign manufactured copies.107
4.
Assistance Available from CBP in Excluding Gray Market Goods
a)
Possible Bases for Interdiction of Gray Market Goods by CBP
Brand owners can rely on two statutes to obtain the assistance of CBP to prevent gray market goods
from entering the United States. That assistance, however, is limited, as CBP has taken a rigid
approach to excluding gray market goods.
104 See L’Anza, 523 U.S. at 154 (Ginsburg, J., concurring) (“we do not today resolve cases in which the allegedly infringing imports were
manufactured abroad”).
105 541 F.3d 982, 987–90 (9th Cir. 2008) (reversing district court’s decision in favor of Costco: first sale doctrine unavailable as defense to
claims of infringing distribution and importation for unauthorized sale of authentic, imported watches bearing registered design).
106 Id. at 987.
107 See U2 Home Entm’t, Inc. v. Lai Ying Music & Video Trading, Inc., No. 04 Civ. 1233DLC, 2005 WL 1231645, at *9 (S.D.N.Y. May 25,
2005) (granting summary judgment and an award of $7.05 million against a company for, among other things, importing foreign copies
of copyrighted works in violation of § 602(a) of the Copyright Act), vacated in part on other grounds, 245 F. App’x 28 (2d Cir. Apr. 9,
2007).
108 19 U.S.C. § 1526 (2006).
Trademark 301
For example, under § 526 of the Tariff Act, CBP can exclude, seize, and/or seek the forfeiture of
gray market goods that feature a trademark owned by a citizen of the United States, registered in the
PTO, and recorded with CBP.108 In interpreting § 526, however, CBP has made it clear that it will
not exclude infringing goods if (i) the foreign and U.S. trademarks are owned by the same entity, by
KILPATRICK TOWNSEND
parent and subsidiary companies, or by companies subject to common ownership and control, or (ii)
the foreign goods bear a mark used under license from the U.S. trademark owner.109
Similarly, under § 42 of the Lanham Act, a party can seek to bar the importation of goods bearing
a mark that copies or simulates a registered trademark.110 Section 42 does not create a cause of
action against the infringing seller, but instead provides a means for trademark owners to obtain an
order to exclude gray market imports through CBP. One important difference between § 42 of the
Lanham Act and § 526 of the Tariff Act is that § 42 can preclude goods bearing a mark that copies
or simulates a U.S. trademark, whereas § 526 is limited to goods bearing the identical trademark.
In interpreting § 42 of the Lanham Act, a number of courts have limited availability as a tool to
exclude gray market goods by holding that it does not apply if the gray goods are genuine goods that
are materially identical to their domestic counterparts or the genuine goods are made by companies
that are affiliated or under common control or ownership. Nevertheless, § 42 does continue to
provide trademark owners with a means of excluding gray market goods entering the United States
when the goods involved are physically and materially different from the authorized U.S. versions.
For example, both the District of Columbia and First Circuits have held that § 42 of the Lanham
Act bars importations of gray market goods if the goods bear the same trademark as their domestic
counterparts but are materially different, regardless of the affiliation between the producing parties.111
b)
Relief Available from CBP Against the Importation of Gray Market
Goods
CBP’s role in excluding gray market goods is quite limited. In a situation involving gray market
goods that fall within the parameters of § 526 of the Tariff Act, CBP can exclude, seize, and seek
forfeiture of the gray market goods.112 For example, in situations where the imported goods are
physically and materially different, but originate from affiliated parties or parties under “common
control or ownership,” CBP has provided limited relief. A trademark owner can apply for what is
known as “Lever-rule protection,” named after the D.C. Circuit’s Lever decision.113 A trademark
owner can have CBP bar the importation of goods that are physically and materially different if
they are not properly labeled to make clear that the gray market goods are different from their U.S.
counterparts.
To obtain Lever-rule protection, a trademark owner must file an application with CBP describing
with competent evidence the physical and material differences between the gray market goods and
109 A trademark owner may also be able to obtain an exclusion and cease and desist order by filing a complaint with the International Trade
Commission (“ITC”) pursuant to § 337 of the Tariff Act, 19 U.S.C. § 1337. Upon filing a complaint, the ITC will make a determination as
to whether it will institute an investigation and refer the matter to a hearing before an Administrative Law Judge. While initiating an ITC
proceeding is a rarely sought avenue for relief in the context of gray market goods, for reasons that are beyond the scope of this article, it
is nevertheless a possible weapon to be considered.
110 15 U.S.C. § 1124 (2006).
111 See generally Société des Products Nestlé, S.A. v. Casa Helvetia, Inc., 982 F.2d 633 (1st Cir. 1992); Lever Bros. v. United States, 877 F.2d
101 (D.C. Cir. 1989), summary judgment granted on remand, 796 F. Supp. 1 (D.D.C. 1992), aff’d in part, vacated in part, 981 F.2d 1330
(D.C. Cir. 1993).
112 See, e.g., United States v. Eighty-Nine (89) Bottles of “Eau de Joy,” 797 F.2d 767 (9th Cir. 1986).
113 See Lever Bros., 877 F.2d at 109–11.
145
their U.S. counterparts.114 The trademark owner does not need to prove infringement, only that the
goods are physically and materially different. If the application is granted, the gray market goods
can enter the United States only if they are properly labeled with the following legend:
This product is not a product authorized for sale by the United States trademark
owner for importation and is physically and materially different from the
authorized product.115
The label needs to appear in close proximity to the trademark in its most prominent location. The
label cannot be removed until after the first point of sale to a retail U.S. consumer.116
While the protection afforded by Lever-rule protection is limited, the primary advantage to a
trademark owner is the ability to have the gray mark goods detained by CBP. The burden is then on
the importer to show that the goods are identical so that Lever-rule protection does not apply, failing
which the only way the importer can have the goods released is by labeling them in conformity with
the legend set forth above—which at the very least will provide some means of distinguishing the
gray market goods from their authorized U.S. counterparts.
III.
Conclusion
Trademark 301
U.S. trademark owners have a number of avenues to prevent or limit the flow of gray market goods
that are materially different from the authorized U.S. goods, but their recourse is limited by the
first sale doctrine when the gray goods are identical to the authorized U.S. goods. The best means
for brand owners to prevent the importation of gray market goods is, therefore, to differentiate the
products they offer in different geographic markets. For example, a brand owner can strengthen
its ability to take action against sellers of gray market products by introducing differences in the
appearance of products and packaging; labeling variations; differences in service commitments,
rebates, add-ons, or bonus features; and differences in quality control procedures between the
products authorized for sale in the United States and in foreign territories. In addition, brand owners
should consider placing geographic and resale limitations in their agreements with distributors and
licensees, consistent with applicable antitrust laws, to have possible contract remedies against the
sellers diverting the gray market goods.
114 See 19 C.F.R. § 133.2(e) (2008).
115 Id. § 133.23(b).
116 Id.
KILPATRICK TOWNSEND
147
Internet Branding
Judith A. Powell, Georges Nahitchevansky, James A. Trigg, Charles H. Hooker III, and
Allison M. Scott
I.
Introduction
“It is not easy to build brands in today’s environment. The brand builder who attempts to develop a
strong brand is like a golfer playing on a course with heavy roughs, deep sandtraps, sharp doglegs,
and vast water barriers. It is difficult to score well in such conditions.”1 Beyond the inherent
difficulties of brand-building such as creating a coherent brand strategy, competing on price, and
the need to invest resources in the core business, the ever-increasing role of the Internet brings
additional hurdles.
This article addresses areas of difficulty and contention in branding on the Internet. Beginning with
earlier consequences of Internet marketing, including the creation of the Internet Corporation for
Assigned Names and Numbers (“ICANN”) and the Anticybersquatting Consumer Protection Act
(“ACPA”), to more recent developments, such as pop-up and keyword advertising, screenscraping,
contributory infringement, and virtual worlds, this article sets forth the jurisprudence surrounding
disputes occurring along each of these frontiers. In part because the law in each of these areas has
been built upon principles developed in an immediately preceding area, and in part because the
technological advances in one area rely on those that came before, these developments are treated
in rough chronological order. Throughout, the law on Internet branding continues to develop and,
even along the most heavily litigated fronts, remains somewhat unsettled relative to other areas of
intellectual property law.
ICANN Dispute Resolution and the Anticybersquatting Consumer Protection Act
The rise of the Internet in the 1990s brought with it a new challenge to brand owners—cybersquatting.
In its most typical form, cybersquatting has involved the registration of domain names incorporating
well-known trademarks and brand names, with the hope of selling them to the rightful owner at
exorbitant prices. Until 1999, brand owners’ options were limited in pursuing such domain-name
pirates. Most often, they were forced to litigate using the relatively ill-fitting doctrines of trademark
infringement and dilution. Although courts generally were sympathetic to brand-owner plaintiffs in
such actions, existing trademark law generally was not well-equipped to combat cybersquatting.2
In response, ICANN established a dispute resolution policy that virtually all domain registrars have
since adopted,3 and Congress passed the ACPA.4
Thus, in addition to the earlier established doctrines of infringement, unfair competition, and
dilution, trademark owners today routinely employ two further regimes to counteract cybersquatting
1
2
3
4
David A. Aaker, Building Strong Brands 26 (1996).
See, e.g., Christopher R. Perry, Trademarks as Commodities: The “Famous” Roadblock to Applying Trademark Dilution in Cyberspace,
32 Conn. L. Rev. 1127 (2000).
See ICANN, Uniform Domain Name Dispute Resolution Policy, available at http://www.icann.org/en/dndr/udrp.htm (“UDRP”) (“All
registrars in the .biz, .com, .info, .name, .net, and .org top-level domains follow the Uniform Domain-Name Dispute-Resolution Policy.”)
(last visited Feb. 25, 2009).
15 U.S.C. § 1125(d) (2006).
Trademark 301
A.
KILPATRICK TOWNSEND
and its potentially deleterious effect on their brands. Both ICANN dispute resolution and the ACPA
have their own advantages and limitations, which have been extensively detailed and discussed
elsewhere.5 What follows briefly summarizes the current state of the law with respect to each
mechanism, highlighting, where possible, further resources for the interested reader.
1.
ICANN Dispute Resolution Services
ICANN is a non-profit, private-sector corporation created in 1998 by the U.S. Department of
Commerce to preserve the operational stability of the Internet. It specifically coordinates the
assignment of domain names, IP address numbers, protocol parameters, and port numbers.
To address cybersquatting, ICANN promulgated a Uniform Domain Name Dispute Resolution
Policy (“UDRP”)6 and the Rules for Uniform Domain Name Dispute Resolution Policy (“Rules”).7
ICANN approves dispute-resolution service providers (“DRSP”) who conduct the administrative
proceedings involving domain name disputes. These service providers are bound to conduct the
administrative proceedings in accordance with the UDRP and the Rules.
The UDRP operates between the registrars and the holder of the domain name registration; all
holders of domain name registrations take these names subject to the terms of the UDRP.8 The UDRP
requires all holders to submit to a mandatory administrative proceeding if a third party complainant
asserts that the domain name was wrongfully obtained. To prevail in the action, the complainant
must establish: (a) identical or confusing similarity; (b) the respondent has no legitimate interests
in the domain name at issue; and (c) the respondent registered and is using the domain name in bad
faith.9
a)
Identical or Confusing Similarity
To have a domain name transferred pursuant to ICANN’s UDRP, a complainant first must show that
the respondent’s domain name is “identical or confusingly similar” to the complainant’s trademark
or service mark.10 The UDRP does not require the complainant to have a registered mark. Moreover,
although the UDRP specifically mentions trademarks and service marks, and not other intangible
rights, some panel decisions have effectively allowed publicity rights to be asserted.11
See, e.g., Elizabeth M. Flanagan, No Free Parking: Obtaining Relief from Trademark-Infringing Domain Name Parking, 98 Trademark
Rep. 1160 (2008); Alyson B. Danowski, Defending Your Client’s Domain Name, 14 Intell. Prop. Strategist 3 (Sept. 2008).
6 ICANN UDRP, supra note 3.
7 ICANN, Rules for Uniform Domain Name Dispute Resolution Policy (Oct. 24, 1999), http.//www.icann.org/dndr/udrp/uniform-rules.htm
(“ICANN Rules”).
8 The UDRP states that by applying for a domain name registration, the applicant represents that, to the best of the applicant’s knowledge, its
domain name does not “infringe upon or otherwise violate the rights of any third party.” The UDRP further states the three circumstances
when the registrar will cancel or transfer a domain name registration: (1) if the owner consents; (2) if a court orders such a transfer; or (3)
if an administrative panel of an approved DRSP decides such a transfer is warranted. See id. ¶ 3.
9 Id.
10 Id. ¶ 4 (a)(i).
11 See Scarlett Johansson v. Tristan Dare, WIPO Case No. D2008-1650 (Dec. 16, 2008) (granting transfer of scarlettjohansson.com); Nick
Cannon v. Modern Limited – Cayman Web Development, WIPO Case No. D2005-0575 (Aug. 23, 2005) (granting transfer of nickcannon.
com); Kidman v. Zuccarini, WIPO Case No. D2000-1415 (Jan. 23, 2001) (granting transfer of nicolekidman.com and nicolekidmannude.
com); Julia Fiona Roberts v. Russell Boyd, WIPO Case No. D2000-210 (May 29, 2000) (granting transfer of juliaroberts.com). In many
of these cases, the panel found that the complainant’s name functioned as a “common law” mark. WIPO case decisions are available at
http://www.wipo.int/amc/en/domains/search.
5
149
Because most published opinions have involved very similar names, the “identical or confusingly
similar” element has not generated much controversy. In Gateway, Inc. v. James Cadieux, for
example, the respondent registered <pcgateway.com> and <pcgateway.net>, which were found
confusingly similar to complainant’s registered marks.12 In determining confusing similarity, the
DRSP panel typically does not analyze the traditional likelihood of confusion factors such as the
similarity of goods and services or channels of trade.13 Rather, the marks are assessed alone, without
market context.
On occasion, however, complainants fail to establish confusing similarity, especially when the
complainant’s mark is weak or when the third-party uses of the mark are prevalent. For example, in
Reed Publishing v. Select Gourmet Foods Inc., the panel found the respondent’s domain registration
for <whoiswhoinlaw.com> and <whoiswhoinpolitics.com> not confusingly similar to complainant’s
WHO’S WHO IN AMERICAN LAW and WHO’S WHO IN AMERICAN POLITICS trademarks.14
Among other reasons, respondent successfully demonstrated numerous third-party uses of the
“who’s who” motif without geographical limitations.
b)
Respondent Has no Legitimate Interest in the Domain Name
In addition to confusing similarity, the UDRP requires a complainant to establish that the respondent
has “no rights or legitimate interests in respect of the domain name.”15 A complainant may discharge
this burden by stating the reason “why [the respondent] should be considered as having no rights or
legitimate interests” in the domain name.16 If the complainant has a federally registered trademark,
nationwide constructive notice can be asserted to demonstrate the respondent’s lack of legitimate
rights or interests in the domain name.17
12
13
14
15
16
17
WIPO Case No. D2000-0198 (May 25, 2000).
See, e.g., Fed. Cartridge Co. v. Madmouse Commc’ns, WIPO Case No. D2001–0756 (July 24, 2001).
CPR File No. CPR004 (Aug. 29, 2000).
See ICANN UDRP, supra note 3, ¶ 4(a)(ii).
See ICANN Rules, supra note 7, ¶ 3(b)(ix)(2).
See Cyberbingo Corp. v. 207 Media Inc., WIPO Case NO. D2005-0714 (Oct. 4, 2005) (“Actual or constructive knowledge of Complainant’s
CYBERBINGO trademark registration, prior to registration of the confusingly similar domain name in dispute, undermines any claim
to legitimacy.”); Sunfest v. Elec. Sys. Tech., Inc., WIPO Case No. D2000-0631 (Oct. 3, 2000); J. Crew Int’l v. crew.com, WIPO Case No.
D2000-0054 (Apr. 20, 2000).
18 WIPO Case No. D2000-0225 (May 23, 2000). See also Wal-Mart Stores, Inc. v. Walmarket Canada, WIPO Case No. D2000-0150 (May
2, 2000).
19 WIPO Case No. D2000-0225.
Trademark 301
If the complainant provides a credible reason why the respondent has no legitimate interests, the
burden generally shifts to the respondent to demonstrate some legitimate interest. For example,
in Nandos International Limited v. M Fareed Farukhi,18 the complainant stated that it filed a U.S.
trademark application for the mark NANDO’S at least five years before the respondent registered
the domain names <nando.com> and <nandoschicken.com>, but the respondent failed to submit
evidence of interest in the name. Accordingly, the panel concluded the respondent lacked a legitimate
interest in the domain name.19
KILPATRICK TOWNSEND
In view of this shifting burden, the UDRP provides guidance to respondents seeking to demonstrate
legitimacy by setting forth three indicia of legitimate interests.20 Establishing one of these indicia
effectively will prevent a complainant from establishing the second prong—“lack of legitimate
interests”—and allows a respondent to maintain it lacked bad faith (the third prong), discussed infra.
The three indicia of legitimate interest in the domain name are:
(1)
(2)
(3)
before any notice to [the holder] of the dispute, [the holder’s] use of, or demonstrable
preparations to use, the domain name or a name corresponding to the domain name in
connection with a bona fide offering of goods or services; or
[the holder] (as an individual, business, or other organization) [has] been commonly
known by the domain name, even if [the holder has] acquired no trademark or service
mark rights; or
[the holder is] making a legitimate noncommercial or fair use of the domain name,
without intent for commercial gain to misleadingly divert consumers or to tarnish the
trademark or service mark at issue.21
First, if the respondent can show it was selling goods bearing the mark before it knew of the dispute,
then a legitimate right generally is established. Similarly, if the respondent has adopted a generic
term describing the goods he sells, then a panel is more apt to find legitimate rights. For instance,
in Eauto, LLC v. Triple S. Auto Parts, the respondent had been selling auto lamps and decided to
market them on the web.22 The panel decided that “eautolamps” was an example of an Internetbased description of a generic product because “the letter ‘e’ preceding [a product] has come to
be understood as an electronic, Internet-based form of the same.”23 Thus the panel held for the
respondent. However, merely using the domain name to link to other sites does not constitute a bona
fide offering of goods or services.24
The second indicator of a “legitimate interest” provides protection to respondents who register
domains for their commonly known names, even if they have not acquired trademark rights in the
names.25 This clause protects a company that does not use its name in conjunction with goods or
services, but nevertheless registers the company name as part of a domain name. An effort to register
a common name in such circumstances negates the intent to pirate the rights of others, which is the
narrow target of the ICANN system.26
See ICANN UDRP, supra note 3, ¶ 4(c).
See id.
WIPO Case No. D2000-0047 (Mar. 24, 2000).
Id. at 5.
See Pardes Inst. of Jewish Studies v. Hans Schultz LLC, WIPO Case No. D2008-0648 (July 3, 2008) (citing cases); Sunfest, WIPO Case
No. D2000-0631; Easy Jet Airline Co. v. Steggles, WIPO Case No. D2000-0024 (Mar. 17, 2000).
25 ICANN UDRP, supra note 3, ¶ 4 (c)(ii); see Ken’s Foods Inc. v. kens.com, WIPO Case No. D2005-0721 (Sept. 11, 2005) (refusing to
transfer kens.com, the domain name at which respondent, whose given name was “Ken,” operated a weblog).
26 See ICANN, Domain Name Dispute Resolution Policies, http://www.icann.org/udrp/ (last visited Mar. 25, 2009) (describing the purpose
of the ICANN system as preventing “abusive” registrations).
20
21
22
23
24
151
Third, the UDRP protects legitimate non-commercial or fair use of the domain name so long as
customers are not diverted or trademark rights are not tarnished for commercial gain.27 This defense
is commonly invoked, but is rarely successful, especially if the respondent sells goods in addition
to criticizing the trademark owner. In Monty and Pat Roberts, Inc. v. Bill Keith,28 for example,
the panel rejected respondent’s free-speech assertion, stating “[t]he fact that Respondent’s primary
motive for establishing its site may be to criticize Complainant does not insulate Respondent from
the fact that it is directly and indirectly offering products for sale . . . .”29
c)
Bad Faith Even if a complainant shows that the respondent holds a domain name that is confusingly similar
to the complainant’s trademark and that the respondent has no legitimate rights or interests in the
mark, the complainant still must establish that the respondent has registered and is using the domain
name in “bad faith.”30
The “use” requirement has caused concern for complainants because the UDRP does not clearly
define this term and many cybersquatters do not actively use the domain names they have registered.
In general, if the domain name registered by respondent has any display, or if the domain name
owner makes any attempt to sell the name at a profit, then the use requirement probably will be met.31
Absent such activity, a panel may find the use requirement lacking.32 However, if the trademark at
issue is particularly strong and well-known, a distinct possibility exists that a panelist will overlook
the use requirement and order the transfer of the name.33
Assuming the use requirement is met, a complainant still must demonstrate respondent’s bad faith.34
The UDRP provides four specific circumstances that satisfy this element:
27 See ICANN UDRP, supra note 3, ¶ 4 (c)(iii).
28 WIPO Case No. D2000-0299 (June 9, 2000).
29 Id. at 10. Compare Sermo, Inc. v. CatalystMD, LLC, WIPO Case No. D2008-0647 (July 2, 2008) (refusing to transfer domain name
because respondent had a legitimate interest in using the domain name sermosucks.com in connection with a criticism site which he
operated without any intent for commercial gain).
30 ICANN UDRP, supra note 3, ¶ 4 (a)(iii).
31 See, e.g., World Wrestling Fed’n, Inc. v. Bosman, WIPO Case No. D1999-0001 (Jan. 4, 2000) (holding that the offer to sell the domain
name registration to the complainant for a profit was a sufficient “use” of the domain name to satisfy the UDRP).
32 See, e.g., Cyro Indus. v. Contemporary Design, WIPO Case No. D2000-0336 (June 19, 2000) (holding that because respondent never
posted a web site at the domain name <acrylite.com> and never contacted the complainant, it did not use the domain name as the UDRP
requires); Sporoptic Pouilloux S.A. v. William H. Wilson, WIPO Case No. D2000-0265 (June 16, 2000) (refusing to transfer domain name
because no evidence indicated respondent did anything other than register the domain name in bad faith).
33 Telstra Corp. Ltd. v. Nuclear Marshmallows, WIPO Case No. D2000-0003 (Feb. 18, 2000) (because the complainant’s trademark was
strong and the respondent attempted to conceal its identity, the panel reasoned that respondent’s activities were inconsistent with a good
faith use of the domain name); see also Société pour l’Oeuvre et la Mémoire d’Antoine de Saint Exupéry – Succession Saint Exupéry
– D’Agay v. Perlegos Properties, WIPO Case No. D2005-1085 (Jan. 2, 2006) (transferring thelittleprince.com despite the fact that
respondent was not making use of the website).
34 ICANN UDRP, supra note 3, ¶ 4 (a)(iii).
Trademark 301
(i) circumstances indicating that [the holder has] registered or [has] acquired the domain
name primarily for the purpose of selling, renting or otherwise transferring the domain
name registration to the complainant who is the owner of the trademark or service mark or
KILPATRICK TOWNSEND
to a competitor of that complainant, for valuable consideration in excess of [the holder’s]
out-of-pocket costs directly related to the domain name; or
(ii) [the holder has] registered the domain name in order to prevent the owner of the
trademark or service mark from reflecting the mark in a corresponding domain name,
provided that [the holder has] engaged in a pattern of such conduct; or
(iii) [the holder has] registered the domain name primarily for the purpose of disrupting
the business of a competitor; or
(iv) by using the domain name, [the holder has] intentionally attempted to attract, for
commercial gain, Internet users to [its] website or other online location, by creating a
likelihood of confusion with the complainant’s mark as to the source, sponsorship,
affiliation, or endorsement of [the holder’s] website or location or of a product or service
on [the holder’s] website or location.35
Numerous panel decisions explain and apply each of these bad faith indicia. They are briefly
addressed here.
i)
Primary Purpose to Sell the Name
Panels generally have adopted a rather low threshold for establishing a primary intent to sell the
name to a trademark owner or a competitor. This is likely due in part to the reality that if the
complainant has shown that the domain name is confusingly similar to its trademark, and that the
respondent has no legitimate interests in the name, then “bad faith” can be inferred. For example,
in Home Interiors & Gifts, Inc. v. Home Interiors, the panel found that the posting of a counter
displaying web page hits at the websites <homeinteriors.net> and <homeinteriorsandgifts.com> was
enough to show an intent to sell, because the counter illustrated the number of diverted web users,
and thus supported the cybersquatter’s price.36 Likewise, Educational Testing Service v. TOEFL
concluded that proof of a general intent to sell the website <toefl.com> to any buyer, as contrasted
with an intent to sell the domain name to the trademark owner or its competitor, was sufficient to
show bad faith.37
ii)
Pattern of Bad Faith Registration
A pattern of infringing registrations also supports a finding of bad faith.38 This indicator is aimed
at the stereotypical cybersquatter who has registered numerous domain names incorporating wellknown trademarks. While an obvious cybersquatter may have hundreds of registrations, the more
difficult question arises when a respondent has registered only a few suspect domain names. Panels
have been inconsistent concerning how many suspicious registrations are sufficient to constitute bad
35 Id. ¶ (4)(b). The UDRP sets forth the elements out in second person, addressing the registrants of domain names more directly in an
apparent effort to give clear notice that their registrations are subject to the terms of the UDRP.
36 WIPO Case No. D2000-0010 (Mar. 7, 2000).
37 WIPO Case No. D2000-0044 (Mar. 16, 2000).
38 ICANN UDRP, supra note 3, ¶ 4(b)(ii).
153
faith: one case found two or three insufficient;39 another found three to be enough.40 While no magic
number exists, if a respondent has substantially more than three dubious registrations, a pattern is
likely to be found, especially if the registrations contain well-known trademarks.
iii)
Registration Primarily to Disrupt a Competitor’s Business
Panels have had little difficulty finding bad faith when a respondent has registered a mark primarily
to deny a competitor use of a mark on the Internet.41 In Georgia Gulf Corp. v. The Ross Group, for
instance, respondent had registered domain names nearly identical to its competitors’ trade names.42
The respondent’s website simply displayed a notice that the registered site had been reserved
and gave contact information.43 After being served with a complaint, the respondent e-mailed
the complainant and offered to sell the site for $36,000.44 The panel concluded that respondent
“registered the domain name to prevent complainant from reflecting the mark in a corresponding
domain name and . . . primarily for the purpose of disrupting the business of a competitor.”45
iv)
Creating Confusion for Commercial Gain
Finally, bad faith generally will be found when a respondent creates confusion between the domain
name and another’s trademark to attract users to its website. For example, in British Broadcasting
Corp. v. Renteria, the respondent, an individual in Caracas, Venezuela, registered the domain names
<bbcdelondres.com>, <bbcenespanol.com>, <bbcenespanol.net>, and <bbcenespanol.org>.46 At
one of these sites, the respondent used the BBC’s logo, framed the content of its website, and
described itself as being a “world leader in news” offering “up to date, accurate and independent
information 24 hours a day.”47 The panel concluded such conduct constituted an intentional attempt
to lure web users for commercial gain by creating confusion as to source, sponsorship, or affiliation.48
39 Ingersoll-Rand Co. v. Gully, WIPO Case No. D2000-0021 (Mar. 9, 2000). But see Vitro S.A. de C.V., v. ICG, WIPO Case No. D2005-1150
(Dec. 26, 2005) (stating that while generally, two dubious registrations was insufficient to show a pattern for bad faith purposes, such a
strict conception was not required where respondent was complainant’s former employee and the two domain names he registered were
the two most obvious domain names for complainant).
40 Bellevue Square Managers, WIPO Case No. D2000-0056.
41 ICANN UDRP, supra note 3, ¶ 4(b)(iii).
42 WIPO Case No. D2000-0218 (June 14, 2000).
43 Id.
44 Id.
45 Id. at 3.
46 WIPO Case No. D2000-0050 (Mar. 23, 2000).
47 Id. at 4.
48 Id. at 6.
Trademark 301
In sum, under the ICANN UDRP, domain names are transferred when the domain name is identical
or confusingly similar to another’s trademark or service mark, the domain-name registrant has no
legitimate interests in the domain, and the registrant acted in bad faith. Good faith domain name
registrations that result in likelihood of confusion or trademark dilution should not be transferred
in an ICANN proceeding. In this way, the ICANN dispute resolution system is not an alternative
vehicle for vindicating trademark rights. In practice, much turns on what kind of proof is available
to establish “bad faith.” Because no effective discovery mechanism exists, a complainant often
KILPATRICK TOWNSEND
will have to demonstrate bad faith with publicly available information or proof of extortionary
communications made by the respondent.
Finally, participants in ICANN proceedings should know that an ICANN decision is not the “final
word.” Participants dissatisfied with an ICANN result can suspend the transfer of a contested domain
name by filing a federal district court action and providing notice to the domain name registrar
within ten days of the adverse ICANN ruling.49 Thus, the only real effect of an ICANN proceeding
is to transfer possession of a domain name, as participants’ legal rights are not affected by the
outcome. Few bad faith cybersquatters, however, will likely file a lawsuit to recapture registrations
due to the scrutiny they are likely to be subjected to and the prohibitive costs of litigation.
2.
The Anticybersquatting Consumer Protection Act
For brand owners seeking greater legal force than is available under the ICANN UDRP for ill-gotten
domain names that threaten a strong mark or brand, the ACPA was enacted in 1999 as an addition
to the Lanham Act.50 Like other Lanham Act claims, a plaintiff may seek injunctive relief, an
accounting of defendant’s profits, actual damages, costs, and attorneys’ fees.51 In the alternative, the
ACPA provides that a “plaintiff may elect, at any time before final judgment is rendered by the trial
court, to recover, instead of actual damages and profits, an award of statutory damages in the amount
of not less than $1,000 and not more than $100,000 per domain name, as the court considers just.”52
The availability of statutory damages can be used to incentivize settlement or to envision summary
judgment as a plaintiff’s end-game.
To prevail on the merits under the ACPA, the plaintiff must show that: (1) its mark is distinctive or
famous; (2) the defendant’s domain name is “identical or confusingly similar” to plaintiff’s mark,
or dilutive of its famous mark; and (3) the defendant acted with a bad faith intent to profit from
plaintiff’s mark.53 One difference between these elements and the elements under the ICANN
UDRP is that the ACPA prohibits domain names that are “dilutive” of a famous mark. The term
“dilutive” broadens the field of potentially infringing domain names to include not only confusingly
similar names, but also those that weaken the selling power of the famous mark.54 At least one
appellate court specifically has adopted the criteria for determining fame set forth in the Federal
Trademark Dilution Act.55
The protection against trademark dilution in this context may encompass “[trademark] sucks”
registrations, which have not consistently been deemed confusingly similar. In Lucent Technologies,
49 See ICANN UDRP, supra note 3, ¶ 4(k) (“If an Administrative Panel decides that [respondent] domain name registration should be
canceled or transferred, we will wait ten (10) business days (as observed in the location of our principal office) after we are informed by
the applicable Provider of the Administrative Panel’s decision before implementing that decision.”).
50 See 15 U.S.C. § 1125(d) (2006).
51 See Id. §§ 1114, 1116–1117 (2006).
52 Id. at § 1117.
53 See Sporty’s Farm L.L.C. v. Sportsman’s Market, Inc., 202 F.3d 489, 497 (2d Cir. 2000); Globalsantafe Corp. v. Globalsantafe.com, 250
F. Supp. 2d 610, 616 (E.D. Vir. 2003).
54 Compare with ICANN UDRP, supra note 3, ¶ 4(a)(i) (noting that the standard is “identical or confusingly similar to a trademark or service
mark in which the complainant has rights”).
55 Sporty’s Farm, 202 F.3d at 497.
155
Inc. v. Johnson, the plaintiff stated a claim under the ACPA where the defendant’s <lucentsucks.
com> domain allegedly displayed pornography.56 The court determined that such an association
could “corrode[] the positive associations of the plaintiff’s mark, thereby reducing the mark’s
value,” which is actionable under a dilution theory.57
Another facial difference between the ACPA and the ICANN UDRP is the former’s explicit inclusion
of rights of publicity.58 The statute includes an individual’s name, whereas the UDRP only includes
trademarks and service marks.59 While several ICANN decisions have transferred domain names
based on rights of publicity, a panel could read the language of the UDRP more narrowly.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
the trademark or other intellectual property rights of the person, if any, in the domain
name;
the extent to which the domain name consists of the legal name of the person or a name
that is otherwise commonly used to identify that person;
the person’s prior use, if any, of the domain name in connection with the bona fide offering of any goods or services;
the person’s bona fide noncommercial or fair use of the mark in a site accessible under
the domain name;
the person’s intent to divert consumers from the mark owner’s online location to a site
accessible under the domain name that could harm the goodwill represented by the
mark, either for commercial gain or with the intent to tarnish or disparage the mark, by
creating a likelihood of confusion as to the source, sponsorship, affiliation, or endorsement of the site;
the person’s offer to transfer, sell, or otherwise assign the domain name to the mark
owner or any third party for financial gain without having used, or having an intent to
use, the domain name in the bona fide offering of any goods or services, or the person’s
prior conduct, indicating a pattern of such conduct;
the person’s provision of material and misleading false contact information when applying for the registration of the domain name, the person’s intentional failure to maintain accurate contact information, or the person’s prior conduct indicating a pattern of
such conduct;
the person’s registration or acquisition of multiple domain names which the person
knows are identical or confusingly similar to marks of others that are distinctive at
the time of registration of such domain names, or dilutive of famous marks of others
56 56 U.S.P.Q. 2d 1637 (C.D. Cal. 2000). But see Lucent Techs., Inc. v. Lucentsucks.com, 95 F. Supp. 2d 528, 535 (E.D. Va. 2000) (suggesting
that use of “sucks” in domain name would not, in and of itself, be actionable).
57 Lucent Tech., Inc. v. Johnson, 57 U.S.P.Q.2d at 1639.
58 15 U.S.C. § 1125(d)(1)(A) (2000) (“[A] person shall be liable in a civil action by the owner of a mark, including a personal name which
is protected as a mark under this section”).
59 ICANN UDRP, supra note 3, ¶ 4(a)(i) (stating that respondent’s “domain name is identical or confusingly similar to a trademark or
service mark in which the complainant has rights”) (emphasis added).
Trademark 301
Like the ICANN dispute resolution system, the central issue under the ACPA is the defendant’s
bad faith. The ACPA sets forth a list of factors the courts may consider in determining whether a
registration is actionable:
KILPATRICK TOWNSEND
(9)
that are famous at the time of registration of such domain names, without regard to the
goods or services of the parties; and
the extent to which the mark incorporated in the person’s domain name registration is
or is not distinctive and famous within the meaning of the [list of factors for determining fame under § 43(c)(1) of the Lanham Act].60
While these factors are similar to the bad faith factors found in the ICANN system, two important
differences exist. The most significant is the absence of any requirement that the domain name
registrant actually use the domain name. As discussed above, the ICANN UDRP states that the
complainant must show that the registration “has been registered and is being used in bad faith.”61
By contrast, the ACPA imposes liability on any person who “registers, traffics in, or uses a domain
name” in bad faith.62 Because many cybersquatters register hundreds of names and never use them,
the ACPA’s broad reach is a truly significant feature.
Courts generally apply the bad faith factors listed in the statute,63 but they also have considered
other factors, as the ACPA clearly contemplates. In Sporty’s Farm L.L.C. v. Sportsman’s Market,
Inc., for example, the court found bad faith even when the counterclaim defendant, owner of the
<sportys.com> domain name, did not seek to sell the domain name back to the trademark owners.64
The court analyzed all nine factors, but was most moved by the “unique circumstances” of the case,
which included evidence that the defendant’s parent corporation knew of the plaintiff’s SPORTY’S
trademark for aviation goods and services at the time of registration, and was planning to go into
direct competition with it in these markets.65 The court determined that the defendant registered “for
the primary purpose of keeping Sportsman’s from using that domain name.”66
In Shields v. Zuccarini, the plaintiff operated a popular website at <www.joecartoon.com>, which
featured plaintiff’s humorous animations.67 The defendant registered the domains <joescartoon.
com>, <joecarton.com>, <joescartons.com>, and <cartoonjoe.com>, which featured advertisements
for other sites and credit card companies.68 Visitors who accidentally misspelled the Joe Cartoon web
address were “mousetrapped” in the defendant’s site, prevented from easily exiting by a succession
of ads which came up on the screen.69
60 15 U.S.C. § 1125(d)(1)(B)(i) (2006). The ACPA further states: “Bad faith intent described under subparagraph (A) shall not be found in
any case in which the court determines that the person believed and had reasonable grounds to believe that the use of the domain name
was a fair use or otherwise lawful.” Id. § 1125(d)(1)(B)(ii). At lease one court of appeals has held that the usual preponderance of the
evidence standard applies to claims of bad faith under this section of the Lanham Act. See Harrods Ltd. v. Sixty Internet Domain Names,
302 F.3d 214, 227 (4th Cir. 2002).
61 See ICANN UDRP, supra note 3, ¶ 4(a)(iii) (emphasis added).
62 15 U.S.C. § 1125(d)(1)(A)(ii) (2006) (emphasis added).
63 See Northland Ins. Cos. v. Blaylock, 115 F. Supp. 2d 1108, 1124 n.8 (D. Minn. 2000).
64 202 F.3d 489 (2d Cir. 2000).
65 Id. at 499.
66 Id.
67 89 F. Supp. 2d 634 (E.D. Pa. 2000), aff’d, 254 F.3d 476 (3d Cir. 2001). On appeal, the Third Circuit rejected defendants’ argument that
the ACPA was not meant to prevent intentional misspellings, also known as “typosquatting.” Id. at 483.
68 Shields, 89 F. Supp 2d at 635.
69 Id.
157
The court easily concluded that the defendant registered with the required bad faith: he had no bona
fide intellectual property rights to the name, the name was not his personal name, and he admitted
in court that he registered thousands of names, and their misspellings, in an effort to divert Internet
traffic to his sites.70 Ultimately, Shields awarded the plaintiff $50,000 in statutory damages ($10,000
per infringing domain name), attorneys’ fees of $35,798.50, and costs of $3,310.96.71
Shields illustrates well the advantages of pursuing cybersquatters under the ACPA, which makes
available not only statutory damages (potentially providing a means of lower litigation costs) or
profits and actual damages (providing for potentially larger damages amounts), but also attorneys’
fees and costs. Since professional cybersquatting defendants often have hundreds or thousands
of illegitimate domain names, simply losing several of them in a court ordered transfer does not
seriously affect their operations. Cases like Shields properly compensate plaintiffs and serve as a
deterrent to future piracy.72 Thus, for plaintiffs willing to undertake the expense of litigation—as
opposed to the generally less expensive alternative of dispute resolution under the ICANN UDRP—
asserting claims pursuant to the ACPA may be the preferred means of establishing proper domain
name ownership.
B.
Pop-up Ads
Even after a brand owner thoroughly establishes its ownership of domain names associated with its
trademarks, service marks, and trade names, branding on the Internet presents additional challenges,
such as potential infringement or dilution from others’ uses of pop-up advertisements and search
engine keyword terms. These new challenges owe their existence to the more interactive nature of
branding on the Internet.
In contrast to the traditional advertising model, the Web is all about experiences. In the
Web environment, the role of the audience is an active one; the lean-forward rather than
the lean-back attitude changes everything. The audience member usually has a functional
goal in mind—seeking information, entertainment, or transactions—and ignores or treats
as an annoyance anything that gets in the way . . . .73
70 Id. at 640.
71 Shields v. Zuccarini, No. Civ.A. 00-494, 2000 WL 1053884 (E.D. Pa. July 18, 2000).
72 Courts interpreting the ACPA have evidenced a willingness to impose significant statutory damages awards. In Electric Boutique Holdings
Corp. v. Zuccarini, 56 U.S.P.Q.2d 1705 (E.D. Pa. 2000), aff’d, 33 F. App’x 647 (3d Cir. 2002), the court awarded the plaintiff $500,000
in statutory damages, $100,000 for each of the five infringing domain names registered by defendant Zuccarini. See also Pinehurst, Inc.
v. Wick, 256 F. Supp. 2d 424 (M.D.N.C. 2003) (awarding trademark holder $100,000 in statutory damages).
73 David A. Aaker & Erich Joachimsthaler, Brand Leadership 233 (1999).
74 “A ‘pop-up’ ad appears on a computer screen to obscure and cover most of the information on the screen.” 4 J. Thomas McCarthy,
McCarthy on Trademarks and Unfair Competition § 25:70.75 (4th ed. 2009). Using similar technology, but generally causing slightly
less irritation, a “pop-under” ad “opens a new browser window hidden under the active window.” See http://en.wikipedia.org/wiki/Popup_advertising (last visited on Mar. 26, 2009).
Trademark 301
In many ways, pop-up advertising epitomizes both the “lean-forward” approach of Internet
marketing and the potential disregard consumers show for annoying or superfluous information.74
KILPATRICK TOWNSEND
By “popping-up” in response to consumers’ own Internet searches,75 pop-up ads have provided
advertisers with the ability to target and engage potential customers based on consumers’ own
behavior. The irritation often caused by pop-up ads, however, has given rise to a veritable cottage
industry aimed at suppressing this medium.
Pop-ups became popular after the original form of Internet advertising, the banner ad, proved less
effective than advertisers had hoped.76 In particular, the “click through rate” of banners caused
many advertisers to believe that the Internet would never become a viable marketing medium. As a
result, Internet advertising revenues began to diminish until around 2002, when pop-up ads began
to become extremely popular. From that time until 2004, when Microsoft released Service Pack 2
for Windows XP—aimed at suppressing most pop-ups—pop-up advertising enjoyed what may have
been its zenith.77
Around the time pop-up advertising began encountering technological obstacles, it started facing
new legal challenges as well. In 2003, several companies brought suit against a pop-up advertiser,
WhenU.com, Inc.78 The trademark infringement claims asserted in these lawsuits alleged that the
pop-up ads disseminated by WhenU.com confused Internet users into believing that the pop-up ads
were approved by, or associated with, the website triggering the pop-up ad.79
The district courts for the Eastern District of Virginia and Eastern District of Michigan held that
WhenU.com had not violated the Lanham Act because it had not “used” the respective plaintiffs’
trademarks within the Act’s definition of “use in commerce.”80 U-Haul’s claims against WhenU.
com in Virginia were dismissed on summary judgment because “(1) WhenU’s pop-up window is
separate and distinct from U-Haul’s Web site, (2) WhenU does not advertise or promote U-Haul’s
trademarks . . . , and (3) [WhenU’s] SaveNow program does not hinder or impede Internet users
from accessing U-Haul’s Web site in such a manner that WhenU ‘uses’ U-Haul’s trademarks.”81
Similarly, the Eastern District of Michigan refused to grant Wells Fargo the preliminary injunction
it sought against WhenU.com because Wells Fargo’s “marks are neither displayed or appear to be
displayed on WhenU’s windows, and the fact that WhenU advertisements appear on a computer
75 Pop-up ad programs take different forms but often are “bundled” with other free software programs and saved onto a consumer’s computer
when the consumer downloads the other free software, such as a free screensaver program. Once downloaded, the pop-ad program
“scan[s] the user’s Internet activity . . . . to deliver[] pop-up ads matched to the user’s perceived interests.” McCarthy, supra note 74,
§ 25:70.75.
76 See http://en.wikipedia.org/wiki/Pop-up_advertising (last visited on Mar. 26, 2009).
77 “Advertisers continually seek ways to circumvent such restrictions. For example, some pop-up ads are generated using Adobe Flash. Since
pop-up blockers only blocked the JavaScript method, the Flash method would bypass the pop-up blocker.” Id.
78 McCarthy, supra note 74, § 25:70.75 (citing U-Haul Int’l, Inc. v. WhenU.com, Inc., 279 F. Supp. 2d 723 (E.D. Va. 2003); 1-800 Contacts,
Inc. v. WhenU.com, Inc., 309 F. Supp. 2d 467 (S.D.N.Y. 2003); and Wells Fargo & Co. v. WhenU.com, Inc., 293 F. Supp. 2d 734 (E.D.
Mich. 2003)).
79 Id.
80 Section 45 of the Lanham Act defines “use in commerce” with respect to goods, inter alia, as “plac[ing] in any manner [a mark] on the
goods or their containers or the displays associated therewith or . . . on documents associated with the goods or their sale; it defines “use in
commerce” with respect to services as “us[ing] or display[ing the mark] in the sale or advertising of services and the services are rendered
in commerce . . . .” 15 U.S.C. § 1127 (2006).
81 U-Haul Int’l, Inc., 279 F. Supp. 2d at 729.
159
screen at the same time [that Wells Fargo’s] web pages are visible in a separate window does not
constitute a use in commerce of [Wells Fargo’s] mark.82”
Contrary to these decisions, the District Court for the Southern District of New York granted 1-800
Contacts a preliminary injunction against WhenU.com for WhenU’s pop-up ads for Vision Direct,
which appeared when an Internet user accessed 1-800 Contacts’ website.83 Because WhenU caused
Vision Direct’s pop-up ad to appear when a person entered 1-800 Contacts’ URL, the court found
that WhenU “used in commerce” 1-800 Contacts’ trademark to cause both initial-interest and actual
confusion.84 Accordingly, the court preliminarily barred WhenU from using 1-800 Contacts’ web
address in the SaveNow program that triggered the Vision Direct pop-up ads.85
The Second Circuit, however, reversed.86 Focusing on “[t]he fact . . . that WhenU does not reproduce
or display 1-800’s trademarks at all . . . [or] cause the trademarks to be displayed to a [computer]user,” the Second Circuit found that the “fatal flaw with [the district court’s] holding is that WhenU’s
pop-up ads do not display the 1-800 trademark” and thus cannot constitute a “use in commerce.”87
Expounding on the absence of “display,” the court opined:
A company’s internal utilization of a trademark in a way that does not communicate it to
the public is analogous to an individual’s private thoughts about a trademark. Such conduct
simply does not violate the Lanham Act, which is concerned with the use of trademarks
in connection with the sale of goods or services in a manner likely to lead to consumer
confusion as to the source of such goods or services.88
82 Wells Fargo & Co., 293 F. Supp. 2d 761.
83 1-800 Contacts, Inc., 309 F. Supp. 2d at 480.
84 As an additional basis for finding “use in commerce,” the district court concluded that WhenU’s inclusion of Plaintiff’s Web site
<www.1800contacts.com>, which incorporates the 1-800 CONTACTS trademark, “in the proprietary WhenU.com directory of terms
that triggers pop-up advertisements on SaveNow users’ computers . . . WhenU.com ‘uses’ Plaintiff’s mark . . . to advertise and publicize
companies that are in direct competition with Plaintiff.” Id. at 489.
85 Id.
86 See 1-800 Contacts, Inc. v. WhenU.com, Inc., 414 F.3d 400 (2d Cir. 2005).
87 Id. at 408–10 (emphasis in original).
88 Id. at 409.
89 Id. at 410 (“In addition, 1-800’s website address is not the only term in the SaveNow directory that could trigger a Vision Direct ad to
‘pop up’ . . . . For example, an ad could be triggered if a [computer]-user[] searched for ‘contacts’ or ‘eye care,’ both terms contained in
the directory, and then clicked on the listed hyperlink to 1-800’s website.”).
90 Id. at 409 n.12.
Trademark 301
Because WhenU merely used 1-800 Contacts’ website—not its trademark—in WhenU’s SaveNow
directory, which was not visible to the public or consumers, to trigger advertisements which popped
up in a separate window that was prominently branded with WhenU’s and Vision Direct’s own
trademarks, the Second Circuit held that no “use in commerce” occurred.89 From a practical
standpoint, the Second Circuit found it “noteworthy” that before filing this lawsuit, 1-800 Contacts
“entered into agreements with WhenU competitors Gator and Yahoo! to have its own pop-up and
banner ads delivered to [computer]-users in response to the [computer]-user’s input of particular
website addresses and keywords that were specified by 1-800.”90 The court harkened back to
traditional marketing principles, whereby vendors routinely “seek specific ‘product placement’ in
retail stores precisely to capitalize on their competitors’ name recognition”—such as a drug store
KILPATRICK TOWNSEND
placing “its own store-brand generic products next to the trademarked products they emulate in
order to induce a customer who has specifically sought out the trademarked product to consider the
store’s less expensive alternative.”91
Thus, a consensus appears to have emerged among courts that, as long as pop-up ads appear in a
separate window and do not use another’s trademark in the advertisement itself, they generally do
not violate the Lanham Act. This reasoning, developed in the pop-up advertising context, has held
considerable sway over the outcome of keyword-advertising cases, which are considered next.
C.
Keyword Advertising
Like pop-up ads, “keyword advertising” typifies the interactive contemporary approach to Internet
branding. By actively anticipating the content of consumers’ searches, keyword advertising allows
a brand owner to purchase commonly used search terms, or “keywords,” from an Internet search
engine like Google, so that an advertisement and link to the company’s website appears as a
“sponsored link” anytime consumers enter a search incorporating the keyword.92 For instance,
using Google’s “AdWords” program, “an advertiser can bid on terms (keywords) an Internet user
might enter as a search term on Google.”93 Google then links the purchased keyword terms with the
advertiser’s sponsored link or advertisement. “When an Internet user enters the keyword, it triggers
the sponsored link to appear on the search results page either to the right or immediately above
the search results.”94 In tandem with this program, Google has developed a “Keyword Suggestion
Tool,” which it employs to recommend customized keywords to advertisers.95
Keyword advertising has proven to be an effective marketing tool and has generated substantial
developments in trademark law.96 Disputes over keyword advertising have arisen in part because
search engines do “not always identify sponsored links as advertisements and . . . design[] those
appearing at the top of the search results to look like part of the ‘non-sponsored’ [or ‘organic’]
search results,”97 leading Internet users possibly to infer that a sponsored link is the most responsive
search result or is associated with a trademarked term the user entered.98
91 Id. at 411.
92 For example, when an Internet user enters a search on Google, the search engine compares the entered search terms with Google’s
databases of Web sites to “generate[] a listing of the sites matching those terms. These results are known as ‘organic listings.’ . . . Google
[also] sells the opportunity to have advertisements appear alongside the organic listings. In the Google system, such advertisements appear
as ‘Sponsored Links’ to the right of the organic search results.” Gov’t Employees Ins. Co. v. Google, Inc., 77 U.S.P.Q.2d 1841, 1843 (E.D.
Va. 2005) [“GEICO v. Google”].
93 Rescuecom Corp. v. Google, Inc., 456 F. Supp. 2d 393, 397 (N.D.N.Y. 2006).
94 Id.
95 Id.
96 See generally Jacob Jacoby and Mark Sableman, Keyword-Based Advertising: Filling in Factual Voids (GEICO v. Google), The
Trademark Reporter 681–751 (2007); Eric Goldman, Deregulating Relevancy in Internet Trademark Law, 54 Emory L.J. 507 (Winter
2005).
97 Rescuecom Corp., 456 F. Supp. 2d at 397.
98 As this article was being written, the gourmet fruit seller, Harry and David, filed suit against its rival Hickory Farms, Inc., alleging that
Hickory Farms misleads consumers who search for “Harry and David” by directing them to Hickory Farms’ website rather than to Harry
and David’s site. See Harry & David v. Hickory Farms, Inc., No. 09-cv-3011 (D. Or. 2009).
161
Thus far, it appears that the use of another’s mark in the text of a keyword-triggered advertisement
or sponsored link likely will result in a finding of trademark infringement.99 For example, in
GEICO v. Google, the search engine Google allowed GEICO’s competitor insurance companies to
purchase “GEICO” as a keyword which, when entered as a search term, would trigger competitors’
advertisements under the “sponsored links” shown next to the “organic listings” generated by
the search.100 GEICO contended this practice violated the Lanham Act by misleading consumers
to infer an association between those “sponsored links” (and the insurance companies they led
to) and GEICO. Google, on the other hand, maintained “that the Internet is still governed by
traditional trademark infringement and fair competition principles,” pursuant to which “placing an
advertisement—especially one that does not mention a competitor by name—next to a competitor’s
own advertisement does not violate the Lanham Act.”101 Following a bench trial, the court held that
“‘Sponsored Links’ that do not reference GEICO’s marks in their headings or text” do not create a
likelihood of confusion and thus are non-infringing.102 But “the use of GEICO’s trademarks in the
heading or text of advertisements that appear when a user searches on ‘GEICO’ does violate the
Lanham Act . . . .”103
While courts have been in agreement for some time that displaying another’s mark in a sponsored
link or ad constitutes a Lanham Act violation, until recently there has been a split among courts over
whether trademark infringement has occurred when a defendant’s “sponsored link” or keywordtriggered advertisement does not display plaintiff’s mark, but employs it only in the directory of
keywords that trigger the sponsored link or ad. For instance, district courts in the Second Circuit
have held that a defendant’s inclusion of another’s trademark in a list of keyword terms that trigger
sponsored links does not constitute trademark infringement,104 while the Ninth Circuit in Playboy
Enterprises, Inc. v. Netscape Communications Corp. held that merely selling another’s trademark as
a keyword to be used in an internal keyword directory will give rise to a cognizable claim.105
In Rescuecom Corporation v. Google, Inc., for example, the plaintiff sued Google for its practice
of allowing advertisers (including plaintiff’s competitors) to bid on and purchase terms, including
trademarks, that an Internet user could enter as a search term.106 In granting Google’s motion to
dismiss, the Northern District of New York found that Google’s “use” of Rescuecom’s mark was
99 See McCarthy, supra note 74, § 25:70.25.
100 77 U.S.P.Q.2d at 1843, 1847–48.
101 Id.
102 Id. at 1847.
103 Id. at 1842.
104 See, e.g., Rescuecom Corp. v. Google, Inc., 456 F. Supp. 2d 393, 403 (N.D.N.Y. 2006); Merck & Co. v. Mediplan Health Consulting, Inc.,
425 F. Supp. 2d 402, 415 (S.D.N.Y. 2006).
105 354 F.3d 1020, 1029 (9th Cir. 2004) (reversing district court’s summary judgment in favor of defendants).
106 456 F. Supp. 2d at 397–98.
Trademark 301
At the heart of this issue are courts’ interpretations of the term “use in commerce” in the Lanham
Act—a controversy with roots in the pop-up ad context. Specifically, drawing on the Second Circuit’s
1-800 Contacts pop-up ad decision, district courts in the Second Circuit have strictly interpreted the
“use in commerce requirement” in favor of defendants, while courts outside of the Second Circuit
generally have interpreted that requirement more leniently in favor of plaintiffs.
KILPATRICK TOWNSEND
purely internal: “[T]here is no allegation that any of the links among the search results, except
those belonging to plaintiff, display plaintiff’s trademark or that defendant’s activities effect the
‘appearance or functionality’ of plaintiff’s website.”107 Accordingly, as in 1-800 Contacts, the court
held that use of a trademarked term in a computer directory or program, which is not displayed or
communicated to the public, does not violate the Lanham Act.108
The Southern District of New York reached a similar conclusion in Merck & Co. v. Mediplan Health
Consulting, Inc.109 There, the court also granted the defendant’s motion to dismiss, reasoning that
the internal use of plaintiff’s ZOCOR mark as a keyword to trigger the display of sponsored links
does not constitute “use in commerce” under the Lanham Act.110
But elsewhere, courts have found that merely selling or purchasing others’ trademarks as keywords
constitutes “use” under the Lanham Act, and is sufficient to survive a Rule 12 or summary judgment
motion. For instance, in Edina Realty Inc. v. TheMLSonline.com,111 the District of Minnesota denied
the defendant’s summary judgment motion where the defendant had purchased the plaintiff’s
trademarks as search terms from Google and Yahoo. Similarly, in 800-JR Cigar, Inc. v. GoTo.com,
Inc.,112 the District of New Jersey held that GoTo.com used the plaintiff’s trademarks in commerce
by selling them as search terms. And, in Google Inc. v. American Blind & Wallpaper Inc.,113 the
Northern District of California denied Google’s motion to dismiss American Blinds’ claims that
Google’s sales of ad words, including American Blinds’ trademarked terms, constituted trademark
infringement. Other courts have reached similar results.114
On the eve of this article’s publication, the Second Circuit issued a ruling that appears to have
resolved the split in authority. In Rescuecom Corp. v. Google, Inc., the Second Circuit vacated
the above-described dismissal by the Northern District of New York of Rescuecom’s keyword
advertising claim against Google.115 In vacating the district court’s decision, the Second Circuit
relied on two key factual distinctions between Rescuecom and 1-800 Contacts. “First, in contrast to
1-800, where we emphasized that the defendant made no use whatsoever of the plaintiff’s trademark,
here what Google is recommending and selling to its advertisers is Rescuecom’s trademark.”116 In
other words, because the plaintiff in 1-800 Contacts did not claim its website as a trademark, the
defendant’s use of that website in its internal directory of triggering terms could not be considered
“use” of a trademark.117 “Second, in contrast with the facts of 1-800, where the defendant did not
107 Id. at 401.
108 Id. at 402–03.
109 425 F. Supp. 2d at 415.
110 Id.
111 80 U.S.P.Q2d 1039, 1045–46 (D. Minn. 2006).
112 437 F. Supp. 2d 273, 285 (D.N.J. 2006).
113 74 U.S.P.Q.2d 1385, 1391–94 (N.D. Cal. 2005).
114 Buying for the Home, LLC v. Humble Abode, LLC, 459 F. Supp. 2d 310, 323 (D.N.J. 2006) (holding that defendant made use of plaintiff’s
trademarks by purchasing them as search terms); Florists’ Transworld Delivery, Inc. v. Fleurop-Interflora, 261 F. Supp. 2d 837, 850 (E.D.
Mich. 2003) (denying defendant’s motion to dismiss plaintiff’s Michigan Consumer Protection Act claim for “unfair” or “deceptive” trade
practices when defendant operated domain names allegedly incorporating plaintiff’s trademark).
115 No. 06-4881-cv, slip op., at 15 (2d Cir. Apr. 3, 2009).
116 Id. at 11.
117 Id.
163
‘use or display,’ much less sell, trademarks as search terms to its advertisers, here Google displays,
offers, and sells Rescuecom’s mark to Google’s advertising customers.”118 Indeed, Google even
“encourages the purchase of Rescuecom’s mark through its Keyword Suggestion Tool.”119
This newly emerging consensus appears to make clear that offering for sale or selling keywords
constitutes a “use in commerce” that may give rise to infringement. Whether a given use is likely
to cause confusion still requires a case-by-case analysis, and other areas of keyword-advertising
law, such as whether the sale or purchase of potentially misrepresentative keywords will give rise to
cognizable Lanham Act claims, remain relatively unclear.
D.
Screenscraping
Moving from relatively subtle forms of Internet-based potential trademark infringement to more
overt acts, screenscraping—also referred to as “web scraping” or “web crawling”—refers to
extracting content from another’s website in order to display the content elsewhere. Scraping is
typically conducted as a shortcut to collecting one’s own data. When the information collected
is copyrighted, trademarked, or serves a source-identifying purpose, screenscraping is generally
prohibited. For example, the terms of use for the Yellowpages.com website provide in part:
You may view, use, copy, and distribute the Materials found on YELLOWPAGES.COM
Web sites for internal, noncommercial, informational purposes only. You are prohibited
from data mining, scraping, crawling, or using any process or processes that send automated
queries to the YELLOWPAGES.COM Web site. You may not use the YELLOWPAGES.
COM Web sites to compile a collection of listings, including a competing listing product
or service.120
118 Id.
119 Id.
120 See http://www.yellowpages.com/about/terms.
121 See, e.g., Ticketmaster Corp. v. Tickets.Com, Inc., No. 99 CV7654, 2000 U.S. Dist. LEXIS 12987 (C.D. Cal. Aug. 10, 2000), aff’d, 248
F.3d 1173 (9th Cir. 2001) (finding that a trespass claim based upon web crawling had “some merit” but not enough to justify the issuance
of a preliminary injunction); eBay, Inc. v. Bidder’s Edge Inc., 100 F. Supp. 2d 1058 (N.D. Cal. 2000) (finding that a web crawler’s
generation of 80,000 to 100,000 requests a day to a website constituted a trespass to chattels); Oyster Software v. Forms Processing,
No.C-00-0724 JCS, 2001 U.S. Dist. LEXIS 22520 (N.D. Cal. Dec. 6, 2001) (although web crawlers placed only a “negligible” load on
a website’s servers, no more than mere “use” of a plaintiff’s computer system was necessary to establish a trespass claim); American
Airlines, Inc. v. Furichase, Inc., No. 167-194022-02 (Tex. 7th Dist. Ct., Texas, Mar. 8, 2003).
122 See Cairo, Inc. v. Crossmedia Servs., Inc., No. 04‑04825, 2005 WL756610 (N.D. Cal. Apr. 1, 2005) (repeated use of a site’s web pages can
form the basis for imputed knowledge of the site’s terms even if the “use” is by a crawler that does not read the terms); Compuserve, Inc.
v. CyberPromotions, Inc., 962 F. Supp. 1015 (S.D. Ohio 1997) (one need not show interference with property in order to establish trespass
under California law; use is sufficient).
Trademark 301
But enforcing such prohibitions is another issue. A number of courts have relied on principles
of trespass to address screenscraping.121 Analogous to decisions in the pop-up ad and keyword
advertising contexts, a finding that scraping constitutes a “use” of the site (and that the scraper is
bound by the site’s terms of use) has been critical to the outcomes of court decisions; indeed, a user
may be bound by the terms even if it did not specifically agree to them.122
KILPATRICK TOWNSEND
The Computer Fraud and Abuse Act (“CFAA”)123 and parallel state law provisions124 also have
been used to assert claims against screenscrapers. In E F Cultural Travel B.V. v. Zefer Corp.,125 for
example, a travel agency scraped its competitor’s site to collect tour prices in order to set its own
prices consistently lower. The district court granted a preliminary injunction because the scraper
exceeded the “reasonable expectation” of authorized access of the scraped site. In doing so, the
district court relied on 18 U.S.C. § 1030(a)(4):
Whoever . . . knowingly and with intent to defraud, accesses a protected computer without
authorization or exceeds authorized access, and by means of such conduct furthers the
intended fraud and obtains anything of value, unless the object of the fraud and the thing
obtained consists only of the use of the computer and the value of such use is not more than
$5000 in any 1-year period . . . shall be punished . . .
“Exceeds authorized access,” as defined by the CFAA, means “to access a computer with
authorization and to use such access to obtain or alter information in the computer that the accessing
party is not entitled so to obtain or alter.”126 The district court concluded, and the court of appeals
affirmed, that a web crawler obtained information it was not entitled to obtain under the terms of use
of the site and therefore exceeded authorized access.127
More recently, a Texas district court in Southwest Airlines Co. v. Boardfirst, LLC128 relied on a
breach of contract theory to address screenscraping. There, the court found that the defendant had
clearly agreed to the site’s terms of use when it used the site after having received a demand letter
that notified it of the same, and that use inconsistent with those terms would constitute a breach of
contract.
Some businesses and industries welcome screenscraping as a means of facilitating the flow of
information.129 But when a business’s valuable intellectual property is at stake, would-be plaintiffs
should look beyond conventional copyright and trademark law remedies to options for causes of
actions sounding in trespass, breach of contract, and the CFAA.
123 18 U.S.C. § 1030.
124 Most states have statutes comparable to the Computer Fraud and Abuse Act. See e.g. California Comprehensive Computer Data Access
and Fraud Act, Cal. Penal Code § 502(c) (West 1999 and Supp. 2008); Georgia Computer System Protection Act, Ga. Code Ann. § 169-93 (2007), Texas Penal Code Ann. § 33.02(a) (Vernon 2003). A complaint for screenscraping should also assert a claim under the
applicable state statute, assuming the statute provides a private cause of action.
125 318 F. 3d 58 (1st Cir. 2003).
126 18 U.S.C. § 1030[e][6] (2006).
127 The court of appeals determined that while the plaintiff could not prove “damage” as defined under the CFAA, it nevertheless likely
could prove a compensable “loss,” an undefined term under the statute. Plaintiffs generally seek to meet the $5,000 damages threshold by
showing that expenses associated with investigation and blocking of the unauthorized access were at least $5,000.
128 Civ. Action No. 3:06-CV-0891-B, 2007 WL 4823761. (N.D. Tex. Sept. 12, 2007).
129 See, e.g., Outlaw.com, Ryanair Begins Screen-Scraping Lawsuit, The Register, July 9, 2005, available at http://www.theregister.
co.uk/2008/07/09/ryanair_screen_scraping_bravofly/ (“Many websites in the airline and insurance businesses welcome screen-scraping
by aggregators as a way of generating new business;” however, the airline plaintiff in the screenscraping case pending in Ireland discussed
in this article found the practice objectionable).
165
E.
Contributory Infringement
The extension of liability for trademark infringement to parties other than direct infringers based
on the theory of contributory infringement is well-established. In fact, although contributory
infringement has not been expressly operative in the pop-up and keyword advertising contexts
discussed above, the fundamental principles of holding liable parties beyond a directly infringing
advertiser operate in those contexts much as they do here.
Contributory infringement originated in landlord-tenant law. With the prevalence and rapid growth
of the Internet, courts have extended “landlord liability” theory to online marketplaces where
sufficient control can be established. It is immaterial “whether the venue is online or in brick and
mortar.”130 As set forth by the Supreme Court in Inwood Laboratories, Inc. v. Ives Laboratories,
Inc., a defendant is liable for contributory trademark infringement if it “intentionally induces another
to infringe a trademark” or “continues to supply its product to one whom it knows or has reason to
know is engaging in trademark infringement.”131 Courts have applied Inwood to impose liability on
landlords of flea markets and stores where the landlord knew or had reason to know that its premises
were being used for the sale of infringing goods.132
Applying the contributory infringement theory to Internet disputes, courts have required a plaintiff
to show: (1) that the defendant “exercises sufficient control and monitoring over its website” used
by third parties to infringe, and (2) that the defendant continues to supply services to customers it
knows or has reason to know are infringing a plaintiff’s trademarks.133
The Southern District of New York refused to find eBay contributorily liable with respect to the
specific instances of infringement identified by Tiffany through the VeRO program because eBay
promptly removed the infringing listing, issued warnings and other punishments to the sellers, and
130 Tiffany Inc. v. eBay, Inc., 576 F. Supp. 2d 463, 505 (S.D.N.Y. 2008).
131 456 U.S. 844, 854–55 (1982).
132 See Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 265 (9th Cir. 1996) (reversing dismissal and holding that plaintiff had stated a
claim for contributory trademark infringement).
133 Tiffany, 576 F. Supp. 2d at 505–508.
134 Id. at 469.
135 Id. at 483, 488. eBay’s VeRO (“Verified Rights Owner”) Program permits trademark owners to file Notices of Claimed Infringement
(“NOCIs”) when an owner sees a counterfeit listing on eBay’s site. In response, eBay removes the listing or otherwise cancels any
transaction that has already occurred and/or pursues disciplinary action against the seller. Id. at 478.
Trademark 301
The recent case Tiffany v. eBay most clearly sets forth and applies the law on contributory trademark
infringement in the context of the Internet. In that case, Tiffany, a famous jeweler, sued eBay, the
prominent online marketplace, alleging contributory trademark infringement based on the pervasive
sale of counterfeit Tiffany goods on eBay’s website, claiming that eBay had knowledge of such
sales but failed to investigate or remedy the problem.134 Tiffany sought injunctive relief requiring
eBay to take affirmative steps to screen for and prevent the listing of counterfeit Tiffany silver
jewelry and to remove any such listings appearing on eBay’s website. Specifically, Tiffany wanted
eBay to preemptively ban sellers of five or more Tiffany items and to immediately suspend sellers it
identified through eBay’s “Verified Rights Owner Program” (“VeRO”) program.135
KILPATRICK TOWNSEND
notified the buyers.136 Thus, eBay did not continue to supply its services to those it knew or had
reason to know were infringing through the VeRO program. Tiffany further declined to impute to
eBay knowledge of infringement based on generalized assertions. Specifically, the court decided that
“generalized assertions of infringement made by Tiffany” were not “sufficiently specific to impute
to eBay knowledge of any and all instances of infringing sales on eBay.”137 Among its evidence,
Tiffany provided: (1) demand letters to eBay asserting rampant counterfeiting on eBay’s website;
(2) assertions that sellers selling five or more Tiffany items are presumptively selling counterfeits;
(3) results from its buying program showing 73%+ of Tiffany items on eBay were counterfeit; and
(4) a submission of over 284,000 notices through the VeRO program over four years.138
The court was not persuaded by Tiffany’s evidence. First, the court summarily rejected that demand
letters can provide the requisite knowledge for liability. Second, it found that Tiffany’s “five-ormore” assertion was ambiguous. In particular, it found that there were legitimate sales of five or
more genuine Tiffany goods, that Tiffany itself did not regularly enforce the five-or-more rule,
as its corporate department regularly sold larger quantities, and Tiffany’s CEO admitted the rule
was a “shorthand solution” for making eBay do a better job.139 The court noted that imposing the
rule would have resulted in the elimination of legitimate Tiffany sales on eBay and declined to
impute knowledge to eBay based on this evidence. Finally, the court found that the buying program
results and Tiffany’s large number of submissions through the VeRO program were insufficient
because they only provided notice that a high percentage of counterfeit merchandise was being sold.
The VeRO submissions were simply complaints based on a “good faith belief” that the listing was
counterfeit and was not a definitive finding that the listing was in fact counterfeit.140 eBay was “‘not
require[d] . . . to refuse to sell to dealers who merely might pass off” goods.141 The court emphasized
that genuine Tiffany product was found on eBay’s website.142
In rejecting Tiffany’s argument that eBay engaged in willful blindness, the court focused on eBay’s
proactive steps to prevent the sale of counterfeit goods on its website. These included: eBay’s
requirement that all users sign a User Agreement which prohibited violations of third party rights;
that eBay suspended sellers in an appropriate manner, eBay’s substantial investment ($20 million
per year) to combat infringement; eBay’s fraud engine which implemented Tiffany-specific filters
to ferret out illegal listings; eBay’s VeRO program; and eBay’s encouragement of rights owners to
create “About Me” pages.143 The court also pointed out that Tiffany invested little in monitoring
eBay’s website for infringement (between 1.15 and 1.6 full-time employees per month).144
136 Id. at 515–516.
137 Id. at 511.
138 Id. at 481–87.
139 Id. at 511–12.
140 Id. at 489.
141 Id. at 509 (internal citations omitted).
142 Id. at 513.
143 Id. at 489–91.
144 Id. at 484–85.
167
Although the Tiffany court refused to hold eBay contributorily liable based on eBay’s generalized
knowledge of infringement, trademark owners should not necessarily dismiss contributory
infringement as a potential vehicle for enforcing their rights. Rather, would-be plaintiffs should learn
from the lessons of Tiffany, particularly with respect to demonstrating exhaustive policing efforts
of their own and to constructing buying-program surveys aimed at demonstrating a defendant’s
knowing disregard of a plaintiff’s rights.
F.
Virtual Worlds
Finally, in what may be the next frontier in Internet branding, “virtual worlds,” even in their relatively
short existence, have become increasingly prevalent and have evolved to become relatively robust
in their marketing opportunities. Early “virtual worlds” took the form of text-based fantasy roleplaying games, which evolved into large multi-player online role-playing games, such as World of
Warcraft, 145 financed by player subscriptions. Other virtual worlds, such as There,146 involve more
free-form socializing and are funded by advertising revenues147 and the sale of virtual “objects.”148
More recent social virtual worlds have been brand-devoted promotional virtual social worlds,
such as Coca-Cola’s Coke Studios,149 Disney’s Virtual Magic Kingdom,150 and Nickelodeon’s
Nicktropolis.151
145 World of Warcraft, http://www.worldofwarcraft.com/index.xml (last visited Mar. 26, 2009).
146 There.com, http://www.there.com/ (last visited Mar. 26, 2009). Google also launched a social virtual world in July of 2008, called Lively,
which Google ended on December 31, 2008. See Vindu Goel, How Google Decides to Pull the Plug, N.Y. Times, Feb. 15, 2009, at BU4;
Google, Inc., The Official Google Blog: Lively No More, Nov. 19, 2008, http://googleblog.blogspot.com/2008/11/lively-no-more.html.
147 For example, There.com offers six different types of marketing programs to its advertising partners, including a “Virtual Merchandise
Program,” a “Hosted Event Program,” and a “World Integration Program.” See There.com, Your Brand in There, http://www.there.com/
yourBrand.html (last visited Mar. 26, 2009).
148 Through There.com’s “Developer’s Program,” users can submit designs for new avatar clothing, vehicles, and other objects. Once There.
com approves a submission, a user with a basic subscription can use the object for his own use within the environment, and premium
members can sell approved their designs to other users to earn “Therebucks.” Therebucks have a relationship to real-world currency, as
they can be purchased with a credit card as well. There.com charges a submission fee, a “wholesale” fee for the creation of additional
copies of the object for sale, and an auction fee for sale of user-designed objects. See There.com, Developers, http://webapps.prod.there.
com/developer/home.cgi (last visited Mar. 26, 2009).
149 Coke Studios, http://www.mycoke.com/index.jsp?tunnel=cokestudios (last visited Mar. 26, 2009); see also Virtual Worlds Review, Coke
Studios, http://www.virtualworldsreview.com/cokestudios/ (last visited Mar. 26, 2009).
150 Virtual Magic Kingdom, http://disney.go.com/games/?name=VMKHomePage (last visited Mar. 26, 2009); see also Virtual Worlds
Review, Virtual Magic Kingdom, http://www.virtualworldsreview.com/vmk/ (last visited Mar. 26, 2009).
151 Nicktropolis, http://www.nick.com/nicktropolis/game/ (last visited Mar. 26, 2009).
152 See, e.g., There.com, Submission Guidelines, http://webapps.prod.there.com/developer/developer_help_sg.xml (last visited Mar. 26,
2009) (listing content restrictions for user-created design submissions).
Trademark 301
In both game-based and social virtual worlds, the creator of the game or virtual community generally
retains most of the creative control over the environment and provides users relatively limited
ability to create new content.152 Thus, most of the potential trademark issues in these environments
emanate from the companies that create, own, and run the virtual worlds. These companies have
a vested interest in preserving the profitability of their businesses by avoiding primary liability for
infringement and limiting their exposure to secondary liability by restricting their users’ creative
freedom. Moreover, to the extent these virtual worlds rely on advertising revenue, virtual-world
KILPATRICK TOWNSEND
creators have additional interest in making their “worlds” safe and inviting to the marketing
campaigns of “real world” brands.153
A different situation exists in user-generated virtual worlds, such as Linden Lab, Inc.’s “Second
Life,” which give its users far greater freedom in developing content.154 User-generated virtual
worlds create both unique branding opportunities and new trademark protection problems.
In Second Life, companies like Coca-Cola and Nestle have enjoyed success in implementing nontraditional marketing and advertising strategies that focus on customer relationships, entertainment,
and increasing brand awareness and affinity. These strategies involve developing Second Life avatar
“brand ambassadors” to interact with Second Life users and hosting contests and events in Second
Life—such as Coca-Cola’s “Virtual Thirst” competition155 and Nesquik’s QuikSk8 Park virtual
skate park, user-generated graffiti art contest, and Nesquik bottle treasure hunt.156 By contrast, many
brands that have attempted to create exclusively commercial presences in Second Life have been
disappointed in their forays into the 3D virtual world.157
In addition to creating new opportunities for companies to market and expand their brand’s reach,
the creative freedom given to Second Life users also creates an additional—and relatively unpoliced—front in brand protection. While Second Life is a “virtual world,” it has a real economy,
with an official currency (the Linden), a currency exchange (the LindeX), and daily market reports
(the Linden Dollar Exchange reports a rate between 250-270).158 Real money is changing hands in
this virtual world through the buying and selling of virtual goods and services, and it is happening to
the tune of $35 million a month.159 This real economy brings many uses of brands and trademarks in
the Second Life marketplace within the trademark definition of “use in commerce,” distinguishing it
from cases of unauthorized non-commercial uses of trademarks in video games and in other virtual
communities which courts held to be non-trademark uses protected by freedom of expression.160
153 See Greg Lastowka, Virtual Trademarks, 24 Santa Clara Computer & High Tech. L.J. 749, 767 (2008); see also There.com, Submission
Guidelines, http://webapps.prod.there.com/developer/developer_help_sg.xml (last visited Mar. 26, 2009) (“The relationship we have
with our partners is very important to us and we want to be respectful and responsible towards them. As a result, we cannot allow
advertisements for companies that are not currently our partners.”).
154 Linden Lab, Inc., Second Life, http://secondlife.com/ (last visited Mar. 26, 2009). Linden Lab states on Second Life’s Frequently Asked
Questions webpage that “Second Life virtual world provides almost unlimited freedom to its Residents. This world really is whatever you
make it. . . . You also own anything you create—Residents retain intellectual property rights over their in-world creations.” Linden Lab,
Inc., Second Life FAQ, http://secondlife.com/whatis/faq.php (last visited Mar. 26, 2009).
155 In April 2007, Coca-Cola encouraged Second Life residents to use its brand in user-created content for its “Virtual Thirst” contest,
which solicited submissions of “virtual vending machines” that “could dispense—not Coca-Cola—but the ESSENSE of Coca-Cola:
refreshment, joy, unity, experience.” Adam Reuters, UPDATE—Coca-Cola Gives Away Its Trademark in SL?, Second Life News Center,
June 28, 2007, http://secondlife.reuters.com/stories/2007/06/28/coca-cola-gives-away-its-trademark-in-sl/.
156 See Moderne Interactive, Nestle Case Study, http://modernecommunications.com/case-studies/Case-Study-Nesquik.pdf (last visited Mar.
26, 2009) (describing a Nestle brand Second Life case study in which Moderne Interactive gauged the impact of various creative solutions
for increasing real-world brand awareness and brand affinity by developing a Second Life brand presence and holding interactive events
to engage Second Life residents).
157 See Reuters Newswire, Companies Shifting Virtual World Strategies, Second Life News Center, Oct. 11, 2007, http://secondlife.reuters.
com/stories/2007/10/11/companies-shifting-virtual-world-strategies/ (last visited Mar. 26, 2009).
158 Linden Lab, Inc., Second Life: LindeX™ Market Data, http://secondlife.com/statistics/economy-market.php.
159 Linden Lab, Inc., Second Life: The Marketplace, http://secondlife.com/whatis/marketplace.php (last visited Mar. 26, 2009) (“In 2008
more than USD $100 million worth of L$ were both and sold on the LindeX.”).
160 See E.S.S. Entm’t 2000, Inc. v. RockStar Videos, Inc., 444 F. Supp. 2d 1012 (C.D. Cal. 2006) aff’d, 547 F.3d 1095 (9th Cir. 2008); Marvel
Enters., Inc. v. NCSoft, Corp., 74 U.S.P.Q.2d 1303 (C.D. Cal. 2005); see also Lastowka, supra note 148, at 779.
169
In 2007, a search within Second Life revealed the proliferation of unauthorized virtual goods for
sale under the marks of well-known brands, including 16 Second Life stores selling FERRARI
virtual cars, 40 stores advertising ROLEX and CHANEL branded virtual watches, and 50 stores
selling RAY BAN, PRADA, and GUCCI brand virtual sunglasses.161 While the low U.S. dollar
Second Life market price of these infringing virtual goods (ranging from $7.75 for the FERRARI
virtual car to $.75 each for the virtual counterfeit designer sunglasses),162 may seem insignificant
to brand owners, ignoring unauthorized commercial uses of a brand’s trademarks could lead to
more significant problems in the future. Failure to police and protect a brand’s trademarks in the
face of unauthorized commercial uses could potentially implicate future laches and acquiescence
defenses to trademark infringement, lead to dilution of a mark’s strength, increase the possibility
that tarnishing uses could arise, and affect a mark’s fame and ability to identify a unique source.
When it comes to the methods for protecting brands from harm from unauthorized use in virtual
worlds, however, companies have chosen varied ways to approach the situation. For example, office
furniture maker Herman Miller responded to unauthorized Second Life sales of virtual copies of its
AERON chairs and other products by sending cease and desist letters to the infringers, after first
opening its own Second Life store and offering to exchange, for free for a limited time, the knock-off
Herman Miller virtual goods for authentic Herman Miller virtual goods.163 Contrast this approach
with that of Coca-Cola in its “Virtual Thirst” competition discussed above, in which Coca-Cola
gave Second Life residents limited permission to use its trademark.164 Regardless of the approach
a brand owner takes in protecting its mark in virtual worlds, the reality of the commerce in Second
Life requires at the very least that brand owners monitor the use of their marks in virtual worlds and
make efforts to educate virtual world users regarding their brand property.165
II.
Conclusion
161 Benjamin Duranske, Virtual Law: Navigating the Legal Landscape of Virtual Worlds 150 (2008).
162 See id.
163 See John W. Crittenden, Real I.P., Virtual Worlds—Issues in Litigating Trademark and Unfair Competition Cases in Second Life and Like
Spaces, in ALI & ABA Continuing Legal Education Course of Study, Litigating Trademark, Internet, and Unfair Competition Cases
239, 242 (2008).
164 See Adam Reuters, supra note 150.
165 See Max Vern, Second Life—A New Dimension for Trademark Infringement, 90 J. Pat. & Trademark Off. Soc’y 51, 55 (2008).
Trademark 301
Even though the law surrounding Internet branding has existed for less than two decades, already
it has created entirely new areas of practice and distinct lines of precedent. Given its still nascent
state, the challenges facing brand owners on the Internet continue to evolve and require vigilance
in monitoring not only a brand’s marks and accompanying goodwill but the steady fluctuations and
new developments in the legal terrain.
KILPATRICK TOWNSEND
171
Likelihood of Confusion Surveys
Jerre B. Swann, William H. Brewster, J. David Mayberry, and R. Charles Henn, Jr.
I.
Introduction
In the 2006 Kilpatrick Townsend Desk Reference Book, we covered surveys generally.1 The
majority of surveys under the Lanham Act address likelihood of confusion,2 and the predominant
formats, from the onset, have been Eveready and Squirt.3 These formats differ dramatically in: (a)
their opening questions; (b) the means by which they replicate market reality, access brands, and
facilitate inferences as to source; (c) the confusion factors they measure; and (d) the circumstances
under which they may provide evidence supporting (or negating) a conclusion as to a likelihood of
confusion. This article focuses exclusively on the Eveready and Squirt formats.
In 1976, in Union Carbide Corp. v. Ever-Ready, Inc.,4 the Seventh Circuit endorsed Eveready in
litigation involving the EVEREADY mark for batteries. Over time, it has become the gold standard5
in cases where the senior mark is strong, i.e., highly accessible in memory,6 enhancing the likelihood
that it will be cognitively cued by a junior user’s mark.
In 1980, in Squirtco v. Seven-Up Co.,7 the Eighth Circuit held that results from a Squirt study
supported a district court finding as to the “possibility of confusion” between SQUIRT and QUIRST
for non-cola soft drinks. Over time, the Squirt format has come to be used in cases where accessibility
of the senior mark in memory is low to non-existent, so that it must be made externally available to
respondents as part of the survey design.
1
2
3
4
5
6
7
8
See R. Charles Henn, Jr. & Lauren T. Estrin, An Introduction to Surveys in Trademark Litigation, Kilpatrick Townsend Intellectual
Property Desk Reference (2006).
See Gerald L. Ford, Lanham Act Surveys by Issue, in Lanham Act Surveys Annual Cummulative Update (2007), available in the
members-only section of the International Trademark Association’s website, www.inta.org. Roughly calculated, 53% of the reported
decisions dealing with types of survey issues (likelihood of confusion, genericism, secondary meaning, false advertising and fame/
dilution) address likelihood of confusion.
An Eveready format is “unaided”: the respondent is shown only the allegedly infringing mark/dress, and the principal “source confusion”
question is open-ended. A Squirt format is doubly “aided;” the respondent is shown both plaintiff’s and defendant’s marks/dresses, and
the principal “source confusion” question is closed-ended. Of the decisions in the Annual Cumulative Update from 1998 through 2007,
from which the format can be determined, approximately 40% involved Eveready designs and 35% Squirt designs.
531 F.2d 366, 385–88 (7th Cir. 1976).
See, e.g., 6 J. Thomas McCarthy, McCarthy on Trademarks & Unfair Competition § 32:175 (4th ed. 2008).
The line between strong and weak marks, i.e., the degree to which they are internally available, is neither bright nor constant. The firm,
in past years, used a Squirt format in connection with marks that it now tests with an Eveready format, and the accessibility of a brand in
memory occasionally can only be determined by a pilot study.
628 F.2d 1086, 1089 n.4, 1091 (8th Cir. 1980).
See, e.g., R. Bradlee Boal, Techniques for Ascertaining Likelihood of Confusion and the Meaning of Advertising Communications,
73 Trademark Rep. 405, 422 (1983) (the Squirt format’s same-company/different-company question is not neutral, but “suggest[s] a
possibility that might not have occurred to the interviewees—that the products are made by the same company”); Shari S. Diamond,
Reference Guide on Survey Research, in Reference Manual on Scientific Evidence 251, 252 (2000) (“Closed-ended questions . . . may
remind respondents of options that they would not otherwise consider . . . .”). “[T]he mere putting of [the] question [can create] the
impression of a relationship.” Kargo Global, Inc. v. Advance Magazine Publishers, Inc., No. 06 Civ. 550 (JFK), 2007 U.S. Dist. LEXIS
57320, at *25 (S.D.N.Y. Aug. 6, 2007).
Trademark 301
The analysis below confirms, as to strong marks, the gold standard status of the Eveready format.
As to the Squirt format, this analysis explores two frailties: (a) the design uses closed-ended,
“suggestive” questions;8 and (b) it may create an “artificial marketplace” for respondent assessments
KILPATRICK TOWNSEND
of brand similarity.9 Thus, a Squirt survey must include a robust control, and must be limited to the
conditions of its origin (directly competing or substantially overlapping goods) where the stimuli
proximately tested in the format do appear, in fact, proximately in the marketplace.
A.
Eveready
1.
The Questionnaire and Variants
In an Eveready survey, a respondent is first shown an exemplar,10 photograph,11 or advertisement
of defendant’s branded (or “trade dressed”) product; then, the respondent is asked an open-ended12
“source confusion” question: “Who makes or puts out _______?” That question is followed by:
“Why do you say that?”13 Questions as to “sponsorship confusion” and “affiliation confusion,”14
often in closed-ended form, typically follow, e.g.:15
Do you believe that whoever makes or puts out ______: ONE, is sponsored or approved by
another company; TWO, is not sponsored or approved by any other company; or THREE,
9 Kargo Global, 2007 U.S. Dist. LEXIS 57320, at *24.
10 Context can convey information that consumers use in making source determinations. With point of purchase surveys, therefore, “the
closer the survey context comes to marketplace conditions, the greater the evidentiary weight it has,” which often requires displaying
actual products, packaging and other source indicia that consumers would encounter at the point of sale. McCarthy, supra note 5,
§ 32:163.
11 With post sale confusion, context (adjacent competitive products, etc.) is irrelevant and would give the respondent information not
typically available in a post sale encounter. See Gateway, Inc. v. Companion Prods., Inc., 68 U.S.P.Q.2d 1407, 1420 (D.S.D. 2003) (“Postsale confusion is particularly relevant in this case because . . . [a]fter Cody Cow is purchased, the point of sale materials are removed
by the purchaser, and [have] no ‘confusion obviating effect’”), aff’d, 384 F.3d 503 (8th Cir. 2004). Accordingly, photographs or videos
that fairly reproduce what a respondent would see in a post sale environment are easier to control (and afford greater certainty as to what
respondents see) than actual displays that a field service may not faithfully execute in a shopping center interviewing booth. See Hermes
Int’l v. Lederer de Paris Fifth Ave. Inc., 50 F. Supp. 2d 212, 222 (S.D.N.Y. 1999), aff’d in part, rev’d in part, 219 F.3d 104 (2d Cir. 2000),
approving a post sale stimulus showing a “Kelly bag (as carried by a woman walking at a distance of four feet).”
12 Open-ended questions “require the respondent to . . . express an answer in his or her own words [and] give the respondent fewer hints
about the answer that is expected or preferred.” Diamond, supra note 8, at 251–52.
13 With the advent of experimental designs, and the acknowledged difficulty that consumers can have in expressing “higher order processes,”
Richard E. Nisbett & Timothy DeCamp Wilson, Telling More than We Can Know; Verbal Reports on Mental Processes, 84 Psychological
Rev. 231 (1977), Dr. Diamond is of the opinion that “why” questions may no longer be necessary. Courts, however, often like to play with
the “clarifying” information that “why” questions produce, Cumberland Packing Corp. v. Monsanto Co., 32 F. Supp. 2d 561, 572–73, 576
(E.D.N.Y. 1999); some courts reject studies without “why” questions, Pep Boys Manny, Moe & Jack of Cal. v. Goodyear Tire & Rubber
Co., No. 01-CV-5614, 2002 U.S. Dist. LEXIS 5925, at *30–33 (E.D. Pa. April 5, 2002); and information developed from “why” questions
may be helpful to counsel in analyzing both consumer perceptions and the efficacy of the control stimulus, 24 Hour Fitness USA, Inc. v.
24/7 Tribeca Fitness, LLC, 447 F. Supp. 2d 266, 280–81 (S.D.N.Y. 2006), aff’d, 247 F. App’x 232 (2d Cir. 2007).
14 Section 43(a) of the Lanham Act proscribes conduct that is likely to cause confusion “as to affiliation, connection or association . . . or as
to origin, sponsorship or approval . . . .”
15 See, e.g., Starbucks U.S. Brands, LLC v. Ruben, No. 91156879, 2006 T.T.A.B. LEXIS 54, at *35–37 (T.T.A.B. Feb. 9, 2006).
173
you don’t know or have no opinion? 16 [If ONE] What other company? [and] Why do you
say that? 17
The basic format has been approved so often that material variants are infrequent.18
The follow-on questions, of course, may be phrased in a more open-ended fashion19 and, under
particular circumstances, a follow-on question may become the lead inquiry.20 Radical alterations,
however, often suggest a departure from the requirement that a design be objective: e.g., the question
“based on what you just saw, do you or don’t you know who or what brand or company makes or
puts out ________,” followed by an “admonishment” to respondents to answer only if they “knew
the correct answer,” was rejected as “tortured” and calculated to “produce a low response rate.”21
Nonetheless, variant approaches, one of them stemming from Union Carbide itself, do exist, both
in the case law and the literature:
Where the owner of the senior mark is substantially anonymous and the defendant’s
goods are in a different category, the respondent is asked: “Please name any other
products put out by the same concern which puts out . . . .”22
16 “[P]resentation of an explicit ‘don’t know’ or ‘no opinion’ alternative commonly leads to a 20%-25% increase in the proportion selecting
that response,” Diamond, supra note 8, at 250, and a number of courts insist on “don’t know” alternatives. See, e.g., Cumberland Packing
Corp., 32 F. Supp. 2d at 572; Procter & Gamble Pharms., Inc. v. Hoffmann-La Roche Inc., No. 06 Civ. 0034 (PAC), 2006 WL 2588002,
at *22–25 (S.D.N.Y. Sept. 6, 2006). Choices in closed-ended questions must “cover all possible answers a respondent might give to the
question [including “don’t know]. If the list . . . is incomplete, a respondent may be forced to choose one that does not express his or her
opinion.” Diamond, supra note 8, at 253, citing Am. Home Prods. Corp. v. Johnson & Johnson, 654 F. Supp. 568, 581 (S.D.N.Y. 1987).
17 In Eveready designs, follow-ons are generally considered as the “standard type and format of questions used to gauge confusion . . . .”
Pharmacia Corp. v. Alcon Labs., Inc., 201 F. Supp. 2d 335, 365 (D.N.J. 2002). Failure by a defendant, seeking to disprove a likelihood of
confusion, to test for “sponsorship or affiliation” may lead to the rejection of its study. Bear U.S.A., Inc. v. Kim, 71 F. Supp. 2d 237, 252
n.106 (S.D.N.Y. 1999), aff’d, 216 F.3d 1071 (2d Cir. 2000). With Squirt designs, some courts have expressed concern with the cumulative
impact of a series of closed-ended questions as to “same company,” “affiliated company,” and/or “sponsorship.” See U.S. West, Inc. v.
Hatten Commc’ns Holding Co., No. 110, 126, 2002 T.T.A.B. LEXIS 620, at *15–20 (T.T.A.B. Sept. 25, 2002) (unpublished) (“we have
accorded no weight to opposer’s survey. Not only are the questions memory based [the stimulus was removed from respondents’ view
before the questionnaire was administered], but in addition, a respondent merely had to give a ‘wrong’ answer to one of the pertinent
[three] questions in order to be counted as part of the 22.9% of the respondents who were ‘confused.’”). The “wrong answer” concern is
alleviated in Eveready designs where respondents are usually required to identify the “other company,” and I am unaware of any instance
where a makes/sponsors/affiliated trilogy in an Eveready test has engendered the strong demand effects that can surface in a Squirt design.
See, e.g., Kargo Global, 2007 U.S. Dist. LEXIS 57320, at *17, where 80% of respondents in both the test and the control gave answers
reflecting confusion to a closed-ended trilogy.
18 The most bizarre is reported in Arche, Inc. v. Azaleia, U.S.A., 882 F. Supp. 334, 335 (S.D.N.Y. 1995):
Plaintiff’s counsel designed a questionnaire and sent one of their employees, . . . a part-time typist, drama student and
actress, into Washington Square Park, which is located within blocks of one of plaintiff’s retail stores. Over a two day
period, she approached a number of people who, she said, looked as if they could afford plaintiff’s shoes, which sell
at prices considerably higher than defendants’ . . . . [S]hod in defendants’ shoes, [she] asked the well-to-do passersby
whether they could identify the shoes she was wearing.
19 For example, in James Burrough Ltd. v. Sign of Beefeater, 540 F.2d 266, 278 (7th Cir. 1976), a precursor to Union Carbide, the sponsorship
question was: “Who do you believe is sponsoring or promoting this restaurant?”
20 Id.
21 McNeil-PPC, Inc. v. Merisant Co., No. 04-1090 (JAG), 2004 WL 3316380, at *20 (D.P.R. July 29, 2004) (defendant’s expert “testified that
in formulating this question, he was guided by the survey . . . in Eveready . . . . The actual question asked in Eveready was much simpler
. . . . The differences . . . are material, and likely affected the responses.”).
22 Union Carbide Corp., 531 F.2d at 385 n.11. Only 0.6% of respondents identified Union Carbide as the maker of defendant’s Ever-Ready
lamp; 54.6% answered, however, that the same concern that put out Ever-Ready lamps also put out batteries, supporting a finding of
likelihood of confusion and secondary meaning of EVEREADY as well. Id. at 381.
Trademark 301
(1)
KILPATRICK TOWNSEND
(2)
(3)
2.
Separately, or in a follow-on, respondents may be tested as to an alternative form of
“sponsorship confusion:” whether “the company that puts ______ out” “needed to
get” or “did get” permission from another company and, if yes, from whom.23
Where consumers shop “for frequently bought household goods . . ., they make quick
decisions based on the ‘gestalt’ of the product.”24 To replicate this phenomenon: (i)
respondents may be shown a notebook with several pages reflecting such brands
grouped in different product categories (one of which categories will include the allegedly infringing junior brand); (ii) they will then be asked to list the brands they
recall having seen; and (iii) their measure of “confusion” will be the percentage of
respondents reporting having seen the senior brand.25
Categorization and Pattern Matching in an Eveready Format
To appreciate fully the benefits of an Eveready approach and variants, it is first necessary to
understand current conditions of clutter. Half a century ago, Ralph S. Brown, Jr. wrote that there was
a “babel of brands,”26 and the “number of choices has [since] grown dramatically.”27 Consumers are
bombarded by brand stimuli and cannot “attend” to all that fall within the range of their senses.28 Of
necessity, they “are highly selective.”29
23 See, e.g., Cairns v. Franklin Mint Co., 107 F. Supp. 2d 1212, 1219 (C.D. Cal. 2000), aff’d, 292 F.3d 1139 (9th Cir. 2002). In a Squirt
survey, the alternative is “aided:” e.g., did A need to get/get permission from B? Critics of “needed to get” wording insist it calls for a legal
conclusion. Nat’l Football League Props., Inc. v. Prostyle, Inc., 57 F. Supp. 2d 665 (E.D. Wis. 1999). Critics of “did get” wording insist
that a respondent can have no way of knowing whether or not permission was obtained. Jacob Jacoby, Sense and Nonsense in Measuring
Sponsorship Confusion, 24 Cardozo Arts & Ent. L.J. 63 (2006). As noted elsewhere, we regard the debate largely as a waste of judicial
resources. Jerre B. Swann, U.S. Trademark Surveys, in Survey Evidence and the Law Worldwide 333–34 (Lexis Nexis 2008). See Pebble
Beach Co. v. Tour 18 I Ltd., 155 F.3d 526, 544 (5th Cir. 1998).
24 Hans Zeisel & David H. Kaye, Prove It With Figures: Empirical Methods In Law And Litigation 158 (1977). For how long a respondent
should be exposed to a stimulus is a function of consumer involvement in the purchase. Hurried consumers, for example, do not typically
study items, and stimuli reflecting such items should not be left with the respondent during the administration of a questionnaire. See Am.
Home Prods. Corp. v. Procter & Gamble Co., 871 F. Supp. 739, 748 (D.N.J. 1994) (“consumers do not normally meditate . . . over . . .
details for any appreciable length of time”). With respect to many items, however, consumers can be expected to study packages, and a
stimulus should be left with a respondent. See Cumberland Packing Corp. v. Monsanto Co., 32 F. Supp. 2d 561, 578 (E.D.N.Y. 1999) (“In
an actual market situation, the product would not disappear from the consumer’s eye just as he or she is about to make a purchase.”). See
generally Jerre B. Swann, A ‘Reading’ Test or a ‘Memory’ Test: Which Survey Methodology Is Correct?, 95 Trademark Rep. 876 (2005),
and Mike Rappeport, Response to Survey Methodology Articles, 96 Trademark Rep. 769 (2006) (advocating the more conservative view
that the stimulus, in most circumstances, be left with the respondent). See also Henry D. Ostberg, A Response to an article entitled: A
“Reading” Test or a “Memory” Test: Which Survey Methodolgy Is Correct? 95 Trademark Rep. 1446 (2005) (advocating the opposite).
25 Zeisel & Kaye, supra note 24, at 158–59 (it should be noted that Dr. Zeisel’s approach, for point of sale confusion purposes, may be
inappropriate where the junior and senior brands are typically shelved adjacent to one another so that respondents should have the context
of the senior brand to make judgments as to the junior, Winner Int’l LLC v. Omori Enters., Inc., 60 F. Supp. 2d 62, 71 (E.D.N.Y. 1999)).
26 Ralph S. Brown, Advertising and the Public Interest: Legal Protection of Trade Symbols, 57 Yale L.J. 1165, 1197 (1948).
27 AMA Marketing Management: Spring 2000.
28 Jacob Jacoby, The Psychological Foundations of Trademark Law: Secondary Meaning, Genericism, Fame, Confusion and Dilution, 91
Trademark Rep. 1013, 1022 (2001) (“the vast majority of stimuli fail to register upon the consumer’s consciousness”); Wayne D. Hoyer
& Deborah J. MacInnis, Consumer Behavior 115 (3d ed. 2004) (“Shoppers in a supermarket are exposed to numerous products, brands,
ads, displays, signs, prices, logos, and packages all at the same time. We are generally unable to examine all those marketing stimuli
simultaneously.”).
29 Philip Kotler & Kevin Lane Keller, Marketing Management 186 (12th ed. 2006) (“It has been estimated that the average person may
be exposed to over 1,500 ads or brand communications a day. Because a person cannot possibly attend to all these, most stimuli will be
screened out . . . .”). See Toro Co. v. ToroHead, Inc., 61 U.S.P.Q.2d 1164, 1180 (T.T.A.B. 2001) (“Every day consumers are bombarded
with hundreds, if not thousands, of advertisements for hundreds of products . . . . A great many of these ads do not make a significant
impression on the public . . . .”).
175
Even when a stimulus registers on their consciousness, consumers “rarely . . . consider all [its]
features;”30 rather, given their attention constraints amid clutter, they use shortcuts to “label,
identify, and classify” the information.31 If, for example, they see a small creature with the salient
features of feathers and wings, they “categorize” it as a bird without stopping to test for all avian
characteristics.32
In memory,33 strong brands function, in part, as antidotes to clutter; they exist as schemas–as
“clusters”34 of information: (a) with source identifying (reputational) nodes at their center; (b) very
strongly linked to the product(s) or service(s) in connection with which they are used; and (c) also
linked to (usually a host of) other associations that have been engrafted on the schema by advertising,
word of mouth or experience.35 Cognitively, “[a] unique brand name and cohesive brand identity are
probably the most powerful pieces of information for consumers . . ., enabling [them] to efficiently
organize, store, and retrieve information from memory.”36 Strong brands operate, moreover, much
in the manner of the picture of a celebrity on the cover of a magazine in a sidewalk kiosk – they
attract attention in an otherwise hurried environment.37
30
31
32
33
34
35
36
37
38
39
40
41
42
Jacoby, supra note 28, at 1035, 1037.
Hoyer & MacInnis, supra note 28, at 115.
Jerre B. Swann & Michael J. Tarr, Configuration Protection Harmonized, 94 Trademark Rep. 1182, 1192 (2004).
Very little information can be held (and attended to) in active consciousness, referred to as “cognitive workspace” or “consciousness of
the moment;” most information is stored in memory where its accessibility ranges from the instantaneous to the “virtually unavailable.”
Jacoby, supra note 28, at 1015–16.
Id. at 1024–25; Jerre B. Swann, An Interdisciplinary Approach to Brand Strength, 96 Trademark Rep. 943, 946 (2006).
For a discussion and a diagram of the Nike brand schema, see J. Paul Peter & Jerry C. Olson, Consumer Behavior and Marketing
Strategy 58–61, 74–81 (7th ed. 2005) (noting that a brand is a “bundle” of functional and psychosocial attributes).
Jacoby, supra note 28, at 1025; see Hoyer & MacInnis, supra note 28, at 183.
Peter & Olson, supra note 35, at 118–19.
For purposes of full disclosure, we have appeared as counsel for adidas A.G. in numerous cases.
Jacoby, supra note 28, at 1035, 1037.
Hoyer & MacInnis, supra note 28, at 102, 115–16 (3d ed. 2004) (“The cognitive networks in one’s memory . . . play a fundamental and
often decisive role in interpreting incoming information from the outside world.”).
Donal E. Carlston & Eliot R. Smith, Principles of Mental Representation, in Social Psychology: Handbook of Basic Principles 196
(Guilford Press 2007).
Expectation drives perception, Judith Lynne Zaichowsky, The Psychology Behind Trademark Infringement 74 (2006), and respondents
may overwrite features of a stimulus to conform to memory (e.g., they may convert four stripes to three). Swann, An Interdisciplinary
Approach to Brand Strength, supra note 34, at 961–62.
Trademark 301
The adidas schema,38 as an example, has the brands (e.g., adidas, three stripes) and other indicia
(e.g., shell toe, Superstar design) at its core strongly linked to athletic shoes and wear; they are
also linked to a perception of high quality, soccer, sponsorship of the Olympics, and the like. When
presented with a post-sale photograph of an athletic shoe with four parallel stripes on the side
and with a shell toe, and asked the question, “Who makes or puts [this] out,” respondents do not
meticulously review each feature of the stimulus but engage in “pattern matching” with respect to
its salient characteristics.39 Respondents search their memory and identify the stimulus “based on its
similarity to what [they] already know”40 and “[w]hen stimulus information offers a sufficient match
to a schema possessed by the perceiver, the schema is called up from memory and used . . . to guide
inferences.”41 As to the four stripes/shell toe example, 40% of test cell respondents typically draw
the inference that the stimulus is adidas.42
KILPATRICK TOWNSEND
3.
The Confusion Factors Tested by Eveready
The Eveready format thus primarily addresses three confusion factors: similarity of marks, similarity
of products, and brand strength (accessibility in memory). Strength is the key: (i) if a schema is
easily accessible, it can be cued by a similar mark even where there is little or no similarity in
products;43 and (ii) if a brand is dominant (COKE), its schema may be cued by another brand in the
category (PEPSI), even where there is no similarity of marks.44 If, however, the senior mark is not
accessible, it obviously cannot be cued irrespective of mark and product similarity: when an “openend question [is] used [in connection with] a mark that is not particularly well-known, it needs to be
understood that the . . . “top-of-mind” awareness of the brand . . . required [by the Eveready format]
may significantly underestimate [the likelihood of] confusion.”45
4.
The Scope of Eveready
In cases involving strong marks, the Eveready format is the gold standard for fundamental cognitive
and marketing reasons:
a. An Eveready survey (a) used among prospective consumers of the alleged infringer’s
products or services; (b) in face-to-face interviews; and (c) with the stimulus left in view,
engenders respondent “attention” approximating that of an “involved” consumer and
thus produces, coupled with a control cell to filter market-share effects, a conservative
(“reliable”) estimate of likelihood of confusion;46
b. Reviews of “why” question answers typically reveal that senior mark responses to a
“who makes or puts out” question have occurred because: (a) “stored knowledge” of the
senior mark is “accessible” in a respondent’s memory; and (b) there is a “fit between the
stored knowledge and the [junior] stimulus.”47 Accordingly, an expert’s conclusion as to
43 An Eveready survey can thus measure the “reach” of a strong mark. “A mark that is strong . . . is more likely to be remembered and more
likely to be associated in the public mind with [or triggered by] a greater breadth of products . . ., than is a mark that is weak because
relatively unknown . . . .” James Burrough Ltd., 540 F.2d at 276.
44 William G. Barber discusses this phenomenon in a dilution context in How to Do a Trademark Dilution Survey (or Perhaps How Not to
Do One), 89 Trademark Rep. 616 (1999). Control cells are thus necessary in any consumer survey as to strong marks. See Jerre B. Swann,
Dilution Redefined for the Year 2002, 92 Trademark Rep. 585, 619–20 (2002).
45 Phyllis J. Welter, Trademark Surveys § 24.03[1][c] (1999). Welter postulates that the Eveready format requires “unaided awareness” of
the senior brand. In our view, however, the format more closely resembles a partially aided awareness test: it assesses whether the junior
user’s mark and product cues are similar enough to those of the senior brand to trigger the latter’s schema in response to a source confusion
question.
46 Jerre B. Swann, Sophistication and the Sciences, 97 Trademark Rep. 1309 (2007). It is our view that net confusion from an Eveready
of less than 10% should suffice to support a conclusion as to likelihood of confusion (and that, because of an elevated degree of noise
discussed below, a net level above 10% should be required from a Squirt format). See McCarthy, supra note 5, § 32:189 (discussing a
10% threshold).
47 See E. Tory Higgins, Knowledge Activation: Accessibility, Applicability, and Salience, in Social Psychology: Handbook of Basic
Principles 135 (Guilford Press 2007); Michel Tuan Pham & Gita V. Johar, Contingent Processes of Source Identification, 24 J. of
Consumer Research 249, 250 (1997) (“The probability of source identification through cued retrieval depends essentially on [a.] the
strength of the semantic link between the source and content that is formed at encoding, and [b.] the overlap between the cues that are
available at retrieval, and the to-be-recollected material . . . .”). With ADIDAS, for example, most respondents give “stripes” in answer to
a “why” question, reflecting their access to the three stripe mark and the “fit” or “overlap” with a stimulus that merely adds one stripe, or
takes one stripe away.
177
a “likelihood of confusion,” based on an appreciable percentage of senior mark responses,
has cognitively sound underpinnings;48
c. Because a strong mark is likely to be attended to in the marketplace,49 it is reasonable to
assume that a stimulus that “fits” the strong mark’s schema will be attended to, and that an
Eveready survey thus measures probable assessments in the marketplace, not artificially
created or forced opportunities; and
d. The only hypothetical is the degree to which a respondent would be likely to encounter
the junior use in the marketplace, and any concern as to the real world basis for that
likelihood is alleviated by limiting the universe to consumers and prospective consumers
of goods in the category of the alleged infringer.50
With respect to strong marks, therefore, the Eveready format is a relevant, reliable, and objective test
of likelihood of confusion. It satisfies critical Daubert criteria as interpreted in the 2000 advisory
committee’s notes to Federal Rule of Evidence 702: it is a “tested,” not a subjective, approach; it has
been peer reviewed; with a control cell, it has a known error rate; and it has been generally accepted
in the scientific community.51
B.
Squirt
48 See, e.g., Jacoby, supra note 28, at 1028, 1034. A junior use may only trigger association (dilution), rather than identification (confusion),
and questions as to what a stimulus “brings to mind” are appropriately rejected for likelihood of confusion purposes. Holiday Inns, Inc.
v. Holiday Out in Am., 481 F.2d 445, 447 (5th Cir. 1973). “Confusion and dilution [and fair competition] . . . exist on a continuum,” and
a junior user’s position on the continuum is predominantly a function of (a) senior brand strength, (b) mark similarity, and (c) product
similarity. Swann, Dilution Redefined for the Year 2002, supra note 44, at 620–21.
49 See Swann, An Interdisciplinary Approach to Brand Strength, supra note 34, at 955. “[F]amiliar brands are selectively given more
exposure, attention, comprehension and retention by consumers,” Steve Hoeffler & Kevin Lane Keller, The Marketing Advantages of
Strong Brands, 10 Brand Management 421, 424 (2003), and owners of strong brands thus get “dramatically more impact from the same
communications budget.” David A. Aaker, Managing Brand Equity: Capitalizing on the Value of a Brand Name 186 (1991).
50 Such a universe definition is thus a “relevancy” requirement. See, e.g., Zimmerman v. Nat’l Ass’n of Realtors, No. 92032360, 2004
T.T.A.B. LEXIS 180 (T.T.A.B. Mar. 31, 2004). Likewise, where the junior user’s operations are geographically confined, the study should
be confined to the area where there are respondents with the opportunity to come into contact with the junior mark. See, e.g., James
Burrough Ltd., 540 F.2d at 277; Jacob Jacoby, Survey and Field Experimental Evidence, in The Psychology of Evidence and Trial
Procedure 181 (Saul M. Kassin & Lawrence S. Wrightsman eds., 1985).
51 See Fed. R. Evid. 702 advisory committee’s notes (2000).
52 Where brands are externally available for comparison, an Eveready (with its requirement of internal accessibility) should not be used to
“disprove” confusion. Many courts, however, do not appreciate the distinction. See, e.g., Nat’l Distillers Prods. Co., LLC v. Refreshment
Brands, Inc., 198 F. Supp. 2d 474, 482–84 (S.D.N.Y. 2002); GMA Accessories, Inc. v. Croscill, Inc., No. 06 Civ. 6236 (GEL), 2008 U.S.
Dist. LEXIS 16052, at *27 (S.D.N.Y. Mar. 3, 2008).; Edge Wireless, LLC v. U.S. Cellular Corp., No. 03-1362-AA, 2004 U.S. Dist LEXIS
15297, at *17 (D. Or. July 23, 2004).
Trademark 301
As befits the current conditions of marketplace clutter, almost two million marks are federally
registered. Comparatively few have (or can hope to develop) sufficiently strong memory traces so
as to be cued by pattern matching engendered by a monadic exposure to a similar junior use. The
internal search of memory for a strong brand’s schema that exists at the core of an Eveready study
is thus hostile to the general run of marks; for weak marks, an Eveready format will consistently
produce negligible estimates of likelihood of confusion. Ergo the Squirt format, with an external
review of the marks at issue that flows from their side-by-side or sequential exposure inherent in the
administration of a Squirt survey.52
KILPATRICK TOWNSEND
1.
The Questionnaire and Variants
In Squirtco, respondents first heard radio ads for SQUIRT and QUIRST and were then asked “Do
you think SQUIRT and QUIRST are put out by the same company or by different companies?,”
followed by “What makes you think that?” In current designs, questions as to “sponsorship
confusion” and “affiliation confusion” follow.54
53
The number of Squirt variants is vast.55 In one, to remove a spotlight from the brands at issue,
respondents are shown an array56 (including the senior and junior uses) and asked:
Do you think that each of these brands is from a separate company, or do you think that two
or more are from the same company or are affiliated or connected [in any way]?57 If you
don’t know, please feel free to say so.
[If TWO OR MORE FROM SAME COMPANY OR AFFILIATED/CONNECTED]
Which two or more brands do you believe are from the same company or are affiliated or
connected? [and] Why do you say that? 58
Another variant, to address objections to a side-by-side or sequential display of brands not seen
in such immediate proximity in the marketplace, is a “two room” study:59 (a) in the first room, the
respondent sees a stimulus of the allegedly infringed product; (b) in the second room, the respondent
sees a “line-up” of products in the same category, including the allegedly infringing product, and
is asked whether any “come from the same maker or company as the product . . . I showed you
[in the first room]?”60 The two-room study “is an attempt to replicate the marketplace process of
advertising exposure to a brand or trade dress, followed by being confronted in the market with both
similar and differing brands . . . .”61 Rather than rely on immediate juxtaposition of junior and senior
53 628 F.2d at 1089 n.4.
54 E.g., “Do you think the first ad you just heard: (a) comes from a company that has a business connection with the company that put out
the second ad you just heard; (b) comes from a company that does not have a business connection with the company that put out the
second ad; or (c) you don’t know or have no opinion.” See Kargo Global, 2007 U.S. Dist. LEXIS 57320, at *14. As noted supra note 17,
some courts have expressed concern with the cumulative impact of a series of closed-ended questions as to “same company,” “affiliated
company,” and “authorization.”
55 See, e.g., Pilot Corp. of Am. v. Fisher-Price, Inc., 501 F. Supp. 2d 292 (D. Conn. 2007); Urban Outfitters, Inc. v. BCBG Max Azria Group,
Inc., 511 F. Supp. 2d 482 (E.D. Pa. 2007); Ironclad, L.P. v. Poly-America, Inc., No. Civ. A. 3:98-CV-2600, 2000 U.S. Dist. LEXIS 10728
(N.D. Tex. July 28, 2000); and YKK Corp. v. Jungwoo Zipper Co., 213 F. Supp. 2d 1195 (C.D. Cal. 2002).
56 In T.T.A.B. proceedings, where marks are often tested in block letter form, OMS Invs., Inc. v. Cent. Garden & Pet Co., No. 91156249,
2006 T.T.A.B. LEXIS 274, at *40–41 (T.T.A.B. July 10, 2006), an array (that includes both the allegedly infringed and infringing marks)
theoretically could be probative. Testing an array under marketplace conditions is substantially more problematic, see Westchester Media
Co. v. PRL USA Holdings, Inc., 103 F. Supp. 2d 935 (S.D. Tex. 1999), aff’d in part, rev’d in part, 214 F.3d 456 (5th Cir. 2000), but may
not be impossible—e.g., the brands in the array may all coexist on supermarket store shelves.
57 See Scott Fetzer Co. v. House of Vacuums, Inc., 381 F.3d 477, 488 (5th Cir. 2004) (criticizing the “in any way” phraseology as prodding
“survey participants to search for any connection . . . .”).
58 This basic format, as to only three products, was used in Ecce Panis, Inc. v. Maple Leaf Foods USA, Inc., No. 07-1099-PHY-SRB, 2007
U.S. Dist. LEXIS 85780, at *16–17 (D. Ariz. Nov. 7, 2007), where, as can often occur with Squirt designs, the results of the (in treatment)
control reduced the test results to a level below that supporting a conclusion as to likelihood of confusion.
59 See Storck USA v. Farley Candy Co., 797 F. Supp. 1399, 1408 (N.D. Ill. 1992).
61 Id.
179
marks, it relies on a recent brand display (a “recency effect” in memory62) to make the allegedly
infringed brand accessible.
2.
Categorization and the Representativeness Heuristic
As noted above, consumers do not meticulously examine brand stimuli; they categorize based
on salient characteristics, and one mechanism they use in interpreting and classifying stimuli is
the representativeness heuristic. A heuristic is a mental short-cut that consumers often take when
making decisions, and according to the representativeness heuristic, consumers are likely to infer
that things that are physically or conceptually similar or seem related must go or belong together.63
In Beneficial Corp. v. Beneficial Capital Corp.,64 the operation of the heuristic in a Squirt format was
explained (in lay terms) as follows:
To the key question asked by the survey, “Do you think that there may or may not be a
business connection between Beneficial Capital Corp. and the Beneficial Finance System
Companies?” thirty-one percent of the respondents stated that such a connection was either
definite or probable . . . . The survey establishes . . . that the names are similar . . . and that
portions of the general public will make the reasonable assumption that . . . two companies
with similar names are likely to have a business connection.
In Wynn Oil Co. v. Thomas, the heuristic arguably was enshrined into law: “[c]ases where a defendant
uses an identical mark on competitive goods . . . are ‘open and shut’ and do not involve protracted
litigation to determine liability for trademark infringement.”65
3.
The Confusion Factors Tested by Squirt
62 See Hoyer & MacInnis, supra note 28, at 185 (“[Y]ou are more likely to remember what you ate for breakfast this morning than what
you ate a week ago because (1) this morning’s information has not yet decayed [been forgotten], and (2) there is much less information
interfering with the retrieval of this information.”).
63 Daniel Kahneman et al., Judgment Under Uncertainty: Heuristics and Biases 4 (1982) (“Many of the probabilistic questions with which
people are concerned belong to one of the following types: . . . What is the probability that event A originates from process B? . . . In
answering such questions, people typically rely on the representativeness heuristic, in which the probabilities are evaluated by the degree
to which A resembles B. For example, when A is highly representative of B, the probability that A originates from B is judged to be high.
On the other hand, if A is not similar to B, the probability that A originates from B is judged to be low.”).
64 529 F. Supp. 445, 450–51 (S.D.N.Y. 1982).
65 839 F.2d 1183, 1191 (6th Cir. 1988) (quoting McCarthy, supra note 5, § 23:3). But see Vincent N. Palladino, Genericism Rationalized:
Another View, 90 Trademark Rep. 469, 478–79 (2000); Zeisel & Kaye, supra note 24, at 167–70 (negating the likelihood of confusion
between “Workforce” for jeans sold in Gap and “Workforce” for socks sold in Sears). If the marks are weak and the products move
through different channels of trade to different consumers, confusion may well be unlikely irrespective of mark and product identity.
Trademark 301
A Squirt survey and variants of the Squirt format test similarity of marks, similarity of products, and
market proximity. The proximity factor is critical. In an Eveready survey, given the “accessibility”
of a strong mark, an unaided comparison (involving an internal search of memory) is appropriate
where the respondent is likely to encounter the junior mark (and pattern match) in the natural flow
of commerce. In a Squirt format, however, where the senior mark is not “accessible” in memory,
an aided comparison (involving the representativeness heuristic) is appropriate where the marks
exist side-by-side in the market or if one is typically encountered sufficiently soon after the other
that the recent brand or stimulus exposure (the “recency effect”) places both in the consumer’s
“cognitive workspace.” A Squirt survey is based on an external review of two stimuli that must be
KILPATRICK TOWNSEND
substantially proximate for the review, under “marketplace conditions,” to occur. Absent market
proximity, respondents in a Squirt design are made “artificially aware” of the competing marks.66
4.
The Scope of Squirt
The historical distaste for “suggestive” questions67 is likely to continue with respect to such questions
that have a clearly “leading” effect68 or to a Squirt without a control cell. With, however, the advent
of experimental designs, the judicial hostility toward all closed-ended questions should abate. As
noted above, such questions are often used as follow-ons to “Who makes or puts this out?” in
Eveready designs, and closed-ended questions are typically used to test “comprehension” in surveys
in false advertising cases.69
More recently, in National Distillers Products Co., LLC v. Refreshment Brands, Inc.,70 the court
rejected a two-room Squirt study with respect to goods in the same category (vodka versus a vodka
cooler) because, absent display of the senior mark in the first room, “respondent[s] would almost
certainly have been unfamiliar with . . . . [the allegedly infringed product] due to [its] very limited
distribution network and weak sales.” That, however, is the reason for the existence of the format in
the first place: without its insertion into consciousness, a weak mark cannot avail itself of consumer
reaction evidence in a survey context.
Accordingly, many “closed-ended question” rejections and National Distillers are suspect law.71
The true limit on the design should derive from how the representativeness heuristic operates in
a Squirt format—it facilitates inferences based on the similarity between the marks externally
reviewed, either side-by-side or sequentially. A Squirt test should not be used, therefore, where the
brands at issue do not proximately appear in the market. Under such circumstances, respondents
who report a “connection” due to the “similarity of names” are “demonstrating merely that they had
read the names . . . in artificially close proximity.”72
66 Kargo Global, 2007 U.S. Dist. LEXIS 57320, at *21–24 (“Kargo has offered no data or other evidence to support the proposition that
prospective customers were likely to encounter Kargo’s trademark a short time after seeing Cargo magazine. . . . [I]t would [thus] have
been far more replicative of actual market conditions to have displayed only Kargo’s materials and then asked the respondents open-ended
questions regarding their beliefs about the source . . . . This is known as the ‘Eveready’ format.”). Because Kargo is weak, an Eveready
test would likely produce zero evidence of likely confusion, but absent market proximity, only an Eveready reflects market reality. Where
marks are weak and goods are not proximate, similarity assessments cannot occur either in the market or in the mind.
67 See Riviana Foods Inc. v. Societe Des Produits Nestle S.A., 33 U.S.P.Q.2d 1669, 1671 (S.D. Tex. 1994) (“Do you think the weight loss
product ‘Sweet Success’ and ‘Success Rice’ are more likely made by the same company or more likely made by different companies?”).
There are only six instances in the last ten years where a court had relied, even in part, on a Squirt survey in reaching a conclusion that
there was a likelihood of confusion.
68 See Clicks Billiards Inc. v. Sixshooters Inc., 251 F.3d 1252, 1262 (9th Cir. 2001) (the question “Do you associate the visual look and
appearance of this billiard parlor with Clicks Billiards only or with other billiard parlors too?” resulted in 80% Clicks responses).
69 See Proctor & Gamble v. Hoffmann-La Roche, No. 06 Civ. 0034(PAC), 2006 WL 2588002, at *22 (S.D.N.Y. 2006) (“The open-ended
format is well suited for surveys focusing on simple and/or primary claims made in ads. On the other hand, open-ended questions
are likely to understate secondary claims, particularly where those claims are rather complex by virtue of being both compound and
comparative.”) (internal citation omitted). As Dr. Jacoby notes, “[r]eadily accessible stored information may be retrieved via open-ended
(unaided recall) questions. However, retrieving less readily accessible stored information [as in a Squirt] generally requires using either
‘focused’ open-ended (aided recall) questions or closed-ended (recognition) questions.” Jacoby, supra note 28, at 1016 n.8.
70 198 F. Supp. 2d 474, 482–84 (S.D.N.Y. 2002).
71 Because the study in National Distillers had other flaws (the universe included potential purchasers of the allegedly infringed, not
infringing product), the rejection of the study was correct. The court also noted that “the liquor and cooler markets are not coextensive”
so there may have existed proximity concerns as well. Id. at 484.
72 See Kargo Global, 2007 U.S. Dist LEXIS, at *26.
181
A weak mark should not be placed in “recent” memory/“cognitive workspace” if it would not appear
there under normal market conditions. To do so might be to give a weak mark artificial “reach” that
it does not intrinsically possess. Quite simply, “in cases where the two parties’ products do not share
the same market, the likelihood of confusion is reduced by the very fact that no consumer would
ever be exposed to both products.”73 Accordingly, the above-noted rationale that a two-room study
“replicate[s] the marketplace process of [an] advertising exposure to a brand or trade dress, followed
by being confronted in the market with both similar and differing brands or trade dresses” should be
the subject of proof, not postulation.74
Even where marks substantially and demonstrably overlap in the marketplace, we are still concerned
as to whether they will be attended to, given that “the vast majority of stimuli fail to register upon
the consumer’s consciousness.”75 Given the elevated “confusion” levels that Squirt studies produce,
we are further troubled by a design that often reflects control cell “noise” of more than 25%.76 We
nonetheless appreciate a two-pronged Squirt rationale: (a) for substantially overlapping marks, a
Squirt has appreciable scientific underpinnings; and (b) it may be relevant to know, at minimum,
whether two marks are sufficiently similar to one another so that, if they do “register,” they effectively
will be considered the same.
II.
Conclusion
Pattern matching (in the mind) and the representativeness heuristic (pattern matching in the external
marketplace) suggest that for similar marks, particularly as applied to similar goods, some level of
confusion is likely—consumers draw inferences from a “fit” between stimuli. The choice between
Eveready and Squirt is dictated by where, as a matter of market reality, brand similarity assessments
can take place.
73 Zeisel & Kaye, supra note 24, at 167.
74 See Leelanau Wine Cellars, Ltd. v. Black & Red, Inc., 452 F. Supp. 2d 772, 784 (W.D. Mich. 2006), aff’d, 502 F.3d 504 (6th Cir. 2007),
rejecting a two stage Squirt because there was “no indication that in the actual marketplace, purchasers of Chateau de Leelanau wine are
ever exposed to LWC’s advertising shortly before they view or purchase [the] wine.” In a 1989 case, Dr. Zeisel was confronted with the
result from a side-by-side Squirt study that 35% of respondents believed that “Workforce” for blue jeans sold by Gap were from the same
company as “Workforce” socks sold in Sears stores. He then conducted two studies “to measure the likelihood that consumers would ever
encounter both products” or would be aware “of the use of the mark on both products;” found that the likelihood ranged between .5% and
1%; and concluded that “the likelihood of consumer confusion was not 35%, but less than 1% among both Gap customers and the general
population.” Zeisel & Kaye, supra note 24, 167–69.
75 Jacoby, supra note 28, at 1034.
76 See, e.g., Pep Boys v. Goodyear, 2002 U.S. Dist. LEXIS 5925, at *30. We understand that there are natural error rates and subconscious
and subliminal influences on memory, Hoyer & MacInnis, supra note 28, at 97–98, 433, and that elevated noise may be just a byproduct
of general marketplace clutter. See, e.g., Jacob Jacoby et al., Am. Ass’n of Advertising Agencies, Miscomprehension of Televised
Communications (1980) (“the average amount of miscomprehension associated with any [televised] communication was an unexpectedly
high 30%”). “Reliability” and elevated control cell noise are, however, disconnects.
77 Alex Simonson, Surveys of Trademark Confusion: Basic Differences, 5 Intell. Prop. Strategist 1, 2 (1998).
Trademark 301
The Eveready format is ideal for assessing whether, as to strong marks or as to marks that do not
appear proximately or otherwise overlap in the marketplace, a likelihood of confusion is appreciable.
As to such marks, an Eveready survey tests market reality—“what would be the confusion level if
we were to allow introduction of the junior user’s mark given the current level of awareness of the
senior user’s mark.”77
KILPATRICK TOWNSEND
The Squirt format is the alternative for testing the likelihood of confusion between marks that
are weak, and cannot thus be compared unaided in the mind, but that substantially overlap or are
simultaneously or sequentially accessible in the marketplace for comparison—so that their aided
presentation is realistic, not artificial. It relies on the “proximity” factors in a likelihood of confusion
analysis, rather than on the strength factor, as its market replication rationale.
That leaves, of course, a question as to how likelihood of confusion should be tested as to a weak
mark that does not appear in proximity to a similar junior use. We know of no format for that purpose
and, as may be gleaned from the foregoing, we consider it appropriate that none seems to exist.
Compliant with a market replication mandate, there simply appears to be no way to test whether a
weak mark will be confused with another’s use in a commercial arena where the weak mark does
not appear and there is no customer overlap. Trademark law has long considered the relevance of
geographic demarcations on a macro scale.78 With respect to choosing the appropriate format for a
likelihood of confusion study, it may sometimes be necessary to engage in a micro analysis.
78 Dawn Donut Co. v. Hart’s Food Stores, Inc., 267 F.2d 358 (2d Cir. 1959).
183
Patent Law Basics: An Overview of Patent Law and Avoiding the Loss of
Rights
The patent process can be complicated and convoluted, and patent laws are confusing and complex.
Even the most sophisticated companies, inventors, and researchers have questions on subjects such
as what kinds of things are patentable, what is required to obtain a patent, how the patent system
works, and what rights a patent confers. We have gathered together some of the most frequentlyasked questions about patent law to serve as an introduction to the patent system or, for those who
already have some knowledge of the patent system, to serve as a refresher and hopefully to provide
you with a new perspective on patents.
I.
General Aspects of Patent Law
Q:
What is patentable subject matter?
Almost any product, process, or ornamental design that is new, useful, and nonobvious is patentable.
What we normally think of as a patent is known as a “utility” patent, because it covers the usefulness
of a product—the way it operates, what it produces, what it does, etc. A utility patent protects the
useful or functional aspects of a product, process, or method. A few examples of products and
processes that may be protectable by utility patents include medical devices, tools, machines,
furniture parts, automobile or machine parts, software, electrical circuits, microprocessors,
computers, toys, pharmaceuticals, chemical compounds, methods of treatment, manufacturing
processes, and methods of doing business.
There are two other types of patents. Design patents protect the ornamental design or “look” of an
article (i.e., they do not protect aspects of a product that are functional.)1 A few examples of designs
that may be protected by design patents include the ornamental aspects of furniture, packaging,
shoes, game boards, and fonts. The United States Patent and Trademark Office (“PTO”) also
provides for protection of some types of plants under the plant patent statute.2 Because these two
types of patents are comparatively few, however, we will be using the term “patent” in this article to
mean a “utility patent” unless specifically indicated otherwise.
1 35 U.S.C. §§ 171-73 (2000).
2 The plant patent statute states that:
[w]hoever invents or discovers and asexually reproduces any distinct and new variety of a plant, including
cultivated sports, mutants, hybrids, and newly found seedlings, other than a tuber propagated plant or a plant
found in an uncultivated state, may obtain a patent therefor, subject to the conditions and requirements of this
title.
35 U.S.C. § 161 (2000).
Patent 101
Larry A. Roberts, Cynthia B. Rothschild, Kristin M. Crall, and Alyson L. Wooten
KILPATRICK TOWNSEND
Examples of inventions that are not patentable include: (1) printed matter3; (2) naturally occurring
articles4; (3) scientific principles5; (4) mental steps; and (5) aggregations of elements where the
aggregation does not produce a synergistic or cooperative result, for example, a washing machine
with a telephone mounted to it, where there is no interaction between the phone and the washing
machine other than their physical connection.
Q:
What other requirements have to be met for patentability?
The invention must be (1) new and (2) not obvious. The invention must also be considered “useful.”
Examples of a non-useful invention would be a chemical compound that does not have a known
function or a perpetual motion machine or other invention that violates the laws of mechanics or
physics and therefore cannot function. Because novelty and nonobviousness are the most common
stumbling blocks for obtaining a patent, we will discuss these concepts in more detail.6
1.
The Invention Must be “New” over the Prior Art
First, in order to be patentable, the claimed invention cannot be disclosed, either expressly or
inherently, in a single “prior art” reference. Generally, “prior art” is knowledge that is already
known to the public. In the United States, prior art falls into three general categories: (1) things
known before the patent applicant invented his or her invention, (2) things known to the public more
than one year before the patent application was filed, and (3) other miscellaneous bars (discussed
briefly below).
First, with respect to things known before the invention by the applicant, absent proof to the
contrary, the PTO will presume that the date of invention is the date that a patent application was
filed. This is a legal fiction, because it obviously takes longer than a single day to come up with an
invention, contact a patent attorney, and have a patent application prepared and filed. But a patent
applicant is entitled to an earlier date of invention if he can establish it to the PTO’s satisfaction.
An inventor may thus need to establish his exact date of conception (i.e., the mental process of
coming up with the idea) and reduction to practice (the physical part of making the invention and
proving it useful for its intended purpose). It is thus important for inventors to keep track of and to
document activities relating to research that may lead to a patent application. This can help prove
3
4
5
6
Printed matter is unpatentable where the invention relates merely to the arrangement of the printed matter, or to the printed matter per se.
However, where there is cooperation between the printed matter and a structure, as for example, in the case of a slide rule, the invention
may be patentable. See, e.g., In re Gulack, 703 F.2d 1381 (Fed. Cir. 1983); In re Miller, 418 F.2d 1392 (C.C.P.A. 1969).
An article or composition that occurs naturally in nature is not patentable unless it is given a new form, quality, property, or combination.
However, a DNA sequence may be patentable if it is claimed as an “isolated” nucleotide having a specific sequence. See, e.g., Diamond v.
Chakrabarty, 447 U.S. 303 (1980) (holding that microorganisms produced by genetic engineering are not excluded from patent protection
under 35 U.S.C. § 101).
For example, Einstein could not have patented his discovery that E=mc2. One can, however, patent the application of a law of nature or a
scientific principle to a practical purpose producing a new and useful result, as for example, making rubber. See, e.g., Diamond v. Diehr,
450 U.S. 175 (1981); In re Bilski, 545 F.3d 943 (Fed. Cir. 2008) (holding that a business method or process claim is patentable subject
matter if it (1) is tied to a particular machine or apparatus or (2) transforms a particular article into a different state or thing).
This requirement stems from 35 U.S.C. § 101, which states that to be patentable, a process, machine, manufacture, or composition of
matter must be “useful.” This requirement may pose a problem for inventions claiming a new composition of matter of unknown function.
For example, chemical compounds for which the mechanism of action is the subject of ongoing research may not be patentable under
§ 101. Also, a nucleotide sequence that is homologous to a gene may be found to be unpatentable under § 101 if the function of the gene
is unknown. The lack of patentability of such sequences has significantly hindered efforts to patent small sequences of DNA known as
expressed sequence tags (“ESTs”), which are short DNA sequences isolated from the human genome.
185
Second, with respect to things known more than one year before the patent application was filed,
“prior art” in this category includes printed publications in any country, as well as products or
processes that are known, used, or on sale in the United States more than one year before the patent
application is filed.8 This category includes the inventors’ own disclosures. Because this is such
an important topic, specific facts and scenarios are discussed in a separate section at the end of
this article, in Section V. This one-year “grace period” is intended to strike a balance between two
competing interests: the inventor’s interest in having an opportunity to test the invention and assess
its commercial potential before incurring the expense of a patent application, versus the public
interest in the prompt disclosure of inventions. Most foreign countries do not apply this one year
grace period and require that a patent application for an invention be filed before the invention is
made publicly known or offered for sale. Thus, time is of the essence in patent protection: If an
inventor publicly discloses the invention before filing a patent application, most international rights
will be lost, and if an inventor waits more than one year after offering for sale or publicly using an
invention, U.S. patent rights will be lost as well. Some specific actions to avoid are discussed in
more detail in Section V.
Establishing an earlier date of invention will not overcome a rejection under this category. If
it happens more than a year before the filing date of the application, it doesn’t matter when the
invention was conceived or reduced to practice—patent rights are still lost.
Third, another bar to the newness of an invention is that an inventor cannot abandon the invention.9
Abandonment may occur by failing to apply for a patent within a reasonable time after invention, by
ceasing work on a project with no intention of returning to finish it, or by dedicating subject matter
to the public by disclosing, but not claiming, subject matter in a patent application.10 For this latter
reason, it is important that all the important aspects of the invention are included in the claims of a
patent application (discussed in more detail below).
Another example in this category is the prohibition against an inventor patenting something that he
or she didn’t invent.11 If you see something brilliant that someone else developed and cannot believe
that there is not a patent on it yet, you cannot attempt to patent it because you did not invent it.
2.
The Invention Must not be Obvious over the Prior Art
The next requirement for patentability is that the invention cannot be merely an obvious modification
of something that is already known to the public. If there are products, processes, or designs that
7
8
9
10
11
35 U.S.C. § 102(a) (2000).
Id. § 102(b).
Id. § 102(c).
See Johnson & Johnston Assocs. Inc. v. R.E. Serv. Co., 285 F.3d 1046 (Fed. Cir. 2002).
35 U.S.C. § 102(f) (2000).
Patent 101
that the invention was actually conceived earlier than a particular reference date or activity so that
the reference or activity cannot be used as prior art against the application. “Prior art” under this
provision would include printed publications in any country, and public knowledge or uses within
the United States.7
KILPATRICK TOWNSEND
are “new” in the sense that the exact thing is not already known to the public, the invention is still
not patentable if the subject matter of the invention as a whole would have been “obvious at the
time the invention was made to a person having ordinary skill in the art to which said subject matter
pertains.”12 Although this is an aspect that is typically heavily debated during prosecution of the
application (discussed below), some questions to consider are:
(1)
(2)
(3)
What is the scope and content of the prior art?
What are the differences between the prior art and the claims at issue?
What is the level of ordinary skill in the pertinent art?13 (If the person of ordinary skill
in the art holds a Ph.D., more things are likely to be obvious to him or her than if the
person of ordinary skill had only a high school education.)
(4) Has the invention been a commercial success or filled a long felt but previously unsolved need? Have others previously tried but failed to solve the problem that the
invention addresses? Have competitors copied the invention or taken licenses from
the patent applicant? Has there been praise by others in the field for the inventor’s
innovative approach? Have there been earlier suggestions by others that the approach
taken by the applicant would not work?14 If the answer to any of these questions is
“yes,” that is evidence that the invention is not obvious; otherwise someone would
have done it already.
(5) Does the invention achieve a better or different result than the prior art?
(6) Does the invention offer advantages, such as being cheaper or easier to make than the
prior art?
(7) Is there any reasonable expectation that combining the teachings of two pieces of prior
art would lead to this invention?
While considering these questions, it is important to also keep in mind that nonobviousness should not
be judged with hindsight.15 Obviousness must be determined from a time just before the applicant’s
invention, and you therefore cannot use the applicant’s own disclosure as a roadmap for combining
the teachings of several prior art references. That said, the Supreme Court has recently made proof
requirements for finding that an invention is obvious more flexible and thus, it is often easier to
invalidate a patent or certain patent claims as being obvious.16 Still, inventors may needlessly be
deterred from filing a patent application by thinking that “if I came up with the invention, it must be
obvious.” That is often not the case.
12 Id. § 103(a).
13 In Environmental Designs, Ltd. v. Union Oil Co., 713 F.2d 693, 696 (Fed. Cir. 1983), the Federal Circuit established six factors to which
courts should look in determining the level of ordinary skill in the art. Those factors are “(1) the educational level of the inventor; (2)
type of problems encountered in the art; (3) prior art solutions to those problems; (4) rapidity with which innovations are made; (5)
sophistication of the technology; and (6) educational level of active workers in the field.”
14 See Graham v. John Deere Co., 383 U.S. 1 (1966); Orthopedic Equip. Co. v. All Orthopedic Appliances, Inc., 707 F.2d 1376 (Fed.
Cir. 1983); see also Pentec, Inc. v. Graphic Controls Corp., 776 F.2d 309 (Fed. Cir. 1985) (discussing objective factors); 2 Peter D.
Rosenberg, Patent Law Fundamentals § 9.02 (1999).
15 See Sensonics, Inc. v. Aerosonic Corp., 81 F.3d 1566 (Fed. Cir. 1996).
16 See KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398 (2007) (“KSR”). In KSR, the Supreme Court held that a patent claim can be proven obvious
without any explicit teaching, motivation or suggestion in the prior art to combine the references or teachings of others.
187
Q:
With what other rules does the patent application need to comply?
contain a written description of the invention, and of the manner and process of making
and using it, in such full, clear, concise, and exact terms as to enable any person skilled in
the art to which it pertains, or with which it is most nearly connected, to make and use the
same, and shall set forth the best mode contemplated by the inventor of carrying out his
invention.17
1.
Written Description
The patent application must convey to those skilled in the art that the inventor was in possession of
the invention at the time of filing the patent application. The applicant cannot get a patent on details
of his invention that were not disclosed in the application as originally filed.
2.
Enablement
The patent is also required to teach those skilled in the art how to make and use the full scope of the
claimed invention without undue experimentation,18 but the description need not disclose what is
well known in the art.19
3.
Best Mode
The specification must also disclose the “best mode” for practicing the invention, if one exists. In
other words, in exchange for the government’s grant of exclusive rights to the inventor for a limited
period of time, the inventor agrees to share with the public the best way he or she knows to practice
the invention (which will be dedicated to the public once the patent rights expire). A patent applicant
cannot disclose inferior ways of practicing his invention to get a patent, while holding back the
“good stuff” for his own use. If disclosure of confidential information is a concern, protection of the
invention as a “trade secret” should be considered.
Q:
What rights does a patent provide?
A patent closes with a series of numbered paragraphs, called “claims,” that define the scope of
protection to which the patent owner is entitled. The claims are analogous to the property description
in a deed in that they define the boundaries of the invention.
A utility patent gives its owner the right to exclude others from making, using, selling, offering
to sale, or importing the invention claimed in the patent anywhere in the United States for the life
of the patent. To establish infringement of a patent, every limitation of a claim must be found in
17 35 U.S.C. § 112 (2000).
18 See Genentech, Inc. v. Novo Nordisk A/S, 108 F.3d 1361, 1365 (Fed. Cir. 1997).
19 See Hybritech, Inc. v. Monoclonal Antibodies, Inc., 802 F.2d 1367, 1384 (Fed. Cir. 1986).
Patent 101
The patent must adequately describe the invention, enable others to make and use it, and disclose the
best way known to the inventor for practicing the invention. Specifically, it should:
KILPATRICK TOWNSEND
the accused device, product, or process, either exactly (“literal infringement”) or by a substantial
equivalent under the “doctrine of equivalents.”20
Instead of preventing others from practicing, selling, or otherwise using the patented invention in
the United States, a patent owner may wish to license the patent to others by charging a royalty or
licensing fee for allowing others to make, use, or sell the invention. Patents may also be used by
a corporation as a bargaining tool, whether when faced with a patent suit by a competitor or when
entering marketing or other negotiations.
II.
Preparing and Filing the Patent Application
Q:
How is a patent obtained?
Before a patent application is filed, it may be advisable to conduct a prior art search to determine
whether it is worthwhile to move forward with a patent application. An inventor searches databases
that contain prior art to determine whether the invention, or similar inventions, are already known.
A search provides two primary functions: (1) it helps the inventor decide whether to invest in the
expense of a patent application by giving him or her an idea of what is already in the art and what
type of claim coverage might likely be obtainable, and (2) it helps ensure that if a patent application
is filed, the claims are as broad as possible, while also avoiding the prior art.21
As discussed previously, the inventor has only a year after his first public use or offer for sale of the
invention within which to file a patent application. If an application is not filed within that period,
the invention becomes public domain.
Q:
What government fees must be paid to apply for and obtain a patent?
When an application is filed, the applicant must pay the basic filing fee, currently $330, an additional
fee for the examiner to conduct the search (without which there can be no examination), which is
currently $540, and yet another fee for the examiner to examine the application, currently $220. If
the application contains a large number of claims or a lengthy disclosure, additional surcharges may
apply. After 18 months, the application will be published, and the fee for publishing the application
is $300. And if the patent examiner allows your application, there is an additional $1,510 fee to
have the patent issued. On the bright side, if the company that owns the rights to the invention is a
“small entity,” i.e., has fewer than 500 employees, a 50% reduction in the amount of each fee usually
applies.
These fees are current as of January 12, 2009. The PTO generally increases filing fees every
October.22
Q:
How does the examination process work?
20 See Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 520 U.S. 17 (1997). The Supreme Court set forth the “function, way and result” test
in Graver Tank & Manufacturing Co. v. Linde Air Products Co., 339 U.S. 605 (1950). The Federal Circuit announced the “insubstantial
differences” test in Hilton Davis Chemical Co. v. Warner-Jenkinson Co., 62 F.3d 1512, 1517 (Fed. Cir. 1995). The doctrine of equivalents
allows a patent owner to prevent others from avoiding infringement of the patent by designing something that is not identical to the
claimed invention, but is structurally and/or functionally equivalent to the claimed invention.
21 Relevant art located during this search must be cited to the PTO to comply with the duty of disclosure. See 37 C.F.R. § 1.56 (2008).
22 You may access information about the PTO’s fees at http://www.uspto.gov/main/howtofees.htm (last visited Mar. 9, 2009).
Once the inventor files the patent application with the PTO, it is assigned to a patent examiner who
is responsible for patents in the particular technology area of the application. Examiners typically
handle applications on a “first in, first out” basis, so it is likely that the patent application will be
pending for a year or more awaiting its turn to be examined. The examiner then conducts a search
of the PTO’s libraries and databases, looking for disclosures of products, processes, or designs that
are the same as or similar to the claimed invention.
The examiner then reviews the claims of the application to determine whether the invention is new
and nonobvious in light of the prior art, and then prepares an “Office Action,” summarizing which
claims are allowable, which claims are rejected and why, and outlining any formal corrections that
need to be made to the application. Although sometimes concerning to new inventors, it is typical
for the first Office Action to reject all or most of the claims as unpatentable over the prior art.
The applicant (often through his/her patent attorney) then has the opportunity to respond to the
Office Action by either amending the claims to add features not shown in the prior art, presenting
arguments about why the examiner is incorrect and how the prior art is different, or both.
Usually the second Office Action is a final Office Action. At that point, the applicant has the option
(1) to accept the examiner’s decision on which claims are allowable, and which are not, and to
accept the allowed claims; (2) to file a Request for Continued Examination (“RCE”), thereby reopening the prosecution of the application to allow further discourse with the examiner; or (3) to
appeal the examiner’s decision to the Board of Patent Appeals. The Board may affirm or reverse the
examiner’s decision.
If the applicant agrees to go forward with claims that have been allowed by the examiner, the
applicant pays the issue fee, and the PTO will issue a United States patent to the applicant.
Q:
What if my application contains more than one invention?
Patent applications will often disclose more than one way to practice an invention and include more
than one invention. For example, the application may include claims directed toward a product, a
machine for making the product, the process that the machine performs in making the product, and
even the chemical composition of the product. The examiner may conclude at an initial stage that
the application contains more than one invention. Also, because searching for multiple inventions
requires the examiner to search in multiple areas, bundling inventions in this manner can place an
additional workload on the examiner. The examiner may then issue a “restriction requirement” or
an “election of species” requirement, which states that the application contains multiple inventions
and that the applicant will need to select one invention for examination and withdraw claims
directed toward the others. If the applicant wishes to pursue patent protection for the non-elected
inventions, he or she will need to file additional applications, known as “divisional” applications
(i.e., applications that are divided out of the original), that will be entitled to the filing date of the
first (or “parent”) application.
Q:
What rights are conferred by a patent?
Patent 101
189
KILPATRICK TOWNSEND
A U.S. patent permits its owner to prevent others from making, using, selling, or offering to sell an
invention covered by the patent. Note that this is a right to exclude others, and does not give the
inventor an affirmative right to practice his own invention. It is entirely possible to have a patent
for an invention that the patent owner himself cannot use without infringing someone else’s patent.
Note also that the patent rights are generally limited to acts that take place within this country. If you
need patent protection in other countries, you will need to obtain patents in those countries.
Q.
What is the duration of a patent?
A U.S. patent expires 20 years from its earliest filing date, subject to any extensions or adjustments
for reasons such as PTO delays.23
Q:
What does “Patent Pending” mean, and when should I use it?
After the applicant files a patent application, the applicant can mark the corresponding product as
“Patent Pending.” This marking does not provide any enforceable rights in the invention, and you
cannot prevent your competitors from copying your product unless and until your patent issues. It
may serve as a psychological deterrent to your competitors, however, who may be discouraged from
copying your product because of the possibility that you could obtain a patent in the near future.
Q:
How should I mark my product after a patent issues?
After your patent has issued, you should immediately begin marking your product as patented.
The preferred marking is “Patented” or “Pat.” followed by your patent number, e.g., “Patented
7,654,321.” If the article cannot be marked, then the packaging that contains the article must be
marked. The patent owner must mark substantially all of the articles covered by the patent and
released to the public during the period of the patent, or otherwise the patentee may not be able to
recover damages for infringement during the period of time when marking was improper.
Only products actually covered by one or more claims of the patent should be marked, and only
during the period of time the patent is in force. The marking of an article as patented when it is
not in fact patented or after the patent has expired is against the law and subjects the offender to a
civil penalty. This means that marking such as “Covered by one or more of the following patents:
7,654,321; 7,531,246; and 7,416,352” is not proper. All of the patents must cover the product, in
which case the “one or more” language is inappropriate.
Q:
How long can I expect from the time I file the application to when a patent will issue?
One of the biggest complaints about the patent process (aside from the expense) is that it is slow.
It can take three to five years or longer for a patent application to ultimately issue as a patent. The
PTO has attempted to address this problem under the American Inventor’s Protection Act of 1999
(“AIPA”), which places limits on the time that the PTO has to respond to the applicant during the
course of prosecuting a patent application.
23 Utility patents filed after June 8, 1995 confer rights for 20 years from the date of filing. Patents issuing on applications filed before June
8, 1995 confer rights for 17 years from the date of issuance or 20 years from the date of filing, whichever is longer. Design patents confer
rights for 14 years from issuance, and like utility patents, plant patents last 20 years from the filing date.
Under the AIPA, the time for the PTO to mail a first Office Action to the applicant is 14 months, and
the time period from filing the application to receiving an issued patent is three years or less.24 If
the PTO does not respond within the required time period, the term of the patent may be extended
for a period equal to the PTO’s delay.25 Note that this provision does not necessarily speed up the
patent process, it only compensates the applicant by adjusting the term of the patent after it issues.
The extension may be of scant benefit in a technological area where innovation is rapid, and the
patented technology may be obsolete before the end of the patent term, but can be very important in
fields such as pharmaceuticals, where each day of patent term provides protection for a product that
results from years of research and development..
Q:
How long will my patent application remain “secret?”
Patent applications are initially maintained in confidence by the PTO, but they are routinely
published 18 months from the earliest priority date (which is often the application filing date). There
is an option to “opt out” of this publication by filing a non-publication request. The applicant may
only file this request, however, if she certifies that she will not file a foreign application in a country
that requires publication of applications 18 months after filing.26
Q:
Once my patent issues, what do I have to do to keep it in force?
Once your patent has issued, you must pay periodic maintenance fees to keep the patent in force.
Maintenance fees are due 3-1/2, 7-1/2, and 11-1/2 years after the patent issues, the amounts of which
increase at each interval.
Q:
What are the “claims” of a patent application and why do I need to focus on them?
The claims of a patent describe the product or process to which the patent owner has exclusionary
rights.27 The claims are the numbered paragraphs at the end of an application, and they act like the
metes and bounds in a real-property deed. The claims lay the boundary of the rights granted by a
patent. Because the claims define the scope of the inventor’s rights, they are the most important part
of a patent.
In a patent infringement case, infringement is determined by reviewing each element of the claims
and finding the same or equivalent element in the accused device. This is the number one reason
to pay close attention to the claims in the application draft that your patent attorney sends you – no
matter what is disclosed in the rest of specification (the written description of the invention), a patent
covers only what is recited in the claims. In other words, if a particular feature is disclosed in the
specification and not claimed in the current application or a continuing application, then there is no
patent coverage for that feature.
24 35 U.S.C. § 154(b) (2006).
25 Id. The extension of term for PTO delay may be reduced, however, for delay caused by the applicant during prosecution, as for example,
in filing tardy responses or continuing applications.
26 Id. § 122.
27 A figure or drawing serves as the claim in a design patent.
Patent 101
191
KILPATRICK TOWNSEND
Q.
If the claims define the invention, and if I have only invented one thing, why is there more
than one claim in the patent application?
Normally, each utility patent application includes several claims that vary in scope. Broad claims
define the invention in terms of only a few “elements” or parts, and preferably include the fewest
elements that are needed to make the invention work. Every element of a particular claim must be
found in an accused product or process for it to be found to infringe, so the fewer elements that need
to be found in the accused device, the easier it is to prove infringement. Conversely, narrow claims
include more elements, and the omission of any of those elements will avoid infringement.
On the other hand, a broad claim is usually more likely to be unpatentable because the examiner
only needs to find prior art references that include a few elements. It is more unlikely that a patent
examiner will be able to find the numerous elements of a narrower claim in the prior art, and the
narrower claim is thus more likely to withstand scrutiny.
For example, an automated saw may be defined broadly as including (A) a blade and (B) a moving
arm. A narrower claim might include additional elements: (C) a cutting table and (D) a switch. The
broad claim (A+B) is more easily infringed, as any product having a blade and a moving arm will
infringe the claim. By contrast, a narrow claim (A+B+C+D) will be infringed only by products
having all four elements. Thus, while a narrow claim may describe the invention in more detail, it is
not usually as powerful as a broad claim. Narrow claims can still be useful, however, because they
can be allowable even if prior art is found that will prevent the broader claim from being allowed.
III.
Infringement of Patents
Q:
If my patent issues and someone is found to infringe, what happens? Or if I am found to
infringe someone else’s patent, what are the consequences?
Along with the right to stop others from making, using, selling, offering for sale, or importing the
invention claimed in the patent, a patent owner may also recover damages from others who are
found to infringe the patent. The damages may be the profits lost by the patent owner as a result of
an infringement or, at a minimum, a reasonable royalty from the infringer.28
In addition, if the infringement is “willful,” the patent owner can recover up to treble damages and
even attorneys’ fees. There is a duty to avoid infringing the valid patent rights of another. Thus, once
a person or entity becomes aware of a patent that it allegedly infringes, the person or entity has a
duty to seek advice from patent counsel about infringement and/or validity of the patent. A wellreasoned opinion of counsel that the patent is invalid or not infringed can help shield against such
treble damages and an award of attorneys’ fees.
Q:
How can I ensure that I am not infringing someone else’s patent?
28 35 U.S.C. § 284 (2000). For example, if the defendant’s sales of an infringing product were sales that the patent owner would have made,
the patent owner can recover the profit that would have resulted from those sales, in addition to price erosion damages. Even if the patent
owner did not lose profits as a result of the infringement, the infringer must, at a minimum, pay a reasonable royalty for using or selling
the patented product, which is determined at market rates. Some of the factors to be considered in determining a reasonable royalty are set
forth in Georgia Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970), modified, 446 F.2d 295 (2d Cir. 1971).
193
So how can your company avoid the possibility of being found liable for patent infringement? If you
are about to launch a new product, or if there is reason to believe that there may be patents covering
the technology, then consider contacting a patent attorney to discuss the advisability of a clearance
study. (It is particularly important to follow this maxim if the new product is one that is outside
the company’s normal area of technology.) A clearance study will attempt to identify patents that
might pose an infringement issue with respect to the new product. The patent attorney will review
the patents located during a patent search and render an opinion as to whether the manufacture, use,
sale, or offer for sale of the proposed new product will infringe any of those patents. If the patent
attorney is unable to clear the proposed product over one or more of the patents identified during the
search, he or she can work with you to try to “design around” the problematic patents so that you
can get a competing product to market without infringing the patents.
It can be particularly useful to involve a patent attorney at the early stages of product design and
development. By identifying potential problematic patents early, a company can make the appropriate
design changes before it incurs significant expenses in developing the product and tooling up for
manufacture.
IV.
International Patents and “Place-Holder” Options
Q:
I have heard that a single international application can be filed as a “place-holder” of sorts.
How does that work?
Often, the value of a patent portfolio may depend in part upon the geographical scope of protection.
One way to begin to obtain protection in a number of international countries, while delaying
(although not avoiding altogether) expensive filing fees and translation costs, is to file an application
under the Patent Cooperation Treaty (“PCT”). A PCT application can designate more than a hundred
international countries, as well as the European Patent Office, for a relatively small investment. The
application can keep the options of pursuing international protection alive for up to 30 months after
the date of filing. This can give inventors and companies time to determine the importance of the
invention, time to secure financing, time to determine whether the invention will be commercially
viable, and time to determine whether international protection is warranted and in what countries. At
the end of the 30-month period, however, the applicant must select the countries in which to pursue
patent protection and must actually file an application in those countries.
Q:
Are there any other place-holder options?
Yes. A U.S. provisional patent application acts as another type of place-holder. The filing fee for a
provisional application is relatively small, and because the provisional application does not require
claims, it is possible to file an application relatively quickly. Provisional applications must still
disclose the invention, enable one skilled in the art to make and use the invention, and disclose the
Patent 101
Injunctive relief—an order by the court to stop doing something or to stop selling something—may
be even more devastating than monetary damages assessed against the infringer. If your company
has to take a major product off the market as a result of patent infringement, the future financial
damage, as well as the public relations damage, can be significant.
KILPATRICK TOWNSEND
best mode known to the inventor for practicing the invention, just as in the case of a “regular” or
non-provisional application. Failure to meet these requirements can result in a later non-provisional
application being unable to claim the priority filing date of the provisional application. Provisional
applications are not examined, and they are only maintained for a year. To preserve the filing or
“priority” date of the provisional application, the applicant must file a regular utility application
that claims priority to the provisional application within that year. Particular uses of provisional
applications are discussed at the end of the next section.
V.
Protecting Patent Rights: When Certain Acts May Cause Loss of Patent Rights
Q: Can others render my patent invalid if they have made my compound or practice my
method, but do not realize it?
Inherent (as opposed to express) anticipation occurs where the invention has been practiced before,
even though the individuals practicing the invention did not recognize it as such.29 Thus the claiming
of a new use, new function, or unknown property which is inherently present in the prior art does
not necessarily make the claim patentable.30 Also, there is no requirement that a person of ordinary
skill in the art would have recognized the inherent disclosure at the time of invention, but only that
the subject matter is in fact inherent in the prior art reference.31 The fact that a certain result or
characteristic may occur or be present in the prior art is not sufficient to establish the inherency of
that result or characteristic, however.32
Q:
Why is it important to be able to establish my date of invention?
Unlike most other countries in the world, the U.S. awards a patent to the first to invent, not the first
to file a patent application. If you conceive of your invention before a competitor and are diligent in
making your invention and showing it useful for its intended purpose, you will be awarded a patent
over your competitor who invents his product after you but files a patent application before you. But
since the PTO presumes that your date of invention is the date you filed your patent application, the
presumption will be that your competitor was the first inventor, and it will be up to you to establish
to the satisfaction of the PTO that you came up with the idea first.
Q:
Why is it important to consider events that happen after I make an invention?
The United States patent laws require that an inventor file a U.S. patent application within one year
after a number of specified events, including the date the invention was first “in public use in the
29 “[T]he discovery of a previously unappreciated property of a prior art composition, or of a scientific explanation for the prior art’s
functioning, does not render the old composition patentably new to the discoverer.” Atlas Powder Co. v. Ireco Inc., 190 F.3d 1342, 1347
(Fed. Cir. 1999).
30 See, e.g., In re Best, 562 F.2d 1252 (C.C.P.A. 1977).
31 Schering Corp. v. Geneva Pharms., Inc., 339 F.3d 1373, 1377 (Fed. Cir. 2003). See also SmithKline Beecham Corp. v. Apotex Corp.,
403 F.3d 1331, 1343-44 (Fed. Cir. 2005) (holding that a patent to a previously unknown compound may be invalidated as inherently
anticipated if the compound is later discovered to be a metabolite of another compound in the prior art).
32 See, e.g., In re Rijckaert, 9 F.3d 1531 (Fed. Cir. 1993) (reversing rejection because inherency was based on what would result due to
optimization of conditions, not what was necessarily present in the prior art); In re Oelrich, 666 F.2d 578, 581-82 (C.C.P.A. 1981) (stating
that to establish inherency, the extrinsic evidence must make clear that the missing descriptive matter is necessarily present in the thing
described in the reference, and that it would be so recognized by persons of ordinary skill. Inherency, however, may not be established by
probabilities or possibilities. The mere fact that a certain thing may result from a given set of circumstances is not sufficient).
United States” and the date of any “printed publication” appearing anywhere in the world describing
the invention. Furthermore, virtually all commercially important foreign countries do not provide
the one-year grace period but require that a patent application be filed in that or another country
before the first “public use” or “printed publication.” The purpose of these laws, both foreign and
domestic, is to ensure that an inventor is diligent in applying for a patent.
Q:
What is a “public use?”
For most inventions a “public use” is virtually self-explanatory. A public use occurs if an invention
is used in its natural and intended manner where the public could see the invention if it wanted. If
the public cannot see your invention but can see the results of your invention, it is a public use. For
example, an inventive engine may be enclosed in a locked shed, but have belts running from it to
drive a ferris wheel. In that case, even though the public cannot see the actual invention, the results
of the invention are public, and it is considered a “public use.”
Q:
What is the test for whether a paper or other work is a “printed publication?”
Whether a particular document or tangible work is a “printed publication” is more esoteric under the
patent laws. According to the courts, a work becomes a “printed publication” when it is “sufficiently
accessible, at least to the public interested in the art, so that such a one by examining the reference
could make the claimed invention without further research or experimentation.”33
Q:
When is a tangible work “sufficiently accessible” to the public?
The issue of whether a document is sufficiently accessible to the public frequently turns on a
combination of two elements, including (1) the number of people having access to the manuscript
and (2) their scientific or technical skill. If the work is made available to a large segment of the
public, the fact that few of those exposed would be able to practice the invention successfully is
of little consequence. Conversely, if a document is disclosed to but a few individuals, they almost
certainly must be trained in the field of the invention before the manuscript would constitute a
printed publication. A single copy of a thesis can constitute a printed publication if it is available in
a library and properly cataloged so that someone looking for it would be able to find it.
Q:
If I do not put any information in writing, can I show the invention to my colleagues at the
institution or company where I work without risking loss of foreign rights and causing the one-year
time period in the U.S. to commence running?
The answer to this question may depend on how well you retain control over the use of the invention
and the distribution of information concerning it. If you legitimately expect your colleagues to keep
the invention confidential and at least informally restrict their ability to disseminate information
concerning the invention to others outside your institution or company, no “public use” should
occur. This general rule may not apply in all foreign jurisdictions, however.
Q:
Would it help if I persuade my colleagues to sign a confidentiality agreement before I show them the invention?
33 In re Hall, 781 F.2d 897, 899 (Fed. Cir. 1986).
Patent 101
195
KILPATRICK TOWNSEND
Although an express confidentiality agreement certainly would support a conclusion that you
intended to keep the information out of the public domain, such an agreement is neither necessary
nor necessarily sufficient. Instead, the presence of a written or express agreement is merely a factor
to be considered together with the other facts.
Q:
What if I wish to send a copy of my invention report to other professors or researchers at other schools or companies for review?
Sending the paper to a few outside peers for review or comments likely should not pose a significant
problem; however, if you send the paper to a larger number of outside colleagues, a court might
consider your activities sufficient to make the paper publicly accessible. When proposing to send
the paper outside the company or university, you should consider obtaining a signed confidentiality
agreement whenever possible in advance of the mailing.
Obviously, trade secret and competitive considerations come into play if you are employed by a
for-profit organization. In this situation, consulting your supervisor or corporate counsel is prudent
before any outside disclosure occurs.
Q:
I may want to approach commercial companies to determine if they are interested in licensing the invention. Can I do this before the patent application is filed?
Distributing information concerning your invention to commercial companies without restricting
their use of the information is strong evidence that the invention was either “on-sale” or publicly
used, and thus within the public domain if a patent application is not filed within the one-year grace
period. To protect patent rights in this circumstance, a written, signed confidentiality agreement
should always be in place before the information is disclosed.
Q:
In some cases, I may need corporations to conduct further testing on the invention before
I can be sure that it performs as intended. How can I approach companies for testing, which itself
may take more than one year, without forfeiting patent rights?
If the invention is not yet sufficiently complete for someone to make and use it successfully, it may
be tested without the statutory period commencing to run. Once the testing establishes that the
invention works or is useful, however, the statutory period may begin if the corporation’s use of the
invention is not restricted through, for example, a confidentiality agreement as mentioned above.
Q:
More and more researchers are announcing important inventions through press conferences
and newspaper articles. Are such media presentations sufficient to start the one-year period running
in the U.S. and jeopardize foreign rights?
If other researchers would be able to duplicate or practice the invention from what was disclosed
in the media, the one-year period in the U.S. would start running, and foreign protection would
be unavailable. Newspaper articles in particular present problems in this regard, because they
occasionally include relatively detailed descriptions of the inventions. In addition, if you demonstrate
to the press a working embodiment of the invention, the demonstration may constitute a public use
under the statute, which would also start the one-year clock running.
197
Not yet. Merely submitting a paper to a conference organizer or to a reviewing referee does not make
the paper available to the public. Once the paper is published in the proceedings or journal, however,
it is a printed publication as of the time it is available to conference participants or subscribers.
Q:
What if I merely give a lecture concerning my invention rather than publishing it in
conference proceedings?
An oral presentation cannot be a “printed publication” within the meaning of the patent laws. The
oral presentation could constitute a “public use” of the invention if you also demonstrated a working
embodiment in conjunction with the lecture, however.
Q:
May I use slides as part of my lecture?
At least one case has held that slides are not “printed publications” under the patent laws where they
are shown to the attendees but not distributed in handout form.34 If other researchers in attendance
could duplicate your efforts merely by viewing the slides, however, other cases suggest that the slides
may indeed be printed publications.35 Moreover, members of the audience sometimes photograph
slide projections, which arguably establishes that the slides are functionally equivalent to printed
publications. And obviously, if you distribute copies of your slides to the attendees, those copies
may constitute a “printed publication.”
Q:
What about photographs instead of slides?
Displayed photographs are printed publications. If a photograph discloses the invention sufficiently
to allow others to practice it, the one-year statutory period will begin in the U.S., and foreign rights
may be jeopardized.
Q:
Can I distribute copies of my article or invention report at the lecture without ever publishing
it?
No. Providing any copies to those in attendance likely will make the paper available to the public.
In one case, a researcher at MIT gave a lecture in Birmingham, Alabama, and provided copies of
a paper concerning the subject to only six of the more than fifty scientists in attendance.36 This
minimal dissemination was held to invalidate the U.S. patent issued for the invention because the
application was not filed within one year. In another case, an advance proof of a paper describing
the invention and circulated among a large number of attendees constituted a “printed publication”
even though the paper was not completed.37
34
35
36
37
Regents of the Univ. of Cal. v. Howmedica, Inc., 530 F. Supp. 846, 859-60 (D.N.J. 1981), aff’d, 676 F.2d 687 (3d Cir. 1982).
In re Klopfenstein, 380 F.3d 1345, 1350-52 (Fed. Cir. 2004).
Mass. Inst. of Tech. v. AB Fortia, 774 F.2d 1104, 1108-09 (Fed. Cir. 1985).
Electro-Nucleonics Labs., Inc. v. Abbott Labs., 214 U.S.P.Q. 139 (N.D. Ill. 1981).
Patent 101
Q:
I wrote a paper and sent it to a conference organizer for publication in symposium
proceedings. Is that paper a “printed publication” under the statute as of the date I send it to the
conference organizer?
KILPATRICK TOWNSEND
Q:
If my company needs funds to continue our research, can we disclose my invention in a
government grant proposal before filing a patent application?
Probably not without risk. At least one court has held that a National Science Foundation grant
proposal, properly indexed and available to the public under the Freedom of Information Act, is
sufficiently accessible to start the one-year period running and jeopardize foreign patent rights.38
Q:
Filing and prosecuting a patent application can be time-consuming and expensive, and I
need to be able to publish my work. Is there anything I can do to preserve my rights until funding
becomes available?
Yes. The United States patent law allows you to file a “provisional” application. A provisional
application must meet all of the requirements of a regular or “utility” application, except that no
claims are required. The filing fee for a provisional application is relatively small, and no costs
to prosecute the application are necessarily incurred. On short notice, we have actually filed the
publication itself as a provisional application.
Q:
Will a provisional application issue as a patent?
No. A provisional application is only maintained for one year, after which it is abandoned. To
preserve the filing or “priority” date of the provisional application, you must file a utility application
that claims priority to the provisional application within that year. Of course, the utility application
must be directed to the same subject matter as the provisional application.
Q:
Will the provisional application be a “printed publication” under the statute?
No. A provisional application is maintained in secrecy by the PTO.
Q:
What about foreign rights relative to filing a provisional application?
If a utility application is filed within one year of the filing of the provisional application and the
disclosure of the provisional application fully supports the claims of the utility application, the
utility application can legitimately claim priority to the filing date of the provisional application.
This priority is recognized by most foreign countries as well as the United States. Thus, the filing of
a provisional application satisfies these countries’ requirements that an application be filed before
any public use or disclosure of the invention. As a result, any activity taken thereafter, such as
publishing your results or marketing the product, will not affect your right to seek patent protection
in this or most other countries.
Q:
So what’s the catch?
You must make sure that (1) the provisional application is filed before the publication, offer for sale,
or disclosure is made to preserve international rights and (2) the provisional application describes
the invention, enables persons skilled in the art to practice the invention, and also describes the
best mode of practicing the invention. The priority date established by the provisional application
is only available for the material that you disclose in the utility application. Furthermore, within
38 E.I. Du Pont de Nemours & Co. v. Cetus Corp., No. C-89-2860, 1990 WL 305551, at *10 (N.D. Cal. Dec. 3, 1990).
the year in which you conduct these other activities, you need to be certain that any improvements
are similarly protected, particularly if the original provisional application does not describe such
improvements. Consequently, you must prepare a very complete disclosure and then carefully
monitor improvements to ensure that all new matter developed after the provisional application is
filed is properly protected.
VI.
Conclusion
Although the world of patent law can be complicated, the above answers to some of the most
commonly-asked questions have hopefully helped to provide a basic roadmap for those in the
beginning stages of developing a patent program or considering the idea of protecting an invention,
as well as those well-versed in patent law who are seeking a refresher in the general concepts
discussed.
Patent 101
199
KILPATRICK TOWNSEND
201
Enforcement of Patents – Injunctions, Pre-Litigation Techniques, and
Strategy
This article provides a basic framework for dealing with enforcement of patent rights in light of
recent developments in patent litigation. The first section discusses pre-litigation strategy for dealing
with demand letters and other pre-suit considerations. The second section discusses preliminary
injunctions and the need for addressing preliminary injunction issues early on in litigation
strategy. The third section discusses at length the eBay Inc. v. MercExchange, LLC decision and its
ramifications on patent litigation.
I.
Pre-Litigation Strategy
A.
From Cease and Desist Letters to Declaratory Judgment Actions
Typically, when a patentee learns of possible infringement, one option is to open the lines of
communication with the alleged infringer via a cease-and-desist or demand letter. In the past, the
tone of these letters have spanned the spectrum, from passingly inviting settlement or licensing
talks to outright accusations of infringement and threats of litigation. The only real restraint is
the possibility that the recipient of the letter—the accused infringer—may launch a declaratory
judgment action against the patent owner in a jurisdiction and venue more favorable to the accused
infringer. Recent decisions by the Supreme Court in MedImmune, Inc. v. Genentech, Inc.1 and the
Federal Circuit in ScanDisk Corp v. STMicroelectronics, Inc.2 clarify the standard for sustaining a
declaratory judgment action and arguably make it easier for accused infringers to initiate such suits.
The Declaratory Judgment Act provides that “[i]n a case of actual controversy within its
jurisdiction . . . any court of the United States, upon the filing of an appropriate pleading, may
declare the rights and other legal relations of any interested party seeking such declaration, whether
or not further relief is or could be sought.”3 In deciding whether declaratory judgment jurisdiction
is proper, the threshold question is whether an actual controversy exists between the parties.
In MedImmune, the question was whether a district court had jurisdiction over a declaratory judgment
action brought by patent licensee against a licensor that the patent was invalid, unenforceable, or not
infringed.4 The licensor argued that an actual controversy did not exist between the parties absent
a breach of the license agreement. The Court disagreed and held that a patent licensee does not
need to breach its licensee agreement in order to seek a declaration that the patent is unenforceable,
invalid, or not infringed.5 Prior to MedImmune, in determining whether an accused infringer met
the “actual controversy” threshold for declaratory judgment, the Federal Circuit considered whether
the patentee’s conduct created a “reasonable apprehension” on the part of the accused infringer that
1
2
3
4
5
549 U.S. 118 (2007).
480 F.3d 1372 (Fed. Cir. 2007).
28 U.S.C. § 2201(a) (2006).
549 U.S. at 120-21.
Id.
Patent 101
Mitchell G. Stockwell, D. Clay Holloway, and Wilson L. White
KILPATRICK TOWNSEND
it will face an infringement suit.6 MedImmune criticized the “reasonable apprehension” test and
potentially lowered the threshold for meeting the “actual controversy” requirement for declaratory
judgment jurisdiction.
The Federal Circuit appeared to recognize this lower threshold in ScanDisk, where the court found
that an actual controversy existed between the parties sufficient to warrant a declaratory judgment
action “where a patentee asserts rights under a patent based on certain identified ongoing or planned
activity of another party, and where that party contends that it has the right to engage in the accused
activity without license.”7
This shift in what constitutes an “actual controversy” for purposes of declaratory judgment subject
matter jurisdiction presents important issues for practitioners on both sides of patent litigation. For
patentees, the lower threshold makes it more difficult to provide actual notice of patent rights without
risking the commencement of a declaratory judgment action. The ScanDisk court found that the
declaratory judgment defendant had made a “studied and determined infringement determination”8
in asserting its patent against the plaintiff, giving the accused infringer sufficient grounds to seek
a declaratory judgment. Therefore, patentees must closely consider the tone and language used in
cease and desist letters. While a letter may not constitute grounds for a declaratory judgment action,
any assertion that specific activities or planned activities may constitute infringement may give rise
to declaratory judgment jurisdiction.
For accused infringers, the question of whether a cease and desist letter warrants the institution
of a declaratory judgment action is not always a clear call, and the infringer should give careful
consideration to the decision to bring a declaratory judgment action. Once the accused infringer
has notice of the patent, the accused infringer must also consider the appropriateness of obtaining
an opinion of counsel.
B.
Preliminary Injunction Strategy and Concerns
There are times when infringement of a patent may cause such injury that the time required for
full discovery in litigation will be just as harmful as letting the infringement continued unabashed.
Take, for example, a company’s proposed simultaneous release of a new product in competition
with a patented product, or the finite use of a process with competitive ramifications with respect
to a patented method. These events have the potential of injuring the patent holder in a way that
the passage of time will either make the injury seem less harsh or, in some instances, the injury will
actually end but the lasting effects will be impossible to measure. Such circumstances give rise to
the use of the preliminary injunctive mechanism.
Patentees do not often pursue preliminary injunctions. The four-factor test required for obtaining a
preliminary injunction is: (1) patentee must show a likelihood of success on the merits, (2) patentee
must show irreparable harm should the infringement continue; (3) the balance of hardships must
6
7
8
Arrowhead Indus. Water, Inc. v. Ecolochem, Inc., 846 F.2d 731, 736 (Fed. Cir. 1988).
480 F.3d at 1381.
Id. at 1382-83.
203
As discussed in more detail in Section II(A), obtaining a preliminary injunction may be even more
difficult now than before. Nevertheless, circumstances could present themselves that would make
seeking a preliminary injunction wise, if not necessary.
Under the first prong—likelihood of success on the merits—the patentee must both demonstrate
there is patent infringement and address any questions of validity that the infringer may present.
As compared with the preponderance of the evidence standard applied at trial, succeeding at the
preliminary injunction stage requires showing a “substantial likelihood” that the plaintiff will
prevail on the merits.11 If the defendant asserts patent invalidity at the preliminary injunction stage,
the patentee cannot rely on the statutory presumption of validity. Instead, if the defendant meets its
burden of showing a “substantial question” of invalidity, the burden shifts to the patentee to show
the defendant’s argument lacks “substantial merit.”12 This means a higher burden for the patentee
than normal. The Federal Circuit has identified ways to demonstrate validity at the preliminary
injunction stage: “[(1) the] patent has previously been adjudicated valid, [(2)] that there has been
public acquiescence to its validity, or [(3)] that there is conclusive direct technical evidence proving
its validity.”13
Regarding the second prong, courts have done away with the presumption of irreparable harm from
patent infringement because mere patent infringement is not irreparable harm. Thus, while eBay
dealt with permanent injunctions, the effect of the Supreme Court’s decision will also reach this
prong of the preliminary injunction analysis making obtaining such relief more difficult. One thing
remains unchanged. A patentee that delays in seeking a preliminary injunction injures its claim of
irreparable harm.14
Given what appears to be an increased difficulty in obtaining preliminary injunctive relief, it will
be the exceptional case where injury is immediately apparent and damage beyond monetary that
will make this remedy available. With that said, delay in pursuing this remedy could be its own
death knell, so would-be plaintiffs should work quickly with counsel in deciding whether their
circumstance warrants pursuing preliminary injunctive relief.
9
10
11
12
13
14
Pfizer, Inc. v. Teva Pharms. USA, Inc., 429 F.3d 1364, 1372 (Fed. Cir. 2005).
Amazon.com, Inc. v. Barnesandnoble.com, Inc., 239 F.3d 1343, 1350 (Fed. Cir. 2001).
Amazon.com, 239 F.3d at 1356.
Genentech, Inc. v. Novo Nordisk, A/S, 108 F.3d 1361, 1364 (Fed. Cir. 1997).
Smith Int’l v. Hughes Tool Co., 718 F.2d 1573, 1578 (Fed. Cir. 1983).
See High Tech Med. Instrumentation v. New Image Indus., 49 F.3d 1551, 1557 (Fed. Cir. 1995).
Patent 101
favor the plaintiff; and (4) granting the preliminary injunction will not harm public interest.9 And
while no one factor controls, each being weighed against one another, a patentee plaintiff must
prevail on the first two factors.10
KILPATRICK TOWNSEND
II.
Post-suit Equitable Remedies: Injunctions and On-Going Royalties
A.
The eBay Decision
Understanding eBay is central to a claim for injunctive relief. Courts may exercise their discretion
to grant permanent injunctions if infringement is found.15
To attain this relief, under eBay, a
patentee must “demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available
at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering
the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and
(4) that the public interest would not be disserved by a permanent injunction.”
As Chief Justice Roberts noted in his concurrence, traditional application of this test has slanted
toward issuance of a permanent injunction:16
From at least the early 19th century, courts have granted injunctive relief upon a finding of
infringement in the vast majority of patent cases. This “long tradition of equity practice”
is not surprising, given the difficulty of protecting a right to exclude through monetary
remedies that allow an infringer to use an invention against the patentee’s wishes—a
difficulty that often implicates the first two factors of the traditional four-factor test.17
The eBay Court held “that the decision whether to grant or deny injunctive relief rests within the
equitable discretion of the district courts, and that such discretion must be exercised consistent with
traditional principles of equity . . .” and not according to the Federal Circuit’s previous “general
rule” of issuing permanent injunctions.18 On the other hand, the Supreme Court emphasized that
injunctive relief remained available to “university researchers or self-made inventors” who may
have chosen to license their patents:
Most notably, [the district court] concluded that a “plaintiff’s willingness to license its
patents” and “its lack of commercial activity in practicing the patents” would be sufficient
to establish that the patent holder would not suffer irreparable harm if an injunction did
not issue. But traditional equitable principles do not permit such broad classifications.
For example, some patent holders, such as university researchers or self-made inventors,
might reasonably prefer to license their patents, rather than undertake efforts to secure
the financing necessary to bring their works to market themselves. Such patent holders
may be able to satisfy the traditional four-factor test, and we see no basis for categorically
denying them the opportunity to do so. To the extent that the District Court adopted such a
categorical rule, then, its analysis cannot be squared with the principles of equity adopted
by Congress.19
15
16
17
18
19
35 U.S.C. § 283 (2000).
eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006).
Id. at 395.
Id. at 394.
Id. at 393 (citations omitted).
205
Implications of eBay
1.
The Presumption of Irreparable Harm, or Lack Thereof Simply holding that the “general rule” no longer applies has enormous potential to shift the balance
of power post-trial. Patentees will necessarily fight back, seeking the benefits of the old regime.
For example, one must wonder whether the presumption continues to be viable in light of eBay. If
it does not, patent holders seeking injunctions will have substantially more proof difficulties; if it
does, patentee’s success at trial can assist them before the court in seeking an injunction as a remedy.
As noted above in the context of preliminary injunctions, the Federal Circuit has long held
that “where validity and continuing infringement have been clearly established . . . immediate
irreparable harm is presumed.”20 The Federal Circuit never applied the presumption to permanent
injunctions, although at least one district court has done so after a full trial on the merits.21 To the
Federal Circuit, of course, there was no need to consider applying the presumption in a permanent
injunction context because its “general rule” requiring an injunction to issue in all but exceptional
circumstances rendered such a burden-shifting device irrelevant.
The irreparable harm “presumption derives in part from the finite term of the patent grant” and the
fact that “passage of time can work irremediable harm.”22 eBay left untouched this underlying
justification. Moreover, in applying eBay, many of the Justices seemed to reaffirm the importance of
continuing to rely on prior experience, which led to the presumption. Thus, Chief Justice Roberts’
concurrence emphasized that “‘[d]iscretion is not whim, and limiting discretion according to legal
standards helps promote the basic principle of justice that like cases should be decided alike . . .’
When it comes to discerning and applying those standards, in this area as others, ‘a page of history is
worth a volume of logic.’”23 Justice Kennedy’s concurrence agreed that Chief Justice Roberts was
“also correct that history may be instructive in applying” the four-factor test.24
This reasoning would seem to argue in favor of retaining the presumption, which is, at heart,
simply a useful procedural device. Indeed, after eBay, the Federal Circuit issued a decision that
discussed the presumption in the context of a preliminary injunction decision.25 In its decision, the
Federal Circuit quoted eBay’s four-factor test and then noted that the lower court had applied the
presumption of irreparable harm. Although the Federal Circuit found the presumption inapplicable
because the patentee had failed to demonstrate likely success on the merits, it never questioned the
presumption’s continued viability in view of eBay.26
20 Smith Int’l, Inc. v. Hughes Tool Co., 718 F.2d 1573, 1581 (Fed. Cir. 1983) (reversing denial of preliminary injunction); accord Richardson
v. Suzuki Motor Co., 868 F.2d 1226, 1247 (Fed. Cir. 1989).
21 See Boehringer Ingelheim Vetmedica, Inc. v. Schering-Plough Corp., 106 F. Supp. 2d 696, 702-03 (D.N.J. 2000) (court issued a permanent
injunction after having denied a preliminary injunction, noting that the defendant bore the burden of rebutting the presumption).
22 Richardson, 868 F.2d at 1247 (citation omitted).
23 eBay, 547 U.S. at 395 (citation omitted).
24 See also id. at 395-96.
25 Abbott Labs. v. Andrx Pharms., Inc., 452 F.3d 1331 (Fed. Cir. 2006).
26 Id. at 1347.
Patent 101
B.
KILPATRICK TOWNSEND
At least one district court ignored these points, however, and declined to apply the presumption to
a request for permanent injunctive relief. z4 Technologies, Inc. v. Microsoft Corp.27 applied eBay
and denied an injunction against Microsoft. The court asserted that the Supreme Court in eBay and
in Amoco Production Co. v. Village of Gambell, Alaska28 had categorically held that a presumption
of irreparable harm can never apply. The court’s analysis of the issue relied heavily on the points
that (1) eBay’s “language does not imply a presumption, but places the burden of proving irreparable
injury on the plaintiff” and (2) eBay “warned against the application of categorical rules.”29 This
analysis fails to consider the concurrences by Chief Justice Roberts and Justice Kennedy, each of
whom emphasized the importance of being guided by historical cases.
z4 Technologies also cited Amoco Production, in which the Supreme Court criticized a lower
court’s irreparable harm presumption based on “an agency[‘s] fail[ure] to evaluate thoroughly the
environmental impact of a proposed action.”30 The Supreme Court explained that this particular
presumption flowing from agency review, as opposed to a finding of real injury, was unwarranted
because it was “contrary to traditional equitable principles and has no basis in” the environmental
statute at issue.31 Amoco Production went on, however, to emphasize that “[e]nvironmental injury,
by its nature, can seldom be adequately remedied by money damages and is often permanent or at
least of long duration, i.e., irreparable. If such injury is sufficiently likely, therefore, the balance of
harms will usually favor the issuance of an injunction to protect the environment.”32
Numerous cases exist in which courts have held that, given the nature of the right at stake, irreparable
harm necessarily follows upon a showing of likely or actual success.33 Such cases are prevalent in
the intellectual property area where, following a showing on the merits, courts have found copyright,
trademark, and trade secret holders may be presumed to have suffered harm.34 z4 Technologies’
strict focus on the holding of eBay threatens to undermine this entire body of law. But that is exactly
the sort of expansive reading that eBay’s concurring Justices seem to argue against.
Even in eBay’s wake, other justifications exist for retaining the presumption of irreparable harm.
The presumption is merely a procedural device—it can be rebutted and, in view of eBay, courts
will be more sensitive to the true merits of rebuttal arguments. Another justification for retaining
and applying the presumption to requests for a permanent injunction is the very nature of patent
27
28
29
30
31
32
33
434 F. Supp. 2d 437, 444 (E.D. Tex. 2006).
480 U.S. 531, 542 (1987).
434 F. Supp. 2d at 440.
Amoco Prod. Co., 480 U.S. at 544-45 (citation omitted).
Id. at 545.
Id.
E.g., Barnes v. E-Sys., Inc. Group Hosp. Med. & Surgical Ins. Plan, 501 U.S. 1301, 1304 (1991) (Scalia, J.) (granting stay where nature
of the right confirmed irreparable harm: “In my view the Tax Injunction Act itself reflects a congressional judgment, with which I agree,
that unlawful interference with state tax collection always entails that likelihood.”).
34 See, e.g., Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 578 n.10 (1994) (observing that “in the vast majority of [copyright] cases,
an injunctive remedy is justified . . . .” (citation omitted)); E. Remy Martin & Co. v. Shaw-Ross Int’l Imports, Inc., 756 F.2d 1525, 1530
(11th Cir. 1985) (“[A] sufficiently strong showing of likelihood of confusion may by itself constitute a showing of substantial likelihood
of prevailing on the merits and/or a substantial threat of irreparable harm.”); 1 DAN B. DOBBS, DOBBS LAW OF REMEDIES § 2.5(3),
at 134-135 (2d ed. 1993) (injunctions “go readily and even routinely” for trademark, copyright, and patent infringement).
207
2.
Key Factors for Guiding Discretion
In the permanent injunction context, courts have not had to seriously consider what factors should
guide their discretion in deciding requests for an injunction. The following are factors garnered
from existing experience that can be consulted to guide courts’ discretion in considering injunctive
relief.
One possible key factor is willfulness. In virtually all areas of law, when considering injunctive
relief, “a court need not balance the hardship when a defendant’s conduct has been willful.”36 “A
court balances equities to avoid harsh results that strict application of law could inflict on a blameless
party,” but policies that aim to protect innocent defendants and allow them “to show undue harm
from strict legal enforcement are not present . . .” in the case of willful conduct.37 Thus, courts have
found that “[a] willful infringer which seeks to profit by copying from others’ creative ideas should
not be heard to complain that its interests will be disturbed by an injunction.”38
Similarly, in evaluating whether to issue an injunction, a court should be especially sensitive to
whether there is evidence of alternatives that the infringer could use. If there are such alternatives,
an injunction, even if it allowed a transition period to switch over to the alternative, would be
highly appropriate. In the similar context of evaluating an infringer’s “equitable intervening rights”
following a change in original claims after reissue or reexamination, courts have been more likely
to deny such rights where alternatives exist.39
Another key “balancing” test similar to that used by other circuits40 could emphasize certain
irreparable harm facts over the infringer’s claim of hardship. For example, it would seem logical
that head-to-head competition between patentee and infringer should tilt strongly in favor of an
injunction because the patent owner’s loss of sales and market position would be difficult to correctly
value and compensate.41 Absence of such competition would similarly require either a substitute
35 2 JOSEPH STORY, COMMENTARIES ON EQUITY JURISPRUDENCE, 236 (Fred B. Rothman & Co. 1988) (“if no other remedy
could be given in cases of patents . . . than an action at law for damages, the inventor . . . might be ruined by the necessity of perpetual
litigation, without ever being able to have a final establishment of his rights.”).
36 United States v. Marine Shale Processors, 81 F.3d 1329, 1358 (5th Cir. 1996).
37 Louis W. Epstein Family P’ship v. KMART Corp., 13 F.3d 762, 770 (3d Cir. 1994) (no error in refusing to consider hardship in enjoining
defendant who willfully infringed easement).
38 E.F. Johnson Co. v. Uniden Corp. of Am., 623 F. Supp. 1485, 1504 (D. Minn. 1985) (citation omitted).
39 E.g., Halliburton Co. v. W. Co. of N. Am., 10 U.S.P.Q. 2d 1973, 1983 (W.D. Okla. 1989) (that defendant could easily convert equipment
to noninfringing processes weighed heavily against equitable intervening rights), aff’d, 935 F.2d 281 (Fed. Cir. 1991).
40 The Ninth Circuit’s standard in preliminary injunction cases requires a plaintiff to show either “a combination of probable success on the
merits and the possibility of irreparable injury” or “that serious questions are raised and the balance of hardships tips sharply in its favor.”
Dollar Rent A Car, Inc. v. Travelers Indem. Co., 774 F.2d 1371, 1374-75 (9th Cir. 1985).
41 See Purdue Pharma L.P. v. Boehringer Ingelheim GmbH, 237 F.3d 1359, 1368 (Fed. Cir. 2001) (finding irreparable harm due to “the
likelihood of price erosion and loss of market position without corresponding market expansion”); 3M Unitek Corp. v. Ormco Co., 96
F. Supp. 2d 1042, 1051 (C.D. Cal. 2000) (“The sale of the defendant’s product will, most definitely, hurt plaintiffs’ market share and
profitability. This is the case in almost all patent cases where two competing products will be competing in the market”)
Patent 101
litigation.35 Judicial opinions have long recognized the difficulty, expense, and length of patent
litigation. Following success on the merits on such a difficult claim, a burden-shifting presumption
seems equitable because it merely requires the proven infringer to bring forth evidence rebutting
presumed irreparable harm.
KILPATRICK TOWNSEND
showing, such as by pointing to a licensee in competition with the infringer, or result in such a factor
tilting toward the infringer.
eBay itself identified other areas for guiding discretion. For example, Justice Kennedy’s concurrence
expressed concern about situations where a “patented invention is but a small component of the
product the companies seek to produce,” in which case “legal damages may well be sufficient . . .”
and “an injunction may not serve the public interest.”42 Z4 Technologies denied an injunction in
large part based on this factor, addressed under the balance of harms test.43 Thus, in z4 Technologies,
the district court found that the feature at issue was not only a small part of Microsoft’s software, it
was not the reason customers purchased that software.
C.
Damages, Willful Infringement, and Tailored Injunctive Relief
Proving lost profits claims is notoriously difficult and expensive. Practicing patent owners thus
sometimes choose to forego those claims and seek only a royalty and injunction. eBay requires
them to rethink that strategy. Much of the evidence required for lost profits is also evidence needed
to show irreparable harm. It may well be that infringers will argue that a patent owner’s failure to
prove market harm during trial should preclude such arguments post trial. At a minimum, a patent
owner will need to analyze its discovery plan and determine what evidence it needs for post-trial
purposes, even if it chooses not to claim lost profits.
A defendant must also take care with positions advanced in defending lost profits and reasonable
royalty claims. One common defense is that readily-available alternatives exist. This, says
the accused, shows that the patentee’s invention is not really driving the sale, so lost profits are
unavailable.44 Or, says the accused, the parties would recognize such alternatives and, in their
hypothetical negotiation, reach a royalty far lower than the patentee’s proposal. Putting on such
evidence at trial may now come back to bite the infringer who loses her case and seeks to resist
an injunction. In post-trial proceedings, the infringer will want to establish the contrary assertion
that enjoining infringing sales will create hardship, yet at trial it will have asserted essentially the
opposite—and very well may be estopped from trying to change positions.45 Indeed, the district
court in NTP’s case against RIM expressed concern over such inconsistency when it expressed
surprise that, as RIM was telling the market it had a viable work-around, it was simultaneously
telling the court that the “foundations of Western civilization will be shaken” if an injunction issued.46
Simply put, eBay compels both sides to reconsider their goals and tactics. The mere prospect
that one could possibly avoid an injunction requires more careful consideration of responses to a
damages claim.
eBay, 547 U.S. at 396-97.
z4 Tech., 2006 WL 1676893, at *4.
See Grain Processing Corp. v. Am. Maize-Prods. Co., 185 F.3d 1341 (Fed. Cir. 1999).
“[W]here a party assumes a certain position in a legal proceeding, and succeeds in maintaining that position, he may not thereafter, simply
because his interests have changed, assume a contrary position. . . .” Johnson v. Lindon City Corp., 405 F.3d 1065, 1069 (10th Cir. 2005)
(citation omitted).
46 Grant Gross, RIM to Patent Case Judge: BlackBerry Too Important to Shut Down, PC WORLD, Feb. 24, 2006, available at http://
pcworld.about.com/news/Feb242006id124868.htm.
42
43
44
45
Courts have held that customer relationships should be protected by injunctive relief.47 Thus,
evidence that the patentee and accused infringer sell through different channels of trade might be
helpful in persuading the court to issue an injunction more narrowly tailored to the true harm. Or, an
accused infringer might establish that a broader relationship with certain customers, e.g., a preferred
vendor status, justifies tailoring an injunction so as to allow sales to those customers. And, both
parties would do well to consider whether pressing for an injunction that allows for a transition
period makes sense.
A patentee—especially a non-practicing one—can bolster its case for an injunction if it allows for
some transition period, thus weakening or depriving an infringer of hardship claims.48 Similarly,
an adjudicated infringer should not reflexively resist voluntarily ceasing its infringement or paying
stiffer penalties for continuing infringement as it transitions to a new technology. Microsoft, for
instance, used this tactic to its advantage in its battle with z4 Technologies, where it presented a
carefully-thought out, multi-year plan for phasing out the infringing technology.
More to the point, a declaration that an infringer will simply continue its behavior will support a
patent owner’s efforts to obtain treble damages—either because the jury already concluded it was
willful or because the court concludes it was willful to not take steps to abate its infringement.
Indeed, if an infringer were simply to declare its intent to continue infringing and make no efforts
at a design around or transition out of the market, one would be hard pressed to conclude that the
patentee was not entitled to treble damages.49
D.
The Specter of Compulsory Licensing
A compulsory license is a court-imposed license that authorizes the infringer to continue its conduct,
presumably upon some payment of monies to the patentee. The denial of an injunction is not
tantamount to a compulsory license because the patentee can simply assert a new cause of action for
the continuing infringement. For example, in z4 Technologies, Inc. v. Microsoft Corp.,50 the court
denied an injunction and then severed the patentee’s “causes of action for post-verdict infringement,”
requiring Microsoft to file reports on its infringing sales.
47 Polymer Techs. v. Bridwell, 103 F.3d 970, 975-76 (Fed. Cir. 1996) (“Competitors change the marketplace. Years after infringement has
begun, it may be impossible to restore a patentee’s . . . exclusive position by an award of damages . . . . Customers may have established
relationships with infringers.”).
48 E.g., Schneider (Eur.) AG v. Scimed Life Sys, Inc., 852 F. Supp. 813, 861-862 (D. Minn. 1994), aff’d, 60 F.3d 839 (Fed. Cir. 1995)
(transition period applied only to physicians and institutions who exclusively used the infringing product, and required infringer to pay a
15% royalty rate on its sales during the period).
49 See Del Mar Avionics, Inc. v. Quinton Instrument Co., 836 F.2d 1320, 1328 (Fed. Cir. 1987) (enhanced damages and attorneys’ fees
appropriate where the infringer continued to manufacture and sell infringing products after the suit was filed). Without the prospect of
either injunctive relief or treble damages, an infringer might well conclude that willful infringement makes more economic sense than
negotiating a license early in the dispute. See, e.g., Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1158 (6th Cir. 1978)
(“the infringer would have nothing to lose, and everything to gain if he could count on paying only the normal, routine royalty noninfringers might have paid. As said by this court in another context, the infringer would be in a ‘heads-I-win, tails-you-lose’ position.”)
(citation omitted).
50 434 F. Supp. 2d at 444.
Patent 101
209
KILPATRICK TOWNSEND
Before eBay, true compulsory licenses were exceedingly rare, and oft criticized.51 Yet, in just a few
months since eBay, two cases have considered compulsory licensing. In one case, Judge Clark in
the Eastern District of Texas granted a compulsory license, ordering DirectTv to pay the patentee,
Finisar, a slightly enhanced royalty from what the jury had found at trial,52 while in the other case
the district court ordered “taking additional evidence and argument respecting the availability of . . .
more equitable alternatives (e.g., a compulsory license).”53 Judicial willingness to consider such a
remedy has thus been heightened following eBay. That raises a host of problems.
United States law has remained hostile to compulsory licensing since the advent of the patent
system. Congress has taken pains to establish punitive remedies against willful infringement that
allow for treble damages and attorneys’ fees.54 Even if the infringer was not found willful during
the course of the case, an infringer that chooses to continue its infringement—without negotiating a
reasonable license—must necessarily be considered willful. Numerous courts have ruled that posttrial infringement is willful and entitles the patentee to treble damages and attorneys fees. A court
that imposes a compulsory licensing regime may deny the patentee access to the enhanced damages
remedies Congress authorized.
Assume, however, that a court is willing to take the plunge and consider a compulsory license. The
following are factors the court may consider in deciding whether the case at hand presents a “rare”
circumstance appropriate for such a remedy:
(1)
Opportunity to Work the Invention: Other countries that allow compulsory licensing
typically do so only after the patent owner has had ample time to “work” the invention
by commercializing a product or licensing someone. Equitably, it makes sense that the
patent owner should have the first opportunity to reap the benefit—in terms of profits
or a licensing relationship—from working the invention.
(2)
Future Transfer: Similarly, if the patentee has a realistic chance of selling the patent rights to a competitor of the infringer and has not had ample opportunity to do so
before the lawsuit resolves, a compulsory license might be denied. Encumbering the
patent “real estate” with a compulsory license could seriously damage the patentee’s
ability to extract full value for the transfer, just as would trying to sell your home with
an easement. At minimum, however, the court should take this issue into account
in setting a compulsory license, either by limiting it in time or affording additional
compensation.
51 Compare Shatterproof Glass Corp. v. Libbey-Owens Ford Co., 758 F.2d 613, 616, 628 (Fed. Cir. 1985) (noting that the district court had
denied permanent injunction and imposed a compulsory license), with Fromson v. W. Litho Plate & Supply Co., 853 F.2d 1568, 1574 (Fed.
Cir. 1988) (“Because courts routinely denied injunctions to such patentees, infringers could perceive nothing to fear but the possibility of
a compulsory license at a reasonable royalty, resulting in some quarters in a lowered respect for the rights of such patentees and a failure
to recognize the innovation-encouraging social purpose of the patent system.”).
52 Finisar Corp. v. DirecTV Group, Inc., No. 1:05-CV-264 (E.D. Tex. July 7, 2006) (final judgment order).
53 Keg Techs., Inc. v. Laimer, 436 F. Supp. 2d 1364, 1371 (N.D. Ga. 2006).
54 35 U.S.C. § 285, 285 (2000).
(3)
Standards and Interoperability: In some industries, especially software and electronics, standardization and interoperability is key. A patented invention may be deemed
an essential predicate to advancing those goals and the industrial and societal objective
of fostering standard protocols may outweigh the patentee’s desire to extract maximum possible value out of potential infringers.55 Moreover, where actual third party
infringers exist, setting a fair compulsory licensing scheme could actually reap more
benefits for the patent owner without forcing all parties to go through high transaction
costs. Similarly, where there is evidence that third parties have not adopted, but are
interested in using, the invention, that factor would weigh toward a license since such
a scheme could encourage development of new technology as different firms put their
own improvements into play to differentiate their product in the market.
(4)
Administrative Burden: Counterbalancing the standards issue, however, is that of the
administrative burden inherent in a court imposing a compulsory licensing scheme.
For example, in the DirectTv case, Finistar argued that technology changes could result
in the use of multiple set-top boxes or electronics therein that could complicate payments and lead to disputes. Also, suppose the infringer does develop a non-infringing
alternative, yet the patentee disputes that issue. Should the court’s contempt power be
available or not? A court who presided over a trial with especially contentious parties
might consider whether a compulsory licensing scheme will truly abate or multiply
subsequent litigation before imposing a license or structuring its administration.
(5)
Improvements by the Infringer:56 If the infringer has contributed to the art by embodying in the accused product its own patented technology that represented an improvement, that fact may favor a compulsory license. Thus, the so-called “TRIPPs” agreement allows member countries to grant a compulsory license only if “the invention
claimed in the second patent shall involve an important technical advance of considerable economic significance in relation to the invention claimed in the first patent.”57
A number of other provisions apply, including allowing the patentee access through a
cross-license to the infringer’s improvement patent.
(6)
Patentee’s Conduct: Inappropriate conduct by the patentee, such as antitrust or patent misuse, has in the past been grounds for denying patent enforcement altogether
or imposing a compulsory license. Suppose, however, a court finds that the infringer
has not shown clear and convincing evidence of inequitable conduct, but the court
believes there was some level of inappropriate activity in securing the patent. A court
55 In the antitrust area, there is a similar “essential facilities” doctrine by which courts allow the public to access a monopolist’s essential
facility. Teague I. Donahey, Terminal Railroad Revisited: Using the Essential Facilities Doctrine to Ensure Accessibility to Internet
Software Standards, 25 AIPLA Q.J. 277 (1997).
56 For an article arguing that compulsory patent licensing should apply to situations involving improvement and blocking patents, see Joseph
A. Yosick, Note, Compulsory Patent Licensing for Efficient Use of Inventions, 2001 U. ILL. L. REV. 1275 (2001).
57 Agreement on Trade-Related Aspects of Intellectual Property Rights, Annex 1C, Apr. 15, 1994, 33 I.L.M. 81. Note that the infringer
should probably be required to point to the existence of a patent since that can help avoid complicated, albeit secondary proof issues if the
patentee wants to argue there was really no true improvement.
Patent 101
211
KILPATRICK TOWNSEND
might reasonably consider that issue in considering a request for injunctive relief. In
a somewhat similar equitable context of determining whether to enhance damages
after a finding of willfulness, courts will consider an infringer’s conduct in litigation
in raising weak defenses.
(7)
Intervening Rights: Courts might also take a page from the equitable “intervening
rights” doctrine embodied in reissue and reexamination practice that allows courts to
protect the infringer’s investment and business that was developed before the claims
were changed in post-grant proceedings.58 For example, suppose a patentee obtains
allowance of one set of claims, sees the infringer product and strategically modifies
their claims to cover the infringer’s activity. The Federal Circuit has held that “there
is nothing improper, illegal or inequitable in filing a patent application for the purpose
of obtaining a right to exclude a known competitor’s product from the market; nor is
it in any manner improper to amend or insert claims intended to cover a competitor’s
product the applicant’s attorney has learned about during the prosecution of a patent
application.”59 Yet commentators have criticized abusive continuation practice, noting that such continuation “practice seems fundamentally unfair, since a competitor
who was legitimately the first to invent a particular device or process may be held to
have infringed on a patent claim written after (and indeed because of) that invention. It
also seems inconsistent with the fundamental economic justification for the patent system, which is to encourage new inventions.”60 Enjoining truly innocent infringement
activity begun before and which inspired creation of the patentee’s final claims seems
to go against the notion of protecting a truly innocent infringer’s legitimate investment
interests and securing to the inventor a monopoly for her invention.
Of course, many, if not all, of these factors might also be considered in deciding whether to grant or
deny injunctive relief in the first instance.
E.
Other Procedural Implications
The issue of how to deal with a request for a compulsory license is but one of several procedural
issues that must be resolved in implementing eBay. Patent litigation heavily relies on juries to
determine infringement, validity, and willfulness. Thorny issues raised by eBay suggest that parties
and the courts may require additional evidence following a jury verdict to assess the availability
and scope of injunctive relief. At a minimum, the court may want to hold an evidentiary hearing
to better assess the true impact of injunctive relief on all parties or to explore the availability and
consequences of providing tailored injunctive relief.
Also, courts need to consider what to do in a world where infringement continues past trial. With no
injunction in place, infringement can continue for many years. Technically, the patentee can bring
58 35 U.S.C. §§ 252, 307 (2000).
59 Kingsdown Med. Consultants, Ltd. v. Hollister, Inc., 863 F.2d 867, 874 (Fed. Cir. 1988).
60 Mark A. Lemley & Kimberly Moore, Ending Abuse of Patent Continuations, 84 Boston Univ. L. Rev. 63, 78 (2004).
continuing, separate actions seeking relief. The parties would, of course, be bound by many findings
in the first action.61 Yet other damages and willful infringement issues would need to be explored
and addressed, as noted earlier. In the course of such proceedings, evidence may suggest the need
to reevaluate denial of an injunction. For example, the patentee may continue losing market share or
the infringer may expand the scope of its infringement. Knotty issues of claim and issue preclusion
will need to be sorted out to determine whether and how a patentee denied such relief in his original
action may press for it in a subsequent suit.
III.
Conclusion
Patent cases now require careful planning and positioning for a patentee to obtain an injunction. On
both sides of the case, practitioners must reevaluate everything from considering the impact of the
type of damages claims asserted to the scope of injunctive relief sought.
61 See generally Foster v. Hallco Mfg. Co., 947 F.2d 469, 478 (Fed. Cir. 1991); Advanced Cardiovascular Sys., Inc. v. Scimed Life Sys., Inc.,
989 F. Supp. 1237, 1242 (N.D. Cal. 1997).
Patent 101
213
KILPATRICK TOWNSEND
215
Choosing Between Trade Secret and Patent Protection
The phrase “intellectual property” conjures visions of patents issued to pioneering inventors,
famous trademarks and copyrights covering great works of art, literature, and music. But intellectual
property is not limited solely to these three well-recognized forms; certain subject matter can also be
protected as a “trade secret.” Indeed, headlines have featured trade secrets describing Volkswagen
A.G.’s payment to General Motors of $100 million for alleged theft of trade secrets,1 Campbell
Soup’s lawsuit against Heinz2 following defection of a top Campbell executive to Heinz, and
Eastman Kodak Co.’s trade secret suit accusing a former employee-turned-consultant of the theft of
“a recipe book of the company’s secret formulas for film manufacturing.”3
Choosing the proper weapon from the intellectual property arsenal involves more than just
knowing the labels of the available options. With the increasing importance of technology and the
corresponding increase in infringements, misappropriation, or aggressive hiring of key employees,
it is important to understand the costs and benefits of, and the steps to implement, each form of
protection to choose correctly from the various alternatives. Proper selection is further complicated
by the fact that some forms of protection, such as trade secret and patent protection, overlap. Thus,
various inventions that are fully patentable may nevertheless be protected by trade secret law. This
article outlines what trade secret protection is, why you might choose it instead of a patent, and how
to implement it.4
I.
What is a Trade Secret?
Courts have struggled with simply developing a particularized definition of what a trade secret is
and what type of intellectual property it protects. One of the most influential definitions is from the
First Restatement of Torts, which states that:
A trade secret may consist of any formula, pattern, device or compilation of information
which is used in one’s business, and which gives him an opportunity to obtain an advantage
over competitors who do not know or use it. It may be a formula for a chemical compound,
a process of manufacturing, treating or preserving materials, a pattern for a machine or
other device, or a list of customers.5
Recently, the definition recited in the Uniform Trade Secrets Act, adopted by about forty-five
jurisdictions, has also become influential. The Uniform Trade Secrets Act defines a trade secret as:
[I]nformation, including a formula, pattern, compilation, program, device, method,
technique, or process, that:
1
2
3
4
5
Sherwood Ross, How Should a Company Handle Key Defection, Pittsburgh Post-Gazette, Feb. 2, 1997, at C-18.
Patricia Sabatini, Pad Ends Exec Fight of Heinz, Campbell, Pittsburgh Post-Gazette, Feb. 14, 1987, at E-1.
Ex-Kodak Exec Had Key Plans, Report Says, L.A. Times, Dec. 30, 1996, at D-2 .
Discussion of trademark and copyright protection is beyond the scope of this article. Additionally, some basic familiarity with patents is
presumed
Restatement (First) of Torts, § 757, cmt. (b) (1937).
Patent 101
Dean W. Russell, Russell A. Korn, and Christopher M. Durkee
KILPATRICK TOWNSEND
(i) derives independent economic value, actual or potential, from not being generally
known to, and not being readily ascertainable by proper means by, other persons who
can obtain economic value from its disclosure or use, and
(ii) is the subject of efforts that are reasonable under the circumstances to maintain
its secrecy.6
These sweeping statements do not define the subject matter of a trade secret as much as establish
a functional definition that grants trade secret protection to those who vigorously police access to
and maintain the secrecy of the trade secret. This functional definition covers virtually any material
that (1) is appropriate subject matter, (2) is maintained as a secret, (3) is not generally known to the
industry or public, (4) is either commercialized or of some value, and (5) has a certain degree of
particularity or concreteness.7
Clearly, the potential subject matter is extremely broad, although the requirement for concreteness or
particularity serves somewhat to limit it. The requirements that the material be not generally known
and secret obviously work together. Information that is generally known may include publication or
distribution of the information in some obscure book or trade journal. In certain circumstances, this
may render the information unprotectable.
Value generally is established by showing that the secret is an advancement in the industry or offers
a competitive advantage. As a practical matter, courts tend to protect information that was developed
with a significant expenditure of time and money, is difficult to obtain and is not generally known.
However, some jurisdictions protect “negative” information, i.e., information about processes
or techniques that do not work, since knowing a certain approach is unsuccessful may offer a
competitive advantage over others who must expend resources discovering the same.8
The party asserting the alleged trade secret must prove that one exists under this functional definition,
which will generally be a fact-sensitive determination.9 Documenting steps taken to protect and
develop a trade secret is accordingly crucial. Once trade secret protection is established, however,
the owner may be able to prevent:
(1)
(2)
6
7
8
9
unauthorized disclosure by those formerly or presently in an express or implied confidential relationship with the owner; or
discovery of the trade secret by improper or unethical means.
Unif. Trade Secrets Act § 1, 14 U.L.A. 537 -38 (2005).
1 INTELLECTUAL PROPERTY COUNSELING AND LITIGATION, § 5.01 (2) at 5-5 through 5-6 (Lester Horwitz & Ethan Horwitz
eds. 1994).
See, e.g., Unif. Trade Secrets Act § 1, cmts., 14 U.L.A. 538-39 (2005).
See generally, Lear Siegler, Inc. v. Ark-Ell Springs, Inc., 569 F.2d 286, 288-89 (5th Cir. 1978) (footnote omitted) (“The term ‘trade secret’
is one of the most elusive and difficult concepts in the law to define. The question of whether an item taken from an employer constitutes a
‘trade secret,’ is of the type normally resolved by a fact finder after full presentation of evidence from each side.”); Capital Asset Research
Corp. v. Finnegan, 160 F.3d 683, 685-86 (11th Cir. 1998).
217
What to Consider in Choosing Between Trade Secret and Patent Protection
Given the all-inclusive (yet tenuously defined) subject matter of trade secret protection, one would
correctly suspect that it overlaps with the protection accorded to patentable subject matter under
federal patent law.10 Generally, it helps to divide this overlap between patent and trade secret
protection into categories:
(1)
(2)
(3)
inventions that are not patentable;
inventions of dubious patentability; and
clearly patentable inventions.
Deciding between patent and trade secret protection for non-patentable inventions is easy: one
should protect such material to the extent possible under trade secret law, which “encourages
the development and exploitation of those items of lesser or different invention than might be
accorded protection under the patent laws, but which items still have an important part to play in the
technological and scientific advancement of the Nation.”11 Where, however, the invention falls into
category (2) or (3) (i.e., it may be protected through either patent or trade secret protection), what
are the ramifications of choosing between the two?
A.
Characteristics of Patent and Trade Secret Protection
Whether to patent potentially valuable inventions that the owner believes to be of dubious
patentability obviously presents a difficult question. Faced with a substantial risk of expending
time and money and failing to obtain a patent, or obtaining a patent that is too narrow to provide
protection in the marketplace or that may eventually be invalidated, the technology owner likely
will turn to trade secret protection. But seeking patent protection remains tempting since issued
patents are presumed valid,12 and the expense associated with patent infringement suits often makes
competitors opt to pay at least a modest royalty rather than engage in an expensive and lengthy
patent infringement action.
Knowing the relative strengths and weaknesses of patent versus trade secret protection helps
determine whether to maintain the invention as a trade secret or seek a patent. One crucial distinction
is that a patent provides a period of exclusive use—generally, twenty years from its filing date—
in return for full disclosure of the invention.13 By contrast, trade secret protection is potentially
unlimited in duration: it continues so long as competitors do not reverse engineer or independently
develop the subject matter of the trade secret, or so long as it is not disclosed. For instance, The Coca
Cola Company has maintained its famous formula for the Coca Cola® beverage as a trade secret for
decades. If the owner had patented the formula, it would have become publicly available and usable
after the patent’s expiration.
10 A patent may be granted to “[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter,
or any new and useful improvement thereof,” 35 U.S.C. § 101 (2000), subject to the requirements of novelty, utility, nonobviousness and
appropriate disclosure. Id. § 102 (Supp. II 2002); § 103 (Supp. V. 2005); § 112 (2000).
11 Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 493 (1974).
12 See 35 U.S.C. § 285 (2000).
13 See id. § 154 (2000 & Supp. II 2002).
Patent 101
II.
KILPATRICK TOWNSEND
However, “[t]rade secret law provides far weaker protection in many respects than the patent law.
While trade secret law does not forbid the discovery of the trade secret by fair and honest means,
e.g., independent creation or reverse engineering, patent law operates ‘against the world’ forbidding
any use of the invention for whatever purpose for a significant length of time.”14 Instead of the
absolute barrier patent law provides against even those who independently develop the subject
matter of the invention, “trade secret law functions relatively as a sieve,” and “[t]he holder of a trade
secret . . . takes a substantial risk that the secret will be passed on to his competitors, by theft or by
breach of a confidential relationship, in a manner not easily susceptible of discovery or proof.”15
Once public disclosure—accidental or wrongful—occurs, the only remedy is to obtain damages
against the disclosing or misappropriating party. The trade secret is lost forever—it is no longer a
“secret” and the public may use it.
B.
Business Factors Affecting the Decision
An owner must weigh various factors other than just the legal scope of the different forms of
protection in determining whether to maintain an invention as a trade secret or to apply for patent
protection. Factors favoring patent protection may include:
(1)
(2)
(3)
(4)
the deterrent effect patents provide to competitors who otherwise might be tempted to
make and sell similar products;
the protection it supplies for inventions that can be reverse-engineered;
the avoidance of any need to maintain complete security for inventions to be kept as
an internal trade secret; and16
the value patents furnish as assets potentially useful for cross-licensing technology in
settlement of patent infringement (or other) litigation.
By contrast, factors supporting a decision not to obtain patent protection for a particular invention,
and perhaps indicating the need to consider protecting the invention as a trade secret, may include:
(1)
(2)
14
15
16
17
the expense of obtaining the patent, which does not immediately provide a revenue
stream (unless licensed) and, similarly, the potential for protecting the invention in
foreign jurisdictions as a trade secret without the difficulty and expense of obtaining
foreign patents;17
the potential for delaying product launch while a patent application is being prepared
and filed (particularly where foreign patent protection is being considered, as no grace
period between use or sale of the invention and filing an application is typically available);
Kewanee Oil, 416 U.S. at 489-490.
Id. at 490 (citations omitted).
Procedures for maintaining trade secret protection are discussed infra, at Section III.
A general discussion of trade secret protection available in Pacific Rim countries is outlined by Sue Holloway, Comment, Black Box
Agreements: The Marketing of U.S. Technical Know-how in the Pacific Rim, 23 Cal. W. Int’l. L. J. 199 (1992).
219
(4)
the fact that the disclosure in a patent (after issuance or publication) can sometimes
provide a “roadmap” facilitating an unscrupulous competitor’s copying of an invention; and
the expense of enforcing a patent against an infringer through litigation.
A common theme these factors emphasize is the need to evaluate carefully the subject matter to
determine whether competitors will be able easily to reverse engineer the invention and develop
competing or similar products. This is especially true where the end product of the trade secret is
freely available to the public, in which case competitors are free to examine all of the details of that
product. As the Supreme Court wisely observed, “[i]f the invention, though still a trade secret, is put
into public use, the competition is alerted to the existence of the inventor’s solution to the problem
and may be encouraged to make an extra effort to independently find the solution thus known to be
possible.”18 Obviously, such competitive pressure is of little concern where the trade secret is not
readily adaptable to reverse engineering. For instance, protecting through trade secret law a secret
manufacturing method or chemical process, where the method or process is not readily ascertainable
from the end product, has proven to be a popular option.19
C.
Ramifications of the Trade Secret Choice and Techniques for Maximizing Intellectual
Property Protection
Although all of the above factors apply to choosing between trade secret and patent protection,
owners typically ask whether they can still obtain a patent on the invention even after they choose
trade secret protection? The answer depends on whether the invention formerly protected as a
trade secret has been in public use or “on sale” for greater than the one-year grace period.20 These
“statutory bars” apply to “commercial [exploitation by the inventor] of a machine or process . . .
even if the machine or process is held secret.”21 For example, suppose a company develops a secret
process for producing a product (e.g., a chemical), sells that product for more than a year while
holding the process as a trade secret and then decides to seek patent protection. The statutory bars
prevent the company’s patenting either the product (which was on sale and in public use for over a
year) or the trade secret process (which was used to make the publicly available product for more
than the one-year grace period). In any event, once a product produced by a trade secret machine or
18 Kewanee Oil, 416 U.S. at 491.
19 See, e.g., Salsbury Labs., Inc. v. Merieux Labs., Inc., 908 F.2d 706 (11th Cir. 1990) (concerning vaccines); FMC Corp. v. Taiwan Tainan
Giant Indus. Co., 730 F.2d 61 (2d Cir. 1984) (concerning insecticides); Johns-Manville Corp. v. Guardian Indus. Corp., 586 F. Supp. 1034
(E.D. Mich. 1983) (concerning a process for producing fiberglass), amended, 223 U.S.P.Q. 974 (E.D. Mich. 1984), aff’d without op., 770
F.2d 178 (Fed. Cir. 1985).
20 By statute, a valid patent cannot be obtained for an “invention [that] was . . . in public use or on sale in this country, more than one year
prior to the date of the application for patent in the United States:’ 35 U.S. § 102(b) (2000). It is important to note that “on sale” covers
more than actual sales of the product. Offers to sell an invention may also bar the grant of a valid patent, if made outside the one year grace
period.
21 2 Donald S. Chisum, Chisum on Patents § 6.02[5][b] (2008). This comports with the underlying policies of the statutory bars:
to avoid ‘detrimental public reliance.’ When a new product or process appears publicly for a significant period of
time without an assertion of patent rights, persons are justifiably led to believe that anyone may make, use or sell
the product or process. The second [policy] is to encourage prompt disclosure of new useful information. The third
is to discourage attempts to extend the length of the effective patent monopoly by commercially exploiting a new
invention and only applying for a patent when faced with competition.
Id. § 6.02.
Patent 101
(3)
KILPATRICK TOWNSEND
process is on sale or in public use beyond the one-year grace period, patent protection is no longer
available—for either the product or the trade secret process.
A related question is whether an owner may combine or mix trade secrets and patents to maximize
protection. For instance, suppose a company develops a product, such as a rifle, and obtains a
patent on the parts that go into the product. May it also protect as a trade secret the methods for
manufacturing the product, i.e., the rifle?
In Christianson v. Colt Industries Operating Corp.,22 two federal courts of appeals approved just
such a course. Colt produced the M-16 rifle for the United States. Despite acquiring nine patents
related to various parts of the M-16, Colt opted to maintain as a trade secret the information required
to mass produce entire M-16s and make their parts interchangeable, as required by the government.
Christianson argued that both Colt’s patents and its trade secrets were invalid because Colt had
failed to disclose the production and interchangeability data.23 Both the Federal Circuit (the court
responsible for hearing all patent appeals) and the Seventh Circuit firmly rejected that contention.
As the Federal Circuit explained, “[p]atents are not production documents, and nothing in the patent
law requires that a patentee must disclose data on how to mass-produce the invented product, in
patents obtained on either individual parts of the product or on the entire product.”24
In general, therefore, the owner may protect “certain inventive features under patent principles
and, with respect to the same general process, hold others subject to trade secret principles.”25
Nevertheless, when choosing to protect a product via a patent and the methods of producing that
product by trade secret, it is crucial to (1) make the proper disclosure in the patent application while
(2) assuring that the application does not disclose separately protectable trade secrets. Extremely
careful planning is necessary to satisfy such disclosure requirements and tread the fine line between
disclosing too little, possibly invalidating the patent and potentially any trade secret, and disclosing
more than is necessary.26
Where subject matter is clearly patentable (i.e., category 3), an additional consideration counsels
caution in choosing trade secret in lieu of patent protection. Suppose, for example, that Company
A develops a clearly patentable chemical process, yet because the process is not easily reverse
engineered from the resulting product, Company A opts for trade secret protection of the process.
Assume several years later, after Company A has been selling the chemical products produced from
22 822 F.2d 1544 (Fed. Cir. 1987) [hereinafter “Christianson I”], vacated on jurisdictional grounds, 486 U.S. 800 (1988), on subsequent
appeal, 870 F.2d 1292 (7th Cir. 1989) [hereinafter “Christianson II”].
23 35 U.S.C. § 112 (2000) requires that a patent disclosure enable one skilled in the art to make and use the invention described in the claims.
Additionally and independently, the inventor must disclose the best mode of working the invention known to him/her at the time of filing
the patent application. These requirements ensure that “the subject matter of the claimed invention is generally in the possession of the
public and ready to be reproduced following the expiration of the patent period.” Christianson II, 870 F.2d at 1299.
24 Christianson I, 822 F.2d at 1562.
25 2 Roger M. Milgrim, Milgrim on Trade Secrets § 9.02[4] [a], at 9-56 (2007).
26 See Wahl Instruments, Inc. v. Acvious, Inc., 950 F.2d 1575, 1580 (Fed. Cir. 1991):
[T]here is no mechanical rule that a best mode violation occurs because the inventor failed to disclose particular
manufacturing procedures beyond the information sufficient for enablement. One must look at the scope of the
invention, the skill in the art, the evidence as to the inventor’s belief, and all of the circumstances in order to evaluate
[the disclosure’s sufficiency].
See also Bayer AG v. Schein Pharms., Inc., 301 F.3d 1306, 1325 (Fed. Cir. 2002).
221
Competitor Z, armed with the newly issued patent, now sues Company A (or Company A’s
customers) for infringement. Unfortunately, trade secret law may not protect Company A, even
though it invented first, from liability for patent infringement of Competitor Z’s patent.
Indeed, Company A may have express or implied indemnification obligations requiring Company A
to reimburse its customers for patent infringement damages, or even costs related to the litigation.
Even worse, because the invention of Company A is now disclosed in the patent of Competitor Z,
Company A will likely not be able to enforce its trade secret as there is no longer a secret.
Concerned that such an outcome is unfair, at least with respect to methods of doing or conducting
business, Congress enacted the First Inventor Defense Act of 1999,28 which is subtitle C of the
American Inventors Protection Act. The First Inventor Defense Act provides a patent infringement
defense to a good faith party that, at least one year before the effective filing date of a patent,
actually reduced to practice and commercially used the subject matter of that patent. Successful
establishment of this defense allows Company A to continue practicing the invention, but does not
invalidate the patent.29
Obviously, these potential results caution Company A to assess carefully the strengths and
weaknesses of a trade secret versus a patent. As a practical matter, however, it may be difficult
for Competitor Z to discover Company A’s use and bring an infringement suit. Even if such use
is discovered, Competitor Z may be averse to placing its patent in suit against Company A, who
undoubtedly will mount a vigorous challenge to the validity of that patent. Moreover, Company A
may implement creative approaches to limit the consequences of choosing trade secret protection
over patent protection. For instance, one proposal urges that Company A license the trade secret or
sell the secret manufacturing apparatus, with appropriate confidentiality restrictions.30 Widespread
licensing or sale activity may persuade a court that the invention was not suppressed or concealed
and was in public use. That may invalidate Competitor Z’s patent, leaving Company A free of an
infringement suit and free to practice the invention.
If the expense of filing and prosecuting patent applications is not of overriding significance to the
owner of the technology, one approach may be to file such applications (at least in the United
27 See W.L. Gore & Assocs. v. Garlock, Inc., 721 F.2d 1540, 1550 (Fed. Cir. 1983) (“There is no reason or statutory basis, however, on which
[the first inventor’s - trade secret user’s] secret commercialization of a process, . . . could be held a bar to the grant of a patent to [the later
inventor] on that process.”), abrogated on other grounds by Markman v. Westview Instruments, Inc., 52 F.3d 967 (Fed. Cir. 1995) (en
banc); OddzOn Prods., Inc. v. Just Toys, Inc., 122 F.3d 1396, 1402 (Fed. Cir. 1997); Jacobson v. Cox Paving Co., 19 U.S.P.Q.2d 1641,
1648 (D. Ariz. 1991), aff’d, 949 F.2d 404 (Fed. Cir. 1991). Despite the absence of cases involving this scenario, numerous commentators
have recognized this possibility under United States patent law. See generally Frank E. Robins, The Rights of the First Inventor Trade
Secret User as Against Those of the Second Inventor Patentee (Part 1), 61 J. Pat. Off. Soc’y 574 (1979); Karl F. Jorda, The Rights of the
First Inventor Trade Secret User as Against Those of the Second Inventor Patentee (Part 11), 61 J. Pat. Off. Soc’y 593 (1979); Philip L.
Burke, Note, The ‘Non-informing Public Use’ Concept and its Application to Patent-Trade Secret Conflicts, 45 Alb. L. Rev. 1060 (1981).
28 35 U.S.C. § 273(b) (2000).
29 “Other countries, such as Germany and France, have solved the dilemma by legislation providing a personal right to the first secret
inventor to continue using the invention for his own purposes.” 2 Melvin F. Jager, Trade Secrets Law, § 10.3 at 10-10 (2004).
30 Albert C. Smith & Jared A. Slosberg, Beware! Trade Secret Software May be Patented By a Later Inventor, 7 Computer Lawyer 15 (Nov.
1990).
Patent 101
the secret process, Competitor Z independently develops the process and applies for a United States
patent. Under United States patent law, Competitor Z could obtain such a patent.27
KILPATRICK TOWNSEND
States) while concurrently maintaining the secret status of the invention. Even under present law,
the pending applications will remain confidential unless and until a United States patent issues, or
until the patent application is published under the recently enacted publication statute,31 thereby
providing an opportunity to gauge the competition while assessing the scope of patent protection
available for the invention as well as its commercial value.32 If the owner may obtain sufficiently
broad protection for the invention—or a competitor has reverse engineered it—the owner could
permit the United States patent to issue and enforce the patent. Alternatively, if the secret status of
the invention remains intact and inadequate patent protection is available, the owner could abandon
the application while still relying on trade secret law to protect the invention.
III.
Protecting and Enforcing Trade Secrets
Assume that the owner has carefully weighed the risks and benefits of obtaining a patent or
establishing trade secret protection have been carefully weighed, and the owner has decided to
protect the invention as a trade secret. What steps must the owner accomplish to protect and, if
necessary, enforce the trade secret?
A.
Maintaining Secrecy
Common sense correctly suggests that protecting a trade secret centers on secrecy.33 Because
disclosure of a trade secret destroys its enforceability, the owner must remain constantly vigilant
to protected it. For instance, if the owner was previously lax enough to allow disclosure, yet later
implemented stringent precautions to protect the trade secret, some courts may still find that the trade
secret is not protectable. This is not to say, however, that the owner must go to every imaginable
length to protect the trade secret. The law recognizes that disclosure to licensees, co-venturers,
employees and the like is often necessary to extract the commercial value of the trade secret.
Generally, the Uniform Trade Secrets Act, as well as most courts, require only that the owner
undertake protective measures “reasonable” under the circumstances. Some common types of
disclosure that the owner must guard against by implementing “reasonable” protective measures
include:
(1)
(2)
disclosure following “industrial espionage” type activities by unscrupulous competitors;
inadvertent disclosure occurring upon failure properly to protect the trade secret;
31 35 U.S.C. § 122(b) (2000) provides that U.S. applications will generally be published 18 months after filing. However, the applicant may
request non-publication of the application by certifying that the invention disclosed in the application has not and will not be the subject of
an application filed in another country, or under a multilateral international agreement that requires publication of applications 18 months
after filing. Furthermore, nothing prevents the applicant from abandoning the application before publication and thereby preserving its
secrecy. In fact, that is one reason for the IS-month delay during that delay, prosecution should advance sufficiently to let the applicant
assess whether to continue pursuing a patent or rely on trade secret protection by abandoning the application.
32 Id. Confidentiality is maintained even if no patent issues on the application or it is purposefully abandoned by the applicant. 37 C.F.R.
§ 1.14 (2008). In contrast to the United States application process, some other countries may not maintain a patent application in
confidence, or may make public the disclosure of the patent application after a fixed length of time. See generally Patent Cooperation
Treaty art. 21, June 19, 1970, 28 U.S.T. 7047, 7666-67.
33 Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1002 (1984) (“Information that is public knowledge or that is generally known in an industry
cannot be a trade secret. If an individual discloses his trade secret to others who are under no obligation to protect the confidentiality of
the information, or otherwise publicly discloses the secret his property right is extinguished.”) (citations omitted).
(3)
(4)
(5)
disclosure by key employees who leave and develop a competing enterprise, seek employment with a competitor or are induced to work for a competitor;
disclosure or misappropriation by others who are in some business relationship with
the owner; or
disclosure by a government agency.
Infinite techniques exist for preventing disclosure and protecting a trade secret; thus, as a practical
matter the owner of the trade secret will exercise an amount of care corresponding to the value of the
trade secret.34 Nevertheless, to protect the trade secret, the owner must implement some measures—
several common protective measures that courts may focus on are described below.35
When choosing among these approaches, it is crucial to determine realistically the scope of the
information that is truly valuable and needs to be protected. Over-protection of all information may
actually cost the owner of the trade secret significantly, in direct costs associated with protecting the
information and in reduced creativity of employees when overly-rigorous protections interrupt the
free flow of ideas. Additionally, courts examine the overall balance of procedures in litigation. Thus,
very restrictive procedures in one or two areas and laxity in others may be insufficient.
1.
Develop a Written Policy
Promulgating written directions reminding employees that certain data, machinery, processes or
entire projects are trade secrets, and describing how employees can protect such information, may
be crucial to both protecting the secret from inadvertent disclosure and enforcing trade secret rights
in litigation. Written policies also provide persuasive proof of the existence and scope of trade
secrets.
2.
Inform Employees of Their Obligation to Protect the Company’s Trade
Secrets
An often crucial first step is to require employees to sign noncompetition, nonsolicitation, or
nondisclosure agreements.36 As one commentator has observed,” [a] written agreement clearly and
unequivocally puts an employee or an independent contractor on notice of the trade secret owner’s
claims.”37
3.
Restrict or Condition Access to the Trade Secret
A guiding principle is that the owner should only distribute trade secret information on a “need to
know” basis.38 Steps that further establish protection and may prevent disclosure include restricting
34 1 Milgrim, supra note 25, § 1.04, at 1-196.
35 See generally 1 Milgrim, supra note 25, § 1.04, at 1-177 -1-196.
36 Court decisions have defined narrowly the restrictions that may be imposed on an individual’s freedom to work, normally permitting only
reasonable restraints that protect an employer’s “legitimate interests” while avoiding harm to either the employee or public. Accordingly,
careful drafting of such agreements to comply with applicable law and to tailor the noncompetition or nonsolicitation agreement to the
circumstances is crucial to later successful enforcement against a defecting employee.
37 1 Milgrim, supra note 25, § 4.02[1][c], at 4-22 (2007).
38 See, e.g., Specialty Chems. & Servs., Inc. v. Chandler, 9 U.S.P.Q.2d 1793, 1797 (N.D. Ga. 1988) (limiting access on a “need to know”
basis important factor in showing secrecy).
Patent 101
223
KILPATRICK TOWNSEND
access to sensitive plant or office areas, requiring nondisclosure and confidentiality agreements, or
using code names for certain processes or ingredients.
4.
Mark or Secure All Forms of Media in Which the Trade Secret is Stored
If the trade secret is embodied in documents, they should be stamped with an indication, such as
“CONFIDENTIAL,” “PROPRIETARY INFORMATION,” or other terms indicating the nature of
the document. Likewise, if the information is stored on some other media, such as a computer hard
drive, floppy disc, or other memory device, access should be restricted via passwords or simply
locking up the computer drive.
5.
Take Steps to Ensure that Government Agencies to Which the Trade Secret
is Disclosed Maintain Secrecy
Various regulations—such as the Environmental Protection Act—may require the owner to disclose
information that is protected by a trade secret. The owner must therefore comply with applicable
procedures to inform the government that the information is protected by a trade secret to prevent
disclosure of the trade secret while the government performs its duties or receives a Freedom of
Information Act (“FOIA”) request.39 According to one commentator, one of the most damaging
documented losses was a disclosure of a half-billion dollar Monsanto herbicide formula by the
EPA.40 Ultimately, in Ruckelshaus v. Monsanto Co.,41 the Supreme Court recognized that the EPA’s
disclosure of Monsanto’s trade secrets could constitute a government “taking” of property entitling
Monsanto to compensation. But Monsanto could establish a taking only by showing, among other
things, that it had followed proper procedure to designate its trade secrets.42 Accordingly, it is critical
to follow proper procedures to avoid uncompensated loss of trade secrets through government
action.43
B.
Enforcing the Trade Secret: Identifying and Pursuing Potential Defendants
An owner may bring a trade secret suit against employees, licensees, business partners or coventurers, or, in some situations, even third parties. The legal theories supporting these suits range
from breach of an express or implied contract, breach of a fiduciary relationship or misappropriation.
A brief overview of the legal theories are noted below.
1.
The Trade Secret Owner’s Contractual Rights
Obviously, numerous advantages exist to having an express (preferably written) contract binding
the defendant to not disclose a trade secret. For instance, a contract may delineate ownership of the
trade secret, the precise subject matter of the trade secret, and remedies available upon disclosure
39 5 U.S.C. § 552 (2000 & West Supp. 2008). The FOIA mandates disclosure of public documents and records unless they fall into specified
exemptions. Numerous states also have enacted similar versions of the FOIA. See 3 Jager, supra note 35, at App. F.
40 Monsanto’s problem is not isolated – it was recently reported that the EPA admitted losing “200 confidential documents containing
sensitive data belonging to chemical companies, including trade-secret formulas ... worth millions of dollars.” Karen Gullo, EPA Admits
Losing Documents, J. Comm., Nov. 15, 1996, at B-5, Col. 1.
41 467 U.S. 986, 1013-1014 (1984).
42 Id.
43 1 Jager, supra note 35, § 12:02, at 12-7.
or threatened disclosure of the trade secret. Contracts may also include restrictive covenants
prohibiting the entity to which the secret is disclosed from engaging in activities that would possibly
jeopardize the trade secret or allowing it unfairly to compete with the owner of the trade secret.
Contracts may also cover material that otherwise might not be considered appropriate subject matter
for trade secret protection.
Particularly where restrictive covenants are at issue, there is a potential downside to having an
express agreement. Numerous courts have declared invalid agreements containing overly broad
restrictive covenants, especially when those covenants applied to a former employee. Even so,
properly drafted written agreements offer one of the best tools to address the many situations under
which trade secrets are disclosed to various persons or entities.
Absent an express agreement imposing contractual obligation(s) upon a defendant, courts often
have implied an obligation not to disclose a trade secret given the parties’ relationship. As one
commentator explains, “it is an implied obligation in every contract of employment that an employee
will protect and preserve the trade secrets of his employer which are acquired in the course of
employment . . . ‘This is a duty that the employee assumes, not only during its employment but after
its termination. It is an absolute and not a relative duty.’”44 This “absolute duty” exists whether or
not the employee signs a confidentiality or nonsolicitation agreement. Such an implied obligation
may also arise in relationships other than solely employment; for example, “[l]icensees, purchasers,
suppliers and members of joint ventures have similar obligations implied by law.”45
2.
Misappropriation
In those jurisdictions adopting wholly or substantially the Uniform Trade Secrets Act, an owner may
bring an action for misappropriation upon a showing that the trade secret was
(1)
(2)
(3)
acquired by one who knew it was discovered by improper means;
disclosed or used by one who knew it was derived through another party who used
improper means to acquire it or had a duty to maintain its secrecy; or
disclosed or used by one who knew it was a trade secret and that the trade secret had
been acquired by accident or mistake.46
This broad definition finds misappropriation upon mere “acquisition” of the trade secret, rather than
disclosure or use. Improper acquisition means may include illegal, fraudulent, or even legal conduct
that is improper under the circumstances. In other instances, misappropriation occurs even though
the trade secret is disclosed by accident.
As mentioned earlier, not all jurisdictions have adopted the Uniform Trade Secrets Act, and even
where it has been adopted, a “common law” action for misappropriation may still be available.
Generally, common law actions require either a confidential relationship by which the trade secret
44 1 Jager, supra note 35, § 6:2, at 6-3 (2002) (quoting L.M. Rabinowitz & Co. v. Dasher, 82 N.Y.S.2d 431, 435 (Sup. Ct. 1948)).
45 Id. § 4:1, at 4-8.
46 See Unif. Trade Secrets Act, § 1, 14 U.L.A. 537-38 (2005).
Patent 101
225
KILPATRICK TOWNSEND
was communicated, with the defendant subsequently misappropriating the trade secret and injuring
the plaintiff, or the improper acquisition of a trade secret.47
Suppose, however, that the breaching party is an ex-employee who has disclosed the secret to a
competitor—a prime example being the well-publicized defection of a General Motors executive
to Volkswagen. In such a typical scenario, it may be crucial to enjoin both the ex-employee and the
competitor, as well as to collect damages from both. Action against the competitor is a possibility
if the competitor had notice that the information was a trade secret and that the ex-employee’s
disclosure was a breach of an obligation imposed by an express or implied contract.48 On the other
hand, if you or your company hires a competitor’s key employee, you should document the fact that
your new employee is being hired for his or her skills rather than knowledge of the competitor’s
trade secrets.
Also often categorized under the general rubric of misappropriation are actions in which a
competitor uses industrial espionage type activities, some of which may be legal, to discover the
trade secret. Thus, “[t]he law also protects the holder of a trade secret against disclosure or use when
the knowledge is gained, not by the owner’s volition, but by some ‘improper means . . . which may
include theft, wiretapping, or even aerial reconnaissance.’”49
IV.
Conclusion
Maintaining an edge over competitors may depend to a great extent on choosing the right intellectual
property protection. Legal counsel may help assess the legal environment framing the decision to
select between patent and trade secret protection. Ultimately, however, the owner must decide after
considering the relevant business, as well as legal, factors.
47 Courts may sometimes characterize an obligation as either an implied contractual duty or a confidential relationship. This characterization
may be important in terms of the type of relief available to the trade secret holder-a breach of confidential relation may sound as tort
whereas a breach of a contractual duty is a contract action. See generally 1 Milgrim, supra note 25, at §§ 4.02-4.03. For a general overview
of the type of damages available in trade secret suits, see Michael A. Rosenhouse, Annotation, Proper Measure and Elements of Damages
for Misappropriation of Trade Secret, 11 A.L.R.4th 12 (1982 & Supp. 2005).
48 See Metallurgical Indus., Inc. v. Fourtek, Inc., 790 F.2d 1195, 1204 (5th Cir. 1986) (“The law imposes liability not only on those who
wrongfully misappropriate trade secrets by breach of confidence but also, in certain situations, on others who might benefit from the
breach.”) .
49 Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 475-76 (1974) (internal citation omitted).
227
Patent Portfolio Creation and Management
Patents and other intangible assets are increasingly important to the success of companies of all
sizes. Obtaining and maintaining valuable patent assets, in particular, requires that business leaders
provide the necessary focus and attention to define and support a patent portfolio management
strategy. Success requires defining responsibilities and processes that facilitate the efficient use
of company resources to maximize the value created within the company. This article describes
procedures and strategies that experience has shown facilitate the ongoing process of successful
patent portfolio creation and management. These procedures include defining strategic patent
goals that reflect the strategic corporate goals, maintaining an inventory of existing patents and
related materials, and creating and implementing a procurement and management process in which
decisions are made in light of the strategic goals.
I.
Define Strategic Patent Goals that Reflect the Strategic Corporate Goals
Success in the patent arena requires defining corporate strategies, communicating those strategies to
key individuals throughout the organization, and utilizing patents to complement those strategies.
This type of strategic alignment drives a connection between a company’s overall strategic direction
and its patents and, in many cases, can play a significant factor in the company’s ultimate success.
Strategic alignment in large and medium size companies requires attention and commitment of upper
level corporate management. Upper level management must recognize patents as a fundamental
business tool and provide access to the key information and people necessary for effective strategic
alignment. Knowledge of the particular corporate strategy often leads to a patent strategy, involving
smarter, more efficient use of resources available to support a patent portfolio. As examples, a
particular consumer goods manufacturer may prioritize launching new products and creating brand
loyalty in those new products, while another may focus on developing methods for lower cost
manufacturing and economies of scale. These different corporate strategies can translate into very
different patent strategies.
As another example, an organization with a strong strategic interest in a particular market area can
target resources to create an array of patents that individually cover narrow aspects of products
or services, but collectively form a minefield of protection that aims to be insurmountable to
competitors, even if there are gaps in coverage. This strategy may be of interest to large corporations
given the potential resources that can be allocated to amassing such volumes of targeted patents.
The effort and funds necessary to sustain such efforts may not be available to smaller or emergent
patent companies that tend to have smaller patent portfolios and fewer resources. Accordingly, an
effective patent strategy may also account for company size and market position.
A company’s overall strategy should also be guided by an understanding of the patent landscape
in which the company operates. The decisions to pursue certain markets and products should be
guided by an understanding of competitor offerings and the patents of third parties that may pose
barriers or alter the risk analysis involved in the decision making process.
Patent 101
James L. Ewing IV, Brenda O. Holmes, Wab P. Kadaba, Michael J. Turton,
and E.J. Joswick
KILPATRICK TOWNSEND
In short, an overall strategy should be based on consideration of at least the following issues:
(1)
Why are we obtaining patents and what do we want them to achieve for us—how
would we define success?
a. Protect exclusivity in product or service offerings
b. Defensive purposes
c. Generate revenue
d. Build reputation for innovation for investor and public relations purposes
(2)
(3)
(4)
(5)
What are our competitors doing and what does that mean we should do?
What additional resources are needed for the effort to succeed, how much will they
cost, how does that compare with how much we are willing to pay in the short term
and long term, and how will the effort be funded?
Which individuals are willing to be responsible as stakeholders for success?
Which individuals will be responsible day to day in carrying out the effort?
II.
Inventory Existing Patents and Related Materials
A.
Patents
The company should access existing patent holdings to determine how those holdings can help
achieve corporate goals. One effective tool for understanding a company’s patents is a list or docket
of patent applications and issued patents. Graphical representation illustrating the relationships may
also be used, but a simple docket is usually sufficient. The docket should be organized by patent
family, so that U.S. items for a particular invention are listed in the same location as their non-U.S.
counterparts to allow the reviewer to understand what patent rights protect which inventions in
which jurisdictions. For each patent or application, the docket will usually list the relevant country,
inventor names, invention title, filing or priority dates, grant or issue dates, relevant serial numbers,
attorney reference numbers and the company’s reference numbers. A comments column is often
helpful to summarize key inventive or commercially relevant features. Comments on pending patent
applications can briefly indicate the specific technical areas or features for which new or additional
coverage is being sought.
If a patent docket does not exist, the company can identify relevant information by asking individuals
who are involved in obtaining patents, including technologists and outside counsel, to provide any
relevant correspondence, spreadsheets, and/or dockets. As a check, the company should track online
databases such as Delphion1 and Inpadoc2 to ensure that all applications and patents are listed.
1
2
The Delphion web site is owned and operated by Institute for Scientific Information, Inc. See http://www.delphion.com/ (last visited Mar.
9, 2009).
The European Patent Office provides raw data resources (INPADOC) offering a collection of bibliographic and legal status patent data
collected from multiple patent authorities. See http://www.epo.org/patents/patent-information/raw-data.html (last visited Mar. 11,
2009).
229
The inventory effort should also ensure that the patents and applications are properly reflected on
the record as owned by the company, including title checks and review of assignment documents
recorded in the relevant patent offices.
Licenses
The company should perform an inventory of licenses—including licenses both out of and into
the company. Licenses out need to be correlated to the patents shown in the company’s docket to
understand what rights may be in the hands of third parties and whether those third parties have
paid royalties. The company should review licenses into the company to ensure that the licensed
patents have been maintained properly and continue to be of use to the company and, if not, whether
appropriate termination provisions should be invoked.
C.
Assignment and Confidentiality Obligations
The company should inventory employment, third-party development, and non-disclosure
agreements. An effective intellectual property (“IP”) program must properly administer employment
agreements that assign to the company all IP created on company time and money, and create an
obligation to respect trade secrets and confidential information. If adequate agreements are not
currently in place, depending on the circumstances, a new agreement may be provided to the existing
workforce or may be provided only to new employees. In any case, the company must take care
since enforceability of such agreements is governed by state law, which can vary by jurisdiction, and
involves different temporal, geographical, and other limitations in different states. Third-party nondisclosure agreements can take several forms—those in favor of the company, in favor of the thirdparty, or bilateral. The company should review such agreements for assignment of IP provisions and
indemnification obligations in order to better understand the company’s ownership and IP position,
as well as obligations and constraints placed upon it, where the company has jointly developed
technology with third-parties.
D.
Other Intellectual Property Rights
Although beyond the scope of this article, the company should inventory other intellectual property
rights such as trademark registrations, copyright registrations, domain name registrations, and trade
secrets.
III.
Create and Implement a Procurement and Management Process
Internal patent management procedures should impact every level in the organization. Pervasive IP
governance allows patents to become an integral issue throughout the organization and entrenched
in corporate culture. It will lead to growth in product or service offerings, protection of key
technologies, prudent allocation of resources, and increased research and development (“R&D”)
effectiveness. The primary focus of the efforts should protect the most economically valuable
aspects of the company both presently and in the future. The competitive advantage of each business
unit should be considered and protected in multiple ways wherever possible. Generally, while each
company has a different organization and vision that requires a unique structure best suited to realize
the company’s goals, the following best practices are usually applicable.
Patent 101
B.
KILPATRICK TOWNSEND
A.
Assign Responsibility for Patent Decisions
Effective IP governance requires making one or more individuals responsible for each of the
company’s patent portfolios. These patent attorneys and/or IP coordinators must allocate IP dollars
effectively and ensure that the day to day activities are consistent with corporate strategy. This may
involve improving the IP creation process to minimize costs and maximize IP benefits, examining
the economic factors surrounding new technology, and creating IP to capture the technology’s key
value propositions. They can thus ensure that patents are written to cover the commercially relevant
aspects of the technology and that multiple patents are filed on critical technologies. The attorneys
or coordinators may periodically touch base with company technologists to determine what new
developments are under way and prompt inventors to submit ideas for consideration. Experience
shows that even a modest but sustained level of proactive effort creates a significant difference in
idea submissions and ultimate effective patent protection. They can also monitor company activity
to help ensure that company activities, such as publication of an idea or sale of a product, do not bar
or limit the available patent protection.
The company can achieve significant cost savings by periodically pruning its patent portfolio of
obsolete IP. When performing IP audits, companies are often surprised to find they are maintaining
patents on technology or in jurisdictions that no longer have any value for the organization. The
Dow Chemical Company was able to save over $40 million by pruning its patent portfolio.
Companies with larger portfolios typically have a number of in-house patent lawyers and others
whose performance is based, at least partially, on volume of applications filed, patents issued, and
budget control. In other companies, including many small companies, business managers and
former technologists run and administer the patent portfolio. A company may use both in-house
and outside patent lawyers to help guide a patent program in the face of the ever-changing laws and
rules that govern patent applications and the application examination process. Many companies,
both large and small, utilize the outside patent counsel to prepare patent applications and manage the
deadlines associated with prosecuting the applications. In any case, the individuals responsible for
preparing and prosecuting the patent applications must communicate all information necessary for
strategic patent decisions to the company’s decision makers. The company can then make decisions
in light of its priorities, the technology landscape, and the nuances of the patent laws.
Giving management level personnel responsibilities for both IP and strategic R&D planning ensures
a strong link between the IP management and R&D. Other methods include establishing crossfunctional IP committees of R&D, IP management, and marketing individuals. An IP committee
can ensure that R&D resources are allocated to support the company strategy, focus innovation
efforts in areas where IP protection is available, and can support the overall corporate strategy and
goals. Time and money need not be wasted in areas where protection is not available or another’s
patent prevents market entry. An IP committee is ideally small, meets regularly such as once per
quarter, and includes technologists, product managers, and marketing people who can envision
the commercial significance of the technology in the market. Agenda items include, among other
things, reviewing invention submissions, making decisions on which to pursue for patent searching
and patenting, and making decisions on clearances and right-to-use diligence in connection with
developing product and service lines. Decisions to pursue patents should not be taken lightly
with the rising costs of patent procurement and maintenance fees. This is particularly true when
obtaining patents internationally. A committee should develop and use a set of objective criteria
for determining which inventions are patent worthy. Outside counsel that is used to prepare and
prosecute patent applications may be included in some or all IP committee meetings or otherwise
updated with information and decisions from the meetings.
Effective IP governance encourages invention submissions, facilitates decisions about where
and how to procure patents, keeps information flowing between inventors and counsel to ensure
meaningful patent protection, keeps costs down, and otherwise builds patent rights that will properly
protect the company’s investments. The on-going responsibilities of those involved can include,
among other things, promoting the following benefits:
(1)
(2)
(3)
(4)
(5)
(6)
B.
Increasing revenue from the current portfolio (sales, royalties, or patent sales);
Reducing expenditures on IP protection by focusing efforts;
Redirecting or reducing R&D spending to areas of competitive advantage;
Protecting key products more effectively against competitors;
Sustaining a competitive advantage through multiple product generations; and
Using intellectual assets as a key driver in strategic corporate goals.
Manage Invention Disclosure Forms and Processes
An invention disclosure form is a way for an inventor to identify a potentially patentable idea. A
form is ideally only several pages long in order to avoid being unduly burdensome to busy engineers
and technologists. It nevertheless is ideally structured to prompt for and acquire information
necessary to prepare at least a provisional U.S. patent application and determine whether a patent
effort makes sense.
An effective invention disclosure form seeks not only a description of the technology and how it
operates, but also how the technology makes a difference in the market. Although some regard
patents as a technical disclosure, more properly conceived they are commercial documents that
protect a company’s position in the marketplace or generate a licensing revenue stream. To achieve
these objectives, patents must be engineered to disclose not only the relevant technology, but also
with a view to how the technology will improve existing products, give rise to new products,
improve the company’s competitive position, and otherwise contribute to economic performance.
Accordingly, the forms need to elicit information not only about the technical details, but also
alternative ways to carry out the technology, identification of competitors and their products, how
and why the technology will allow the company’s products to surpass the competition, and what
aspects of the technology need to be accentuated and claimed in the patent to maximize coverage
for the subject matter that is not only interesting to an engineer, but that is also commercially and
economically relevant.
Patent 101
231
KILPATRICK TOWNSEND
C.
Provide Incentives for Innovation
Even with the most effective patent governance, the company can lose patent rights and overlook
technology without appropriate incentives to reward inventors for their efforts. Awards dinners
or other occasions where inventors are recognized by the highest level people in the company
are particularly effective. In addition, financial incentives can include an award upon filing of an
application and/or issuance of a patent and upon attainment of inventor levels, such as being an
inventor on a certain number of the company’s applications or issued patents. Financial incentives
are easy to game, however, and need to be carefully considered in order to maximize inventor
cooperation (and minimize outside counsel fees), not only in preparing the applications, but also
during prosecution of the patents where the inventors should remain involved. In certain situations,
particularly with high profile technologies, royalty sharing agreements may be appropriate.
A good “first step” in implementation of a new program or incentive process is a “road show” to
familiarize technologists, decision makers, and marketing people with what the company plans
to do and why these personnel should want to play a part. The road show in its most effective
incarnation is a series of business cases that use actual examples from the company’s market where
patents have made a commercial difference. The cases help the participants learn how patent laws
work, what can be patented and why, how patents are created, and why and how they have made
a commercial difference, such as to protect product lines, lock in customers, lock in suppliers,
garner profits from out-of-field licensing, and other real-world objectives. The discussion ideally
describes how technologists at the road show can participate in submitting disclosure forms, sustain
information flow during patent prosecution, and otherwise support the IP strategy. The road show
should require no more than an hour and a half in order to sustain attention. At the end, the company
should distribute inventor packets with a short description of the points made in the road show, the
company’s IP policy, and the disclosure forms.
D.
Assess the Significance of Innovations
Once a company decides to file a patent application, it should consider whether the technology
represents a key economic opportunity. Many companies file patents defensively, and in such cases
a single patent covering non-critical technology may be sufficient. However, if the technology is
economically significant, the company should consider applying for additional patents in order to
capture the key technology in multiple ways. One patent covering a portion of a lucrative market can
often invite litigation, but multiple patents that create a stronghold on the technology can discourage
competitive attacks and provide a significant market advantage. In particular, a common defense
to patent infringement claims is that the asserted patent is invalid. It is more difficult to prove that
the PTO repeatedly made mistakes when issuing multiple patents related to different aspects of the
technology. By evaluating the economic significance of the technology, the company can determine
which technology warrants the most attention and resources.
E.
Establish Cross Business Unit Channels
Companies should attempt to convey innovation and know-how across business units. This often
enhances product development, distributing R&D expenditure over a wider array of product
233
F.
Monitor Competitor Patents
By monitoring competitor patents, companies will have a better understanding of the patent
landscape and, more importantly, a better understanding of their own strengths and weaknesses
within the industry. The patent monitoring process will also assist in determining the most efficient
way to supplement areas of technology in which the company is weak. For example, in certain
situations it may be more cost effective to license or purchase technology rather than spend the time
and effort to create the technology through R&D.
G.
Implement a Monetization Strategy
In some cases, licensing some or all patent rights is an effective way of maximizing profit and return
on the R&D investment in accordance with a company’s overall strategy. Patent licensing has
garnered substantial amounts of attention recently. Many people are aware that IBM Corporation
has a nearly $2 billion dollar annual revenue figure generated from patent licensing. Other
companies, such as Texas Instruments Incorporated and The Dow Chemical Company, have also
realized substantial revenue streams of several hundred million dollars annually. Licensing is a
particularly attractive way to generate revenues. In most cases, the patents have already been paid
for and there is very little cost associated with entering into a license, adding substantial revenue to
the company’s bottom line.
Licensing is generally categorized into two types—“carrot” licensing and “stick” licensing. Carrot
licensing teaches the licensee to make a new, better, or cheaper product. This involves the transfer
of technology, and often know-how, to the licensee so it can improve its situation. Licensees in
carrot licensing situations tend to be eager to adopt new technology if the licensor can show the
economic value in the technology and that it has been properly protected.
Stick licensing involves identifying infringers and approaching the infringers to take a license.
Since the alternative to entering into a license is often litigation, stick licensing tends to be more
adversarial than carrot licensing. In such cases, the licensee already knows how to practice the
technology so the only value to be gained by taking a license is to avoid litigation. Because of
the adversarial nature of stick licensing, potential licensees often look to their own portfolio to
determine if it is being infringed by the licensor in order to create bargaining power. This can result
in a cross-licensing situation with little or no revenue changing hands.
IV.
Conclusion
There are many benefits to successful patent portfolio creation and management, including
increased revenue, improved resource allocation, and more efficient and effective R&D—all of
which enhance shareholder value. Companies that adopt and maintain effective strategies are able
to bring technology to market faster and sustain longer lasting competitive advantage.
Patent 101
offerings. For example, the Proctor & Gamble Company initially developed a technology base for
making candles that led to new products such as soaps, then detergents, and later to other hygiene
products including toothpaste. Although the product offerings developed over time, they all
originated from a common technology base developed by involving the use of fats and oils.
KILPATRICK TOWNSEND
235
Obviousness Doctrine Post-KSR: Friend or Foe?
Steven Gardner and Nicole N. Morris
I.
Introduction
The Supreme Court’s opinion in KSR International Co. v. Teleflex Inc.1 (“KSR”) altered the standards
applied by courts and the United States Patent and Trademark Office (“PTO”) in determining whether
a patent is obvious in light of prior art. In the post-KSR world, where do you stand? Answer: it
depends. If you are trying to procure a patent or enforce your patent rights, the KSR decision is not
your friend. Since the Supreme Court announced a “flexible approach to obviousness,” obtaining
a patent from the PTO or combating an assertion in litigation that a patent is invalid as obvious
is likely to be more difficult. On the other hand, if you are trying to invalidate a patent, the KSR
decision is your friend and provides new strength to the obviousness defense.
This article discusses the KSR decision, case law applying KSR, and practical implications for patent
litigation and patent prosecution.
The KSR Decision
A patent claim claims obvious subject matter (and is invalid) “when the differences between the
patent claims and the prior art are such that the claims would have been obvious at the time of the
invention to one of ordinary skill in the art.”2 Prior to KSR, the Federal Circuit often employed
the “teaching, suggestion, or motivation” (or “TSM”) test to resolve the question of obviousness.3
Under the TSM test, a patent claim is obvious only if “some motivation or suggestion to combine
the prior art teachings” can be found in the prior art, the nature of the problem, or the knowledge
of a person having ordinary skill in the art.4 In KSR, the Supreme Court explicitly rejected the
Federal Circuit’s rigid application of the TSM test to determine whether an invention is obvious and
therefore invalid. The Supreme Court held that the Federal Circuit’s approach was inconsistent with
the Court’s prior decisions and § 103 of the Patent Act.5 The Court noted that its prior decisions
set forth an “expansive and flexible approach” to the obviousness inquiry and invited courts, where
appropriate, to look at secondary considerations that would prove instructive.6
The Supreme Court reversed the Federal Circuit’s finding of non-obviousness and identified four
other errors in the Federal Circuit’s application of the TSM test. First, the Court found that the
Federal Circuit erred in holding that “courts and patent examiners should look only to the problem
the patentee was trying to solve.”7 Second, the Court found that the Federal Circuit should not
assume that a person of ordinary skill attempting to solve a problem will be led only to those
1
2
3
4
5
6
7
KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398 (2007).
35 U.S.C. § 103(a) (2000).
See KSR, 550 U.S. at 407.
See Al-Site Corp. v. VSI Int’l Inc., 174 F.3d 1308, 1323-24 (Fed. Cir. 1999).
KSR, 398 U.S. at 415.
Id.
Id. at 420.
Patent 201
II.
KILPATRICK TOWNSEND
elements of prior art designed to solve the same problem.8 Third, the Court held that the Federal
Circuit erred in concluding that a patent claim cannot be proved obvious merely by showing that the
combination of elements was “obvious to try.”9 Finally, the Supreme Court found that the Federal
Circuit drew the wrong conclusion from the risk of falling prey to hindsight, and that the Federal
Circuit established rigid rules that prevented the fact finder from using common sense.10
While the Supreme Court rejected the rigid application of the TSM test, the KSR decision did
not eliminate the test as a rationale for finding obviousness. The Court stated, “[t]he obviousness
analysis cannot be confined by a formalistic conception of the words teaching, suggestion, and
motivation, or by overemphasis on the importance of published articles and the explicit content of
issued patents.”11 Also, the Court stated that “it will be necessary for a court to look to interrelated
teachings of multiple patents; the effects of demands known to the design community or present in
the marketplace; and the background knowledge possessed by a person having ordinary skill in the
art, all in order to determine whether there was an apparent reason to combine the known elements
in the fashion claimed by the patent at issue.”12
The KSR decision contains a number of statements that other courts have since used in analyzing
whether a patent is rendered obvious:
(1)
(2)
(3)
(4)
(5)
8
9
10
11
12
13
14
15
16
“When a work is available in one field of endeavor, design incentives and other 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.”13
“[I]f a technique has been used to improve one device, and a person of ordinary skill in
the art would recognize that it would improve similar devices in the same way, using
the technique is obvious unless its actual application is beyond his or her skill.”14
If the claimed subject matter is merely a “simple substitution of one known element
for another or the mere application of a known technique to a piece of prior art ready
for improvement,” the invention is obvious.15
“[W]hen a patent ‘simply arranges old elements with each performing the same function it had been known to perform’ and yields no more than one would expect from
such an arrangement, the combination is obvious.”16
“When there is a design need or market pressure to solve a problem and there are a
finite number of identified, predictable solutions, a person of ordinary skill has good
reason to pursue these known options . . . If this leads to the anticipated success . . .
Id.
Id. at 421.
Id.
Id. at 419.
Id. at 418.
Id. at 417.
Id.
Id.
Id. (quoting Sakraida v. Ag Pro, Inc., 425 U.S. 273, 282 (1976)).
237
the fact that a combination was obvious to try might show that it was obvious under
§ 103.”17
Practical Implications for Patent Litigators
The Federal Circuit has issued forty-three opinions that cite KSR.18 In 2008, the Federal Circuit
reversed findings of nonobviousness five times, affirmed findings of nonobviousness eight times,
and affirmed findings of obviousness three times. Post-KSR, the Federal Circuit seems to give
greater weight to a prima facie case of obviousness than to objective evidence to nonobviousness.
For instance, in Agrizap, Inc. v. Woodstream Corp.,19 the Federal Circuit held that the patent at issue,
which involved a method and device for electrocuting pests, presented a “textbook case of when the
asserted claims involves a combination of familiar elements according to known methods that does
no more than yield predictable results.”20 Moreover, the Federal Circuit was not persuaded by the
patentee’s secondary considerations of nonobviousness. The patentee offered objective evidence of
nonobviousness, including commercial success, copying by the defendant, and a long felt need in
the market for the invention.21 The court compared this case to its first post-KSR opinion, Leapfrog
Enterprises, Inc. v. Fisher-Price Inc., where it invalidated a patent because it resulted from a
combination of familiar elements that yielded predictable results, even though there were strong
secondary considerations of commercial success and long felt need.22 In Leapfrog, the court ruled
that “[a]ccommodating a prior art mechanical device that accomplishes that goal [of teaching a child
to read phonetically] to modern electronics would have been reasonably obvious to one of ordinary
skill in designing children’s learning devices.”23 As in Leapfrog, the Federal Circuit in Agrizap
found that the combination of familiar elements yielding predictable results outweighed objective
evidence of nonobviousness.
Likewise, in Muniauction, Inc. v. Thomson Corp., 24 the Federal Circuit found that the combination
of known elements was quite similar to that in Leapfrog. The patent at issue in Muniauction involved
municipal bond auctions. The court found that the broadly written claims made it difficult to use
secondary factors of patentability to establish nonobviousness, specifically, the secondary evidence
offered by Muniauction lacked the requisite nexus to the scope of the claims. “[C]ommercial
success or other secondary considerations may presumptively be attributed to the patented invention
only ‘where the marketed product embodies the claimed features, and is coextensive with them.’”25
Muniauction argued that an industry award it received and the subsequent press coverage of the
award showed success of its products to rebut any prima facie showing of obviousness. The court
17
18
19
20
21
22
23
24
25
Id. at 421.
This figure is as of December 31, 2008 and includes appeals from the Board of Patent Appeals and Interferences.
520 F.3d 1337 (Fed. Cir. 2008).
Id. at 1344.
Id.
485 F.3d 1157 (Fed. Cir. 2007).
Id. at 1161.
532 F.3d 1318 (Fed. Cir. 2008).
Id. at 1328 (quoting Ormco Corp. v. Align Tech., Inc., 463 F.3d 1299 (Fed. Cir. 2006)).
Patent 201
III.
KILPATRICK TOWNSEND
rejected Muniauction’s argument because the reports of success focused only on one portion of the
invention as claimed. The Federal Circuit compared those narrow reports of success with the broad
claims, finding that the success “lacks the required nexus with the scope of the claims.” 26
Since the KSR decision, the Federal Circuit has raised the bar on the requirement for objective
evidence of nonobviousness. The court has invalidated a number of patents, ruling that the
combination of familiar elements yielding predictable results outweighs any objective evidence of
nonobviousness.27 Patentees seeking to rebut evidence of obviousness now should consider offering
a significant amount of evidence supporting objective, secondary considerations and also should
consider having such evidence introduced and described through adequate expert testimony.
A.
Expert Testimony
Experts are key witnesses in patent cases. In the post-KSR era, expert testimony regarding the scope
and content of the prior art may prove critical to a party’s success or failure regarding obviousness.
First, make certain that your expert is a qualified technical expert. Testimony proffered by a witness
lacking the relevant technical expertise fails to meet the standard of admissibility under the Federal
Rules of Evidence.28 In a recent decision, the Federal Circuit held that a witness not qualified in
the pertinent art may not testify as an expert on obviousness—or any of the underlying technical
questions—such as the nature of the claimed invention, the scope and content of the prior art, the
differences between the claimed invention and the prior art, or the motivations of one of ordinary
skill in the art to combine these references to achieve the claimed invention.29 Additionally, the
court found that the proffered expert, a patent attorney, was not qualified to testify on the issues of
infringement and validity because he did not possesses the relevant technical expertise in the field of
the invention.30 “Unless a patent lawyer is also a qualified technical expert, his testimony on these
kinds of technical issues is improper and thus inadmissible.”31 An expert’s education and experience
must be “sufficiently related to the subject matter of the [patent-in-suit] to allow him to speak with
authority on the issues of validity and infringement.”32
Expert testimony is often critical evidence used to invalidate a patent for obviousness. A testifying
expert often addresses whether there was or was not a motivation to combine or modify the prior
art to arrive at the claimed invention. A testifying expert must generally be prepared to express an
opinion about the knowledge of one of ordinary skill in the art. The Federal Circuit has suggested
that it is important for an expert to opine on the limited number of ways to solve the problem
26 Id.
27 See CSIRO v. Buffalo Tech. USA, Inc., 542 F.3d 1363, 1377-78 (Fed. Cir. 2008) (vacating summary judgment of nonobviousness because
the secondary considerations did not justify the entry of summary judgment in light of the evidence bearing on obviousness); but see
Erico Int’l Corp. v. Vutec Corp., 516 F.3d 1350, 1356 (Fed. Cir. 2008) (vacating a preliminary injunction because the defendant raised
sufficiently “substantial question of invalidity to show that the claims at issue are vulnerable.”). 28 Fed. R. Evid. 702.
29 Sundance, Inc. v. Demonte Fabricating Ltd., 550 F.3d 1356, 1364 (Fed. Cir. 2008) (finding that “a witness not qualified in the pertinent
art may not testify as an expert as to anticipation, or any of the underlying questions . . . .”).
30 Id. at 1362 (“Admitting testimony from a person such as Mr. Bliss, with no skill in the pertinent art, serves only to cause mischief and
confuse the factfinder.”).
31 Id.
32 Id. (quoting Cameo Indus., Inc. v. La. Cane Mfg., Inc., Civ. No. 92-3158, 1995 U.S. Dist. LEXIS 11294, at *10-11 (E.D. La. July 27,
1995)).
239
In reaching its decision, the Federal Circuit criticized Mylan’s expert’s testimony. The court stated
that Mylan’s expert simply retraced the path of the inventor with hindsight, discounted the number
and complexity of the alternatives, and concluded that the invention of topiramate was obvious.37
The court found that the expert’s testimony failed to satisfy § 103 requiring an “analysis to examine
‘the subject matter as a whole’ to ascertain if it ‘would have been obvious at the time the invention
was made.’”38 The opinion suggests that an expert must do more than retrace the steps of the
inventor—the testimony must also evaluate, in detail, alternative paths that a person of ordinary skill
would have chosen. An expert’s ability to quantify the number of known alternatives to achieving a
certain end may be an effective tool in demonstrating a finite number of solutions—testimony that
will aid in determining whether the invention was “obvious to try.”39
Similarly, in Sanofi-Synthelabo v. Apotex, Inc.,40 the Federal Circuit affirmed the validity of Sanofi’s
patent covering the blockbuster drug Plavix™. The Plavix™ patent covers a dextrorotatory isomer
and the invalidity question arose from the fact that the racemate of the compound was known and
described in earlier Sanofi patents. Apotex argued that the separation of enantiomers is routine and
that there was both motivation and means for creating the Plavix™ compound from the known
racemate that Sanofi had previously admitted was an important compound. The Federal Circuit
rejected this argument because “a person of ordinary skill in this field would not reasonably have
predicted that the dextrorotatory enantiomer would provide all of the antiplatelet activity and none
of the adverse neurotoxicity.”41
Ultimately, the expert should generally be prepared to explain the scope and content of the prior art;
explain the differences between the prior art and the claimed invention; and express an opinion as to
33 Jonathon Campion & Sheila Collins, Obviousness in a Post-KSR World, in Patent Litigation 2008, at 407, 423 (PLI Patents, Copyrights,
Trademarks, & Literary Property, Course Handbook Series No. 948, 2008).
34 520 F.3d 1358 (Fed. Cir. 2008).
35 Id. at 1364.
36 Id. (The anti-convulsive properties of the epilepsy drug were discovered by a researcher looking for an inhibitor for diabetes. The court
affirmed the district court’s denial of Mylan’s motion for summary judgment of invalidity under §103).
37 Id.
38 Id.
39 Campion & Collins, supra note 33.
40 550 F.3d 1075 (Fed. Cir. 2008).
41 Id. at 1087.
Patent 201
addressed by the claimed invention.33 For example, in Ortho-McNeil Pharamceutical, Inc. v. Mylan
Laboratories, Inc.,34 Ortho-McNeil filed an infringement action to prevent Mylan from producing
a generic version of its epilepsy drug, topiramate. Citing KSR, Mylan argued that Ortho-McNeils’s
discovery of the drug was obvious to try because there was a small, finite number of options that was
available to a person of ordinary skill in the art.35 The Federal Circuit disagreed, finding that Mylan
failed to demonstrate that a person of ordinary skill would have had some reason to select (among
several unpredictable alternatives) the exact method that produced topiramate as an intermediate
and would have stopped at that intermediate and test for properties unrelated to the purpose for
which the drug was being created.36
KILPATRICK TOWNSEND
the level of ordinary skill in the art at the time of the invention and whether one of such skill would
or would not have found in the invention to be obvious in light of the prior art. 42
B.
Chemical vs. Mechanical Arts
The Federal Circuit affirmed the district court’s finding of non-obviousness in each of the chemical-arts cases
appealed to the Federal Circuit in 2008 that addressed the obviousness issue. This is good news for owners of
pharmaceutical or chemical patents. On the other hand, challenging the validity of mechanical and electrical
art patents may have become somewhat easier.43
In the chemical arts, a prima facie case of obviousness for a compound normally “begins with the
reasoned identification of a lead compound.”44 For those challenging the validity of a chemical arts
patent, obviousness based on structural similarity can be shown by identifying some motivation that
would have led one of ordinary skill in the art to select and then modify a known compound in a
particular way to achieve the claimed compound.45
The mechanical and electrical arts often involve the combinations of known elements.46 Under
KSR, the validity of claims to such combinations is more difficult to sustain. For example, where
the claimed invention makes a routine addition of modern electronics to older devices or otherwise
makes an improvement that applies known technology, the Federal Circuit has found the requisite
motive to make the combination part of the knowledge and ordinary creativity of a person of
ordinary skill.47
IV.
Patent Prosecution Hurdles
KSR changed the landscape for both patent litigation and prosecution. Following the KSR decision, the
PTO published new guidelines for patent examiners to assist them in making proper determinations
regarding obviousness.48 The revised guidelines state that examiners can still use the TSM test
to reject a patent, but an invention may also be found obvious without using that approach. PostKSR, examiners can also consider the following when making an obviousness rejection: combining
prior art elements according to known methods to yield predictable results, simple substitution of a
known element, use of a known technique to improve similar devices in the same way, or applying
a known technique to a known device ready for improvement to yield predictable results.49 In
addition, the revised guidelines expand the universe of prior art to be considered by the examiners.
Prior art that is in the field of endeavor other than that of the applicant, or solves a problem which is
different from that which the applicant was trying to solve, may also be considered for the purposes of
42 See Frederick G. Michaud & David Schlitz, The Use of Experts to Prove Obviousness, in Patent Litigation 2008, at 429, 437 (PLI Patents,
Copyrights, Trademarks, & Literary Property, Course Handbook Series No. 948, 2008).
43 See Susan A. Cahoon & Alton L. Absher III, Federal Circuit, KSR and Pharmas: The First Year and A Half, IP360 (Jan. 5, 2009).
44 Eisai Co. v. Dr. Reddy’s Labs., Inc., 533 F.3d 1353, 1359 (Fed. Cir. 2008).
45 Id. at 1357 (citing Takeda Chem. Indus. v. Alphapharm Pty., Ltd., 492 F.3d 1350, 1356 (Fed. Cir. 2007).
46 See Muniauction, 532 F.3d at 1326-27.
47 See Cahoon & Absher, supra note 43.
48 See Examination Guidelines for Determining Obviousness under 35 U.S.C. 103 in view of the Supreme Court decision in KSR Int’l Co.
v. Teleflex Inc., 72 Fed. Reg. 57526 (Oct. 10, 2007) (the “Guidelines”).
49 See U.S. Dep’t of Commerce, U.S. Patent & Trademark Office, Manual of Patent Examination Procedures (MPEP), § 2141 at 2011-119
(8th ed., rev. 6 2009). The MPEP has also been revised in light of KSR, consistent with the Guidelines.
241
§ 103.50 Since examiners have more tools regarding obviousness rejections, it is likely that more
§ 103 rejections will issue from the PTO, thereby increasing the cost to prosecute patent applications.
It is still too early to describe the full impact of the KSR decision on § 103 rejections by the PTO.
One indicator, however, is how often the Board of Patent Appeals and Interferences (“BPAI”)
upholds an examiner’s decision. The percentage of appeals affirmed or affirmed in part by the BPAI
increased from 55.8 percent in 2006 to 70.0 percent in 2008.55 This suggests that the BPAI will be
more supportive of examiners and more flexible in reviewing § 103 rejections.
V.
Conclusion
The full impact is not yet known, but it certainly appears that examiners will make more obviousness
rejections that will be upheld by the BPAI. While KSR has made it generally more difficult to refute
a § 103 argument, the impact of KSR has been less dramatic in the chemical arts because of the
unpredictable nature of the art. The influence which KSR is having or will have on patent litigation
will take more time to fully understand.
50 Id. at 2100-117.
51 Id. at 2100-129.
52 Civ. No. 07-1536, 2008 U.S. App. LEXIS 24087 (Fed. Cir. Nov. 19, 2008) (Andersen sued Pella and W.L. Gore for infringement of its
window screen patent. The patented invention allows ventilation and blocks insects, but is easier to see through than traditional screens. In
light of KSR, the district court granted defendants’ motion to re-open motions for summary judgment on the limited issue of obviousness).
53 Id. at *15-16 (finding that the record created a genuine issue of material fact as to “whether the durability, transparency, and pricing of the
prior art mesh would have discouraged an ordinarily skilled artisan from incorporating the mesh into an insect screen.”).
54 Id. at *12-13 (finding that the prior art references taught that the cited mesh possessed many characteristics that an ordinary skilled insect
screen designer would have viewed as undesirable for an insect screen).
55 See BPAI Receipts and Dispositions by Technology Centers for Ex Parte Appeals, http://www.uspto.gov/web/offices/dcom/bpai/docs/
receipts/fy2008.htm (as of Sept. 30, 2008), and BPAI Receipts and Dispositions by Technology Centers for Ex Parte Appeals, http://www.
uspto.gov/web/offices/dcom/bpai/docs/receipts/fy2006.htm (last visited Mar. 10, 2009).
Patent 201
In responding to post-KSR rejections, many of the arguments that were used before KSR still have
application. For example, one can still argue that there is no teaching, suggestion, or motivation
to combine the references, but the arguments often cannot stop there. Depending on the specific
reasoning cited by the examiner, patentees should also consider addressing some of the other rationales
listed in the guidelines, such as how combining the prior art elements yielded unpredictable results
or the combination was done in an unknown way to yield unpredictable results.51 Patentees should
also consider arguing why the combination of cited references would be impractical, expensive,
or inoperative. In Andersen Corp. v. Pella Corp.,52 Andersen successfully argued that the prior art
mesh would not have been considered by one of skill of the art because it was “extraordinarily
expensive.”53 Andersen submitted into evidence prior art references that taught away from the cited
mesh because it was unusable as an insect screen.54 In this case, by showing how the combination
of the prior art references made it impractical and expensive to conceive the claimed invention,
Andersen successfully overcame the obviousness challenge.
KILPATRICK TOWNSEND
243
Recent Developments Affecting Acquisition of Meaningful Patent Protection
James L. Ewing, IV, Geoffrey K. Gavin, Jason D. Gardner, and Richard Goldstucker
At the backbone of the U.S. patent system is an exchange: a public disclosure of an invention for
a limited monopoly. The limited monopoly provides an exploitable competitive advantage in the
marketplace as an incentive for an invention disclosure. Section 112 of the Patent Act codifies the
level of disclosure required for this exchange.1 Generally, it requires that a patent contain a written
description of the invention, clearly disclose how to make and use the invention, and disclose
the best mode known to the inventors for carrying out the invention.2 Adequate disclosure of an
invention is a necessity to enjoy fully the rewards the patent system offers for the creativity and hard
work of inventors.
Disclosure requirements under § 112 have seen many changes in recent years. Full scope
enablement has emerged as a prominent issue in patent prosecution. The standards for satisfying the
written description requirement have been raised for those who seek to obtain a patent. Invalidity
for indefiniteness can be a trap for the unwary patent holder that seeks to enforce a patent. An
understanding of the law regarding a disavowal of the prior art is essential for effective prosecution.
This article examines recent developments in these and other areas.
Full Scope Enablement
Claims of a patent set forth the boundaries of a patent owner’s limited monopoly and are the
primary focus of a patent examiner during the application phase and courts when a patent is asserted
against an infringer. To satisfy § 112, the patent’s specification must enable one of ordinary skill to
practice the invention that is defined by the claims. Patent specifications often include examples
of making and using the invention to meet the requirements of § 112. Classically, claims could be
unquestionably broader than the examples included in the specification. However, the 2007 Federal
Circuit case, Liebel Flarsheim Co. v. Medrad, Inc.,3 invalidated claims that did not recite features
described in a preferred embodiment. This case established a new principle that the full scope of
patent claims must be enabled by the specification.
Liebel’s patent describes a preferred embodiment of a needle holder that includes an associated
pressure jacket. The patent claims, however, did not expressly mention the pressure jacket.4 Because
the disclosure did not clearly disavow embodiments lacking a pressure jacket, the court, agreeing
with Liebel’s desired broad claim construction, “declined to limit the claims to require a pressure
jacket.”5 Thus, the patent claims were construed to cover injectors regardless of whether they had an
1
2
3
4
5
35 U.S.C. § 112 (2002) (“The specification shall contain a written description of the invention, and of the manner and process of making
and using it, in such full, clear, concise, and exact terms as to enable any person skilled in the art to which it pertains, or with which it
is most nearly connected, to make and use the same, and shall set forth the best mode contemplated by the inventor of carrying out his
invention.”)
Id.
481 F.3d 1371 (Fed. Cir. 2007).
Id. at 1374.
Id. at 1375.
Patent 201
I.
KILPATRICK TOWNSEND
associated pressure jacket. The defendant’s allegedly infringing products did not have the pressure
jacket.6
The district court found the patent invalid as not enabled because it would have taken “true
innovation” through experimentation to practice such an invention without the pressure jacket.7
Liebel emphasized “that the asserted claims do not recite or require the absence of a pressure jacket
and the court improperly focused on such an embodiment,” and further stated that the discovery
of a jacketless embodiment would not take undue experimentation.8 The Federal Circuit affirmed,
stating that the “enablement requirement is satisfied when one skilled in the art, after reading the
specification, could practice the claimed invention without undue experimentation.”9
The Federal Circuit noted that the district court had:
previously construed the claims . . . such that they are not limited to an injector with a
pressure jacket, and therefore the full scope of the claimed inventions includes injectors
with and without a pressure jacket. That full scope must be enabled, and the district court
was correct that it was not enabled.10
Under this standard, there “must be ‘reasonable enablement of the scope of the range’ which, in Liebel,
includes both injector systems with and without a pressure jacket.”11 In Liebel, the specification
taught away from a jacketless invention.12 The court noted that “where the specification teaches
against a purported aspect of an invention, such a teaching ‘is itself evidence that at least a significant
amount of experimentation would have been necessary to practice the claimed invention.’”13 Thus,
the Federal Circuit affirmed the invalidity of Liebel’s patent claims because a person skilled in the
art would have to undertake undue experimentation in order to practice the jacketless embodiment.
The Federal Circuit extended Liebel in Automotive Technologies International v. BMW of North
American, Inc.14 Automotive Technology’s patent claimed an automotive side impact sensor. A
means-plus-function claim limited the invention to a “means responsive to the motion of said
mass upon acceleration of said housing in excess of a predetermined threshold value, for initiating
an occupant protection apparatus.”15 The specification described the mechanical impact sensor
embodiment in detail, while sparsely showing an electronic embodiment.
The district court construed the means limitation to include both mechanical and electronic sensor
structures and then granted summary judgment for BMW finding the patent invalid for lack of
6
7
8
9
10
11
12
13
14
15
Id. at 1374.
Id. at 1375.
Id. at 1378.
Id.
Id. at 1378-79.
Id. at 1380.
Id. at 1379.
Id. (citation omitted).
501 F.3d 1274 (Fed. Cir. 2007).
Id. at 1277.
245
enablement.16 The Federal Circuit affirmed, noting that “[t]he inadequacy of the description of an
electronic side impact sensor is highlighted by comparison with the extensive disclosure of how
to make and use a mechanical side impact sensor . . .”17 The court posed the question: “If such
a disclosure is needed to enable making and using a mechanical side impact sensor, why is not
a similar disclosure needed to enable making and using an electronic side impact sensor, which
is an essential aspect of the invention?”18 The court cited Liebel, holding that “there ‘must be
reasonable enablement of the scope of the range’ which, in this case, includes both . . .” types of
sensors.19 The court further refined the “reasonable enablement standard” noting that electronic
sensors “are not just another known species of a genus consisting of sensors, but are a distinctly
different sensor compared with the well-enabled mechanical side impact sensor . . . .”20 Thus, this
case reaffirmed Liebel’s requirement of full scope enablement. Enabling one embodiment where
another is “distinctly different” will not satisfy the standard.
This group of cases shows that the enablement requirement is “satisfied when one skilled in
the art, after reading the specification, could practice the claimed invention without undue
experimentation.”24 Courts now look to ensure that the “full scope of the invention” is enabled, no
longer merely examining whether just the contended invention is enabled.
II.
Written Description Requirement
The written description requirement is found in the first paragraph of 35 U.S.C. § 112, which states:
The specification shall contain a written description of the invention, and of the manner
and process of making and using it, in such full, clear, concise, and exact terms as to enable
any person skilled in the art to which it pertains, or with which it is most nearly connected,
to make and use the same, and shall set forth the best mode contemplated by the inventor
of carrying out his invention.25
16
17
18
19
20
21
22
23
24
25
Id. at 1280.
Id. at 1284.
Id.
Id. (citing Liebel, 481 F.3d at 1380).
Id. at 1285.
516 F.3d 993 (Fed. Cir. 2008).
Id. at 1000.
Id. at 999.
AK Steel Corp. v. Sollac, 334 F.3d 1234, 1244 (Fed. Cir. 2003).
35 U.S.C. § 112 (2002) (emphasis added).
Patent 201
In 2008, the Federal Circuit in Sitrick v. DreamWorks further expanded the doctrine of full scope
enablement.21 Sitrick’s invention involves a method for integrating user-generated audio and visual
effects into a video game or movie. The inventor sued DreamWorks for infringement. Because the
asserted claims were construed as covering both movies and video games, the Federal Circuit held
that the patent “must enable both embodiments.”22 The Federal Circuit confirmed that Sitrick had
failed to enable its use in movies, thus rendering the claims invalid as not enabled.23
KILPATRICK TOWNSEND
The written description requirement requires that a patent applicant “convey with reasonable clarity
to those skilled in the art that, as of the filing date sought, he or she was in possession of the
invention and demonstrate that by disclosure in the specification of the patent.”26
The United States Patent and Trademark Office (“PTO”) has established guidelines to help
applicants satisfy the written description requirement.27 The guidelines provide that the written
description requirement can be met by describing the invention with all its claimed limitations and
by using such descriptive means as words, structures, figures, diagrams, and formulas that set forth
the claimed invention.28
The Federal Circuit clarified the statute in Regents of the University of California v. Eli Lilly &
Co.29 The court held that the description requirement of the patent statute requires description of the
invention, not an indication of the result that one might achieve if one made that invention.30 Thus,
to satisfy the written description requirement, the disclosure must describe the claimed invention
with all its limitations.
In Carnegie Mellon University v. Hoffman-La Roche, the Federal Circuit reaffirmed its rule from
Eli Lilly regarding the written description requirement in the context of biotechnological inventions,
requiring that “adequate written description of a DNA . . . requires a precise definition, such as
by structure, formula, chemical name, or physical properties.”31 Carnegie Mellon attempted to
distinguish its patent claim for a “generic biotechnological tool” from the “specific DNA sequence”
claimed in Eli Lilly.32 The Federal Circuit, however, held that “[t]o satisfy the written description
requirement in the case of a chemical or biotechnological genus, more than a statement of the genus
is normally required.” 33 One must provide description “of sufficient species to show that he or she
invented and disclosed the totality of the genus.” 34 Because Carnegie Mellon only described its
polA gene in the context of one bacterial species, E. coli., it was unable to claim the genus.35
In Hyatt v. Dudas, the Federal Circuit further clarified these guidelines.36 Section 2163.04(I)
(B) of the Manual of Patent Examining Procedure (“MPEP”) provides for a § 112 rejection of a
newly amended claim where the “[a]pplicant has not pointed out where the new (or amended)
claim limitation is supported, nor does there appear to be a written description of the claim limitation
in the application as filed.”37 In this case, Hyatt attempted to claim priority for a set of continuation
claims. The patent examiner rejected the claims, providing reasons why a person skilled in the art
26 Carnegie Mellon Univ. v. Hoffman-La Roche, Inc., 541 F.3d 1115, 1122 (Fed. Cir. 2008) (internal citation omitted).
27 U.S. Dep’t of Commerce, U.S. Patent & Trademark Office, Manual of Patent Examining Procedure § 2163 (8th ed. rev. 6 2007)
[hereinafter MPEP].
28 Id.
29 119 F.3d 1559 (Fed. Cir. 1997).
30 Id. at 1568.
31 541 F.3d at 1122 (quoting Regents of Univ. of Cal. v. Eli Lilly & Co., 119 F.3d 1559, 1566 (Fed. Cir. 1997)).
32 Id. at 1122-23.
33 Id. at 1126.
34 Id.
35 Id. at 1123.
36 492 F.3d 1365 (Fed. Cir. 2007).
37 MPEP § 2163.04(I)(B).
247
at the time the application was filed would not have recognized that the inventor was in possession
of the invention as claimed. The examiner explained that the written description did not support
the claimed combination of elements by listing every element of each allegedly unsupported
combination.38 Hyatt challenged the validity of MPEP § 2163.04(I)(B) and the examiner’s rejection
of the claims for lack of written description because he alleged that the examiner failed to provide a
prima facie case for rejection.39 Under the MPEP, the PTO is given the initial burden of providing a
prima facie case for any rejection. The rejection must include at least some specific statements that
identify problems with the claims and specifically provide reasons for the rejection.40 However, the written description requirement has been held invariably not to require patentees
to disclose features that are well known in the art. In Falko-Gunter Falkner v. Inglis, the Federal
Circuit affirmed judgment for Inglis in an interference involving vaccines comprising modified
viral vectors.43 Specifically, the vaccines were comprised of a poxvirus vector having a deleted or
inactivated essential gene.44 Falkner’s appeal asserted that Inglis had not adequately described the
vaccine because it did not identify any essential poxvirus genes or the inactivation of such genes.45
The court noted that at the time of the filing of the patent application, the DNA sequence of the
poxvirus genome and the locations of essential poxvirus genes had been disclosed in the scientific
literature. Adhering to the rule that “a patent need not teach, and preferably omits, what is well known
in the art,”46 the court held that “where, as in this case, accessible literature sources clearly provided,
as of the relevant date, genes and their nucleotide sequences (here essential genes), satisfaction
of the written description requirement does not require either the recitation or incorporation by
reference . . . of such genes and sequences.”47
Moreover, the written description requirement does not necessarily require the express replication
of terms used in claims, so long as the ideas expressed by the claim terms are recited. Ex Parte
Eggleston involved an application directed to a method of mobile communications.48 The patent
examiner rejected the claims because the subject matter was not “described in the specification in
38
39
40
41
42
43
44
45
46
47
48
Hyatt, 492 F.3d at 1367.
Id. at 1368.
See MPEP § 707.07(d).
Id. at 1371.
Id.
448 F.3d 1357 (Fed. Cir. 2006), cert. denied, 549 U.S. 1180 (2007).
Id. at 1366.
Id. at 1367.
Id. at 1365.
Id. at 1368.
No. 2003-2074, 2005 WL 4755438 (Bd. Pat. App. & Int. Mar. 16, 2005).
Patent 201
The Federal Circuit found that MPEP § 2163.04(I)(B) is properly written because it requires specific
recitation of the problematic claim language (as opposed to a vague general rejection), and held that
“[S]ection 2163.04(I) expressly instructs the examiner to specify which claim limitation is lacking
adequate support in the written description.”41 Furthermore, the court found that the examiner’s
rejection was sufficient to “clearly notif[y Hyatt] of what exactly the examiner felt was missing by
way of written description.”42
KILPATRICK TOWNSEND
such a way as to reasonably convey to one skilled in the relevant art that the inventor, at the time
of the application was filed, had possession of the claimed invention.”49 However, the Board of
Patent Appeal and Interferences (“BPAI”) reversed, finding “that the original description, albeit in
different language than is now claimed, would have conveyed to the artisan that the inventors had
possession of the subject matter which they now claim at the time of filing the application.”50 Thus,
the BPAI affirmed the principle that an “explicit” disclosure of claim terms is not required under
35 U.S.C. § 112, which stated that “[a]n invention claimed need not be described ipsis verbis in the
specification in order to satisfy the disclosure requirements.”51
III.
Indefiniteness of 35 U.S.C. § 112, Paragraph 6 Claims
Section 112, paragraph 6 expressly allows claims to be written in “means-plus-function” to broaden
the scope of claims to capture equivalent structures for performing the recited functions.52 “Meansplus-function” claims, however, must meet the requirements set forth in this paragraph and other
portions of § 112. For example, the specification must describe structures that are examples of
the means that performs the recited functions or the claims are indefinite under 35 U.S.C. § 112,
¶ 2. In Biomedino v. Waters Technologies Corp., the Federal Circuit held a patent for removing
psychoactive drugs from blood samples invalid as indefinite under 35 U.S.C. § 112 ¶ 2.53 The lower
court held that the means-plus-function limitation, “control means for automatically operating [a]
valving,” was indefinite because the specification did not include any structure corresponding to the
means-plus-function language.54 Under 35 U.S.C. 112 ¶ 6, a patent applicant can broadly claim a means for performing a function only
if the specification for the claim describes “some structure which performs the specified function.”55
The language used in this patent stated that the invention “may be controlled automatically by
known differential pressure, valving and control equipment.”56 However, the court held that a “bare
statement that known techniques or methods can be used does not disclose structure. To conclude
otherwise would vitiate the language of the statute requiring ‘corresponding structure, material, or
acts described in the specification.’”57
The Federal Circuit in Aristocrat Technologies Australia Pty Ltd. v. International Game Technology
also examined indefiniteness in means-plus-function claims.58 The patent at issue was an “electronic
slot machine that allows a player to select winning combinations of symbol positions.”59 The district
49
50
51
52
53
54
55
56
57
58
59
Id. at *1.
Id. at *3.
Ex Parte Holt, 19 U.S.P.Q.2d 1211 (Bd. Pat. App. & Int. 1991).
35 U.S.C. § 112 (2002) (“An element in a claim for a combination may be expressed as a means or step for performing a specified function
without the recital of structure, material, or acts in support thereof, and such claim shall be construed to cover the corresponding structure,
material, or acts described in the specification and equivalents thereof.”).
490 F.3d 946, 947 (Fed. Cir. 2007), cert. denied, 128 S. Ct. 653 (2007).
Id. at 949.
Id. at 948.
Id. at 949.
Id. at 953.
521 F.3d 1328 (Fed. Cir.), cert. denied, 129 S. Ct. 754 (2008).
Id. at 1330
249
court held the claims invalid as indefinite under 35 U.S.C. § 112 ¶ 2. The court’s opinion focused on
the claimed means-plus-function element, finding the term indefinite because the specification did
not provide a “structure” to perform the claimed functions.60 Because the specification lacked “any
specific algorithm” or any “step-by-step process for performing the claimed functions,” the district
court held the patent invalid.61
On appeal, the Federal Circuit affirmed, holding that computer integrated means-plus-function
claims must contain “more than simply a general purpose computer or microprocessor.”62 The
purpose “of the requirement that the patentee disclose particular structure in the specification
and that the scope of the patent claims be limited to that structure and its equivalents is to avoid
pure functional claiming.”63 The court noted, “[f]or a patentee to claim a means for performing a
particular function and then to disclose only a general purpose computer as the structure designed
to perform that function amounts to pure functional claiming.”64 Although “source code” is not
required to be disclosed, nor is a “highly detailed description of the algorithm,” a computer-oriented
application using means-plus-function claims must “at least disclose the algorithm that transforms
the general purpose microprocessor to a ‘special purpose computer programmed to perform the
disclosed algorithm.’”65
Disavowal of Art
Many recent Federal Circuit cases have examined the principle of prosecution disclaimer through
the disavowal of claims and its relationship to recapturing claim scope through claim construction
or continuation practice. While the claims’ words best define the scope of the patented invention,
statements made during prosecution may also affect the scope of the claims.66 However, “because
the prosecution history represents an ongoing negotiation between the PTO and the applicant, rather
than the final product of that negotiation, it often lacks the clarity of the specification and thus is
less useful for claim construction purposes.”67 In order to influence the interpretation of a claim,
a statement gathered from the prosecution history must be a “clear and unmistakable disavowal of
scope.”68 Patentees may choose to disavow claims “in a way to try to overcome rejections based on
prior art.”69 Thus, disavowal and the prosecution disclaimer doctrine “protects the public’s reliance
on definitive statements made during prosecution by precluding patentees from recapturing through
claim interpretation specific meanings clearly and unmistakably disclaimed during prosecution.”70
However, under the “clear and unmistakable” standard, ambiguous statements of disavowal are not
enough to trigger the doctrine. Thus, prosecution disclaimer does not apply “if the applicant simply
60
61
62
63
64
65
66
67
68
69
70
Id. at 1331.
Id. at 1332.
Id. at 1333.
Id.
Id.
Id. at 1338.
Computer Docking Station Corp. v. Dell, Inc., 519 F.3d 1366, 1374 (Fed. Cir. 2008).
Id.
Purdue Pharma L.P. v. Endo Pharms., Inc., 438 F.3d 1123, 1136 (Fed. Cir. 2006).
Computer Docking, 519 F.3d at 1374.
Id. at 1374-75 (internal quotations and citation omitted).
Patent 201
IV.
KILPATRICK TOWNSEND
describes features of the prior art and does not distinguish the claimed invention based on those
features.”71
In Computer Docking Station v. Dell, the Federal Circuit held that a claim preamble can function
as a disavowal of the claim scope.72 Computer Docking’s (“CDS”) patent included the claim
preamble “portable computer.” In interpreting that preamble term, the Federal Circuit found that
it must be limiting because “the plain meaning of ‘portable’ and its use in the specification and
prosecution history require the computer to be ‘capable of being moved about.’”73 The court noted
that the specification and applicants’ statements during prosecution emphasized this feature of the
invention, even though this limitation did not appear in the body of the claims. The court accordingly
found that the terms ‘portable computer’ and ‘portable computer microprocessing system’ limited
the scope of the asserted claims.74
CDS also distinguished their “portable computer” from the prior art. The Federal Circuit observed
that CDS “distinguished their invention from the prior art in multiple ways. Nonetheless a disavowal,
if clear and unambiguous, can lie in a single distinction among many.”75 Though the examiner
did not especially rely on the disavowal, the prosecution statements remained relevant to claim
construction.76 The court noted that “prosecution history must always receive consideration in
context.”77 Had CDS “expressly defined a term in the specification,” that definition would control
over broad remarks during prosecution.78 Because CDS neglected to define “portable computer,”
its statements in the specification and during prosecution were interpreted to disavow the portability
feature of the claim.
In Elbex Video, Ltd. v. Sensormatic Electronics Corp., the district court found a “clear and
unmistakable surrender of claim scope” of a patent covering a remote-controllable closed-circuit
television system.79 To describe the patent, the applicant portrayed the invention as having
a “monitor” during prosecution. The claims, however, referred to the invention as containing a
“receiving means.” The district court stated that “the inventor clearly and unmistakably surrendered
any claim scope between the ‘receiving means’ that receives first code signals as expressly recited
in the claims, and a ‘monitor’ that receives first code signals.”80
The Federal Circuit reversed, stating that “[c]laim terms are entitled to a ‘heavy presumption’ that
they carry their ordinary and customary meaning to those skilled in the art in light of the claim
term’s usage in the patent specification.”81 However, when a patent applicant surrenders claim
71
72
73
74
75
76
77
78
79
80
81
Id. at 1375. See also Abbott Labs. v. Imclone Sys., Inc., No. 07-10216-RGS, 2008 WL 2123309, at *2 (D. Mass. May 21, 2008).
Computer Docking, 519 F.3d at 1379.
Id. at 1375.
Id.
Id. at 1377. See Norian Corp. v. Stryker Corp., 432 F.3d 1356, 1362 (Fed. Cir. 2005) (“[W]e have not allowed [patentees] to assert that
claims should be interpreted as if they had surrendered only what they had to.”).
Id. at 1377-78.
Id. at 1378.
Id. See 3M Innovative Props. Co. v. Avery Dennison Corp., 350 F.3d 1365, 1373 (Fed. Cir. 2003).
508 F.3d 1366, 1372 (Fed. Cir. 2007).
Id. at 1372.
Id. at 1371.
251
scope during prosecution, the ordinary and customary definition of a claim term may not apply.
Such a disavowal must be “clear and unambiguous.”82 There is no disavowal if “[a] person of
reasonable intelligence would not be misled into relying on the . . . statement.”83 Because the
applicant’s statement in the prosecution history was unsupported by the specification language, the
prosecution statement was ambiguous, and the “prosecution statement if taken literally would result
in an inoperable system[,]” there was not a “clear and unmistakable” disavowal.84
In Salazar v. Procter & Gamble Co., the Federal Circuit held that a unilateral statement of an
examiner does not create “a clear and unmistakable disavowal” of claim scope.89 The court stated
that “an applicant’s silence regarding statements made by the examiner during prosecution, without
more, cannot amount to a ‘clear and unmistakable disavowal’ of claim scope . . . . After all, the
applicant has disavowed nothing.”90
This group of cases indicates the Federal Circuit’s willingness to clarify the “clear and unmistakable”
standard of claim disavowal. These cases indicate that the scope of a claim can be limited by
statements made during prosecution, but cannot be limited by an applicant’s silence in response
to an examiner’s rejection. Thus, the “heavy presumption” that claims carry their ordinary and
customary meaning remains the Federal Circuit’s standard.
V.
Recapture/Inconsistent Prosecution History
Statements made during prosecution of an application can also affect claims of a later-filed
continuation application. Generally, a continuation application is an application that claims priority
to a parent application (i.e., previously filed application) and relates to the same or substantially the
82
83
84
85
86
87
88
89
90
Id.
Biotec Biologische Naturverpackungen GmbH & Co. KG v. Biocorp, Inc., 249 F.3d 1341, 1348 (Fed. Cir. 2001).
Elbex, 508 F.3d at 1373.
498 F.3d 1307 (Fed. Cir. 2007), cert. denied, 128 S. Ct. 2430 (2008).
Id. at 1312.
Id. at 1325.
ResQNet.com, Inc. v. Lansa, Inc., 346 F.3d 1374, 1383 (Fed. Cir. 2003).
414 F.3d 1342, 1345 (Fed. Cir. 2005).
Id. at 1345 (internal citation omitted).
Patent 201
The Federal Circuit, in Ormco Corp. v. Align Tech., Inc., held that the prosecution disclaimer
narrowed a patent claim’s scope, but only for some of the claims.85 The invention, a computeraided design of orthodontics, was distinguished from prior art because of its automatic calculation
of final tooth position, even though the claims did not require such calculations.86 The Federal
Circuit adhered to the rule necessitating that a “common language or a linguistic ‘hook’ among the
claims before resort[ing] to a parent application’s prosecution history is appropriate.”87 Therefore,
“[a]lthough a parent patent’s prosecution history may inform the claim construction of its
descendent . . . prosecution history is irrelevant to the meaning of [a] limitation [if] the two patents
do not share the same claim language.”88 Thus, the Federal Circuit requires some relation between
the disavowal and any affected claim before narrowing claim scope. In this case, the scope disclaimer
applied only to the directed tooth positions.
KILPATRICK TOWNSEND
same subject matter. For example, a continuation application may include different claims than a
parent application that seek to protect a different feature disclosed in the application or the same
feature in a different way.
In Hakim v. Cannon Avent Group, PLC, the Federal Circuit clarified the effect statements made
during prosecution of the parent application may have on the interpretation of claim language in a
continuation application.91 The patent at issue related to no-spill drinking cups.92 Its claims recited a
valve that included an opening through flexible material that changed position based on air pressure,
such as air pressure introduced when a person sips on the cup.93 The claims of the parent application
were similar, except they recited a “slit” instead of an “opening.”94 During prosecution of the parent
application, the patent owner distinguished prior art because the prior art did not disclose “a no-spill
mechanism having a slit sitting against a blocking element.”95 Even though Hakim, when filing the
continuation, explicitly stated the claims were being broadened, the district court used statements
from the prosecution of the parent as a disclaimer to limit the claims reciting “opening” to a “slit,”
thereby allowing the defendants to avoid infringement.96 In affirming the construction, the Federal
Circuit held that “an applicant cannot recapture claim scope that was surrendered or disclaimed”
and that to avoid such surrender or disclaimer, “the prosecution history must be sufficiently clear to
inform the examiner that the previous disclaimer, and the prior art that it was made to avoid, may
need to be re-visited.”97
VI.
Conclusion
These recent developments illustrate the importance of adequately disclosing an invention and
exhibiting care in prosecuting patent applications to realize meaningful protection of creative
innovations. Although difficult, these tasks can be made more straightforward by establishing
business goals, gaining an understanding of the scope of protection available, and developing a
patent claim strategy that seeks to meet those objectives within the scope of protection available.
91
92
93
94
95
96
97
479 F.3d 1313 (Fed. Cir. 2007).
Id. at 1315.
Id. at 1316.
Id.
Id.
Id.
Id. at 1317-1318.
253
Patentable Subject Matter – Nuitjen, Comiskey, Bilski, and Beyond
John Alemanni, Eric Zaiser, and Carl Sanders
I.
Introduction
For every patent application filed with the United States Patent and Trademark Office (“PTO”), a
threshold question must be answered: is the claimed subject matter eligible for patent protection?
Patents are not available for everything, but only for inventions or discoveries of “new and useful
process[es], machine[s], manufacture[s], or composition[s] of matter.”1 While 35 U.S.C. § 101 is
typically construed broadly to include “anything under the sun that is made by man,”2 there are
limitations on what inventions and discoveries are eligible for patent protection. Three well-known
categories of unpatentable subject matter are laws of nature, physical phenomena, and abstract
ideas.3 But other classes of invention have also met with resistance in the PTO.
Background
Two classes of inventions that have met with disfavor in the PTO are business methods and computer
software. Each of these classes can fall under one or more of the statutory classes identified in
§ 101, though they are typically claimed as processes (or methods) in patent applications. And while
processes are a statutorily-designated class of patent-eligible inventions, the PTO has had difficulty
determining when a process should be eligible for patent protection and when it is an unpatentable
abstract idea or algorithm.
Before 1998, the PTO simply took the stance that business method patents were per se unpatentable
subject matter. This view was based on its interpretation of court decisions that recognized a business
method exception to § 101. However, in its 1998 decision in State Street Bank,4 the Federal Circuit
stated that no such exception exists.5 Instead, the court held that the proper analysis for business
method patents was whether the patent attempted to claim an abstract idea or a mathematical
algorithm, and assuming it did not, the proper analysis should then be whether the patent claims
satisfied the written description and enablement requirements of 35 U.S.C. § 112, and were novel
and non-obvious under 35 U.S.C. §§ 102, 103.6
Unfortunately, despite the holding in State Street Bank, the debate regarding the eligibility of other
classes of methods for patent protection continued. Specifically, the PTO and the courts struggled to
articulate a distinction between patentable methods and unpatentable abstract ideas or mathematical
algorithms. This struggle is most evident in the area of patents directed towards computer software.
Computer software is made up of a collection of instructions that are executed by a computer
processor to perform a series of steps and produce a result. The instructions specify what tasks
1
2
3
4
5
6
35 U.S.C. § 101 (2000).
Diamond v. Chakrabarty, 447 U.S. 303, 309 (1980).
Id.
State St. Bank & Trust Co. v. Signature Fin. Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), abrogated by In re Bilski, 545 F.3d 943 (Fed. Cir.
2008).
Id. at 1375, 1377.
Id. at 1376-77.
Patent 201
II.
KILPATRICK TOWNSEND
the processor is to perform. These tasks may include what information should be processed, how
it should be processed, and what should be done with the processed information. Thus, computer
software is an embodiment of a method (or methods) to be performed by a computer.
However, computer software is algorithmic, i.e., computer programs are executed step-by-step
to solve problems. For example, computers are frequently used for data processing and operating
machinery. Data processing software typically executes one or more mathematical formulas on a set
of input data, such as financial data. Software to operate a machine typically includes algorithms to
control the movement of machine components. And such algorithms typically employ mathematical
formulas to achieve a desired result—for example, a desirable allocation of investments or the
proper assembly of a device. Thus, software patents typically include a description of a mathematical
algorithm as an element of the inventive method.
The use of a mathematical algorithm, however, is not inevitably fatal to a patent application. The U.S.
Supreme Court has recognized that while a claim to a pure mathematical algorithm is not eligible for
patent protection, an application of such an algorithm as a part of a new method for accomplishing
a useful result can be patentable: “[A] claim drawn to subject matter otherwise statutory does not
become nonstatutory simply because it uses a mathematical formula, computer program, or digital
computer.”7 In Diehr, the applicant sought patent protection for a method of curing rubber. The
process involved monitoring the temperature of the rubber mixture and iteratively solving the
Arrhenius equation, a mathematical formula for determining the appropriate cure time for rubber.
Based on the monitored temperature and the updated results from the frequent recalculations of cure
time, the computer-controlled curing machine could open the curing press at the appropriate time to
ensure the rubber was properly cured.
During examination of the Diehr application, the PTO rejected the application as unpatentable.
However, the Court of Claims and Patent Appeals (“CCPA”) reversed the rejection, and the Supreme
Court affirmed the CCPA’s decision. The Supreme Court found that the Arrhenius equation is not
patentable in the abstract, but “when a process for curing rubber is devised which incorporates in it a
more efficient solution of the equation, that process is at the very least not barred at the threshold by
§ 101.”8 In other words, the patentee was seeking a patent over a new method for curing rubber that
adjusted curing time based on the measured temperature of the rubber, not the Arrhenius equation
itself, and therefore, the claims met the threshold set forth by § 101.
Subsequent to Diehr, other cases have reinforced the holding that methods implemented in computer
software can be patentable.9 Following AT&T Corp. v. Excel Communications, Inc.,10 the PTO’s
Diamond v. Diehr, 450 U.S. 175, 187 (1981).
Id. at 188.
AT&T Corp. v. Excel Commc’ns., Inc., 172 F.3d 1352 (Fed. Cir. 1999); In re Beauregard, 53 F.3d 1583, 1584 (Fed. Cir. 1995)
(Commissioner for Patents agrees that “computer programs embodied in a tangible medium . . . are patentable subject matter under 35
U.S.C. § 101.”); see In re Alappat, 33 F.3d 1526, 1543 (Fed. Cir. 1994) (“A close analysis of Diehr, Flook, and Benson reveals that the
Supreme Court never intended to create an overly broad, fourth category of subject matter excluded from § 101. Rather, at the core of
the Court’s analysis in each of these cases lies an attempt by the Court to explain a rather straightforward concept, namely, that certain
types of mathematical subject matter, standing alone, represent nothing more than abstract ideas until reduced to some type of practical
application, and thus that subject matter is not, in and of itself, entitled to patent protection.”).
10 AT&T Corp., Inc., 172 F.3d 1352.
7
8
9
255
Board of Patent Appeals and Interferences (“BPAI”) adopted the holding that “a process claim that
applies a mathematical algorithm to ‘produce a useful, concrete, tangible result without pre-empting
other uses of the mathematical principle, on its face comfortably falls within the scope of § 101.’”11
Thus, the case law seemed settled that business methods and computer software can constitute
patentable subject matter under § 101 even though these classes may incorporate mathematical
algorithms. However, in a recent decision, the Federal Circuit has changed course, and as a result,
the eligibility of these types of inventions for patent protection has become less certain.
III.
Recent Cases
The claims in Bilski were directed to a method of hedging risk in financial transactions. At least one
of the dissents would have simply declared that the claims at issue were invalid as directed to an
abstract idea and ended the inquiry. Instead, the majority announced, after a canvas of existing case
law, that the only test for identifying a statutory “process” under Supreme Court precedent is the
“machine or transformation” test noted above.15
The Federal Circuit rejected other tests, including (1) determining whether a claimed process
provided a “useful, concrete and tangible result” and (2) determining whether a claim reciting an
algorithm is applied to physical elements or process steps.16 The court did not go so far as to
overrule its decisions in State Street Bank17 and AT&T Corp. v. Excel Communications,18 however.
Instead, it stated that the portions of those opinions relying solely on the “useful, concrete, and
tangible result” analysis should not be relied on. The court also announced that no “technological
arts” test currently or previously existed, and expressly stated it was not adopting a categorical
exclusion of either software or business methods.19
11
12
13
14
15
16
17
18
19
Ex Parte Lundgren, 76 U.S.P.Q.2d 1385, 1386, p. 5 (Bd. Pat. App. & Int. 2004).
545 F.3d 943 (Fed. Cir. 2008) (en banc).
Id. at 952.
Id. at 954.
Id. at 964.
Id. at 959-60.
149 F.3d 1368.
172 F.3d 1352.
Id. at 960.
Patent 201
In re Bilski12 is the most recent authority from the Federal Circuit on the contours of subject-matter
eligibility. In a 130-page opinion, the Federal Circuit attempted to clarify the standard used in
determining whether a claimed method constitutes a statutory “process” under § 101. According
to Supreme Court precedent as interpreted by the Federal Circuit, the meaning of “process” under
the patent laws is narrower than its ordinary meaning, and a claim directed to a process (or method)
cannot preempt all use of “laws of nature, natural phenomena, [or] abstract ideas.”13 Under the
Federal Circuit’s reasoning, a statutory “process” must (1) be tied to a particular machine or
apparatus, or (2) transform a particular article into a different state or thing.14
KILPATRICK TOWNSEND
While the Federal Circuit sought to “clarify the standards applicable in determining whether a claimed
method constitutes a statutory ‘process’ under § 101,” Bilski left several questions unresolved.20 For
example, Bilski focused heavily on the “transformation” prong of the “machine or transformation
test” and did not address whether recitation of a general-purpose computer is sufficient to meet the
“machine” prong of the test.21
Regarding transformation, the court did explain that articles that can be transformed include (1)
physical objects and substances and (2) electronic representations (e.g., an electronic signal) of
underlying physical objects and substances.22 The court also included an example of a claim
directed to transforming data representing physical objects for display, concluding that the claim
was patent-eligible subject matter, and contrasted that example with “purported” transformations of
public or private legal obligations, relationships, business risks, or “abstractions” that are ineligible
because the transformed articles are neither physical objects nor representative of physical objects.23
Even if a claim does recite the use of a machine or provide for transformation of an article, there
must be meaningful limits on claim scope so that the claim does not preempt use of a fundamental
principle. Furthermore, neither field-of-use limitations nor insignificant “extra-solution activity,”
such as adding a step of gathering data for example, will save the patentability of a process claim
that otherwise does not qualify under § 101.
It is unclear to what extent the court clarified the standard of patentability for processes, particularly
those directed to computer software. According to vigorous dissents, the Federal Circuit has added
uncertainty and disrupted well-settled principles of law.24 And although the Federal Circuit refused
to exclude categorically software and so-called “business method” patents from subject-matter
eligibility, Bilski leaves unanswered questions regarding how process claims directed to softwarerelated inventions will be considered in the future.
In re Bilski continues an ongoing trend of the Federal Circuit focusing on § 101 matters, particularly
with regard to software and business method subject matter. For instance, in Bilski, the court
specifically referenced a 2007 case, In re Comiskey,25 noting that Comiskey did not establish a
“physical steps” test in conflict with the “machine or transformation” test.26 After Bilski, an en banc
panel of the Federal Circuit vacated and reassigned the Comiskey opinion, which was then revised.27
The Comiskey case was an appeal from a decision by the BPAI deeming Comiskey’s claims directed
to methods of conducting arbitration to be obvious under § 103. At oral argument, the Federal Circuit
requested supplemental briefing directed at the patentability of Comiskey’s claims under § 101.
Several different claims were at issue in Comiskey. Independent claims 1 and 32 were directed
20
21
22
23
24
25
26
27
Id. at 949.
However, as will be discussed below, the BPAI has taken the position that a general-purpose computer does not satisfy the “machine” test.
Id. at 962-63.
Id. at 963-64.
See id. at 977, 1011 (Newman, J., dissenting & Rader, J., dissenting ).
499 F.3d 1365 (Fed. Cir. 2007), subsequently withdrawn and revised by 554 F.3d 967, slip op. (Fed. Cir. 2009).
Bilski, 545 F.3d at 960-61.
Comiskey, 554 F.3d at 969.
257
to methods of conducting arbitration without reference to any particular machines or devices.
Independent claims 17 and 46 were system claims reciting use of “modules” that, reasonably
interpreted, could require use of a machine.
Another related case, In re Nuijten,30 was decided on the same day that Comiskey was originally
decided. The Federal Circuit framed the issue in Nuijten as whether or not a signal is patentable
subject matter. Nuitjen’s invention related to a technique for reducing distortion in signals
“watermarked” with embedded data. Nuijten obtained allowance for claims directed to methods of
embedding data into a signal, claims directed to a system for embedding data into a signal, and a
claim directed to a storage medium containing a signal with embedded supplemental data having
the encoded properties of his invention. However, claims directed to the signal with embedded
supplemental data were rejected as nonstatutory subject matter under § 101.
In its analysis, the Federal Circuit initially considered whether the signal claims were limited to a
physical carrier or whether the claims were directed to numerical information without any physical
embodiment. The court agreed with Nuijten that a signal must have some physical presence, but
found that the claims were only limited by the signal’s informational content and any tangible means
would suffice. In upholding the § 101 rejections, the Federal Circuit held that the claimed signals
were transitory in nature and that such transitory embodiments cannot be considered a “process,”
“machine,” “manufacture,” or “composition of matter.”
Read together, Bilski, Comiskey, and Nuijten raise more questions than they collectively answer.
For instance, Bilski never fully clarifies whether and when processes relating to electronic signals
and electronically manipulated data qualify as “transformation or reduction of an article into a
different state or thing.”31 Bilski provides an example referring to conversion of raw data into a
visual depiction as a sufficient “transformation” of an “article” for § 101 purposes, but omits further
guidance.
The Bilski court was aware of Nuijten, but gave only very limited treatment of Nuijten in Bilski.
Although referenced briefly in citations by the dissent, the majority’s discussion of Nuijten was
limited to a footnote where the court declined to discuss Nuijten because, according to the court,
28
29
30
31
500 F.3d 1346 (Fed. Cir. 2007), cert. denied, 129 S. Ct. 70 (2008).
Bilski, 545 F.3d at 956.
Patent 201
The Federal Circuit found that § 101 barred patentability of claims 1 and 32 because those claims
were directed to mental processes, standing alone, for conducting arbitration. On the other hand,
initially the Federal Circuit found that claims 17 and 46 passed muster under § 101 due to recitation
of “modules” and went on to note that the combination of an unpatentable mental process with a
machine may produce patentable subject matter. But, the court also strongly implied that adding a
general purpose computer or communication device to an otherwise unpatentable mental process
may be an obvious combination.28 However, in the revised Comiskey opinion, the Federal Circuit
omitted this suggestion and instead remanded to the PTO to consider whether independent claims
17 and 46 recited patentable subject matter under § 101.29
KILPATRICK TOWNSEND
Nuijten was concerned with whether a signal was drawn to a manufacture and not a process and
the PTO did not dispute that the process claims in Nuijten were eligible subject matter under § 101.
IV.
Fallout
The effect that Bilski will have on patent applicants is still unclear. However, some claim types
appear to remain acceptable. For example, claims directed to computer-readable media embodying
a program appear to be safe under certain circumstances. In its first post-Bilski decision, Ex parte
Bo Li,32 the BPAI declined to uphold a rejection under § 101 of a Beauregard33 claim reciting a
“computer program product, comprising a computer usable medium having a computer readable
program code embodied therein, said computer readable program code adapted to be executed to
implement a method for generating a report, said method comprising . . . .”34
However, Bilski was not directly cited in Bo Li, and in later cases, the BPAI has enthusiastically
adopted Bilski in affirming rejections under § 101, even when the examiner had not raised the issue
of patent eligibility before the appeal. For example, in Ex parte Godwin,35 the BPAI applied Bilski to
reject claims at least nominally directed to a system. Claims 7 and 12 of Godwin’s application recited
a server system in terms of software modules. Reasoning that software components necessarily
implement a process, the BPAI applied the machine-or-transformation test and found that claims 7
and 12 were ineligible under § 101 for failure to recite a specific machine.36 With little supporting
discussion, the BPAI also found that transforming one form of data into another form of data without
a machine is insufficient to establish eligibility under § 101.37
In Ex parte Uceda-Sosa,38 the BPAI upheld rejections of claims directed to “a method of representing
information” as not eligible under § 101 for failure to recite a specific machine or result in a
transformation.39 However, the BPAI went on to reject claims directed to a middleware module
as “functional descriptive material” due to no recitation in the claim of tangibly embodying the
software on a computer-readable medium.40 In a sign of the PTO’s aggressive stance on § 101
issues, the BPAI also rejected claims directed to a data structure embodied in a signal-bearing
medium and claims to a signal-bearing medium tangibly embodying a program due to a statement
in the specification noting that signal-bearing media can not only include computer punch cards,
memory, and the like, but also “transmission media such as digital and analog and communication
links and wireless.”41
32 88 U.S.P.Q.2d 1695 (Bd. Pat. App. & Int. 2008).
33 In re Beauregard, 53 F.3d 1583.
34 Bo Li, 88 U.S.P.Q.2d at 1697; see also Beauregard, 53 F.3d at 1584 (finding that claims for computer software embedded on a computer
readable medium were patent eligible as drawn to an article of manufacture).
35 No. 2008-0130 (Bd. Pat. App. & Int. Nov. 13, 2008).
36 Godwin, slip op. at 7.
37 Id. at 8.
38 No. 2008-1632, 2998 WL 450944 (Bd. Pat. App. & Int. Nov. 18, 2008).
39 Uceda-Sosa, 2008 WL 450944, at *8.
40 Id. at *9.
41 Id.
259
In Ex parte Halligan,42 the BPAI rejected a claim directed to a “programmed computer method” as
ineligible under § 101. In examining the claim, the BPAI stated that the issue is “whether recitation
of a programmed computer suffices to tie the process claims to a particular machine.”43 The BPAI
concluded that “[t]his recitation fails to impose any meaningful limits on the claim’s scope as it adds
nothing more than a general purpose computer that has been programmed in an unspecified manner
to implement the functional steps recited in the claims.”44
The claims in Halligan related to a method of identifying trade secrets. Thus, as in Bilski, the
underlying data related to legal rights rather than any physical or tangible objects. Because the data
represents an intangible asset, the BPAI held that the claim failed the machine-or-transformation test
and was thus not patent-eligible under § 101.45
Ultimately, the BPAI found that method claim 1 was merely a mathematical algorithm and ineligible
for patent protection. Independent claim 1 recited a method involving the manipulation of numbers
with no other context and seems to fall squarely within the mathematical algorithm exception to
§ 101 patent eligibility. But, the BPAI also used the same rationale to find independent claim 18
invalid under § 101 despite reciting an apparatus. Citing to AT&T Corp. v. Excel Communications,
Inc.,50 the BPAI reasoned that the analysis under § 101 is the same for both manufacture and
process claims.51 This rationale allowed the BPAI to conclude that claim 18 is directed to merely a
mathematical algorithm with “insignificant extra-solution activities . . . to transform an unpatentable
principle into a patentable process.”52
The BPAI’s decision in Ex parte Gutta53 dealt with issues similar to those in Halligan. In Gutta, the
BPAI sua sponte rejected the applicant’s claims under § 101. The BPAI found that the recitation of a
42
43
44
45
46
47
48
49
50
51
52
53
89 U.S.P.Q.2d 1355 (Bd. Pat. App. & Int. Nov. 24, 2008).
Id. at 1365.
Id.
Id.
89 U.S.P.Q.2d 1557 (Bd. Pat. App. & Int. 2009).
Id. at 1561.
Id. at 1561-68.
Id. at 11-12.
172 F.3d 1352 (Fed. Cir. 1999), abrogated by In re Bilski, 545 F.3d 943 (Fed. Cir. 2008).
Cornea-Hasegan at 1561.
Id.
No. 2008-3000 (Bd. Pat. App. & Int. Jan. 15, 2009).
Patent 201
In Ex Parte Cornea-Hasegan,46 the BPAI reviewed the examiner’s rejection of a number of claims
under § 101. In affirming the rejections of claims 1-10, the BPAI found that the recitation of a
“processor” is only a reference to a general purpose computer and does not tie the method to a
particular machine or apparatus. 47 The BPAI further concluded that because the claimed method
operated on floating point numbers in general, without requiring the numbers to represent data about
physical objects, the method did not transform a physical and tangible object. 48 The BPAI used the
same analysis for claims 18-27, which were directed to a computer-readable medium with program
code for executing the method of claim 1.49
KILPATRICK TOWNSEND
general-purpose computer constituted a field-of-use limitation insufficient to render an unpatentable
process patent-eligible. The court also concluded a “displaying” step need not be performed by any
particular machine or structure, finding that handwriting a result on paper could satisfy the step, and
thus failed the machine prong of the Bilski test.54 The BPAI found the second prong was not satisfied
with a conclusory statement that user history data is data about an intangible, and therefore failed
under Bilski.55
In Ex Parte Noguchi,56 the BPAI sua sponte raised the issue of § 101 but offered only conclusory
statements that independent claims 12 and 18 did not transform physical subject matter and do not
require a particular machine or apparatus. The BPAI further concluded that because claim 18’s
preamble recited “A program for causing a computer connected to an external network to perform
the functions of,”57 and because it was not claimed as being stored on any physical medium, it was
directed to a non-statutory process of abstract program steps. 58
In Ex parte Barnes,59 the BPAI rejected claims directed to a method of a “fault identification module”
as not patent-eligible under § 101. The BPAI raised the § 101 rejection sua sponte. The specification
described a method of analyzing seismic data to identify a fault.60
According to the BPAI, “[a] review of the claims reveals that they call for the gathering, analyzing
and displaying of data without any details as to how the data . . . is gathered, analyzed or displayed.”61
The BPAI concluded that “[a] claim that is drawn only to the analyzing of data is a claim that seeks
to pre-empt the use of a fundamental principle.”62 The BPAI also concluded that the displaying of
data without more was merely “insignificant post solution activity.”63 The BPAI did not address
the fact that seismic data appears to relate to data regarding geological structures, which are clearly
physical, nor did the BPAI address the fact that a fault is also a physical geological feature, namely
a crack in the earth’s crust.
Interestingly, the BPAI suggested that had the claim recited how the data was displayed or why, it
may not have considered the limitation to be insignificant post-solution activity.64 Also, the BPAI
characterized the gathering, analyzing and displaying steps as “physical steps.”65 But since the steps
did not involve transforming an article into a different state or thing, they were not patent-eligible
54
55
56
57
58
59
60
61
62
63
64
65
Id., slip. op. at 5.
Id. at 6.
No. 2008-1231, 2008 WL 4968270 (Bd. Pat. App. & Int. Nov. 20, 2008).
Id. at *6.
Id. The elements recited in claim 18 are identical to those of claim 19, which was not subject to a § 101 rejection. However, the preamble
of claim 18 recites, “[a] program for causing a computer connected to an external network to perform the functions of,” while the preamble
of claim 19 recites, “[a] storage medium for storing a computer-readable program executable by a computer, the program causing the
computer to perform the functions of . . . .” See Appendix of Applicant’s Appeal Brief dated January 17, 2007 in U.S. Patent Application
No. 10/158,806.
No. 2007-4114, 2009 WL 164074 (Bd. Pat. App. & Int. Jan. 22, 2009).
Id. at *4.
Id. at *5.
Id. at *6 (citations omitted).
Id.
Id.
Id.
261
under § 101. Apparently, while the data related to a physical thing, since the BPAI concluded that the
data was not transformed, the BPAI held that the subject matter was not patent-eligible.
In Ex parte Becker,66 the BPAI rejected claims directed to a “method for creating a hierarchically
structured automation object and embedding said automation object in an engineering system”
as not patent-eligible under § 101. The BPAI stated that the independent claim did not require a
particular machine or apparatus and did not transform an article into a different state or thing.67
The BPAI raised the § 101 rejection sua sponte. The application also included several system claims.
One example is claim 1, which recites “[a]n automation system comprising: at least one automation
object, each automation object having a hierarchy of components . . . .”68 The BPAI did not reject
the system claims under § 101.
The applicant was also pursuing two additional independent claims. One of these independent
claims recited a system comprising elements to perform the method. The elements were “a label
definer,” “an inferencer,” and “a character reorder.”72 The BPAI stated, “[t]he term ‘system’ is broad
enough to read on a method and thus does not imply the presence of any apparatus.”73 According to
the BPAI, the system elements were not means-plus-function limitations and would not have been
understood in the art as implying any structure.74
The final independent claims recited a “computer readable medium encoded with computer
software” to perform the steps of the method.75 The BPAI did not render a decision in relation to
this claim. Rather, the BPAI left it to the examiner to determine whether the claim recited patenteligible subject matter.76
V.
Conclusion and Practical Approach
Recent decisions by the BPAI noted above and a flurry of commentary on § 101 indicate that the
uncertainty predicted by the Bilski dissents has come to pass. The conditions and tests for determining
subject-matter eligibility will likely remain in flux for some time. Thus, any practical approach to
prosecuting patents should focus on maximizing flexibility in the face of changing requirements,
both in terms of prosecution tactics and substantive terms.
66
67
68
69
70
71
72
73
74
75
76
Id. at *5.
Id. at *1.
Id. at *4.
Id. at *6.
Id. at *6-*7.
Id. at *7.
Id.
Id. at *5.
Id. at *15 n.8.
Patent 201
In Ex parte Atkin,69 the BPAI rejected claims directed to a “method of converting a unidirectional
domain name to a bidirectional domain name.”70 According to the BPAI, the claim did not recite
a particular machine or apparatus or call for transforming an article into a different state or thing.71
KILPATRICK TOWNSEND
For new applications, the applicant must take care to draft embodiments with clear ties to a particular
machine or apparatus. To the extent possible, the specification and claims should relate to physical
input or output or to the transformation of data related to physical articles. Further, any actions that
take place at the beginning or end of the process should be described in the specification in such a
way as to ensure that they are not categorized as merely extra-solution activity.
In addition to the focus on flexibility, examiner interviews will continue to gain importance. The
effects of Bilski and its progeny will be felt most directly and immediately at the examination level.
Although § 101 rejections presently appear to be an area of focus for the PTO, the actual treatment
by individual examiners varies. For example, a process claim that may be viewed as “broad” by an
inventor may appear too “abstract” under an examiner’s application of Bilski. An interview may
allow an applicant to best tailor claims scope so that the claimed subject matter’s eligibility under
§ 101 is clear to the examiner.
Adjustments to claim scope will, of course, depend on adequate support in the remainder of the
specification. Thus, it is important to describe not only processes and methods carried out by
embodiments of an invention, but also to show explicitly any links to particular machines or to tie
data recited in such claims to underlying physical articles where applicable. In light of other recent
trends in patent law related to full-scope enablement under § 112, a “tighter” approach to claiming
in light of explicit examples in the specification may provide some post-Bilski flexibility as § 101
requirements continue to evolve.
Further, to the extent possible, system and apparatus claims may be more favorable in the immediate
short term, at least until the “machine” prong of the machine-or-transformation test is more fully
developed. For software-related subject matter, careful use of Beauregard claims77 and recitation of
computer-readable media (properly defined in the specification) may allow adequate protection for
subject matter that would ordinarily be covered using method claims. For signal-related innovations,
claims should focus on methods of generating a signal, results that occur due to the signal, and/or
particular apparatus or systems used to generate/receive the signal.
In the past, the Federal Circuit has said that the court will not allow an applicant to “exalt form over
substance since the claim is really to a method or series of functions itself.”78 And for claims such as
these, “[t]he burden must be placed on the applicant to demonstrate that the claims are truly drawn
to specific apparatus distinct from other apparatus capable of performing the identical functions.” 79
Thus, the applicant will need to take care in drafting system and apparatus claims so that these
claims are not subject to analysis under the Bilski decision.
77 Beauregard, 53 F.3d 1583.
78 In re Abele, 684 F.2d 902, 909 (Fed. Cir. 1982), abrogated by In re Bilski, 545 F.3d 943.
79 Id.
263
Inventorship: Navigating the Muddy Waters of Inventorship
Determination and Correction
Jamie L. Greene, Kathryn H. Wade, and Christopher M. Durkee1*
I.
Introduction
In many other countries, patent applications are filed in the name of the corporate entities who own
the technology. But in the U.S., even though the employer of the inventor may be the real party in
interest and own the patent for which its inventors apply, a U.S. patent always names one or more
individuals as inventors, and the corporate owner is only listed as an “assignee” (i.e., owner).6
The determination of who, among the many individuals who participated in developing an invention,
is an inventor carries substantial legal importance, yet it may present difficulties even to seasoned
patent attorneys. The joint inventorship determination has been characterized by at least one court as
“one of the muddiest concepts in the muddy metaphysics of the patent law.”7 Although procedures
exist to correct inventorship of both patent applications and issued patents, these procedures present
their own difficulties, often requiring the reconstruction of past events and sometimes resulting in
the loss of patent term. Correction also can be costly and time consuming, depending upon when the
error is identified. These difficulties are further compounded if an incorrectly named inventor is no
longer associated with the entity that owns the application. Incorrect inventorship also can cause the
ownership of a patent to be different than expected, because every inventor has an equal, undivided
interest until that interest is conveyed.
1
2
3
4
5
6
7
*
The authors gratefully acknowledge the contributions of John S. Pratt and Kristin M. Crall to an earlier edition of this work.
U.S. Const. art. 1, § 8, cl. 8.
35 U.S.C. §§ 111, 118 (2000); 37 C.F.R. § 1.47 (2008); U.S. Dep’t of Commerce, U.S. Patent & Trademark Office, Manual of Patent
Examining Procedure § 409.01-.03 (8th ed., rev. 6 2007) [hereinafter MPEP].
Id. § 116.
Id. § 256.
Corporate policies usually dictate that inventors assign ownership of a patent to the company.
See Mueller Brass Co. v. Reading Indus., Inc., 352 F. Supp. 1357, 1372 (E.D. Pa. 1972), aff’d, 487 F.2d 1395 (3d Cir. 1973). Recently,
the Federal Circuit agreed: “The line between actual contributions to conception and the remaining, more prosaic contributions to the
inventive process that do not render the contributor a co-inventor is sometimes a difficult one to draw.” Eli Lilly & Co. v. Aradigm Corp.,
376 F.3d 1352, 1359 (Fed. Cir. 2004).
Patent 201
The United States Constitution provides inventors with an exclusive right to their discoveries.2
Because of this, an application for a patent must be made by the inventor or, when the inventor is
dead, cannot be located, or refuses to cooperate, by persons on behalf of the inventor.3 When two
or more people make an invention, they must file jointly, “even though (1) they did not physically
work together or at the same time, (2) each did not make the same type or amount of contribution,
or (3) each did not make a contribution to the subject matter of every claim of the patent.”4 It is
particularly important that the inventors named on a patent application be accurate because a patent
can be held invalid if it names one who is not an inventor or if it fails to name someone who is an
inventor, although these errors may be corrected if it can be shown that they were not committed
with an intent to deceive.5
KILPATRICK TOWNSEND
As a result, the difficult task of properly investigating inventorship and naming the correct inventors
should be done prior to filing a patent application to minimize reliance on correction procedures.
This may require political and communication skills, as well as an understanding of the legal
niceties of inventorship, particularly where financial rewards or increased prestige result from being
named as an inventor. If a valid patent is to be obtained, however, the temptation to name everyone
involved with the project as an inventor (or to exclude one who is truly an inventor to avoid creating
an ownership interest in the resulting patent) must be overridden by the legal reality that naming
incorrect inventors can be fatal to validity if it can be proven that the incorrect naming was done
with deceptive intent.
II.
Inventorship is Determined by Conception
Inventing involves at least two legal stages or activities: conception and reduction to practice. A
third activity, diligence in reducing the invention to practice, sometimes becomes important in
determining who is the first to invent.
Conception is the mental part of inventing, the formation in the mind of the inventor of a definite
and permanent idea of the complete and operative invention as it is to be subsequently claimed.
Conception is complete if the inventor could make a complete disclosure of his idea to those of
ordinary skill in the art that is sufficiently detailed to allow them physically to make the invention
without undue experimentation or inventive activity of their own.8 This hypothetical disclosure must
be possible with a high degree of particularity; a disclosure that includes merely research plans that
should be pursued or that only states general goals would not indicate that conception was complete
at that time.9
Reduction to practice can be actual or constructive. Actual reduction to practice occurs when
someone, e.g., a technician working under the direction and supervision of the inventor, actually
carries out the conception of the inventor and places it into tangible form.10 Constructive reduction
to practice occurs when a patent application is filed describing the invention in a way that allows
one of ordinary skill in the art to carry out an actual reduction to practice without extensive further
research or invention.11
In determining inventorship, the rule is that inventorship is determined by conception.12 Put another
way, inventors are only those who conceive or contribute to the conception of the invention. Those
who merely reduce the invention to practice, working at the direction of those who conceived, are
not inventors, unless they contribute some original conception of the invention that ultimately is
claimed. In short, “conception is the touchstone” to inventorship.13
Some nonexclusive examples of acts that are not considered acts of inventorship include:
8
9
10
11
12
13
Mergenthaler v. Scudder, 11 App. D.C. 264, 1897 C.D. 724, 731 (D.C. Cir. 1897); see also In re Tansel, 253 F.2d 241, 242 (C.C.P.A.
1958).
See Burroughs Wellcome Co. v. Barr Labs., Inc., 40 F.3d 1223, 1228 (Fed. Cir. 1994).
See, e.g., De Solms v. Schoenwald, 15 U.S.P.Q.2d 1507, 1510 (Bd. Pat. App. & Inter. 1990).
See Burroughs Wellcome Co., 40 F.3d at 1228.
See Fiers v. Revel, 984 F.2d 1164, 1168 (Fed. Cir. 1993).
See Burroughs Wellcome Co., 40 F.3d at 1227.
265
(1)
(2)
(3)
supplying a product available in the marketplace and explaining its use or merely explaining well-known principles;14
making only minor or superficial changes;15 or
suggesting an idea of a result to be accomplished rather than providing the steps or the way to accomplish that result.16
Although in most areas of technology, conception occurs before reduction to practice, both may
occur simultaneously for purposes of inventorship, particularly in some areas of technology
characterized as “unpredictable,” such as the biotechnology and chemical arts.18 “[C]onception of
a chemical compound requires that the inventor be able to define it so as to distinguish it from other
materials, and to describe how to obtain it.”19 In addition, the Federal Circuit reasoned in Amgen
that a gene is a chemical compound, and therefore, it is not sufficient to define a gene solely by
its principal biological property.20 The court held that “when an inventor is unable to envision the
detailed [DNA sequence] of a gene so as to distinguish it from other materials, as well as a method
for obtaining it, conception has not been achieved until reduction to practice has occurred, i.e., until
after the gene has been isolated.”21 The conception must be sufficient to allow one of ordinary skill
to make and use the claimed invention.
Similarly, the Federal Circuit held that DNA encoding a particular protein cannot be conceived until
the actual nucleotide sequence has been determined.22 “[A]n adequate written description of genetic
14 See e.g., Hess v. Advanced Cardiovascular Sys., Inc., 106 F.3d 976, 981 (Fed. Cir. 1997); Ethicon Inc. v. U.S. Surgical Corp., 135 F.3d
1456, 1460 (Fed. Cir. 1998).
15 See Hoop v. Hoop, 279 F.3d 1004 (Fed. Cir. 2002).
16 See Eli Lilly & Co. v. Aradigm Corp., 376 F.3d 1352, 1359 (Fed. Cir. 2004).
17 See Burroughs Wellcome Co., 40 F.3d at 1228.
18 See Amgen, Inc. v. Chugai Pharm. Co., 927 F.2d 1200, 1206 (Fed. Cir. 1991) (finding that in certain instances, conception is not possible
until the inventor has reduced the invention to practice through a successful experiment, resulting in a simultaneous conception and
reduction to practice).
19 Id., citing Oka v. Youssefyeh, 849 F.2d 581, 583 (Fed. Cir. 1988).
20 See also In re Wallach, 378 F.3d 1330, 1335 (Fed. Cir. 2004) (“[I]t is well established in our law that conception of a chemical compound
requires that the inventor be able to define it so as to distinguish it from other materials, and to describe how to obtain it.”) (quoting Amgen,
927 F.2d at 1206).
21 Amgen, 927 F.2d at 1206; see also Chiron Corp. v. Abbott Labs., 902 F. Supp. 1103 (N.D. Cal. 1995).
22 Fiers v. Revel, 984 F.2d 1164, 1168 (Fed. Cir. 1993).
Patent 201
Because conception is a mental act, courts may require corroborating evidence of a contemporaneous
disclosure that would enable one skilled in the art to make the invention.17 One way to establish
corroborating evidence (as well as to avoid or minimize potential disputes over inventorship) is
to keep good contemporaneous records, such as technical notebooks with non-removable pages
that are signed and witnessed regularly (e.g., “Read and understood, Brady Johnson, January 1,
2005.”). These records should preferably refer to “investigators” and not “inventors” to avoid a premature conclusion of inventorship. The witnesses should be individuals capable of understanding
the research document and what it contains, but should not include those who are working on the
project and therefore might ultimately be named as inventors of the patent application.
KILPATRICK TOWNSEND
material requires a precise definition, such as by structure, formula, chemical name, or physical
properties, not a mere wish or plan for obtaining the claimed chemical invention . . .”23
Two district courts in California have held that the doctrine of simultaneous conception and reduction
to practice also applies in the context of claims directed to an isolated virus.24 Both courts held that
conception did not occur until the feline immunodeficiency virus was isolated “and its definitive
structure, name, chemical and physical properties were determined.”25 These cases provide that,
with respect to claims directed to an isolated virus, when an individual provides a concept (e.g.,
that a virus might be responsible for disease symptoms), but does not contribute to the isolation
of the virus or to the determination of its structure, name, or chemical or physical properties, that
individual is not an inventor of claims to the isolated virus.26
Simultaneous conception and reduction to practice can occur in other contexts as well, such as where
the invention is produced unintentionally, provided that the inventor appreciated or recognized the
conception at the time of its occurrence.27 Thus, no conception or reduction to practice of a new form
of catalyst for use in reforming naphtha occurred where the patent applicant did not recognize the
existence of the new catalyst until years after filing the application.28
III.
Sole and Joint Inventorship
As mentioned above, determining whether conception (and therefore inventorship) is sole or joint is
difficult but necessary in view of the realities of modern research. Mere involvement with a research
project does not qualify an individual as a joint inventor. Clearly, if a single individual conceives
and reduces the invention to practice without assistance from any other, that individual is a sole
inventor. If a single individual conceives of the invention in sufficient detail that it can be reduced
to practice by another, and a second individual assists the first by making the invention in tangible
form based on the conception of the first individual, the first individual is still a sole inventor. The
second individual is merely functioning as a “pair of skilled hands” for the first individual, and has
not contributed to the conception of the invention.29
If, however, it should turn out that the first individual did not have as complete an idea of how to
make the invention as he thought, and it is necessary for the second individual to carry out more
than routine experimentation in placing the invention into tangible form, the second individual’s
contribution may be sufficient for both individuals to be joint inventors.30 For example, if there are
failed prototypes, a significant number of unsuccessful experiments, or problems not recognized
until the idea is carried out, which leads to someone adding new elements to the originally conceived
23 Enzo Biochem. Inc. v. Gen-Probe Inc., 323 F.3d 956, 964 (Fed. Cir. 2002) (citations and internal quotation marks omitted).
24 See Brown v. Regents of the Univ. of Cal., 866 F. Supp. 439 (N.D. Cal. 1994); Regents of the Univ. of Cal. v. Synbiotics Corp., 849 F. Supp.
740 (S.D. Cal. 1994).
25 Regents, 849 F. Supp. at 742; see also Brown, 866 F. Supp. at 444.
26 See Regents, 849 F. Supp. at 742; Brown, 866 F. Supp. at 445.
27 See, e.g., Dow Chem. Co. v. Astro-Valcour, Inc., 267 F.3d 1334, 1340-41 (Fed. Cir. 2001), citing to Heard v. Burton, 333 F.2d 239
(C.C.P.A. 1964).
28 See id.
29 See Harris v. Clifford, 363 F.2d 922, 927 (C.C.P.A. 1966).
30 See Mattor v. Coolegem, 530 F.2d 1391, 1393-94 (C.C.P.A. 1976).
267
idea, and those elements are included in the claims of the patent application, then those contributing
to the solutions are likely to be considered inventors of those new elements.
In any case, joint inventorship can only occur where there has been some communication between
the joint inventors, and where the contributions of each are embodied in the claimed invention
(including how to make a claimed product). It is unnecessary that inventors work together, that they
make equal contributions, that they each contribute to the subject matter of every claim, or that they
conceive their contributions at the same time—although two inventors who are unaware of each
other’s conceptions are sole, rather than joint, inventors.
IV.
Authorship is not Inventorship
Sometimes an invention is described in a scholarly or scientific publication as well as in a patent
application. The group of individuals who may appropriately be named as authors of the publication
and the inventors who may be properly named in the patent application may sometimes overlap,
but are not necessarily identical. This is true because the standard for inventorship is different than
the standard for selecting authors for an article.33 A researcher might list as co-authors colleagues
who made their labs and equipment available, discussed and helped evaluate data, performed some
of the experiments, or helped draft the paper for publication. However, these individuals would be
co-inventors of the invention only if they contributed to its conception. Moreover, while co-authors
may choose not to be named on a paper, U.S. patent laws require that every person who contributes
any part of what is claimed in a patent application must be named as an inventor.
There is an implicit lack of equality in co-authorship. Generally, the first or last listed author is
considered to be primary originator of the new ideas and data in the paper, and the others are
assumed to be secondary collaborators. Joint inventors, however, have equal rights to their patent
31 Ethicon, Inc. v. U.S. Surgical Corp., 135 F.3d 1456, 1460 (Fed. Cir. 1998).
32 See id. at 1461-62.
33 See, e.g., MPEP § 716.10 (“[t]he designation of authorship or inventorship does not raise a presumption of inventorship with respect to the
subject matter disclosed in the article or with respect to the subject matter disclosed but not claimed in the patent or published application
so as to justify a rejection under 35 U.S.C. § 102(f).”)
Patent 201
Although it may seem obvious, inventorship must be determined for the invention defined by the
claims at the end of a patent application.31 This is challenging because claims can be amended, deleted,
or added during prosecution of the patent application into a patent. Therefore, a final inventorship
determination should be made when allowable claims are identified. It is useful to note that because
there are often multiple claims with multiple elements, it is possible for a joint inventor to contribute
to only a single claimed feature, or to a feature recited in only a single claim. However, if that feature
or claim is cancelled from the claims of the application, the contributor of that feature should be
deleted from the list of named inventors. The first step in assessing (or reassessing) inventorship is
to construe the claims (i.e., determine what the invention is), and then compare the contributions of
asserted inventors or co-inventors with the claimed subject matter.32 This means that it is useful to
keep a record of the contributions of various individuals involved in the development process. If,
in the course of prosecution of the patent application, all claims that reflect the contribution of one
inventor are cancelled or rejected, that inventor’s name must be removed.
KILPATRICK TOWNSEND
unless they agree otherwise.34 Even though they did not conceive exactly the same idea together,
or each created a different part of the whole invention, or the contribution of one was only a small
but essential part of the invention, all are joint inventors and, absent an agreement to the contrary,
share an equal right to exclude others from making, using, or selling the claimed invention without
accounting to the other inventors.35
In contrast to scientific publications, the order of inventors listed on a patent is irrelevant. By
convention, the surname of the first inventor is printed at the top of the patent cover sheet and some
members of the patent community or courts refer to the patent by that name. Others tend to use
the name of the assignee or the last three digits of the patent number. Therefore, if there is a desire
to refer collectively to a grouping of patents having at least one inventor in common, it might be
useful to list the name of that inventor first. On the other hand, if it is important for an organization
to recognize each inventor individually from a group of inventors named on several patents or to
distinguish the patents from each other, then it would be advantageous to rotate the order of those
named first on the patent.
V.
Management is not Inventorship
There is sometimes a tendency in corporate research settings to consider individuals only tangentially
involved with a research project to be an inventor of the inventions that result from that project. This
tendency appears to increase in proportion to the particular individual’s status in the corporation or
the financial rewards or incentives offered by the corporation in connection with being named as
an inventor of a patented invention. That an individual is involved in the management or funding
of a research project does not make that individual an inventor if the individual did not contribute
to the conception of the invention claimed in the patent application, as discussed above. In other
words, a supervisor or team leader should not automatically be named as an inventor without first
identifying his or her contribution to the conception of the invention. In evaluating whether a
particular individual should be named as inventor, the detrimental effect on the validity of the patent
that results from errors in inventorship should always be kept in mind.
VI.
Correction of Inventorship
Despite the best efforts of those involved in the patent application preparation process to name
the proper inventors, times may exist when the initial determination of inventorship is incorrect.
Errors in inventorship may be corrected in a number of ways, which can be categorized according
to when the error is discovered and the correction attempted. As a general rule, inventorship should
be corrected as soon as an error is discovered.36 It is usually the case that the earlier the error
is discovered, the easier it is to correct. In almost all situations, however, it will be necessary to
establish that the error in inventorship occurred without deceptive intent.37
34 See 35 U.S.C. § 262 (2000).
35 See id.
36 See MPEP § 201.03 (“Although 37 CFR 1.48 does not contain a diligence requirement for filing the request, once an inventorship error is
discovered, timeliness requirements under 37 CFR 1.116 and 37 CFR 1.312 apply.”).
37 See Pannu v. Iolab Corp., 155 F.3d 1344, 1350 (Fed. Cir. 1998).
269
For example, errors in inventorship discovered during prosecution of a patent application may be
corrected by filing a petition to correct inventorship.38 This petition must be accompanied by (1) a
statement from each person being added as an inventor and each person being deleted as an inventor
that the error in inventorship occurred without deceptive intent on his or her part; (2) a new oath or
declaration signed by the actual inventors; (3) the consent of any assignee(s) to the change; and (4)
a petition fee.39
Less stringent requirements apply for correcting inventorship when the originally named inventors
were correct, but the prosecution of the application has resulted in the cancellation of all claims
to which one or more of the inventors contributed.40 These inventors can be deleted by filing a
petition acknowledging that the deleted inventor’s invention is no longer being claimed and paying
a petition fee.41
A patent that issues with incorrect inventorship is invalid.43 A defective patent omitting one or
more inventors can be corrected to add the omitted inventors in the absence of deceptive intent
by the applicant.44 Misjoinder of an inventor (i.e., when a patent incorrectly lists a person as an
inventor) can be corrected regardless of intent.45 The originally named inventors and assignees can
file a petition to the Commissioner of Patents and Trademarks to issue a certificate naming the
correct inventors.46 All originally named inventors and representatives of each assignee must submit
statements agreeing to the change of inventorship in the patent. Each person being added as an
inventor must state that the inventorship error occurred without deceptive intent on his or her part.
In situations where the inventorship issue is contested or all parties are not in agreement, and where
an issued patent is assigned to one or more entities, the assignee(s) of the entire interest of the patent
may file a reissue application to correct inventorship without the original inventor’s consent.47
38 Note that evidence of incorrect inventorship—such as an admission by an applicant presented in a failed request to correct inventorship
under 37 C.F.R. § 1.48(a)—can serve as a basis for a rejection of claims of an application under 35 U.S.C. § 102(f). See MPEP § 2137.01.
39 See 35 U.S.C. § 116 (2000); 37 C.F.R. § 1.48(a) (2008).
40 37 C.F.R. § 1.48(b) (2008).
41 Id.
42 Id. § 1.53(b)(1)(2).
43 See 35 U.S.C. § 256 (2000).
44 See id.; Pannu, 155 F.3d at 1350. If deceptive intent is found, a court can also render the patent unenforceable due to inequitable conduct.
See PerSeptive Biosys., Inc. v. Pharmacia Biotech, Inc., 225 F.3d 1315 (Fed. Cir. 2000).
45 See Stark v. Advanced Magnetics, Inc., 119 F.3d 1551, 1555 (Fed. Cir. 1997) (“[S]ection 256 allows deletion of a misjoined inventor
whether that error occurred by deception or by innocent mistake.”).
46 See 35 U.S.C. § 256 (2000); 37 C.F.R. § 1.324 (2008).
47 See MPEP § 1412.04.
Patent 201
The procedural requirements of petitioning to correct inventorship can be avoided, provided that
at least one true inventor was originally named when the application was filed. In this situation, a
“continuation” application naming the correct inventors can be filed.42 This requires a new oath or
declaration by the correct inventors, but does not require a petition or statement from the inventors.
Filing a continuation may cause the loss of patent term in certain cases, however, and the new
application fee charged by the United States Patent and Trademark Office is higher than the fee for
filing a petition.
KILPATRICK TOWNSEND
If the error is discovered during litigation, the patent is not automatically declared invalid.48 Instead,
if the court is satisfied that the error occurred without deceptive intent by the applicant, it can order
the Commissioner of Patents to issue the certificate of correction.49
VII.
Summary of Rules for Identification of Inventors
The definition of “joint inventor,” especially in the university setting, was clearly summarized in
Monsanto Co. v. Kamp:50
A joint invention is the product of collaboration of the inventive endeavors of two or
more persons working toward the same end and producing an invention by their aggregate
effort . . . [I]t is necessary that each of the inventors work on the same subject matter and
make some contribution to the inventive thought and to the final result. Each needs to
perform but a part of the task if an invention emerges from all of the steps taken together. It
is not necessary that the entire inventive concept should occur to each of the joint inventors,
or that the two should physically work on the project together. One may take a step at one
time, the other an approach at different times.
One may do more of the experimental work while the other makes suggestions from time
to time. The fact that each of the inventors plays a different role and that the contribution of
one may not be as great as that of another, does not detract from the fact that the invention
is joint, if each makes some original contribution, though partial, to the final solution of
the problem.
In summary, one should ask the following questions to identify whether the individual participated
in conception of the invention. If the answer to any question is “yes,” the individual is an inventor
and should be listed on the patent application.
(1)
(2)
(3)
(4)
(5)
Did the individual form in his or her mind a definite and permanent idea of the complete and operative invention such that someone else, skilled in the same area, would
be enabled by the idea to perform the method or make the product under the direction
of the individual without extensive research or experimentation?
Did the individual conceive a part of the invention as it is described and claimed in
the application?
Did the individual, independently and not under the direction of another, design experiments or resolve a problem that made the whole invention or some part of it operable?
Did the individual take the idea of another and add new and independent alterations
that became part of the invention as claimed in the patent application?
Did the individual advise another inventor on how to improve the basic inventive
concept by modification or addition such that the advice was incorporated into the
invention as claimed in the patent application?
48 See, e.g., C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340 (Fed. Cir. 1998).
49 See 35 U.S.C. § 256.
50 269 F. Supp. 818, 824 (D.D.C. 1967).
271
(6)
(7)
Did the individual’s independent mental processes result in a contribution, such as new
experimental designs, that resolved a problem in the basic inventive concept and made
it operable or useful?
Did the individual, during the course of experimentation, make an unexpected discovery and recognize the discovery as new and useful?
Patent 201
Practically speaking, the key questions on which inventorship turn are whether the individual in
question modified, contributed, or added to the basic inventive concept and whether this contribution
was communicated to the other inventor or joint inventors. If the contribution by an individual,
which was the result of his or her own independent mental activity, could be deleted from the
application without changing the invention as claimed, that individual is not a joint inventor.
KILPATRICK TOWNSEND
273
Reexamination Tactics: Present and Future
Mitchell G. Stockwell and Bonnie M. Grant
I.
Introduction
Patent litigation belies the notion of cost-effective, efficient patent dispute resolution. Typical costs
range from $500,000 and $4,000,000 to litigate a patent dispute to judgment. Like any complex
commercial dispute, these costs are driven in large part by attorneys’ fees, expert witness fees,
discovery costs, trial exhibits, etc. That these costs multiply so swiftly in patent litigation partly
stems from the many complex technical and legal issues—chief among them patent infringement
and validity—parties must investigate, assert, or defend.
One method of preparing for both settlement and litigation is to narrow the disputed issues with
reexamination. Reexamination entails the United States Patent and Trademark Office (“PTO”)
considering whether certain types of “prior art,” technical information available before the
invention, raise a substantial new question of patentability. This provides the PTO’s view of the
impact of the prior art on patent claim validity. That view (after any appeal) is dispositive when
claims are rejected; when original or amended claims are upheld, however, the PTO’s decision
following reexamination is highly relevant evidence of validity that a court must consider. These
reexamination results allow counsel for a patent owner or accused infringer to prepare a case for
trial and simultaneously generate important settlement leverage and options—at a bargain basement
price in comparison with trying validity to a court or jury.
This article describes present reexamination practice, the effect of a reexamination proceeding on
pending, anticipated, or subsequent litigation, and practical reexamination tactics.
II.
Reexamination Practice
Reexaminations may be inter partes or ex parte. Inter partes reexamination is available for patents
issuing from original applications filed in the U.S. on or after November 29, 1999. In general,
inter partes reexamination allows a great amount of participation by third party requestors. Under
inter partes reexamination, third party requestors may file comments responding to the patent
owner’s responses to office actions. Additionally, third party requestors may appeal decisions by
the PTO upholding patentability. Under inter partes reexamination, however, the “real party in
interest” must be identified, and third party requestors may be estopped under § 315(c) from making
certain arguments in subsequent litigations. From 2003 to 2007, inter partes requests increased by
600%.1 More than half of patents in inter partes reexaminations are known to be in litigation during
reexamination.2
1
2
Institute for Progress, Reexamining Inter Partes Reexam (April 2008), available at http://blog.patentassassins.com/up-content/
uploads/2008/05/interpartesreexamwhitepaper.pdf.
Id.
Patent 201
These dispute resolution costs help drive the vast majority of cases to settlement. Such frequent
settlements suggest that while counsel must prepare a case for trial, it is at least as important to
prepare for settlement.
KILPATRICK TOWNSEND
Ex parte reexamination allows significantly less participation by the third party requestor. In general,
after the PTO issues an ex parte order for reexamination, the third party requestor cannot participate
in the proceedings further. From 2002 to 2003, ex parte requests increased by 70%. In 2003, there
were 392 requests filed for ex parte reexamination, and of those, 109 requests are known to have
related litigation.
A.
Persons Who May Request and Participate in Reexamination
“Any person at any time may file a request for reexamination” of a patent—and they may do
so anonymously if they file for ex parte reexamination.3 But courts cannot order persons to file
reexamination requests.4 Nor can a court compel a patent owner to submit documents from
some third party with the patent owner’s submissions during the ex parte phase of reexamination
proceedings.5
B.
Contents of the Request
Each ex parte reexamination request must include (1) a statement pointing out each substantial new
question of patentability; (2) an identification of every claim for which reexamination is requested
and a detailed explanation of how the cited prior art applies to each such claim; (3) copies of the
prior art and the patent for which reexamination is requested; (4) a fee; and (5) “[a] certification
that a copy of the request filed by a person other than the patent owner has been served in its
entirety on the patent owner.”6 In addition to these requirements for submitting an ex parte request
for reexamination, inter partes requests for reexamination must include: (6) “[a] certification by
the third party requestor that the estoppel provisions of § 1.907 do not prohibit the inter partes
reexamination;” and (7) “[a] statement identifying the real party in interest to the extent necessary
for a subsequent person filing an inter partes reexamination request to determine whether that person
is a privy.”7 Requesters who own the patent also may describe why claims remain patentable despite
the prior art cited in the request.8 Also, the examiner may consider patents or printed publications
in addition to those cited in the request.
The most significant substantive portion of the request is the cited prior art and the characterization
of that art. The request must be based on “prior art consisting of patents or printed publications.”9
Under ex parte reexamination, however, admissions by the patent owner about matters affecting
patentability may be used in combination with a patent or printed publication.10 These content
restrictions reflect the limitations of the PTO, which is not generally equipped to hear or weigh
3
35 U.S.C. § 302 (2000); U.S. Dep’t of Commerce, U.S. Patent & Trademark Office, Manual of Patent Examining Procedure § 2212 (8th
ed. rev. 7 2008) [hereinafter MPEP]; see also Parker Hannifin Corp. v. Davco Mfg. Corp., 13 U.S.P.Q.2d 1412 (N.D. Ohio 1989) (refusing
to compel discovery on whether a party in litigation requested reexamination of the patent in suit).
4 In re Cont’l Gen. Tire, Inc., 81 F.3d 1089 (Fed. Cir. 1996).
5 Emerson Elec. Co. v. Davoil, Inc., 88 F.3d 1051 (Fed. Cir. 1996).
6 37 C.F.R. § 1.510(b)(5) (2008). The present reexamination fee is $2,520 (ex parte) or $8,800 (inter partes), but is subject to change (usually
upward). Id. § 1.20(c). If a reexamination proceeding is not instituted, a partial fee refund will be made. See id. § 1.26.
7 Id. § 1.915(b)(8).
8 Id. § 1.530(c).
9 35 U.S.C. § 301 (2000); 37 C.F.R. § 1.501(d) (2008). Patent owners—but no others—desiring consideration of issues like prior public
uses or sales may file a reissue application. 35 U.S.C. § 251 (2000).
10 MPEP, supra note 3, § 2217; see also Ex parte McGaughey, 6 U.S.P.Q.2d 1334 (Bd. Pat. App. & Int. 1988).
275
testimony or apply rules of evidence to admissibility of evidence about prior art not described in
patents, printed publications, or a clear record.
Moreover, while public use prior art cannot be considered on its merits within a reexamination
proceeding, patent challengers must be careful not to overlook other, allowable uses for such
evidence in reexamination. For example, that evidence bears on “secondary considerations” and the
level of skill in the art, factors established by the Supreme Court as pertinent to whether inventions
are obvious.14 Evidence that the invention was publicly known, used, or sold in the United States
by third parties may indicate obviousness by showing the “trial and success” of others.15 Also, such
evidence shows that the skill level in the relevant art sufficed to render the invention obvious to
artisans of ordinary skill.16
C.
The Standard for Granting Reexamination
All the evidence submitted in the request aims to answer the question: Does the cited prior art
present a substantial new question of patentability? For challengers seeking to cancel or narrow
patent claims, the answer is “yes” far more often than will be the answer to the corresponding
question in litigation: Does the prior art invalidate the claim? Indeed, the low threshold for
initiating a reexamination makes it difficult for patent owner requesters to persuade the PTO that
no reexamination need be ordered. Indeed, one recent statistic indicates that the PTO grants 95% of
inter partes reexamination requests.17
If available, the examiner who originally handled the patent application will decide the request
within at most three months. This is good news for patent owners—reexamination by the same
examiner issuing the patent probably heightens the chance that original or amended claims will be
confirmed.
MPEP, supra note 3, § 2218.
Id.
Id.; see also In re Ruscetta, 255 F.2d 687 (C.C.P.A. 1958).
Graham v. John Deere Co., 383 U.S. 1 (1966).
See, e.g., In re Merck & Co., 800 F.2d 1091, 1098 (Fed. Cir. 1986); Am. Standard, Inc. v. Pfizer Inc., 722 F. Supp. 86, 139 (D. Del. 1989).
See, e.g., Newell Cos. v. Kenney Mfg. Co., 864 F.2d 757, 766 n.2 (Fed. Cir. 1988); Felburn v. N.Y. Cent. R.R. Co., 350 F.2d 416, 424 (6th
Cir. 1965).
17 Institute for Progress, supra note 1.
11
12
13
14
15
16
Patent 201
Perhaps of more significance, a request may include affidavits or declarations explaining the content
or dating the prior art.11 Such written testimony provides an excellent mechanism for providing
persuasive expert testimony to the PTO about the prior art—either describing how it renders the
invention unpatentable or how the invention differs from or improves over the prior art. Also,
requesters may present evidence, including such affidavits or declarations “that claims in the patent
for which reexamination is requested are . . . not supported by an earlier . . . application whose filing
date is claimed.”12 With this procedure, “intervening” patents or printed publications that are dated
earlier than the patent’s actual filing date, but not dated earlier than the patent’s earliest filing date,
may be used as prior art.13
KILPATRICK TOWNSEND
D.
Proceedings After Grant of the Request
Upon finding a substantial new question of patentability, the examiner assigned to the proceeding
orders reexamination of the claim(s) to resolve that question. For ex parte reexaminations, the
order granting reexamination will generally set a two-month time period in which the patent owner
may file an optional statement and amendment refuting the substance of the request, amending
original claims, or adding new claims.18 If the patent owner files a statement and/or amendment, the
third party requestor may file a reply.19 In inter partes reexamination, however, the order granting
reexamination “will usually be accompanied by the initial office action on the merits.”20
In ex parte reexamination, after any statement or reply, the proceeding enters the prosecution
stage, during which the examiner may reject the claims being reexamined or any new proposed
claims.21 While the patent owner may file amendments and arguments responsive to any rejections,
a third party requester cannot participate in the prosecution stage.22 Similarly, a patent owner can
appeal a rejection, but a third party requester has no appeal rights.23 In inter partes reexamination,
however, a third party requester may file comments to every response filed by the patent owner to
an office action on the merits.24 Additionally, third party requesters may appeal decisions favorable
to patentability.25
Patents in reexamination are not presumed valid.26 Indeed, third party challengers or the PTO
need only prove that a particular claim is unpatentable by a preponderance of the evidence.27 This
burden is made even lighter given that the PTO gives the claims being reexamined their broadest
reasonable interpretation consistent with the patent’s specification.28 In ex parte reexamination,
these procedural advantages may help a third party challenger overcome the fact that patent owners
have multiple chances (through amendment, new claims, personal interviews with the examiner or
an appeal) to chip away at an examiner’s resolve to reject claims.
Once ordered, reexamination proceeds to conclusion. A recent survey indicates that the pendency
period for reexaminations without appeal is between 34 and 53 months, while the PTO’s own
statistics report a pendency of about 28 months.29 The survey authors have critiqued the PTO’s
18
19
20
21
22
23
24
25
26
27
28
29
37 C.F.R. § 1.530 (2008).
Id. § 1.535.
Id. § 1.935.
Although new claims may be added and original claims amended, they cannot be broader than the original issued claims, or they are
invalid under 35 U.S.C. § 305. See Quantum Corp. v. Rodime, PLC, 65 F.3d 1577, 1580 (Fed. Cir. 1995); Thermalloy Inc. v. Aavid Eng’g,
Inc., 935 F. Supp. 55 (D.N.H. 1996), aff’d, 121 F.3d 691 (Fed. Cir. 1997).
MPEP, supra note 3, § 2254.
MPEP, supra note 3, §2273.
37 C.F.R. § 1.947 (2008).
Id. § 1.953.
In re Etter, 756 F.2d 852 (Fed. Cir. 1985).
Ethicon, Inc. v. Quigg, 849 F.2d 1422, 1427 (Fed. Cir. 1988).
In re Yamamoto, 740 F.2d 1569 (Fed. Cir. 1984). By contrast, claims under attack in litigation are “construed, if possible, to sustain their
validity.” Id. at 1571 n.1.
Institute for Progress, supra note 1.
277
statistics as misleading.30 At its completion, the PTO issues a certificate confirming original or
amended claims and canceling unpatentable ones.
III.
The Effects of Reexamination
A.
On Pending or Anticipated Litigation
If related litigation on the patent is pending, courts may grant motions to stay the litigation or
dismiss it without prejudice until the reexamination proceeding concludes.31 For instance, the court
will typically grant stay requests that are filed before discovery proceeds substantially, given the
typical court’s desire to obtain the expert view of the PTO and, as a practical matter, to get rid of a
potentially complex patent case. Stays also make sense from the perspective of judicial efficiency—
there is little reason to determine validity or infringement of claims that may soon be canceled
or narrowed. If the court stays related litigation, the PTO will further expedite reexamination
proceedings.
Despite the good odds that a court will stay litigation in favor of reexamination proceedings,
nothing precludes patent owners from suing on a patent already in reexamination. For patents that
already have survived reexamination or that are in reexamination but have received an indication of
allowance from the PTO, patent owners may be able to establish more readily the factors necessary
for a preliminary injunction.32
B.
On Later District Court Proceedings
Much ink has been spilled on what effect a prior reexamination proceeding has when claims are
rechallenged in subsequent litigation. A summary of the law might read as follows: Confirmation
of patent claims following a reexamination proceeding effectively “strengthens” their statutory
presumption of validity. Although reexamination does not bind a court as to validity questions,33
it greatly increases a defendant’s burden of establishing the invalidity of a reexamined patent in
30 Id.
31 See generally Steven M. Auvil, Note, Staying Validity Litigation Pending Reexamination: When Should Courts Endeavor To Do So?,
41 Clev. St. L. Rev. 315 (1993); but see Standard Havens Prods., Inc. v. Gencor Indus., Inc., 953 F.2d 1360, 1366 n.2 (Fed. Cir. 1991)
(declining to stay proceedings in view of reexamination despite the Board’s approval of rejection); Arthrocare Corp. v. Smith & Nephew,
Inc., 315 F. Supp. 2d 615, 619-20 (D. Del. 2004) (denying accused infringer’s motion to stay injunction pending appeal because of
pending reexamination proceedings on the adjudicated patents); Eolas Tech. Inc. v. Microsoft Corp., 70 U.S.P.Q.2d 1939 (N.D. Ill. Jan. 15,
2004) (denying motion to stay entry of judgment in view of reexamination); NTP, Inc. v. Research in Motion, Ltd., No. Civ. A. 3:01CV767,
2003 WL 23100881 (E.D. Va. Aug. 5, 2003) (denying as moot RIM’s motion to stay pending director initiated reexaminations and entering
judgment).
32 See, e.g., Am. Permahedge, Inc. v. Barcana, Inc., 857 F. Supp. 308 (S.D.N.Y. 1994); Auto. Prods. PLC v. Fed. Mogul Corp., 11 U.S.P.Q.
2d 1471 (E.D. Mich. 1989).
33 Gen. Elec. Co. v. Hoechst Celanese Corp., 740 F. Supp. 305, 312 (D. Del. 1990).
Patent 201
A recent informal survey taken by Kilpatrick Townsend among registered patent attorneys comparing
the two types of reexamination proceedings found that the quality of inter partes reexaminations
is higher. Participants who had used both types of proceedings favored inter partes over ex parte.
Participants said that the most serious flaws in any reexamination proceeding included the inability
to raise evidence of public use prior art; the fact that there are no examiner interviews; and the
estoppel provisions of reexamination proceedings.
KILPATRICK TOWNSEND
view of the same art considered in reexamination.34 For example, in assessing validity, courts must
consider the fact that the PTO upheld the patent in reexamination.35
But courts should defer to PTO findings following reexamination only “with respect to the evidence
and prior art that was before both the PTO examiners and the court.”36 Thus, the PTO’s failure to
address invalidity for “obviousness” may allow a defendant to argue that the court should consider
obviousness independently.37 Likewise, no heightened burden applies if prior art not previously
before the PTO is used to show invalidity.
These rules generally make sense. The whole reason for a “heightened” validity presumption
following reexamination is that the PTO has confirmed claims despite the cited prior art. When the
same or similar evidence is used in subsequent litigation, the fact finder is entitled to presume that
the PTO did its job in reviewing that evidence, thus forcing the attacker “to show that the PTO was
wrong in its decision to grant the patent.”38 Although this is a higher burden, it is not impossible to
meet. On the other hand, if significantly new evidence or testimony is presented in later litigation,
the PTO’s failure to consider such evidence indicates no heightened presumption should apply.
Reexamination may impact more issues than whether a party’s patent is invalid in view of prior art
patents or printed publications. Thus, even though infringement and inequitable conduct issues are
not directly considered by the PTO during reexamination, reexamination proceedings may have an
impact on how a court or jury subsequently views those issues.
A party challenging the validity of a patent through a reexamination proceeding obviously seeks to
have patent claims canceled; such canceled claims cannot be infringed. Even if, however, this goal
is not achieved, if the PTO considers the claims to be overly broad, the patent owner may be forced
to amend them. Those amendments may further distinguish the claims from what the third party is
doing or plans to do, possibly enhancing non-infringement defenses. Likewise, any arguments made
by the patent owner during the reexamination proceeding may help the third party to have the claims
interpreted more narrowly or may create estoppels that would prevent the patent owner from relying
on the doctrine of equivalents to ensnare equivalent products or processes.
Additionally, claim amendments may trigger “intervening rights,” which essentially preclude the
patent owner from seeking infringement damages for activities occurring before the completion
of reexamination.39 The statute provides for both “absolute” and “equitable” intervening rights.
If “substantive” claim amendments are made during reexamination, absolute intervening rights
preclude recovery for all products made, purchased, used, or imported before the issuance of the
34 See, e.g., Am. Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350, 1364 (Fed. Cir. 1984) (“[B]ecause the PTO has now held the
claims in suit patentable in light of the additional art . . . , [defendant’s] burden of proof of unpatentability has become more difficult to
sustain.”).
35 See, e.g., Custom Accessories, Inc. v. Jeffrey-Allan Indus. Inc., 807 F.2d 955, 961 (Fed. Cir. 1986); Thermal Eng’g Corp. v. Clean Air Sys.,
Inc., 706 F. Supp. 436, 443 (W.D.N.C. 1987).
36 E.I. du Pont de Nemours & Co. v. Cetus Corp., 19 U.S.P.Q. 2d 1174, 1180 (N.D. Cal. 1990).
37 See id.
38 Am. Hoist, 725 F.2d at 1360 (discussing the effect of a reissue proceeding).
39 35 U.S.C. §§ 252, 307 (2000); see generally Westvaco Corp. v. Int’l Paper Co., 991 F.2d 735 (Fed. Cir. 1993); Laitram Corp. v. NEC
Corp., 952 F.2d 1357 (Fed. Cir. 1991); Fortel Corp. v. Phone-Mate, Inc., 825 F.2d 1577 (Fed. Cir. 1987); Kaufman Co. v. Lantech, Inc.,
807 F.2d 970 (Fed. Cir. 1986).
279
reexamination certificate.40 Depending on the factual circumstances, the third party challenger may
also persuade a court to grant “equitable” intervening rights, under which the challenger and its
customers may continue manufacturing, selling, offering for sale, importing, and using allegedly
infringing products at least to recoup its investment prior to the issuance of the reexam certificate.41
Reexamination can also be used to help establish the “materiality” prong of the inequitable conduct
defense, by which a court can hold a patent unenforceable if it is shown that certain persons
intentionally withheld “material” prior art information from the PTO during the original prosecution.
That is because “the result of a PTO proceeding that assesses patentability in light of information
not originally disclosed can be of strong probative value in determining whether the undisclosed
information was material.”42 On the other hand, failure of a party alleging inequitable conduct
to include a reference in a reexamination request “weighs heavily against” any argument that the
reference was material.43
IV.
Reexamination Tactics
A.
Reexamination Goals and Tactics by Third Party Challengers
(1)
(2)
(3)
(4)
seeking to have claims in the patent canceled or at least narrowed to increase the challenger’s non-infringement defenses or to provide grounds for intervening rights;
forcing the patent owner to submit arguments in favor of patentability that might create narrower claim interpretations or estoppels to enhance the challenger’s non-infringement defenses;
showing that certain prior art withheld during the original prosecution is material; or
seeking a less expensive forum for adjudicating validity questions and seeking to stay
concurrent, more expensive district court proceedings during that adjudication.
Other reasons for seeking reexamination include the benefits of going to an expert forum such as the
PTO over seeking to invalidate a patent in front of a jury or a court, which may be confused by the
complexity of the technology or have its judgment about validity issues impacted by other issues
to be decided in an infringement case.44 Challengers may also seek reexamination because of the
procedural benefits discussed above.
40 Cf. BIC Leisure Prods., Inc. v. Windsurfing Int’l, Inc., 774 F. Supp. 832, 837 (S.D.N.Y. 1991) (granting absolute intervening rights based
upon the defendant having an order for the infringing goods in hand on the reissue of the patent), aff’d in pertinent part, 1 F.3d 1214 (Fed.
Cir. 1993).
41 35 U.S.C. § 252 (2000). Few courts have granted such rights. Compare Wayne-Gossard Corp. v. Sondra, Inc., 434 F. Supp. 1340, 1363
(E.D. Pa. 1977) (noting that defendant’s sales before the critical date amply compensated it for its investment and denying equitable
intervening rights), aff’d, 579 F.2d 41 (3d Cir. 1978), with Plastic Container Corp. v. Cont’l Plastics, Inc., 607 F.2d 885, 903 (10th Cir.
1979) (allowing infringers “to recoup [their] investment and to offset, against any infringement damages, the reasonable cost of converting
or replacing [their] present equipment in order to produce noninfringing goods.”) and Richardson-Vicks, Inc. v. Upjohn Co., Civ. A. No.
93-556, 1996 WL 31209 (D. Del. 1996) (granting intervening rights following a reexamination and applying a 7% running royalty to
defendant’s sales to compensate patent owner).
42 Molins, PLC v. Textron, Inc., 48 F.3d 1172, 1179 (Fed. Cir. 1995); see also Glaverbel Societe Anonyme v. Northlake Mktg. & Supply, Inc.,
45 F.3d 1550 (Fed. Cir. 1995).
43 Sensonics, Inc. v. Aerosonic Corp., 81 F.3d 1566, 1571 (Fed. Cir. 1996).
44 See generally William J. Speranza & Michael L. Goldman, Reexamination-The Patent Challenger’s View, 15 A.I.P.L.A. Q.J. 85 (1987).
Patent 201
Reexamination allows a patent challenger to pursue several goals, including:
KILPATRICK TOWNSEND
When a third party has been accused of infringement, additional factors can be identified that,
if present, favor use of a reexamination, especially inter partes reexamination. For instance,
reexamination should at least be considered where: an accused infringer has limited litigation
resources; the case is mostly about past damages and the prior art presents a chance of claim
amendments resulting in intervening rights; the technology is complex and likely to be viewed by
the jury or court as presumptively entitled to a patent; and substantial existing non-infringement or
invalidity defenses will remain whatever the reexamination outcome.
Despite the presence of such factors, the tendency of reexamination proceedings to result in
confirmed, if amended, patent claims suggests a cautious approach in selecting the reexamination
option. Thus, when the main defense is invalidity and only weak to fair non-infringement defenses
exist, reexamination may not be appropriate given the apparent bias favoring confirming some
claims. This is especially true given that a court or jury may be all too willing to defer to the PTO’s
judgment on the effect on patent validity of the prior art already considered. However, if inter
partes reexamination is available (i.e., the patent issued on or after November 29, 1999), the third
party may have a better chance at obtaining claim cancellation because of the greater amount of
participation permitted.
A third party may employ various tactics to increase the chances that claims are amended or
canceled in reexamination. For instance, PTO statistics indicate that the chances of having claims
canceled or changed increase if a third party files a reexamination request.45 Thus, when the patent
is in litigation and the patent owner requests reexamination of its own patent, the accused infringer
should consider filing a second request seeking to put its views in front of the PTO. Indeed, some
third parties in ex parte settings, to enhance their ability to participate, have filed multiple requests,
typically refuting the patent owner’s responses to examiner’s actions that issue in the ex parte phase
of reexamination.46 If inter partes reexamination is available, the third party challenger will have a
much greater procedural advantage in the reexamination process.
In addition to tactics implemented to enhance chances of a “successful” reexamination outcome,
third parties accused of infringement should give thought to the tactical advantages reexamination
offers in the context of the overall dispute. First, the substantially reduced cost of reexamination is
a powerful incentive for less funded defendants to use the procedure because it tends to level the
playing field. This incentive is enhanced when the reexamination may allow for a stay of expensive
concurrent district court litigation.
Likewise, during the long delay occasioned by reexamination, changes in priorities in the strengths
of the case and, likely, in the market environment may possibly favor the accused infringer. For
example, if during that time the product becomes less important, the patent owner may become
45 Id. The same data show that having an examiner other than the one who originally issued the patent assigned to the reexamination also
enhances the chances that claims will be canceled or amended. Oral reports circulate among the bar of successful motions to recuse
particular examiners from handling reexaminations of patents they originally issued, but no reported decisions reflect such recusals. But
see In re Ovshinsky, 24 U.S.P.Q.2d 1241 (Comm’n of Pat. & Trademarks 1992) (finding no bias by the examiner against the patent owner
and denying patent owner’s petition to recuse examiner assigned to reexamination proceeding).
46 PTO rules provide for consolidating such multiple requests, provided they are timely. 37 C.F.R. § 1.565 (2008); MPEP, supra note 3,
§ 2283. Other rules, however, provide some protection for the patent owner by stating that, “in aggravated situations where it appears clear
that the second or subsequent request was filed for purposes of harassment, the request should be denied.” MPEP, supra note 3, § 2240.
281
reluctant to expend resources enforcing the patent even if it survives reexamination. Or, if the accused
product is removed from or phased out of the market during reexamination and the patent owner is
also forced to narrow its patent claims, the resulting possible intervening rights may significantly
decrease the case value. That is particularly so if concurrent district court proceedings are stayed.
A stay may convince the patent owner to settle, because it will be unable to get a judgment for the
one-to-two-year period it takes to complete the reexamination proceeding. A stay also provides
the requester the opportunity to find and evaluate additional, possibly invalidating prior art while
preventing the patent owner from taking expensive discovery of the requester.
The very threat of a reexamination proceeding also may be a powerful tactic that could force a
belligerent plaintiff to the negotiation table. Few patent owners, particularly ones engaged in an
extensive licensing or enforcement program, can face the prospect of their patent being tied up
for 18 months or more in a reexamination proceeding without seriously considering a reasonable
settlement proposal. One such proposal could hinge on the reexamination outcome. For instance,
the accused infringer could propose settling the case by paying “X” if the patent does not survive
reexamination; a greater amount “Y” if the patent survives, but the claims are narrowed; or an even
larger amount “Z” if the patent survives unscathed. “X,” “Y,” or “Z” could be fixed amounts or
changing royalty payments for past and future sales.
Reexamination Tactics by Patent Owners
Obviously, patent owners seek to survive reexamination with an intact or substantially intact patent
and then argue that the court or jury should defer to the PTO’s expert view on validity issues. Patent
owners may also seek new, narrower claims that cover infringing products yet, because they are
narrower, are more likely to survive challenges to their validity following reexamination. To avoid
possible intervening rights, patent owners may seek such narrower claims by rewriting original, still
allowable dependent claims into independent form.47
Once a certificate confirming original, new, or amended claims issues, the patent owner can then rely
on the heightened presumption of validity generally accorded to the reexamined patent. Likewise,
if a request for reexamination is denied, that very denial will also give the patent owner powerful
arguments that the prior art cited neither impacts the validity of its patent nor is sufficiently material
to support any inequitable conduct allegations if it was art that was arguably withheld during earlier
prosecution.
Tactically, an enhanced, stronger patent allows the patent owner to more readily obtain a preliminary
injunction, since the patent’s presumed validity strongly supports a likelihood that the patent owner
will successfully thwart an invalidity defense.48 If litigation has been stayed or will soon commence,
47 See 35 U.S.C. § 305 (2000) (prohibiting patent owners from seeking broader claims).
48 See e.g., Am. Permahedge, Inc. v. Barcana, Inc., 857 F. Supp. 308 (S.D.N.Y. 1994); Auto. Prods. PLC v. Fed.-Mogul Corp., 11 U.S.P.Q.
2d 1471 (E.D. Mich. 1989).
Patent 201
B.
KILPATRICK TOWNSEND
a patent owner also can use the fact that the patent was successfully reexamined or that a request for
reexamination was denied to more readily defend a summary judgment of invalidity.49
Even better, patent owners may in some limited circumstances seek summary judgment that the
patent is “not invalid” in view of the defendant’s prior art, thereby narrowing the issues for the court
or jury to infringement. For example, the court in Transmatic, Inc. v. Gulton Industries50 granted
partial summary judgment of validity and in doing so observed that “[t]he Court will especially give
deference to the PTO’s patentability decision in this case because the PTO found the . . . invention
patentable twice--initially and upon reexamination.”
Of course, the third party challenger’s procedural benefits are the patent owner’s burdens. For
example, the presumption of validity whose benefit is lost to the patent owner during reexamination
is a powerful shield that sometimes may be all that prevents a fact finder from determining the
invention was taught by the prior art. Thus, patent owners with a weak patent facing potentially
strong art may wish to avoid reexamination and instead rely on the statutory presumption.
V.
Conclusion
A reexamination proceeding is a powerful dispute resolution tool that both patent owners or patent
challengers may wield to great effect. It provides a relatively efficient forum in which to confirm
validity of patents on valid inventions and eliminate patents on technology that does not constitute
true invention deserving of patent protection.
49 For example, in reissue proceedings, the Federal Circuit has consistently required district courts to consider the fact that the PTO
considered the prior art during reissue. See, e.g., Fromson v. Advance Offset Plate, Inc., 755 F.2d 1549 (Fed. Cir. 1985); Am. Hoist and
Derrick Co. v. Sowa & Sons, 725 F.2d 1350 (Fed. Cir. 1984).
50 818 F. Supp. 1052, 1063 (E.D. Mich. 1993), aff’d in part, rev’d in part, 53 F.3d 1270, 1275 (Fed. Cir. 1995).
283
International Patent Protection
Brenda O. Holmes, J. Michael Boggs, and J. Jason Link
I.
Introduction
Recent changes in the geo-political landscape and international trade relations emphasize the need to
consider international protection for innovative technologies. For example, China’s admission into
the World Trade Organization (“WTO”) has significantly reduced trade barriers with the world’s
most populous country and accelerated economic and technological globalization. The coalescing
of the European Community into a single market creates opportunities for trade efficiencies, and
presents U.S. businesses with the political challenges of a more strongly positioned trade partner.
These and other developments highlight the need to consider seeking patent protection for valuable
technologies in the international arena.
This paper provides a basic framework of international patent application systems from the standpoint
of the U.S. applicant. The first section identifies various international and regional treaties and
conventions under which inventors can file patent applications. The second section discusses the
Paris Union Convention and the “right of priority.” The third section discusses the patent filing and
granting system under the European Patent Convention. The following sections discuss the Patent
Cooperation Treaty and its usefulness and advantages to U.S. applicants. The remaining sections
discuss other aspects of international patent protection, including the “Patent Prosecution Highway”
between various patent offices, design registrations, utility models, and practical considerations in
making international filing decisions.
Filing Options for International Patents
Ultimately, inventors must obtain patents in each country where protection is desired. Rather than
filing a “national” application directly in each country at the outset, it is possible to initially file a
regional application for member countries, or a single application under the Patent Cooperation Treaty
(“PCT”), which can lead to patents in multiple commercially important countries.1 For example, a
U.S. applicant can file directly in each country in which he or she seeks protection with a right to
claim priority under the Paris Union Convention (“PUC”) for PUC member countries (the national
route).2 Alternatively, a U.S. applicant can file a PCT application followed by regional or national
filing for those countries that are PCT members.3 To illustrate, for protection in Europe, an applicant
may file: (1) a national application in each individual country; (2) a single European application in
the European Patent Office (“EPO”)4 that applies to all member countries of the European Patent
1
2
3
4
Patent Cooperation Treaty, June 19, 1970, 28 U.S.T. 7645 [hereinafter PCT].
Paris Convention for the Protection of Industrial Property, March 20, 1883, 21 U.S.T. 1538 [Paris Union Convention, hereinafter PUC].
As of October 16, 2008, 139 countries are PCT members.
Convention on the Grant of European Patents, Oct. 5, 1973, 1065 U.N.T.S. 255 [European Patent Convention, hereinafter EPC].
Patent 301
II.
KILPATRICK TOWNSEND
Convention (“EPC”);5 or (3) a PCT application followed by a regional EPO application or national
filings in European member countries of the PCT.
Three other treaties provide additional regional filing options. Under the African Intellectual
Property Organization (“OAPI”) treaty, the 16 French-speaking countries that are members6 offer
OAPI patents, but national patents are not available.7 For the 16 countries8 of the African Regional
Intellectual Property Organization (“ARIPO”) Patent Convention, most of which are Englishspeaking, applicants can obtain both national and ARIPO patents under the Harare Protocol.9
The Eurasian Patent Convention permits an inventor to obtain a single patent that provides legal
protection in all 19 member states,10 which are primarily former Soviet states.11
III.
The Paris Union Convention and Right of Priority
In the United States, an applicant has a one-year grace period to file a patent application from the
time an invention is published, offered for sale, placed in use, or made publicly known.12 This
“relative novelty” rule allows an applicant to assess the commercial prospects of the invention
and then decide whether to file for patent protection. However, other countries have an “absolute
novelty” requirement, meaning that if an invention is published, offered for sale, placed in use,
or made publicly known before the effective filing (priority) date, an applicant is precluded from
obtaining patents on the invention. Most countries other than the United States have such an absolute
novelty requirement, which means that the effective filing date of a patent application must be prior
to the first offer for sale, public use, or disclosure of the invention.
Prior to the PUC, which became effective on June 1, 1978, most international filing of patent
applications was carried out by directly filing an application in each country where the applicant
desired patent protection. Under the PUC, however, corresponding international patent applications
filed within one year of the U.S. filing date may claim priority and are considered filed as of the U.S.
filing date. This feature of the PUC is called the “right of priority.”13 The right of priority enables
any resident or national of a member country to first file a patent application in any member country
5
6
7
8
9
10
11
12
13
As of January 2009, member countries of the European Patent Convention include: Austria, Belgium, Bulgaria, Croatia, Cyprus, the
Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania,
Luxembourg, Malta, Monaco, the Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, the
former Yugoslav Republic of Macedonia, Turkey and the United Kingdom.
Benin, Burkina Faso, Cameroon, Central Africa, Chad, Congo, Cote d’Ivoire, Equitorial Guinea, Gabon, Guinea, Guinea-Bissau, Mali,
Mauritania, Niger, Senegal, and Togo.
African Intellectual Property Organization, Agreement Revising the Bangui Agreement of March 2, 1997 on the creation of an African
Intellectual Property Organization, Feb. 24, 1999, http://www.oapi.wipo.net/doc/en/Bangui_agreement.pdf.
Botswana, Gambia, Ghana, Kenya, Lesotho, Malawi, Mozambique, Namibia, Sierra Leone, Somalia, Sudan, Swaziland, Tanzania,
Uganda, Zambia and Zimbabwe.
http://www.lawyersforafrica.com/oapi.htm (last visited Mar. 6, 2009).
The Republic of Azerbaijan, the Republic of Armenia, the Republic of Belarus, Georgia, the Republic of Kazakstan, the Kyrgyz Republic,
the Republic of Moldova, the Russian Federation, the Republic of Tajikistan, Ukraine, Turkmenistan, Belarus, Tajikistan, The Russian
Federation, the Republic of Kazakhstan, Republic of Azerbaijan, the Kyrgyz Republic, the Republic of Moldova, and the Republic of
Armenia.
Eurasian Patent Convention, Aug. 12, 1995, in 12 World Intellectual Property Organization, Industrial Property Laws and Treaties:
Multilateral Treaties, WIPO Pub. No. 609(E), Text 2-013, available at http://www.eapo.org/eng/documents/konvenci.html.
35 U.S.C. § l02(b) (2000).
PUC, supra note 2, art. 4.
285
and to thereafter file a patent application for the same invention in any other of the countries within
12 months of the first filing, with the effect that these subsequently filed applications enjoy the right
of priority of the first filing date. That is, such later-filed applications will be treated as if they were
filed on the first filing date.14 Thus, a public use, for instance, after the U.S. filing date would not
bar patent rights in a member country in which a PUC application was filed after the public use but
within a year of the U.S. filing date.
Because substantially all of the major industrial countries are members of the Paris Union and
because of the significant advantages deriving from the right of priority, nearly all patent applications
filed abroad by U.S. applicants are filed within 12 months of the U.S. application and claim the right
of priority under the PUC. As of August 2, 2008, there are 173 member states of the Paris Union.15
For certain non-Paris Union countries, U.S. applicants enjoy the right of priority based upon other
conventions or reciprocal national legislation.
IV.
The European Patent Convention
The EPC is a treaty providing a patent filing and granting system for certain European countries.16
Beginning on June 1, 1978, member countries have accepted applications claiming the benefit of
the right of priority.17
A primary objective of the EPC is to develop uniformity of patent protection in Europe. Indeed, the
EPC provides the ground work for the Community Patent Convention (“CPC”), which, if ratified,
will provide for a single patent covering the entire territory of the European Community or European
Union. On January 16, 2006, the European Commission announced the launch of a final effort
to forge a Community-wide patent regime, with one single Community patent, one patent court,
and one legal framework for jurisdiction over all European patent disputes.19 However, to date,
implementation of the CPC has been stalled by numerous logistical hurdles. Another significant
EPC objective is to reduce the cost of obtaining such patent protection by avoiding duplication of
filings, searching, and examination, by minimizing the number of translations that are required, and
14 See 35 U.S.C. §§ 119, 365 (2000 and Supp. II 2002) (implementing the right of foreign priority in the U.S.).
15 See World Intellectual Property Organization, Paris Convention for the Protection of Industrial Property, Contracting Parties (Oct. 15,
2008), http://www.wipo.int/exrport/sites/www/treaties/en/documents/pof/paris.pof (last visited Nov. 24, 2008).
16 EPC, supra note 3.
17 Id. art. 87.
18 European Patent Office, Member States, the European Patent Organisation, www.epo.org/about-us/epo/member-states.html (last visited
Mar. 9, 2009).
19 Paul Meller, As Europe Tries for United Patents, Italy Moves Alone, NY Times, Jan. 17, 2006.
Patent 301
The EPC establishes a regional system for the granting of patents in member European countries
through the EPO. As of November 24, 2008, 34 European countries are members of the EPC, and
four other countries also participate in the EPC as “extension states.”18 The EPO administers a
uniform procedural system for centralized filing, searching, examination, and opposition for a
single European patent application, which, when granted, becomes a bona fide patent in each of
the countries designated by the applicant. This European granting system and the resulting bundle
of European patents exist in parallel to the conventional national filing and granting procedures
resulting in national patents.
KILPATRICK TOWNSEND
by economizing on the use of time by the applicant’s domestic and foreign patent representatives in
each country where filling is anticipated.
The EPC is procedurally coordinated with the PCT. For example, and importantly for U.S. applicants,
the EPC provides that the EPO can act as a designated office under the PCT for member states of
the EPC that are also member states of the PCT.20 This provision allows U.S. applicants to file a
European patent application through the PCT for EPC member states and extension states that also
belong to the PCT.
V.
The Patent Cooperation Treaty
The PCT is an international agreement among nations for the purpose of unifying and simplifying
the procedures that must be followed by the nationals and residents of one member country when
filing patent applications in the other member countries.21 Since June 1, 1978, member states have
accepted applications under the PCT, where applicants can claim the benefit of the right of priority
based upon one or more applications filed in the previous 12 months in any member country of
the Paris Convention.22 In addition to simplifying application procedures, the PCT is designed to
decrease expenses of multiple foreign filings. As of October 16, 2008, the PCT is in force in 139
countries.23 Because the PCT is a worldwide convention, it is expected to continue to increase its
membership.
Under the PCT, an applicant can postpone filing until the last day of the one-year period within
which priority can be claimed to an effective earlier filing date in a Paris Convention country. Filing
a PCT application is deemed to effect the national filing of the same application in each PCT member
country designated by the applicant at the time of filing.
The PCT has two main procedural chapters. Chapter I involves international processing steps
including a search and publication of the application and search results. Chapter II is optional and
relates to international preliminary examination. Complete texts of the PCT, its Implementing
Regulations, and the PCT Administrative Instructions are available from the World Intellectual
Property Organization (“WIPO”) in Geneva, Switzerland, and are available on the WIPO web site.24
Chapter I of the PCT establishes an essentially procedural system for the centralized filing and
searching of a single international application. Upon filing of a PCT application, the selected
International Searching Authority (“ISA”), for example, the ISA in the U.S. or the EPO,
automatically provides an international search report within a nine-month period. Shortly thereafter,
the ISA will establish a written opinion as to the patentability of the claimed invention and whether
the international application complies with the requirements of the PCT.25 The international search
EPC, supra note 3, art. 153.
PCT, supra note 1.
Id., art. 8.
World Intellectual Property Organization, PCT Resources, PCT Contracting States (Oct. 16, 2008), http://www.wipo.int/pct/guide/en/
gdvol1/annexes/annexa/ax_a.pdf.
24 World Intellectual Property Organization, http://www.wipo.int/portal/index.html.en (last visited Mar. 9, 2009).
25 PCT, Rule 43bis.1, Written Opinion of the International Searching Authority, http://www.int/PCT/en/texts/Rules/r43bis.htm#_43bis_1
(last visited Mar. 9, 2009).
20
21
22
23
287
report and the written opinion provide the applicant an opportunity to evaluate the possible scope of
claim coverage before paying filing fees in individual countries. Under Chapter I, the applicant may
amend the claims within the scope of the disclosure.26
Under Chapter II of the PCT, an applicant who wishes to maintain an application in light of the
search report has the opportunity to file a Demand for Preliminary Examination. An applicant
may make a “Demand” at any time prior to the expiration of either three months from the date of
transmittal of the international search report or written opinion, or 22 months from the priority date.
Upon filing a “Demand,” the International Preliminary Examining Authority (“IPEA”) receives a
copy of the written opinion issued by the ISA. During Chapter II prosecution, an applicant can
make amendments to the application and the claims and submit arguments in response to the written
opinion of the ISA, and can conduct an interview with the patent examiner. At the end of Chapter
II prosecution, the IPEA will issue an international preliminary report on patentability. In cases
where a “Demand” has not been made, or a “Demand” has been made without the submission of
amendments or arguments, the written opinion of the ISA will form the basis of the international
preliminary report on patentability from the IPEA.27
For the large majority of PCT member states, merely filing a PCT application under Chapter I
delays the time for entry into national stage prosecution until 30 to 31 months after the priority
filing date. For four PCT member states (as of June 1, 200728), entry into national stage prosecution
and payment for filing in the individual national offices can be delayed from 20 months until 30
to 31 months after the priority date by filing a “Demand” under Chapter II. Alternatively, filing in
these states can also be extended to the 30 to 31 month deadline by filing a regional phase patent
application in the appropriate regional office.29 Because a “Demand” is now generally not required
to extend the time period for entering national stage prosecution, the filing of “Demands” is much
less common today than in the past.
VI.
Advantages of a PCT Application
Filing a PCT application offers a number of advantages over filing national applications in individual
countries. For example, a PCT application permits last minute filing before expiration of the priority
year. The international filling date has the effect of a national filing date in all PCT member patent
26
27
28
29
PCT, supra note 1, Chapter I, International Application and International Search.
Id., Chapter II, International Preliminary Examination.
Switzerland, Luxembourg, Tanzania, and Uganda
The deadline for filing can be extended until 30 to 31 months after the priority date in Switzerland and Luxembourg by a regional filing
in the EPO and in Tanzania and Uganda by a regional filing in the AIRPO.
Patent 301
National or regional stage applications do not have to be filed in all countries or regions, but a PCT
application must be converted into national or regional stage applications in the countries where
patent protection is sought by the expiration of the applicable 20 or 30 to 31 month time period.
By postponing the need to retain patent agents in designated PCT countries and the requirement for
filing translations of an application until after written opinion and/or the international preliminary
report on patentability is available, the applicant obtains a further potential savings if he or she
decides not to continue prosecution of the application in particular countries.
KILPATRICK TOWNSEND
offices. PCT requirements as to form and content of applications are binding on all contracting
states. Thus under the PCT, one application in one language filed in one office postpones multiple
international filings until entry into the national phase. Under the PCT, member patent offices accept
uniform formal requirements and amendments made during the international phase. Additionally, an
applicant can obtain greater “home” control of the prosecution with a PCT application.
An important advantage is that the applicant can postpone decisions on foreign filings up to 30
months, or in some cases 31 months, from the priority date at much less cost. This delay of national
stage prosecution allows time to better evaluate the technical and economic value of the invention, to
better identify possible markets, and to find business partners and possible licensees. The applicant
can avoid further expenses, including expenses for official fees, local agents, and translations, simply
by no longer prosecuting the application or by entering the national stage in selected countries only.
Another significant benefit of PCT applications is the increased chance for obtaining stronger
international patents. The written opinion and/or the international preliminary report on
patentability, based on the state of the art of the invention as established in the international search
report, indicate what claims would be allowable before entering the national stage. In addition,
during the international phase, the applicant may obtain more information about possible conflicting
applications by competitors prior to national stage entry, enabling adjustment of filing strategy.
Moreover, the applicant may draft the final version of the claims when the commercial value of the
invention is better understood. Since information related to claims, competitors, and commercial
value is exposed before entering the national stage, filing under the PCT increases the likelihood of
stronger foreign patents.
A PCT application also provides greater flexibility during prosecution. For example, in a PCT
application, the applicant may postpone international publication until as late as 15 days before
the publication date, at which time the application may be withdrawn. Timing of a PCT application
is also flexible. The applicant may file a PCT application before or after the filing of a national
application; may claim priority to a U.S. provisional application; and may file at the end of the
priority year or earlier.
Using on-line software assists applicants in preparing applications, and software developers are
making progress toward electronic filing of PCT applications. The PCT filing process is becoming
even easier. For example, the Patent Law Treaty, adopted by WIPO on June 1, 2000, streamlines and
harmonizes with the PCT the administrative requirements of national patent offices for the filing and
processing of national patent applications.30
Because of these advantages and an increasing desire by companies to protect innovations globally,
the popularity of the PCT process has grown dramatically. The number of PCT applications filed
since inception of the PCT in 1978 has grown exponentially, with more than half of the greater than
1,490,000 total PCT applications having been filed in the last five years. In 2007, applicants filed
nearly 160,000 PCT applications. Of the record number of applications filed in 2007, 34% were
from the United States, 18% were from Japan, and 11% were from Germany. There has also been
30 Patent Law Treaty, June 1, 2000, 39 I.L.M. 1047.
289
a significant increase in PCT filings from applicants in other countries. For example, between 2003
and 2007, the number of PCT applications filed from China increased by 422%, and the number
filed from Korea increased by 240%.31
VII.
PCT as a Route for Domestic Filing of U.S. Patent Applications
The PCT provides another option for the filing of domestic U.S. patent applications by U.S. residents
and nationals. A PCT application filed by a U.S. applicant may be a first-filed application, which could
serve as a basis for a claim of priority for a U.S. application and/or other foreign applications filed
within 12 months and having the effective filing date of the international application. Alternatively,
the PCT application may be a second-filed application claiming the right of priority based upon a
first-filed regular or provisional U.S. national application filed within the preceding 12 months.
Also, for continuing applications under U.S. practice, 35 U.S.C. § 120 permits either a domestic
U.S. application or a PCT application to serve as a parent application. In such a case, the 12-month
limitation for foreign priority does not apply, but the parent and continuing applications must be
co-pending as required by § 120.
Filing a national application first, such as in the U.S., provides some advantages. Filing a national
application first allows more time to evaluate the merits of an invention before incurring foreign
filing expenses since the PCT filing costs can be deferred by one year. Also, during the one year
priority period, search reports and examination of the national application may be available, and the
applicant can redraft the application to include improvements and discovered features and examples
of the invention before PCT filing.
VIII.
Patent Prosecution Highway
A.
Overview of the Patent Prosecution Highway
The Patent Prosecution Highway (“PPH”) is a program between patent offices in different countries
for accelerating a patent grant under certain circumstances. The essence of the PPH program
is that when a patent office in one country rules that at least one claim is patentable, the patent
applicant can then ask the patent office in another country to “fast track” the examination of the
31 World Intellectual Property Organization, The International Patent System in 2007, PCT Yearly Review: Developments & Performance,
http://www.wipo.int/pct/en/activity/pct_2007.html (last visited Mar. 9, 2009).
Patent 301
On the other hand, there are advantages of filing a PCT application first. Filing a PCT application
first permits a single filing for all PCT countries at one time and at one cost. In a first-filed PCT
application, the applicant receives the international search report earlier (within nine months from
the filing date), which is before direct PCT filings in non-PCT countries. Earlier filing of a PCT
application introduces the option of withdrawing the international application before the 18-month
publication date. In addition, the applicant can file a “Demand” early to begin the international
preliminary examination early and thereby allow more time before issuance of the international
preliminary report on patentability at 28 months from the priority date. By filing a PCT application
first, domestic and international prosecution can occur concurrently, which lessens the chance of
later discovered prior art.
KILPATRICK TOWNSEND
corresponding claims in a second application. The first program was initiated between the U.S. and
Japan on an experimental basis in July 2006 and was fully implemented as of January 2008. Korea,
Canada, Australia, the United Kingdom (“U.K.”), Europe, and Denmark all currently have PPH trial
programs in place with the U.S.
B.
Requirements of PPH
In order for an application to be eligible for accelerated examination through the PPH, certain
requirements must be met. First, an application in the Office of First Filing must have at least one
allowable claim. Second, examination of the second application in another PPH jurisdiction must
not have begun. Third, the applicant must file a request and a petition to enter the PPH in the second
country. Fourth, the claims in the second application must be amended to correspond to the subject
matter of the allowable claims in the first application. This amendment may result in a narrowing
of the claims, which may not be acceptable in certain circumstances. The applicant must submit
a claims correspondence table that shows the correlation between the allowed claims in the first
application and the amended claims in the second application. This table facilitates the examiner’s
ability to evaluate the similarity and scope of the claims to ensure that the application is eligible for
the PPH. Fifth, the applicant must submit a copy of the Office Actions and the prior art references
that were disclosed in the first application.
C.
Advantages and Necessary Considerations of Using the PPH
The advantage of compiling the required information and amending the claims is a significant
reduction in the time to obtain issuance of a patent in the Office of Second Filing. This reduction
in application pendency can decrease the total cost of prosecution by limiting the rounds of Office
Actions necessary to reach agreement on allowable claim language. However, applicants must keep
in mind that while overall cost may be reduced, applicants will incur costs and fees much earlier
than usual. These costs and fees are due to work that must be completed at an early stage to enter the
PPH in the Office of Second Filing.
It is important to note that the Office of Second Filing is not “rubber stamping” the determination
made by the Office of First Filing. In fact, the Office of Second Filing does not necessarily limit its
consideration to the art that was supplied during prosecution in the Office of First Filing, and may
conduct additional searches that might reveal art that was not considered in the Office of First Filing.
There are also other considerations, such as sufficient enablement or literal support, which may have
different requirements in different countries, and therefore, may affect examination in the Office
of Second Filing. Applicants must consider all of these factors to determine whether a particular
application is suited for the PPH. Initial feedback on the PPH program confirms that under the right
circumstances, the PPH program provides a significant reduction in the time to grant of a patent.
IX.
Design Registrations and Utility Models
Some countries and regional patent offices provide forms of protection for innovations in addition
to “utility” patents, which are the focus of the above discussion. For example, designs can be
291
protected under a “Community Design” system in the European Community (“EC”). Also, in certain
jurisdictions, a “utility model” system is available to protect functional features of innovations.
A.
European Community Designs
The design, or appearance, of a product can be protected in many individual countries by design
patents. In addition, in the EC, a design can be registered regardless of the product to which it
is applied. A Registered Community Design (“RCD”)32 provides exclusive rights in products
incorporating the registered design. A RCD is renewable every five years for a period of up to 25
years from the filing date of the application. A single European Community Application can result in
a single RCD that extends to all European member states. As a result, a RCD can be less expensive
than design patents.
If the design presented in a RCD has already been the subject of an earlier filing (in certain countries,
including the United States), or has been disclosed at an officially recognized exhibition, the
applicant may exercise its priority rights to claim the original filing/disclosure date as the filing date
for a RCD. This priority right is only available for six months after the original filing/disclosure.
A RCD can provide important protection for a product. A RCD may prevent others from copying
the product, which may be particularly important when the appearance of the product is a factor in
its commercial success. For example, if a product appearance increases sales or if the appearance
is easy to copy, a RCD should be considered. A RCD can provide complementary protection to that
of a design patent. While a design registration is not a substitute for a design patent, a RCD can
provide some protection for a product when a patent is unobtainable, for example, when the product
is publicly disclosed before filing a patent application. Like a design patent, a RCD is an asset that
can be licensed, bought, or sold.
Generally, any two- or three-dimensional design can be registered as long as it meets certain
registration requirements. A design cannot be registered if: (1) component parts of the design are
not visible when incorporated into a product; (2) the appearance of features is solely dictated by
function; or (3) an article must have that exact design to fit with a product, thereby allowing the
product to perform its function. However, designs for a modular system that allow connection of
interchangeable parts may be registered.
32 Council Directive 98/71 EC, 1998 O.J. (L289) (EC), available at http://ec.europa.eu/internal_market/indprop/design/index_en.htm#dir
(last visited Mar. 9, 2009).
Patent 301
A design can also be protected in the European Community as an Unregistered Community Design
(“UCD”) for a period of three years after the design is first disclosed in the EC. In addition to a
shorter term of protection than a RCD, a UCD provides less certain and weaker enforcement rights
than a RCD. For a RCD, the term of protection begins on the application filing date, and design rights
can be enforced against an infringer regardless of their knowledge of the design. However, when
enforcing a UCD, the date of first disclosure that begins the term of protection may be questioned,
and knowledge of the design by an infringer must be proven.
KILPATRICK TOWNSEND
In order to be successfully registered, a design must satisfy two main criteria: (1) novelty; and
(2) individual character. The novelty criterion requires that the design must differ from preceding
designs, regardless of the product(s) incorporating the preceding designs. Novelty is judged against
all preceding designs that could reasonably be expected to have become known in the course of
business in the relevant sector in the EC. There is a one-year grace period from publicly disclosing
a design to filing a registration application, if the first public disclosure was made by the designer.
The individual character criterion requires that the design must create a different overall impression
to an “informed user” from previously known designs. That is, to have individual character, it must
be apparent to the public that the design is different from other, already known designs. During
the registration process, there is no “examination” to compare the subject design against previous
designs. However, a design registration can be invalidated at any time after registration if it is shown
that the design does not meet the novelty and/or individual character requirements.
Thus, Registered Community Designs can provide additional or alternative protection for designs in
the European Community and create an asset that can be exploited.
B.
Utility Models
A number of countries and regional patent offices outside the United States provide for some limited
protection of innovations under a “utility model” system. A utility model is similar to a patent, but
usually has less stringent patentability requirements and a shorter term—often 6 or 10 years, without
the possibility of extension or renewal. The requirements for and rights conferred by a utility model
may vary from country to country (where such protection is available).
Most countries having utility model laws require that the invention be novel, or new. However,
many patent or utility model offices do not conduct substantive examination and merely grant the
utility model after checking that an application complies with formalities. Some countries exclude
particular subject matter from utility model protection. For example, methods, plants, and animals
are normally barred from utility model protection. In practice, protection for utility models is often
sought for innovations of a rather incremental character which may not meet patentability criteria.
This means that the registration process is often significantly simpler and faster. Accordingly, utility
models are much cheaper to obtain and to maintain than patents. On the other hand, utility models
likely have less strength when enforcing against infringers.
In some jurisdictions, an application for a utility patent can be converted into an application for a
utility model. In such cases, the utility model can claim priority to an earlier-filed patent application
under the PUC. Rules governing the conversion of a utility patent application to a utility model
application vary between jurisdictions, and should be consulted before attempting to make such a
conversion.33
33 Anthony Prenol, Intellectual Property World Desk Reference (2008), World Intellectural Property Organization, Protecting
Innovations by Utility Models, http://www.wipo.int/sme/en/ip_business/utility_models/utility_models.htm (last visited Mar. 9, 2009).
293
X.
Practical Considerations
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Applicant’s Manufacturing Locations: Patent protection can be important in countries
where an applicant manufactures or expects to manufacture products to be patented, or
utilizes processes or equipment to be patented.
Competitor Manufacturing Locations: An applicant may want to seek patent protection in countries where its competitors have manufacturing facilities or might be
expected to make, use, or sell the invention.
Commercial Markets: An applicant should consider seeking patent protection in
countries that represent important commercial markets for the invention.
Cost: Cost is a significant factor in deciding where to seek patent protection. For each
country where patent protection is sought, an applicant will normally incur government fees (e.g., filing fees, fees for requesting examination, etc.), legal/professional
fees for patent attorneys/agents in the country to handle prosecution, translation fees,
and annuities/tax payments to keep the application pending or the patent in force.
As companies typically have budgets for intellectual property expenses, an applicant
may have to select the most important countries for protection in order to meet budget
constraints.
Emerging Markets: Because the term of a patent is generally measured as twenty
years from its earliest effective filing date, an applicant may want to consider emerging
markets in its foreign filing decisions. For example, if an applicant expects to set up
manufacturing operations (or expects a competitor to set up manufacturing operations)
in Vietnam in the next 5 years, the applicant should consider filing a patent application
in Vietnam before the foreign filing deadline passes even if it might be a number of
years before the applicant will begin such operations.
Countries on the Intellectual Property Watch List: Each year, the Office of the United States Trade Representative (“USTR”) releases an annual report addressing the
adequacy and effectiveness of U.S. trading partners in the protection of intellectual
property rights.34 This report might be useful in foreign filing decisions as an applicant
may not wish to file a patent application in a country where the prospects of successful
enforcement are questionable.
Socio-political-economic Factors: An applicant might consider socio-political-economic factors in making foreign filing decisions, including factors such as whether the
country is developed or developing, political stability in the country, and the country’s
participation in trade agreements.
Other Available Remedies: While obtaining a patent in a particular country will enable a patent owner to bring an action to stop infringement in that particular country,
34 A copy of the 2008 report can be found at http://www.ustr.gov/assets/Document_Library/Reports_Publications/2008/2008_
Special_301_Report/asset_upload_file553_14869.pdf (last visited Mar. 9, 2009).
Patent 301
International patent treaties provide mechanisms to file patent applications in various countries.
Applicants should consider a number of factors in deciding in which countries to seek patent
protection. These factors include, for example:
KILPATRICK TOWNSEND
the patent owner may be able to protect its technology in other ways without obtaining
a patent in each country of interest. For example, in the United States, a patent owner
can seek an exclusion order from the International Trade Commission to prevent infringers from importing or selling imported goods that infringe its patent. Thus, if the
primary commercial market for a patented product is the United States, a patent owner
can guard against overseas manufacture (for subsequent importation into the United
States) without seeking a patent in each country where the patent product might be
manufactured.
XI.
Summary
To seek patent protection outside the United States, a U.S. applicant can file national applications,
and incur the expense of doing so, in individual countries. Each of the international agreements—
the PUC, the PCT, and the EPC—provides for the right of priority, with a 12-month priority period,
to applications filed in the respective member countries. The PCT and EPC provide for centralized
filing and searching, leading to publication of the application and a related search report. Only
the EPC provides for centralized examination, which can lead to the grant of a European patent.
Also, the EPC provides for a centralized post-grant opposition procedure before the EPO, which
if not successfully defended against by a patentee, results in loss of the entire bundle of European
patents for all designated countries. The PCT provides for centralized preliminary examination,
but does not directly result in the grant of any patent, which remains strictly a national or regional
function. Filing a PCT application can beneficially delay entry into national stage prosecution, and
thus payment for filing in the individual national and regional offices, until 30 to 31 months after the
priority date for most member countries.
Understanding options available for seeking patent protection in other countries is becoming
increasingly important in view of today’s information economy, less restricted globalized trade,
and the concurrent push to protect intellectual capital worldwide. Filing applications under
the PCT offers U.S. applicants many procedural, cost, and strategic advantages and should be
considered when seeking international patent protection. Deciding in which countries to seek patent
protection should include a consideration of a variety of factors including manufacturing markets,
commercial markets, socio-political-economic factors, the legal structure for patent procurement
and enforcement, and others.
295
Patent Licensing Considerations in Light of Quanta and MedImmune
Michael J. Turton, Cate E. Hart, and Tiffany L. Williams
I.
Introduction
II.
Patent Exhaustion
A.
Background
The longstanding doctrine of patent exhaustion provides that the initial authorized sale of a patented
item terminates all patent rights to that item.4 Thereafter, a patent owner cannot assert rights against
subsequent purchasers of authorized goods.5
The Supreme Court first articulated the patent exhaustion doctrine in Bloomer v. McQuewan.6 In
Bloomer, Congress’s extension of a patent term did not affect the rights of purchasers from a patent
licensee. The Court held that “when the machine passes to the hands of the purchaser, it is no longer
within the limits of the monopoly.”7 The Supreme Court later upheld the patent exhaustion doctrine
in Adams v. Burke.8 In Adams, a licensee acquired the right to make, use, and sell coffin lids within
a 10-mile radius of Boston. The licensee sold the coffin lid to an undertaker within the prescribed
10-mile radius, who in turn used the coffin lid outside the geographical area. The Supreme Court
dismissed the patentee’s suit against the undertaker, affirming the patent exhaustion doctrine and
stating, “the sale by a person who has the full right to make, sell, and use such a machine carries with
it the right to the use of that machine to the full extent to which it can be used . . . .”9
1
2
3
4
5
6
7
8
9
See Dennis Crouch, Patent Litigation Statistics: Number of Patents Being Litigated, http://www.patentlyo.com/patent/2008/03/patentlitigati.html.
See, e.g., Cat Tech LLC v. Tubemaster, Inc., 528 F.3d 871 (Fed. Cir. 2008); Sony Elecs., Inc. v. Guardian Media Techs., Ltd., 497 F.3d 1271
(Fed. Cir. 2007); SanDisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372 (Fed. Cir. 2007).
See Quanta Computer, Inc. v. LG Elecs., Inc., 128 S. Ct. 2109 (2008); KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398 (2007); MedImmune,
Inc. v. Genentech, Inc., 549 U.S. 118 (2007); eBay, Inc. v. MercExchange, LLC, 547 U.S. 388 (2006).
See United States v. Univis Lens Co., 316 U.S. 241, 239 (1942).
See id.
55 U.S. (14 How.) 539 (1853).
Id. at 549.
84 U.S. (17 Wall.) 453 (1873).
Id. at 455.
Patent 201
As intellectual property has become an increasingly important commodity for many corporations, the
numbers of licensing agreement disputes and large-scale patent infringement suits are multiplying.1
As a result, courts have recently had numerous opportunities to address the fundamental doctrines
of patent law. In many cases, these decisions directly impact licensing provisions and the protections
offered by those provisions.2 Moreover, the Supreme Court has been much more active recently
in the patent arena, addressing multiple patent law issues in recent terms.3 In Quanta Computer,
Inc. v. LG Electronics, Inc., the Supreme Court addressed the doctrine of patent exhaustion and, in
MedImmune, Inc. v. Genentech, Inc., the Supreme Court addressed declaratory judgment jurisdiction.
This paper discusses these two recent Supreme Court decisions, Quanta and MedImmune, and how
these decisions impact patent licensing.
KILPATRICK TOWNSEND
After the turn of the century, the Supreme Court briefly allowed post-sale restrictions on the use
of a patented article.10 In Henry v. A.B. Dick Co., the Court held that any reasonable downstream
restriction that did not violate any other substantive law was valid.11 However, Henry only remained
good law for five years, after which it was overturned by Motion Picture Patents Co. v. Universal
Film Manufacturing. Co.12 In Motion Picture Patents, the Court reaffirmed the fundamental
principle of patent exhaustion, stating that, “a single, unconditional sale . . . render[s] [a patented
article] free of every restriction which the vendor may attempt to put upon it.”13
The Supreme Court revisited patent exhaustion in Ethyl Gasoline Corp. v. United States, where
the Court held that sale of a motor fuel produced under one patent exhausted a method patent that
used the fuel in combination with a combustion motor.14 Two years later, the Supreme Court issued
its most recent decision on patent exhaustion until this year, United States v. Univis Lens Co.15 In
Univis, an eyeglass lens patentee licensed manufacturers to create lens blanks for sale to Univislicensed wholesalers. Under the license, the wholesalers were permitted to grind the lens blanks into
patented finished lenses, which were then sold to Univis-licensed retailers. The Court held that the
sale of the lens blanks exhausted Univis’s patent rights in the finished lenses. The Court based its
holding on the fact that the lens blanks “embodie[d] essential features of [the] patented invention . . .
and has destined the article to be finished by the purchaser in conformity to the patent . . . .”16 As the
Supreme Court explained in Univis:
The declared purpose of the patent law is to promote the progress of science and the useful
arts by granting to the inventor a limited monopoly, the exercise of which will enable
him to secure the financial rewards for his invention. The full extent of the monopoly is
the patentee’s “exclusive right to make, use, and vend the invention or discovery.” The
patentee may surrender his monopoly in whole by the sale of his patent or in part by the
sale of an arti[c]le embodying the invention. His monopoly remains so long as he retains
the ownership of the patented article. But sale of it exhausts the monopoly in that article
and the patentee may not thereafter, by virtue of his patent, control the use or disposition
of the article.17
B.
Quanta Computer, Inc. v. LG Electronics, Inc.
Over sixty years later, the Supreme Court reexamined the patent exhaustion doctrine in Quanta.18
The Court granted certiorari to address: (1) whether method claims may be exhausted; and (2)
10
11
12
13
14
15
16
17
18
See Henry v. A.B. Dick Co., 224 U.S. 1 (1912).
Id. at 49.
243 U.S. 502, 518 (1917).
Id. at 516.
309 U.S. 436 (1940).
316 U.S. 241 (1942).
Id. at 250-51.
Id. at 250 (internal citations omitted).
128 S. Ct. 2109 (2008).
297
whether a patent licensee’s sale of licensed products exhausts a patent owner’s patent rights,
including its ability to collect royalties from downstream users of the licensed products.19
Upon Quanta’s motion for summary judgment, the district court held that Intel’s sales to Quanta
were unconditional and granted summary judgment of non-infringement for Quanta.27 Under the
doctrine of patent exhaustion, the district court reasoned, Intel’s sales to Quanta were unconditional
because the sales were in no way conditioned on the agreement not to combine Intel parts with
non-Intel parts, and the notice requirement banning combination with third party products served
only to negate an implied license from LGE.28 The license LGE granted to Intel, thus, resulted in
forfeiture of any potential infringement actions against legitimate purchasers of the Intel products.29
The district court confirmed its previous decision that patent exhaustion was not a defense to alleged
infringement of LGE’s method claims.30
On appeal, the Federal Circuit concluded that LGE’s notice to Intel created a conditional sale and,
thus, the patent exhaustion doctrine did not apply.31 Therefore, the Federal Circuit reversed the
19
20
21
22
23
24
25
26
27
28
29
30
31
Id. at 2117, 2121-22.
Id. at 2113-14.
Id. at 2114.
Id.
Id.
Id.
Id.
Id. at 2116.
LG Elecs., Inc. v. Asustek Computer, Inc., 248 F. Supp. 2d 912, 918 (N.D. Cal. 2003).
Id.
Id. at 917.
Id. at 918.
LG Elecs., Inc. v. Bizcom Elecs., Inc., 453 F.3d 1364, 1369 (Fed. Cir. 2006).
Patent 201
LG Electronics (“LGE”) is the owner of various patents relating to personal computers. Some of
LGE’s patents cover computer components, while other patents cover methods and systems of
combining these components into products.20 LGE settled a broad patent dispute between itself and
Intel Corporation by licensing Intel to manufacture and sell products that utilize technology covered
by the LGE patents.21 The agreement provided, however, that the license would not extend to a third
party who combined licensed products with products made by any party other than Intel or LGE.22
Thus, the license did not authorize the use of Intel products practicing the LGE patents, along with
components purchased from others.23 As part of the license, Intel was required to inform its customers
that the LGE license did not cover the combination of Intel and non-Intel components.24 Quanta, an
Intel customer, purchased the Intel components and combined them with non-Intel components to
produce computer systems, despite the required notice from Intel.25 LGE subsequently sued Quanta
for patent infringement asserting that the produced computer systems infringed its patents.26 Quanta
responded that LGE’s patent rights were exhausted under the patent exhaustion doctrine by Intel’s
authorized sale to Quanta or, alternatively, that LGE’s license was unconditional, thus leading to the
exhaustion of LGE’s patent rights.
KILPATRICK TOWNSEND
district court’s application of the doctrine of patent exhaustion.32 The Federal Circuit, however,
upheld the decision that method claims could not be exhausted.33 The Supreme Court granted
certiorari in September of 2007.34
A unanimous Supreme Court reversed the Federal Circuit, finding that LGE’s patent rights were
exhausted by the authorized sale of Intel products to Quanta.35 First, the Court held that sales under
a license to practice the patented invention constitute “authorized sales” for purposes of patent
exhaustion whether the invention be for a method or an apparatus, stating that “[e]liminating
exhaustion for method patents would seriously undermine the exhaustion doctrine . . . .”36
Next, the Court considered and concluded that the Intel products bought by Quanta sufficiently
embodied the patents in order to trigger patent exhaustion.37 In reaching this conclusion, the Court
found that the Intel products’ “only reasonable and intended use was to practice the patent[s]” and
the Intel products “embodie[d] essential features of [the] patented invention[s].”38 On the issue
of the intended use of the Intel products, the Court found that LGE “suggested no reasonable use
for the Intel Products other than incorporating them into computer systems that practice the LGE
Patents.”39 Moreover, on the essential features issue, the Court found that even though the Intel
products only partially practiced the licensed patents, “[e]verything inventive about each patent
[was] embodied in the Intel Products.”40
Finally, the Court found that the sale of the Intel products to Quanta exhausted LGE’s patent rights.41
LGE argued that there was no authorized sale from Intel, because the “License Agreement does
not permit Intel to sell its products for use in combination with non-Intel products to practice the
LGE patents.”42 However, the Court concluded that the notice requirement for Intel had no effect
on the exhaustion analysis because: (1) the provision was in a separate master agreement, not the
license agreement; and (2) “Intel’s authority to sell its products embodying the LGE patents was
not conditioned on the notice or on Quanta’s decision to abide by LGE’s directions in that notice.”43
In reaching this conclusion, the Court implied that if Intel had lacked authorization under the license
to sell the components to Quanta (i.e., if Intel’s license was conditioned on the notice provision),
then patent exhaustion might not have applied, and LGE might have had a viable claim against
Quanta for infringement.44 Unfortunately, the Court did not elaborate on what specific transactional
32
33
34
35
36
37
38
39
40
41
42
43
44
Id. at 1370.
Id.
Quanta Computer, Inc. v. LG Elecs., Inc., 128 S. Ct. 28 (2007).
Quanta Computer, Inc. v. LG Elecs., Inc., 128 S. Ct. 2109, 2122 (2008).
Id. at 2117.
Id. at 2118-21.
Id.
Id. at 2120.
Id. at 2122.
Id. at 2112.
Id. at 2121-22.
Id. at 2121.
299
III.
Declaratory Judgments
A.
Background
In a case of actual controversy within its jurisdiction, upon the filing of an appropriate pleading,
a federal district court may declare the rights and other relations of the parties.47 In patent law, a
declaratory judgment is typically requested when a dispute relating to patent infringement arises to
the point that litigation is threatened, but not yet filed.48 Declaratory judgments allow, for example,
a party that has been told that it infringes another’s patent rights to ask a court to declare whether, in
fact, infringement has occurred.49 Prior to the Supreme Court’s recent decision in MedImmune,50 a
party wishing to bring a declaratory judgment action had to satisfy two tests: (1) she had to show that
she had acted in a way, or was prepared to act in a way, that the patentee asserts infringes the patent;
and (2) she had to show that she was under a “reasonable apprehension of [imminent] suit” from
the patentee.51 In the licensing arena, therefore, a declaratory judgment action had previously been
unavailable to licensees wishing to challenge the validity of a licensed patent because there was
no “reasonable apprehension of suit,” i.e., there was no reason for the licensor to sue the licensee
because the patent had been licensed and royalties were being paid.
B.
MedImmune, Inc. v. Genentech, Inc.
In MedImmune, MedImmune entered into a patent license with Genentech that covered an existing
Genentech patent and a pending patent application.52 When the application issued, Genentech sought
royalties from MedImmune.53 MedImmune paid the requested royalties for the newly issued patent
“under protest” and brought a declaratory judgment action challenging its validity.54
The district court dismissed MedImmune’s declaratory judgment action for lack of subject matter
jurisdiction.55 Gen-Probe Inc. v. Vysis, Inc. had held that when a licensee is in good standing,
there is no reasonable apprehension of suit, thus precluding establishment of an Article III case or
controversy.56 The Federal Circuit affirmed the district court’s holding, also relying on Gen-Probe.57
Id. at 2122.
Id. at n.7.
28 U.S.C. § 2201 (2000).
See Sierra Applied Scis., Inc. v. Advanced Energy Indus., Inc., 363 F.3d 1361, 1373 (Fed. Cir. 2004).
Id.
549 U.S. 118 (2007).
See EMC Corp. v. Norand Corp., 89 F.3d 807, 811 (Fed. Cir. 1996).
127 S. Ct. at 768.
Id.
Id.
MedImmune, Inc. v. Genentech, Inc., No. CV 03-2567 MRP (CTX), 2004 WL 3770589, at *6 (C.D. Cal. Apr. 26, 2004) (relying on GenProbe Inc. v. Vysis, Inc., 359 F.3d 1376 (Fed. Cir. 2004)).
56 359 F.3d at 1381.
57 MedImmune, Inc. v. Genentech, Inc., 427 F.3d 958, 963 (Fed. Cir. 2005).
45
46
47
48
49
50
51
52
53
54
55
Patent 201
structures would have avoided exhaustion.45 Although it did not consider the issue, the Court did
note that had LGE sued for breach of contract, contract damages may have been available even
though patent exhaustion eliminated the possibility of patent damages.46 KILPATRICK TOWNSEND
The Supreme Court implicitly rejected the Federal Circuit’s “reasonable apprehension of imminent
suit” test.58 Instead, the Court focused its inquiry for declaratory judgment jurisdiction on “whether
the facts alleged, under all the circumstances, show that there is a substantial controversy, between
parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of
a declaratory judgment.”59 The Court analogized the situation to a constitutional challenge where a
party seeks to challenge the validity of a government action, where a party is not required to expose
itself to liability before bringing a suit to challenge a law.60
In articulating this new standard, the Court ruled that licensees need not repudiate their licenses in
order to seek a declaratory judgment as to a licensed patent’s validity, enforceability, or infringement.61
Thus, after MedImmune, licensees need not breach the license—and expose themselves to treble
damages for willful infringement—before bringing an action to invalidate the licensed patent.62
C.
Cases Applying MedImmune Decision
In the wake of the MedImmune decision, it appeared that the courts would be flooded with declaratory
judgment actions, particularly in the context of patentees seeking to invalidate licensed patents.63
However, many of these post-MedImmune decisions make clear that there are still some limits on a
licensee’s ability to seek declaratory judgments.
1.
SanDisk Corp. v. STMicroelectronics, Inc.
In SanDisk Corp. v. STMicroelectronics, Inc., the Federal Circuit acknowledged that the “Supreme
Court’s opinion in MedImmune represents a rejection of our reasonable apprehension of suit test.”64
The plaintiff filed a declaratory judgment action for patent invalidity and unenforceability during
licensing negotiations with the patentee.65 Although the Federal Circuit recognized that declaratory
judgment jurisdiction typically is not present where a party believes that a particular patent poses
a risk of infringement, the Court held that “jurisdiction may be met where the patentee takes a
position that puts the declaratory judgment plaintiff in the position of either pursuing arguably
illegal behavior or abandoning that which he claims a right to do.”66 Specifically, the Court found
that it is not necessary for a potential licensee to “bet the farm” by cutting off licensing negotiations
and risk a suit for infringement before seeking a declaratory judgment.67
58
59
60
61
62
63
64
65
66
67
MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 132 n.11 (2007).
Id. at 127.
Id. at 128-29.
Id. at 135.
Id. at 132.
See, e.g., SanDisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372 (Fed. Cir. 2007).
Id. at 1380.
Id. at 1374-76.
Id. at 1381 (emphasis added).
Id. at 1382.
301
2.
Sony Electronics, Inc. v. Guardian Media Technologies, Ltd.
In Sony Electronics, Inc. v. Guardian Media Technologies, Ltd.,68 the patent owner and several
companies were in the midst of licensing discussions when the companies filed declaratory judgment
actions for noninfringement and invalidity, even though the patentee never threatened to sue any
of them.69 The Federal Circuit recognized that MedImmune did not require an explicit threat of
patent litigation, and on that basis, held that the district court erred by denying declaratory judgment
jurisdiction.70 Although the court disagreed that the evidence suggested the plaintiffs had filed suit
to leverage a more favorable negotiating position, the court nevertheless remanded the case for the
district court to determine whether it should properly exercise declaratory judgment jurisdiction.71
By its holding, the court appeared to reaffirm that utilizing a declaratory judgment as a means to
improve one’s leverage during license negotiations is “not a purpose that the Declaratory Judgment
Act was designed to serve.”72
Cat Tech LLC v. Tubemaster, Inc.
In Cat Tech LLC v. Tubemaster, Inc.,73 the Federal Circuit held that while MedImmune
eliminated the “reasonable apprehension of suit” prong of the declaratory judgment
jurisdiction test, it did not affect the second prong, namely, the requirement of a showing of
“meaningful preparation” to conduct potentially infringing activity.74 Although “MedImmune
articulated a ‘more lenient legal standard’ for the availability of declaratory judgment relief in patent
cases,” the Federal Circuit stated:
the issue of whether there has been meaningful preparation to conduct potentially infringing
activity remains an important element in the totality of circumstances which must be
considered in determining whether a declaratory judgment is appropriate.75
While holding that the “meaningful preparation” standard was met in this case, the Federal Circuit
clarified that the “requirements for justiciability” must include “significant, concrete steps to conduct
infringing activity . . . .”76
IV.
Impact of Quanta and MedImmune on Licensing Techniques
Both Quanta and MedImmune have had a significant impact on the protections afforded to patentees
by licensing provisions. In light of these decisions, patent owners should consider the following
options when drafting license agreements as means to avoid patent exhaustion and challenges to the
validity of their patents through declaratory judgment actions:
68
69
70
71
72
73
74
75
76
497 F.3d 1271 (Fed. Cir. 2007).
Id. at 1279-81.
Id. at 1288.
Id. at 1289.
Id.
528 F.3d 871 (Fed. Cir. 2008).
Id. at 879-80.
Id.
Patent 201
3.
KILPATRICK TOWNSEND
A.
Affirmatively Restrict Licensee’s Actions
One strategy to avoid exhaustion is to condition a licensee’s rights with respect to the licensed
patent with direct language in the license from licensor to licensee. In Quanta, the Court did not
view Intel’s promise in a separate agreement to notify its customers regarding the restriction on
combination of the licensed product with third-party components as affecting authorized sales under
the license agreement. It may be prudent to define specifically “authorized sales” in the license itself
or condition the license on appropriate downstream restrictions to avoid a subsequent finding of
exhaustion.
B.
Include Descriptions of Alternative Reasonable Uses
One factor that influenced the Supreme Court’s decision in Quanta was the absence of reasonable
noninfringing uses. To avoid exhaustion, licensors should consider including a description of
alternative reasonable uses for the articles sold by licensees.
C.
Contractually Make Challenge of Licensed Patent a Breach
Patentees may also consider including a provision in the license that makes validity challenges to a
licensed patent a material breach allowing termination. While such a provision may not be effective
during negotiations, it may deter declaratory judgment actions after the license is entered, because
bringing such an action would then constitute a breach of the license agreement.
D.
Include a Forum-Selection Clause, Notice Provision, and Indemnification Clause
In light of MedImmune and its progeny, patentees should include forum selection clauses for both
breach of contract and declaratory judgment actions. In addition, licenses should also require that
the licensee provide notice prior to filing a declaratory judgment action. Finally, a clause requiring
a licensee to pay costs and fees associated with a frivolously filed declaratory judgment action may
also provide some protection to the licensor.
303
Patent Opinions After In re Seagate: What You Should Know
Brenda O. Holmes, Steven Gardner, D. Clay Holloway, and Megan E. Bussey
I.
Introduction
This article is meant to answer questions related to how the Federal Circuit’s holding in In re
Seagate1 altered the standard for evaluating whether a patent infringer engaged in willful patent
infringement. In general, the Seagate holding replaces the duty of care with a new standard of
“objective recklessness.”2 This article provides a brief background on the state of the law preSeagate and moves into a colloquy designed to answer some of the most frequently raised questions
following Seagate.
II.
The Law of Willfulness and Waiver Before In re Seagate
A.
The Duty of Due Care
Prior to Seagate, the law imposed an affirmative duty of care to avoid infringement of the known
patent rights of others.3 This affirmative duty often was fulfilled by obtaining competent legal advice,
usually in the form of an opinion of counsel, before engaging in any potentially infringing activity.4
An entity found liable for infringement that did not exercise due care risked a finding of willful
patent infringement, which could subject the infringer to payment of treble damages and the patent
holder’s attorneys’ fees.5 So, at least pre-Seagate, the common practice of most potential patent
infringers was to seek out and obtain opinions of counsel on either the invalidity of the patents or
the non-infringement of the potential defendant’s product or activities.6
B.
Privilege Waiver / In re Echostar7
1
2
3
4
5
6
7
8
9
In re Seagate Tech., LLC, 497 F.3d 1360 (Fed. Cir. 2007), cert. denied, 128 S. Ct. 1445 (2008).
Id. at 1382.
See Electro Med. Sys., S.A. v. Cooper Life Scis., Inc., 34 F.3d 1048, 1056 (Fed. Cir. 1994).
See Amsted Indus. Inc. v. Buckeye Steel Castings, Co., 24 F.3d 178, 181 (Fed. Cir. 1994).
See Am. Med. Sys., Inc. v. Med. Eng’g Corp., 6 F.3d 1523, 1530 (Fed. Cir. 1993).
See In re Seagate, 497 F.3d at 1368-69 (“Where . . . a potential infringer has actual notice of another’s patent rights, he has an affirmative
duty to exercise due care to determine whether or not he is infringing. Such an affirmative duty includes, inter alia, the duty to seek and
obtain competent legal advice from counsel before the initiation of any possible infringing activity.”) (citing Underwater Devices, Inc. v.
Morrison-Knudsen Co., 717 F.2d 1380, 1389-90 (Fed. Cir. 1983)) (emphasis in original).
In re EchoStar Commc’ns Corp., 448 F.3d 1294 (Fed. Cir. 2006).
See id.
Id. at 1304.
Patent 301
When a company relies on an advice of counsel defense to defend against an accusation of willful
infringement, it waives the attorney-client privilege as to that advice, and other documents besides
the opinion itself often become discoverable.8 Once opinions of counsel regarding an asserted patent
are produced, the attorney-client privilege and the work product doctrine are waived as to “any
document or opinion that embodies or discusses a communication to or from [the client] concerning
whether that patent is valid, enforceable, and infringed by the accused.”9
KILPATRICK TOWNSEND
This “waiver of both the attorney-client privilege and the work product immunity includes not only
any letters, memorandum, conversation, or the like between the attorney and his or her client, but
also includes, when appropriate, any documents referencing a communication between attorney and
client.”10 However, the privilege and work product protection are not waived as to communications
or work product that are not conveyed to the client—the category of true “opinion work product.”11
Work product, “which is never communicated to the client, is not discoverable.”12 Thus, drafts,
memos to file, etc., about the patent and its validity or infringement that do not reference such
communication and that are not communicated to the client are not discoverable. The client “does
not waive the attorney’s own analysis and debate over what advice will be given.”13 “[C]ounsel’s
legal opinions and mental impressions that were not communicated . . . are . . . not within the scope
of the waiver.”14
C.
Inducement and 35 U.S.C. § 271(b)15
Section 271(b) provides that “[w]hoever actively induces infringement of a patent shall be liable as an
infringer.”16 The Federal Circuit in DSU Medical17 held that liability for inducement of infringement
requires that the accused-inducer have both knowledge of the patent and specific intent and action
to induce the infringement.18 As such, opinions of counsel may work not only to demonstrate
commercially reasonable behavior and avoid willful infringement, but also demonstrate the absence
of specific intent to induce the underlying infringement.
III.
Post-Seagate
A.
Introduction—the Seagate Decision
As mentioned above, the Federal Circuit’s decision in Seagate overruled the court’s previous standard
for determining willful patent infringement. The court eliminated the affirmative duty to exercise
due care to avoid infringing activity and replaced it with the standard of “objective recklessness.”19
The court also clarified the scope of the waiver for attorney-client privileged communications and
work product when an accused infringer chooses to rely upon an opinion of counsel in an effort to
defeat a claim of willful infringement.20
The change in the willfulness standard was made to bring the standard in line with recent Supreme
Court decisions addressing the willfulness standard.21 In doing so, the court overruled Underwater
10
11
12
13
14
15
16
17
18
19
20
21
Id.
Id. at 1303.
Id.
Id.
Id. at 1304.
35 U.S.C. § 271(b) (2000).
Id.
See DSU Med. Corp. v. JMS Co., 471 F.3d 1293 (Fed. Cir. 2006).
Id.
In re EchoStar, 448 F.3d at 1303.
In re Seagate, 497 F.3d at 1371.
Id. at 1370-1371 (citing Safeco Ins. Co. of AM. V. Burr, 551 U.S. 47 (2007) (concluding that “standard civil usage” of “willful” includes
reckless behavior)).
305
Devices,22 which found a lower threshold for willfulness infringement.23 The new standard of
“objective recklessness” articulated in Seagate does not account for the accused infringer’s state
of mind. Instead, under the new “objective recklessness” standard, a patentee seeking willful
infringement must show by clear and convincing evidence that the accused infringer acted despite
an objectively high likelihood that its actions constituted infringement of a valid patent.24 To meet
the standard for objective recklessness, the record developed in the infringement proceeding must
show that the risk was known or so obvious that it should have been known to the accused infringer.25
In application, this standard appears to ask whether there was a commercially reasonable basis for
believing that one was not infringing on a valid patent. Judge Newman’s concurrence illustrates
in more detail the application of the “objective recklessness” standard, stating, “[t]he standards of
behavior by which a possible infringer evaluates adverse patents should be the standards of fair
commerce, including reasonableness of the actions taken in the particular circumstances.”26
The court also discussed how this new standard affects pre- and post-litigation conduct, holding
“that in ordinary circumstances, willfulness will depend on an infringer’s prelitigation conduct.”27
However, in the rare circumstances where it is the accused infringer’s post-filing conduct that is
reckless, “a patentee can move for a preliminary injunction . . . .”28
In Seagate, the court also clarified the scope of the waiver for attorney-client privileged
communications and work product when an accused infringer chooses to rely upon an opinion of
counsel in an effort to defeat a claim of willful infringement. The court held that generally, relying
on opinion counsel’s work product does not waive work product immunity with respect to trial
counsel.29 However, the court specified that the Seagate decision leaves open the possibility that a
situation may arise in which the waiver may be extended to trial counsel.30
B.
Questions and Answers
Q:
Does one who has knowledge of a patent have an affirmative “duty of due care” to avoid
infringing valid patent rights?
22 Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983).
23 Id. at 1371 (“In contrast, the duty of care announced in Underwater Devices sets a lower threshold for willful infringement that is more
akin to negligence. This standard fails to comport with the general understanding of willfulness in the civil context . . . .”).
24 In re Seagate, 497 F.3d at 1371.
25 Id.
26 Id. at 1385 (Newman J., concurring).
27 Id. at 1374.
28 Id.
29 Id. at 1376.
30 Id.
Patent 301
No, not anymore. The court in Seagate overruled and abandoned the affirmative duty of due care
and, along with it, the affirmative obligation to obtain opinion of counsel. Whether opinions of
counsel are still appropriate and serve the purpose of helping an accused infringer avoid a finding of
willful infringement is discussed in greater detail below.
KILPATRICK TOWNSEND
Q:
Did the Federal Circuit in Seagate replace the duty of due care with a new standard to use
in evaluating whether an infringer is a willful infringer?
Yes, the new standard is that of “objective recklessness.”31 The court held that “proof of willful
infringement permitting enhanced damages requires at least a showing of objective recklessness.”32
Q:
Did the court define “objective recklessness?”
In part, yes. The court acknowledged that “reckless” is not “self-defining” and provided some
guidance on its meaning.33 The court noted that “[t]he civil law generally calls a person reckless
who acts . . . in the face of an unjustifiably high risk of harm that is either known or so obvious that
it should be known.”34 As mentioned above, this appears to require that a potential infringer act in a
commercially reasonable manner if they know of, or should know of, a risk of patent infringement.
Q:
Does this mean that my company will never need to obtain an opinion of counsel?
No; while there is no longer an affirmative duty to obtain an opinion—which was how exercising
due care was most often demonstrated—obtaining an opinion will be prudent in many of the same
circumstances.35 Pre-Seagate, if one knew of third-party patent rights of potential concern, the law
required one to seek an opinion of counsel. The law was not always followed, of course, in view of
practical and other considerations.
Post-Seagate, even if one knows of third-party patent rights of potential concern, the law does not
require one to seek an opinion of counsel. Now, practical concerns and other considerations can be
weighed to determine whether to obtain an opinion of counsel. Primary questions include: (1) do
standards of commerce suggest that an opinion should be obtained; (2) will an opinion of counsel
help show that one did not know of any objectively high likelihood of infringement of a valid patent;
and (3) will an opinion help show that one did not act recklessly relative to patent rights of others.36
Q:
Can a competent opinion of counsel concluding the patent at issue is not infringed or is
invalid serve as sufficient proof that the recipient of the opinion has not engaged in “objectively
reckless” behavior that can give rise to a willful infringement finding?
Yes, it can certainly help. The court explained that Seagate imposes “no affirmative obligation to
obtain opinion of counsel,” but held that such an opinion can negate an accusation of objectively
reckless behavior.37 Opinions of counsel will still be weighed to determine if reliance on the opinion
of counsel was reasonable. Considerations such as whether opinion counsel was given access to all
relevant information necessary to analyze properly positions of non-infringement or invalidity will
still be important. Opinions are not unyielding shields from potential liability. They are, however,
31
32
33
34
35
36
37
Id. at 1382.
Id. at 1371.
See id. (citing Farmer v. Brennan, 511 U.S. 825 (1994)).
Id. (quoting Farmer v. Brennan, 511 U.S. 825, 836).
See In re Seagate, 497 F.3d 1360.
See id.
Id. at 1371.
307
another mechanism a potential patent infringer may use to demonstrate commercially reasonable
behavior.38
Q:
Is an opinion of counsel obtained after the filing of a lawsuit helpful?
Probably not. The court noted that reliance on opinions obtained post-filing “will likely be of little
significance.”39
Q:
Is knowledge of and causing the acts alleged to constitute infringement enough to prove
inducement of infringement under § 271(b), or are knowledge of the patent and specific intent and
action to induce the infringement required elements?
Knowledge of the patent and specific intent and action to induce the infringement are required
elements.40 Specifically:
[I]t must be established that the defendant possessed specific intent to encourage another’s
infringement and not merely that the defendant had knowledge of the acts alleged to
constitute inducement. The plaintiff has the burden of showing that the alleged infringer’s
actions induced infringing acts and that he knew or should have known his actions would
induce actual infringements.41
Moreover, “inducement requires evidence of culpable conduct, directed to encouraging another’s
infringement, not merely that the inducer had knowledge of the direct infringer’s activities.”42
Q:
Will a company’s good-faith reliance on an opinion of counsel that direct infringement did
not exist show that the intent element of inducement of infringement is not present and thus make
the company not liable for alleged inducement?
Maybe.43 This argument was made in a 2006 case, but the district court found the legal opinions to be
incompetent and the Federal Circuit agreed.44 It seems to follow, however, that because inducement
requires knowledge of the patent and intent to infringe, demonstrating a commercially reasonable
basis that no infringement exists may assist in defending a claim of willful infringement.
No. The Federal Circuit has explained that “[a] patentee who does not attempt to stop an accused
infringer’s activities [with a preliminary injunction motion] should not be allowed to accrue enhanced
damages based solely on the infringer’s post-filing conduct.”45 The court also stated that “when an
38 Finistar Corp. v. DirectTV Group, Inc., No. 2007-1023-1024 (Fed. Cir. Apr. 18, 2008) (opinion of invalidity or noninfringment can negate
an accusation of objectively reckless behavior).
39 In re Seagate, 497 F.3d at 1374.
40 See DSU Med. Corp. v. JMS Co. Ltd., 471 F.3d 1293 (Fed. Cir. 2006).
41 Id. at 1306.
42 Id.
43 See id.; Golden Blount, Inc. v. Robert H. Peterson Co., 438 F.3d 1354 (Fed. Cir. 2006).
44 See Golden Blount, 438 F.3d 1354.
45 In re Seagate. 497 F.3d at 1373.
Patent 301
Q:
If the patentee does not seek a preliminary injunction, can the patentee seek enhanced
damages based on post-filing infringement conduct alone?
KILPATRICK TOWNSEND
accused infringer’s post-filing conduct is reckless, a patentee can move for a preliminary injunction,
which generally provides an adequate remedy for combating post-filing willful infringement.”46
Q:
Will a court’s denial of a patentee’s motion for preliminary injunction impact the patentee’s
ability to obtain enhanced damages in the suit?
Unless the denial is based on factors other than the merits of the infringement and validity case, then
it would have a significant negative impact.47 In Seagate, the court held that a district court’s denial
of a preliminary injunction motion based on a finding of a “substantial question about invalidity
or infringement is likely sufficient not only to avoid a preliminary injunction, but also a charge of
willfulness based on post-filing conduct.”48
Q:
When a company relies on advice of counsel to defend an accusation of willful infringement
and thereby waives privilege as to that advice, what documents besides the written opinion itself are
discoverable? What about other documents sent to the company by outside counsel concerning the
patent’s validity, enforceability, or infringement?
Attorney-client privilege and the work product doctrine are waived as to “any document or opinion
that embodies or discusses a communication to or from [the client] concerning whether that patent
is valid, enforceable, and infringed by the accused.”49 So any document or communication relayed
from counsel to the client concerning the produced opinion must also be produced. Work product
that is not communicated to the client, or otherwise referenced in communicated work product, does
not have to be disclosed. It is also important to note that in many jurisdictions, such as the Northern
District of Georgia, Eastern District of Texas, and Northern District of California, the local litigation
rules define what and when these ancillary documents and communications must be produced.
Q:
Does the waiver of privilege and work product protection apply to litigation counsel in
addition to opinion counsel?
No, not unless unique circumstances arise.50 The court in Seagate held that the disclosure of opinion
counsel’s opinion in defending against an accusation of willful infringement does not generally
waive attorney-client privilege for communications with trial counsel.51 The court reasoned that:
[T]he significantly different functions of trial counsel and opinion counsel advise against
extending waiver to trial counsel. Whereas opinion counsel serves to provide an objective
assessment for making informed business decisions, trial counsel focuses on litigation
strategy and evaluates the most successful manner of presenting a case to a judicial decision
maker. And trial counsel is engaged in an adversarial process.52
46
47
48
49
50
51
52
Id. at 1374.
See id.
See id.
See In re Echostar, 448 F.3d at 1305.
In re Seagate, 497 F.3d 1360.
Id. at 1376.
Id. at 1373.
309
However, the court said waiver could reach trial counsel in certain circumstances, such as chicanery.53
An important lesson from this Seagate holding is that the work product associated with an opinion
of counsel ought to be kept separate from work product associated with trial counsel. If trial counsel
becomes involved in the generation of work product, even work product not communicated to the
client, waiver could end up attaching to that work product. A true slippery slope could then be
created because it would likely be difficult for a court to parse out where the “opinion” work product
ended and the trial counsel work product began.
IV.
Conclusion
Patent 301
Post-Seagate, there are several unknowns remaining concerning willful patent infringement, such
as what exactly the Federal Circuit meant by objectively reckless behavior. The presence of an
affirmative duty of care always posed an unusual burden on the potentially accused patent infringer.
That duty generally required obtaining an opinion of counsel to demonstrate the potential infringer
exercised due care. Now, the potential infringer no longer has such an affirmative duty because
a patentee-plaintiff must show the infringer acted objectively recklessly, which likely equates
to whether the potential infringer acted commercially reasonably. The lack of insight from case
law following Seagate as to mechanisms for avoiding objectively reckless behavior suggests that
perhaps well-reasoned and adequately informed opinions of counsel are still the best way to show
commercially reasonable behavior.
53 Id. at 1375.
KILPATRICK TOWNSEND
311
Advertising Basics
I.
Laws, Regulations, and Other Authorities Governing Advertising
At the federal level, two primary sources of law govern advertising claims: the Lanham Act and the
Federal Trade Commission Act (“FTCA”). The Lanham Act, particularly § 43(a), proscribes false or
misleading statements and gives competitors standing to sue.1 The FTCA grants the Federal Trade
Commission (“FTC”) authority to regulate advertisements with the goal of protecting consumers.2
Most states have passed Unfair and Deceptive Trade Practices Acts, with some adopting the Uniform
Unfair and Deceptive Trade Practices Act to govern state-law claims.3 Several states have also
passed false advertising statutes as a supplement or alternative to the Uniform Act.4
Advertising claims may also be subject to industry-specific laws and regulations. For example, the
Textile and Wool Acts provide a number of rules for the advertisement of clothing,5 and advertising
practices associated with food and drug advertisements are heavily regulated as well.6 Television
networks have also promulgated Network Advertising Guidelines that articulate important factors
in determining which advertisements are proper for television viewing.7
II.
General Principles and Frequent Topics in Advertising Law
Courts have interpreted the elements of a false advertising claim under the Lanham Act, § 43(a),
as: “(1) a false statement of fact by the defendant in a commercial advertisement about its own or
another’s product; (2) the statement actually deceived or has the tendency to deceive a substantial
1
2
3
4
5
6
7
“Any person who, on or in connection with any goods or services . . . uses in commerce any word, term, name, symbol or device, or
any combination thereof, or any . . . false or misleading description of fact, or false or misleading representation of fact, which . . . (B)
in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another
person’s goods, services or commercial activities, shall be liable in a civil action by any person who believes that he or she is likely to
damaged by such act.” Trademark Act of 1946, 15 U.S.C. § 1125(a)(1) (2006) (“Lanham Act”).
Section 5 of the FTCA declares that “[u]nfair or deceptive acts or practices in or affecting commerce are hereby declared unlawful.”
15 U.S.C.A. § 45(a)(1) (2006). This section, in combination with § 12(a)—which discusses the dissemination of false advertisements
and states that “[i]t shall be unlawful for any person, partnership, or corporation to disseminate, or cause to be disseminated, any false
advertisement . . . (2) By any means, for the purpose of inducing, or which is likely to induce, directly or indirectly, the purchase in
or having an effect upon commerce, of food, drugs, devices, services, or cosmetics”—establishes the authority for false advertising
enforcement in the FTC. Id. § 52(a). Section 13(b) then authorizes the FTC to seek preliminary and permanent injunctions for violations
of the FTCA. Id. § 53(b). The full text of the FTCA is available online at http://www.fda.gov/opacom/laws/ftca.htm.
See, e.g., Colo. Rev. Stat. Ann. §§ 6-1-101 to 6-1-115 (West 2002 & Supp. 2008) (1966 revision); Ga. Code Ann. §§ 10-1-370 to 101-375 (2000 & Supp. 2008); Minn. Stat. §§ 325D.43–.48 (1966 revision); Ohio Rev. Code Ann. §§ 41.4165.01-4165.04 (West 2007 &
Supp. 2008) (1966 revision); Okla. Stat. Ann. tit. 78, §§ 51–55 (West 2002 & Supp. 2008); Or. Rev. Stat. Ann. §§ 646.605–.656 (West
2003 & Supp. 2008) (1966 revision); see also http://law.findlaw.com/state-laws/deceptive-trade-practices.
See, e.g., Cal. Bus. & Prof. Code Ann. § 17500 et seq. (West 2008); Ga. Code Ann. §§ 10-1-420, -421 (2000 & Supp. 2008); N.Y. Gen.
Bus. § 350 (McKinney 2004 & Supp. 2008). See also http://law.findlaw.com/state-laws/deceptive-trade-practices.
See Facts for Business: Threading Your Way Through the Labeling Requirements Under the Textile and Wool Acts, available at http://
www.ftc.gov/bcp/edu/pubs/business/textile/bus21.shtm.
See, e.g., Bruce I. McDaniel, What Constitutes “False Advertising” of Drugs or Devices Within § 5 and 12 of the Federal Trade
Commission Act (15 U.S.C.A. § 45, 52), 49 A.L.R. Fed. 16 (1980); Bruce I. McDaniel, What Constitutes “False Advertising” of Food
Products or Cosmetics Within §§ 5 and 12 of the Federal Trade Commission Act (15 U.S.C.A. §§ 45, 52), 50 A.L.R. Fed. 16 (1980).
See, e.g., ABC Television Network Advertising Standards and Guidelines (on file with the FTC), and reprinted in 1 Do’s & Don’ts of
Advertising § 4 at 60 (Council of Better Business Bureaus Sept. 2002).
Advertising 101
William H. Brewster, Michael W. Rafter, Tywanda Harris Lord, Lisa Pearson,
and Sabina A. Vayner
KILPATRICK TOWNSEND
segment of its audience; (3) the deception is material, in that it is likely to influence the purchasing
decision; (4) the defendant caused its false statement to enter interstate commerce; and (5) the
plaintiff has been or is likely to be injured as a result of the false statement, either by direct diversion
of sales from itself to defendant or by a lessening of the goodwill associated with its products.”8
The FTC, which brings administrative actions under the provisions of the FTCA, issued its Policy
Statement on Deception in 1983 to address the factors the FTC considers in evaluating false
advertising claims.9 The FTC enumerated three primary factors: (1) “a representation, omission or
practice that is likely to mislead the consumer;” (2) “the perspective of a consumer acting reasonably
in the circumstances;” and (3) “the representation, omission, or practice must be a ‘material’ one.”10
In summary, “the Commission will find deception if there is a representation, omission or practice
that is likely to mislead the consumer acting reasonably in the circumstances, to the consumer’s
detriment.”11
A.
“Puffery” is not Actionable
Statements perceived as exaggeration or boasting, sometimes called “puffery,” are generally
permitted and are not actionable as false or misleading advertising. The distinction turns on whether
the statement is one of fact, and thus objective, or one of general opinion, and thus subjective. A
statement of fact is actionable, while a statement of general opinion is not.12
Courts have held that puffery can arise in at least two forms: “(1) an exaggerated, blustering, and
boasting statement upon which no reasonable buyer would be justified in relying; or (2) a general
claim of superiority over comparable products that is so vague that it can be understood as nothing
more than a mere expression of opinion.”13 Nevertheless, if this vague, “general claim” of superiority
becomes objectively concrete when viewed in the context of the overall advertisement, puffery may
become actionable false advertising.14
The line between puffery and an actionable claim can be murky. For example, courts have found the
following statements to be non-actionable puffery:
(1)
(2)
(3)
8
9
10
11
12
13
14
15
16
17
“Best Beer in America,”15
“the Most Advanced Home Gaming System in the Universe,”16
“less is more,”17 and
Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir. 1997). See also U.S. Healthcare, Inc. v. Blue Cross of Greater
Philadelphia, 898 F.2d 914, 922–23 (3d Cir. 1990).
FTC Policy Statement on Deception, appended to In re Cliffdale Assocs., Inc., 103 F.T.C. 110, 174 (1984), available at http://www.ftc.
gov/bcp/policystmt/ad-decept.htm.
Id.
Id.
See, e.g., Pizza Hut, Inc. v. Papa John’s Int’l, Inc., 227 F.3d 489, 495–96 (5th Cir. 2000).
Id. at 497.
See, e.g., id. at 496.
In re Boston Beer Co., 198 F.3d 1370, 1372 (Fed. Cir. 1999).
Atari Corp. v. 3DO Co., 31 U.S.P.Q.2d 1636, 1636 (N.D. Cal. 1994).
Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1145 (9th Cir. 1997).
313
(4)
“anything closer would be too close for comfort.”18
(1)
(2)
(3)
“longer engine life and better engine protection,”19
“50% Less Mowing,”20 and
“stops pain immediately.”21
A single advertisement may contain both types of advertising claims. In a case involving
advertisements for laundry detergent, the statement “whiter is not possible” was held to be an
implied direct comparison to chlorine bleach, while other statements, including “hit the white spot
with just one shot,” were held to be vague, unspecified boasting typical of puffery.22
Pizza Hut v. Papa John’s provides a good example of how the context of an advertisement can
transform a statement that otherwise might be puffery into an actionable statement of fact. In that
case, Pizza Hut sued Papa John’s for use of the advertising slogan “Better Ingredients. Better
Pizza.”23 In its analysis, the Fifth Circuit first considered the slogan standing alone and dissected the
two sentences to determine whether each part was a statement of fact or opinion. Finding both parts
of the statement to be non-actionable opinion, the court reasoned that “it is clear that the assertion by
Papa John’s that it makes a ‘Better Pizza’ is a general statement of opinion regarding the superiority
of its product over all others. This simple statement . . . epitomizes the exaggerated advertising,
blustering, and boasting by a manufacturer upon which no consumer would reasonably rely.”24 The
court continued that “it is difficult to think of any product, or any component of any product, to
which the term ‘better,’ without more, is quantifiable,”25 and concluded that the four word slogan,
taken as a whole, was non-actionable puffery.26
The Fifth Circuit then addressed the use of the slogan in a series of comparative advertisements
that compared Papa John’s sauce and dough to that of its competitors in the pizza delivery
business, including Pizza Hut.27 Affirming the jury’s verdict, the court held that the commercials
were misleading statements of fact actionable under the Lanham Act.28 When evaluated within
the comparative advertisements, the court agreed that the message communicated by the slogan
“is expanded and given additional meaning” such that it is no longer an opinion but instead an
18 Gillette Co. v. Norelco Consumer Prods. Co., 946 F. Supp. 115, 130 (D. Mass. 1996).
19 Castrol Inc. v. Pennzoil Co., 987 F.2d 939, 941, 946 (3d Cir. 1993).
20 Southland Sod Farms, 108 F.3d at 1145 (stating that “50% Less Mowing” is “a specific and measurable advertisement claim of product
superiority based on product testing and, as such, is not puffery”).
21 Am. Home Prods. Corp. v. Abbott Labs., 522 F. Supp. 1035 (S.D.N.Y. 1981).
22 Clorox Co. Puerto Rico v. Procter & Gamble Commercial Co., 228 F.3d 24, 28, 39 (1st Cir. 2000).
23 Pizza Hut, 227 F.3d at 491.
24 Id. at 498. See also Am. Italian Pasta Co. v. New World Pasta Co., 371 F.3d 387 (8th Cir. 2004) (holding “America’s favorite pasta”
statement to be puffery).
25 Id. at 499.
26 Id.
27 Id. at 500–03.
28 Id. at 502.
Advertising 101
On the other hand, courts have held these statements to be verifiable facts rather than puffery:
KILPATRICK TOWNSEND
actionable statement of fact, reasoning that the context of the commercials had transformed the
general word “better” into a modifier for specific items that could be measured objectively.29 In the
end, the court found that the misleading statements were not material to the consumer purchasing
decision and, as a result, Papa John’s prevailed in the suit.30 The case nevertheless offers a good
example of the contextual factors that can transform even the most evident puffery into an actionable
statement of fact.
B.
Both Express and Implied Claims can be False or Misleading
Advertising claims are actionable under the Lanham Act regardless of whether the claim is expressly
stated or simply implied. The fundamental difference between the two types of statements is that
“[e]xpress claims directly represent the fact at issue while implied claims do so in an oblique or
indirect way.”31
Implied claims can arise in a variety of situations. A combination of elements such as slogans,
descriptions, and photographs may result in a misleading impression, even though each standing
alone is non-actionable.32 Likewise, an entire package, taken as a whole, may be implicitly
misleading, even though the labels themselves are not.33 An advertisement stating that each slice of
cheese is made with five ounces of milk, while truthful, still falsely implied to reasonable consumers
that each slice contained as much calcium as five ounces of milk and was therefore held to be
misleading in Kraft, Inc. v. FTC.34 In yet another case, a statement that a product offered “the strong
relief of aspirin” was interpreted by the court to contain an implied claim that the product actually
contained aspirin, when it did not.35
C.
Substantiation: All Verifiable (Objective) Statements Must Be Supported
The concept of substantiation arose in the FTC in the mid-1980s, with the D.C. Circuit’s holding in
Thompson Medical Co., Inc. v. FTC.36 Unlike prior jurisprudence, this case and the ensuing FTC
Policy Statement Regarding Advertising Substantiation established that advertisers could no longer
make statements without a “reasonable basis” for their claims, and that all claim substantiation
must occur prior to the advertisement and cannot later be established through post-advertisement
testing.37 More than twenty years later, the rule is the widely-accepted standard in federal court.
29 Id. at 501–02.
30Id. at 504.
31 Kraft, Inc. v. FTC, 970 F.2d 311, 319 n.4 (7th Cir. 1992).
32 Stanley Labs. v. FTC, 138 F.2d 388 (9th Cir. 1943) (use of “M.D.” in conjunction with the phrase “dependable safeguard” may lead to the
conclusion that the product has contraceptive uses).
33 Kenny v. Gillet, 17 A. 499 (Md. 1889).
34 970 F.2d 311.
35 In re Thompson Med. Co., 104 F.T.C. 648, aff’d, 791 F.2d 189 (D.C. Cir. 1986).
36 791 F.2d 189 (D.C. Cir. 1986).
37 FTC Policy Statement Regarding Advertising Substantiation, appended to Thompson Med. Co., 104 F.T.C. 648, 839 (1984), aff’d, 791
F.2d 189 (D.C. Cir. 1986), available at http://www.ftc.gov/bcp/guides/ad3subst.htm.
315
The next level requires the advertiser to have a “reasonable basis” for any product claim that makes
“objective assertions about the item or service advertised,” but does not provide “an express or
implied reference to a certain level of support.”40 In making this “reasonable basis” determination,
the FTC evaluates six factors: “(1) the product involved; (2) the type of claim made; (3) the benefits
of a truthful claim; (4) the ease of developing substantiation; (5) the consequences to the consumer of
a false claim; and (6) the amount of substantiation which experts in the field consider reasonable.”41
For challengers of the advertisement, evidence showing the assertion’s falsity is required.
The highest level of proof is necessary when an advertisement, either explicitly or implicitly, claims
to be supported by testing or scientific research, or indicates any specific level of support.42 These
claims, sometimes called “establishment claims,” require the advertiser to show the same level of
substantiation as presented in the advertisement. With establishment claims, false advertising can be
shown by demonstrating that the tests on which the statement relies are “not sufficiently reliable to
permit one to conclude with reasonable certainty that they established the proposition for which they
were cited.”43 Thus the standard of proof for a challenger is lowest for establishment claims, as the
challenger must show only that the tests fail to support the advertiser’s claim to prevail, rather than
proving that the product lacks the claimed characteristic.
D.
Literally False Statements as well as Literally True but Misleading Statements are Actionable
Courts recognize two primary types of claims in false advertising: (1) those statements that are
literally false on their face; and (2) those statements that, while literally true, still have a tendency
to mislead or deceive relevant consumers.44 Some courts recognize a sub-category of literally false
claims—those that are literally false “by necessary implication.”45
In distinguishing the two types of claims, courts state that “[a] literally false statement can be
determined as a matter of law, but whether a statement is misleading is considered a matter of
fact.”46 This delineation has the practical consequence that, “[w]hen a merchandising statement
Id.
Id.
Id.
1A Louis Altman & Malla Pollack, Callmann on Unfair Competition, Trademarks and Monopolies § 5:21 (4th ed. 2008).
FTC Policy Statement Regarding Advertising Substantiation, supra note 37.
Castrol, 987 F.2d at 958 n.13 (quoting Procter & Gamble Co. v. Chesebrough-Pond’s Inc., 747 F.2d 114, 119 (2d Cir. 1984)). See also
United Indus. Corp. v. Clorox Co., 140 F.3d 1175, 1182 (8th Cir. 1998).
44 Johnson & Johnson v. GAC Int’l, Inc., 862 F.2d 975, 977 (2d Cir. 1988).
45 This category of claims has been considered by the First, Second, Third, Fourth, Ninth, and Tenth Circuits. See, e.g., Clorox Co. Puerto
Rico v. Procter & Gamble Commercial Co., 228 F.3d 24 (1st Cir. 2000); Time Warner Cable, Inc. v. DirecTV, Inc., 497 F.3d 144 (2d Cir.
2007); Novartis Consumer Health, Inc. v. Johnson & Johnson-Merck Consumer Pharms. Co., 290 F.3d 578 (3d Cir. 2002); Scotts Co. v.
United Indus. Corp., 315 F.3d 264 (4th Cir. 2002); Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir. 1997); Zoller
Labs., LLC v. NBTY, Inc., 111 F. App’x 978 (10th Cir. 2004).
46 Allsup, Inc. v. Advantage 2000 Consultants Inc., 428 F.3d 1135, 1138 (8th Cir. 2005).
38
39
40
41
42
43
Advertising 101
The FTC’s 1984 Policy Statement Regarding Advertising Substantiation set forth the substantiation
requirement for advertising.38 At the first level, puffery requires no substantiation at all, since it is
non-actionable.39
KILPATRICK TOWNSEND
or representation is literally or explicitly false, the court may grant relief without reference to
the advertisement’s impact on the buying public . . . [but when] the challenged advertisement is
implicitly rather than explicitly false, its tendency to violate the Lanham Act by misleading, confusing
or deceiving should be tested by public reaction.”47 In other words, a competitor challenging an
advertising claim that is literally true, but allegedly misleading, will need to present evidence that
the claim does in fact mislead consumers. The challenger usually gathers evidence by conducting
surveys in which consumer perceptions of the advertisement are tested.
1.
Literally False Claims: Courts Presume that Consumers are Deceived
Statements that are literally false do not require a challenger to show evidence of consumer
confusion or deception. If an advertisement is false on its face, a competitor harmed by it can obtain
an injunction without having to show extrinsic evidence that consumers were actually misled by
the advertisement. Furthermore, if the challenger is seeking a preliminary injunction, the court may
presume that irreparable injury will result should the injunction be denied.48 Basically, if a claim is
literally false, courts will presume actual deception.49
As a preliminary matter, however, one must first determine that a statement is, in fact, false on its
face. “In analyzing whether an advertisement . . . is literally false, a court must determine, first, the
unambiguous claims made by the advertisement . . . , and second, whether those claims are false.”50
The Third Circuit undertook this analysis in Novartis Consumer Health, Inc. v. Johnson & JohnsonMerck Consumer Pharmaceuticals Co., and concluded that “only an unambiguous message can be
literally false.”51
In Cashmere & Camel Hair Manufacturers Institute v. Saks Fifth Avenue, for example, the First
Circuit found that a presumption of consumer deception attached to literally false label statements,
such as those wherein blazers containing less than 1% of cashmere were advertised as “10%
cashmere” and where labeling the blazers as “cashmere” rather than “recycled cashmere” was literal
falsity.52
a)
Claims that are Literally False by Necessary Implication
Some courts recognize claims that involve a statement that, while not literally false on its face,
is nevertheless literally false given the circumstances.53 Such claims arise “when, considering
the advertisement in its entirety, the audience would recognize the claim as readily as if it had
been explicitly stated.”54 In determining whether a claim is false by necessary implication, courts
inquire whether, based on a facial analysis of the product name or advertising, the consumer will
unavoidably receive a false message from the product’s name or advertising.
47
48
49
50
51
52
53
54
Coca-Cola Co. v. Tropicana Prods., Inc., 690 F.2d 312, 317 (2d Cir. 1982), abrogated on other grounds by Fed. R. Civ. P. 52(a).
Altman & Pollack, supra note 41 § 5:23.
See, e.g., U-Haul Int’l, Inc. v. Jartran, Inc., 793 F.2d 1034, 1040 (9th Cir. 1986).
Novartis Consumer Health, Inc., 290 F.3d at 586.
Id. at 587 (emphasis in original).
284 F.3d 302 (1st Cir. 2002).
See supra note 45.
Clorox Co. Puerto Rico, 228 F.3d at 35.
For example, in Cuisinarts, Inc. v. Robot-Coupe International Corp., a federal district court found
literal falsity by necessary implication in an advertisement for professional food processors.55 The
advertisement stated that all fine French restaurants chose Robot-Coupe’s professional processors
over those of competitor Cuisinart, thus necessarily implying that Cuisinart not only produced a
professional model food processor (which it did not) but also that that the restaurants in question had
chosen the Robot-Coupe over the Cuisinart model (which they had not).56
Similarly, the Third Circuit in Novartis analyzed whether statements associated with the advertising
of Mylanta Night Time Strength were literally false by necessary implication. Although the product
advertised nighttime relief, the product formulation was that of an extra strength antacid, without any
additional enhancements or sleep aids. Holding that the name of the product—Mylanta Night Time
Strength—necessarily implied that it was specially formulated for nighttime relief of heartburn,
the court upheld the lower court’s decision and further noted that “the greater the degree to which
a message relies upon the viewer or consumer to integrate its components and draw the apparent
conclusion . . . the less likely it is that a finding of literal falsity will be supported.”57
2.
Literally True but Misleading Claims: Evidence of Actual Deception Required
Unlike literally false statements, the standard for literally true but misleading claims requires a
challenger to show that the advertisement has in fact misled or deceived consumers.58 Challengers
will often rely on consumer surveys to show either consumer deception or lack thereof.59 This
additional burden of proof was explained by the court in American Council of Certified Podiatric
Physicians and Surgeons: “[w]here statements are literally true, yet deceptive, or too ambiguous to
support a finding of literal falsity, a violation can only be established by proof of actual deception . . . .
A plaintiff relying upon statements that are literally true yet misleading cannot obtain relief by
arguing how consumers could react; it must show how consumers actually do react.”60
An illustrative case is Sandoz Pharmaceuticals Corp. v. Richardson-Vicks, Inc.61 Finding that
Sandoz had failed to establish that an advertisement for Vick’s Pediatric Formula 44 was misleading
to consumers absent any consumer survey evidence, the Third Circuit explained that “where the
advertisements are not literally false, plaintiff bears the burden of proving actual deception by a
preponderance of the evidence.”62 The court reasoned that the “effect of the advertisement on
the consumer is the critical determination, and it must be demonstrated by a Lanham Act plaintiff
55 No. 81CIV731-CSH, 1982 WL 121559 (S.D.N.Y. June 9, 1982). Although unreported, this case has been heavily cited in subsequent
cases. See, e.g., Novartis Consumer Health, Inc., 290 F.3d 578; Southland Sod Farms, 108 F.3d at 1139; Castrol Inc. v. Pennzoil Co., 987
F.2d 939, 941, 946–47 (3d Cir. 1993).
56 Id.
57 Novartis Consumer Health, Inc, 290 F.3d at 587 (quoting United Indus. Corp. v. Clorox Co., 140 F.3d 1175, 1181 (8th Cir. 1998)).
58 Am. Home Prods. Corp. v. Johnson & Johnson, 577 F.2d 160, 165–66 (2d Cir. 1978); Sandoz Pharms. Corp. v. Richardson-Vicks, Inc.,
902 F.2d 222, 228–29 (3d Cir. 1990).
59 See, e.g., Am. Home Prods., 577 F.2d at 166–68; Tropicana Prods., Inc., 690 F.2d 312.
60 Am. Council of Certified Podiatric Physicians & Surgeons v. Am. Bd. of Podiatric Surgery, 185 F.3d 606, 614 (6th Cir. 1999) (internal
quotation marks omitted). See also Sandoz Pharms. Corp., 902 F.2d at 229.
61 902 F.2d 222.
62 Id. at 228–29 (internal citation omitted).
Advertising 101
317
KILPATRICK TOWNSEND
regardless of whether the claim is facially ambiguous.”63 Thus, without evidence of actual consumer
misinterpretation, the claim for literally true but misleading statements could not be upheld.
To prove a Lanham Act claim based upon misleading but literally true advertising statements, the
plaintiff must present survey or other evidence showing that consumers are actually misled. The
FTC, however, has no such requirement in proceedings brought before it under the FTC Act.64
The FTC, in its discretion, determines whether to admit extrinsic evidence to show implied falsity.
If it chooses, the FTC can determine the implication of an advertisement without the admission
of any extrinsic evidence whatsoever. In appeals from such determinations, courts typically defer
to the FTC’s practice because “the FTC’s unique expertise and experience regarding consumer
expectations allows it to determine for itself the level of substantiation consumers expect to support
an advertising claim.”65 Such judicial deference is not without critics, however.66
Similarly, in alternative dispute resolution proceedings before the National Advertising Division
(“NAD”),67 the NAD does not require challengers to submit evidence of actual consumer deception
in connection with allegedly misleading advertising claims, although it will consider any such
evidence submitted. In the absence of surveys or other consumer perception evidence, however, the
NAD will rely on its own precedent to reach a conclusion.
E.
Images can be False or Misleading
Images used in advertisements can communicate a false or misleading message, either explicitly or
implicitly.
For example, the Second Circuit has held that a television advertisement visually representing
orange juice made by squeezing oranges and pouring freshly-squeezed juice directly into the carton
was false on its face when, in fact, the orange juice was actually pasteurized and prepared through a
process of heating and sometimes freezing prior to packaging.68
On the other hand, an illustration of mature crabgrass directly above the phrase “prevents crabgrass up
to 4 weeks after germination” was held by the Fourth Circuit to be neither literally false, nor literally
false by necessary implication.69 Although the challenger argued that this image, in connection with
the text, would mislead consumers into believing the product actually killed already-existing mature
crabgrass, the court found that this inference was unlikely and unsupported. Likewise, the Second
Circuit found an Internet image depicting a competitor’s extremely bad television reception to be so
exaggerated and inaccurate that no reasonable consumer would believe it to be a realistic depiction
and thus, in context, constituted mere puffery.70
63 Id. at 229.
64 Id.
65 Id. See also Kraft, Inc. v. FTC, 970 F.2d 311 (7th Cir. 1992); FTC v. Colgate-Palmolive Co., 380 U.S. 374, 385 (1965); Am. Home Prods.
Corp. v. FTC, 695 F.2d 681, 687 n.10 (3d Cir. 1982); Thompson Med. Co. v. FTC, 791 F.2d 189, 197 (D.C. Cir. 1987).
66 Kraft, Inc., 970 F.2d at 327–28 (concurring opinion).
67 See infra Section III for further discussion of NAD proceedings.
68 Tropicana Prods., Inc., 690 F.2d at 317–18.
69 Scotts Co., 315 F.3d at 274–75.
70 Time Warner v. DirecTV, 497 F.3d 144 (2d Cir. 2007) (Second Circuit reversed district court’s finding of literal falsity).
319
F.
Disclaimers and Disclosures Often are Insufficient to Cure a False or Misleading Message
Disclosures and disclaimers are often used by advertisers to correct potential misperceptions
by consumers. Although such devices sometimes may be sufficient to cure otherwise deceptive
advertising, they often fail to be effective. In particular, merely placing a small or inconspicuous
disclaimer at the bottom or in the corner of an advertisement that would otherwise be misleading
usually does nothing to fix the advertisement’s misleading message. Even when advertisers go so far
as to prominently display the disclaimer or qualifying phrase on their advertisements, such language
may not negate a message that may be deceptive as a whole.
Courts have sometimes approved disclaimers that explain a potentially misleading message.71
For example, in Potato Chip Institute v. General Mills, the Fourth Circuit noted that “it is well
settled that if the contested phrase is susceptible to two meanings so that an explanatory phrase will
preclude deception, it is sufficient to require the addition of the explanation rather than prohibit
using the ambiguous phrase.”72 In that case, the court held that the term “potato chip” conveyed
a specific impression in the minds of consumers such that they would be misled into thinking the
product was made from raw potatoes. When used in conjunction with such phrases as “fashioned
from dried potato granules,” however, this statement was sufficient to ensure that consumers would
not be misled. The court did note, nonetheless, that advertisements for the product on television, in
which only the term “potato chip” was used, would no longer be permitted.73
Claims such as “Rated No.1” and “Proved the Best” can also often mislead unless accompanied by a
disclosure of the essential facts and the tests on which the claims are made. Such disclosures should
include the identity of the organization making the tests upon which the claims are based, the type
of tests that were conducted (i.e., lab, clinical), and in what specific respects the product is deemed
to be superior. Furthermore, if the advertiser owns or controls the agency making the statement, this
fact should be prominently displayed.
For example, the District of Columbia Circuit held that the term “manufacturer’s list price” in a
retailer’s advertisement misled the public into believing that this price was the price at which the
product was customarily sold by competitors in the area. The disclaimer, printed in small print at the
bottom of the advertisement and purporting to explain the meaning of the term “manufacturer’s list
price” was held insufficient to correct the deceptive use of the term.74
In evaluating the sufficiency of disclaimers, courts look to the overall impression created by the
advertisement. In American Home Products, the court held that “[i]f the advertisement contains a
definition or disclaimer which purports to change the apparent meaning of the claims and render
71
72
73
74
See, e.g., Potato Chip Inst. v. Gen. Mills, Inc., 333 F. Supp. 173 (D. Neb. 1971), aff’d, 461 F.2d 1088 (8th Cir. 1972).
461 F.2d at 1089.
333 F. Supp. at 181.
Giant Food Inc. v. FTC, 322 F.2d 977, 986 (D.C. Cir. 1963).
Advertising 101
Advertisers should thus be attuned to the messages communicated to consumers by the visual
components of their advertising, and take care that these components are adequately substantiated.
KILPATRICK TOWNSEND
them literally truthful, but which is so inconspicuously located or in such fine print that readers tend
to overlook it, it will not remedy the misleading nature of the claims.”75 The court further noted
that the meaning of an advertisement to the target audience—and hence, the effectiveness of a
disclaimer—is best established through well-designed surveys.76
G.
Comparative Advertising
A frequently used strategy in advertising is the comparison of a product to a competitor’s similar
product. In the United States, comparative advertising is permissible, but only so long as the
advertiser can adequately substantiate all claims, whether or not those claims directly reference
particular competitors.77 Comparative advertising encompasses both superiority and parity claims,
as well as claims that are implicit in their comparison to other products.
1.
Superiority Claims
Superiority claims are those that make the assertion, whether explicitly or implicitly, that the product
advertised is better than all others in the marketplace, or better than the product sold by a specific
competitor. In making claims of superiority, statements that a product has the “most sales,” or is the
“oldest” or “biggest” in the market are objective claims, requiring the advertiser to substantiate such
claims by showing that his product truly is the “oldest,” “biggest,” or had the “most sales” last year.
More generalized superiority claims, such as use of the word “best” in advertising, in contrast, are
so broad as to be subjectively superior and thus considered non-actionable puffery.
The line between subjectively and objectively superior claims is not always clear. For example,
in Johnson & Johnson-Merck Consumer Pharmaceuticals Co. v. Rhone-Poulenc Rorer
Pharmaceuticals, Inc.,78 Rhone-Poulenc made the claim that its antacid was the “strongest antacid
there is” in television commercials. Although the statement appeared capable of verification
through objective testing, the Second Circuit held in favor of Rhone-Poulenc, stating that such a
general statement was not actionable as false advertising absent consumer surveys showing that the
advertisements misled the public into thinking Maalox was a superior product.79
2.
Parity Claims
Parity claims are those which compare the advertiser’s product to others in the marketplace and
assert that their product is “as good as” the competitor’s. Like superiority claims, parity claims must
also be substantiated if they are objectively verifiable.
75 Am. Home Prods. Corp. v. Johnson & Johnson, 654 F. Supp. 568, 590 (S.D.N.Y. 1987).
76 Id.
77 In certain other countries, comparative advertising is prohibited or may give rise to trademark infringement or other claims by the
competitor whose product is compared. Before engaging in comparative advertising in a new country, it is prudent to consult counsel wellversed in the advertising and unfair competition laws of that country. See, e.g., European Commission: Consumer Affairs, Misleading and
Comparative Advertising, http://ec.europa.eu/consumers/cons_int/safe_shop/mis_adv/index_en.htm (last visited Mar. 17, 2009).
78 19 F.3d 125 (3d Cir. 1994).
79 Id. See also Chesebrough-Pond’s Inc., 747 F.2d 114.
In Procter & Gamble Co. v. Chesebrough-Pond’s Inc., for example, both manufacturers sued each
other for false advertising associated with hand and body lotions.80 While Procter & Gamble’s
advertisements contained claims of superiority, Chesebrough claimed parity for its Vaseline
Intensive Care Lotion, making statements such as, “[w]hen it comes to relieving dry skin, no leading
lotion beats Vaseline Intensive Care Lotion.”81 Both parties provided clinical tests to substantiate
their assertions and the district court held that neither party could show that the other’s tests were
invalid or misleading. The Second Circuit upheld the district court’s decision, allowing both parties
to continue their advertising, concurrently making both superiority (Procter & Gamble) and parity
(Chesebrough) claims.82
H.
Testimonials and Endorsements
Endorsements can be a valuable tool in advertising a product, particularly when made by a highprofile celebrity. Use of endorsements, however, must adhere to particular guidelines to avoid claims
of false advertising.
To aid advertisers, the FTC issued Guides Concerning the Use of Endorsements and Testimonials
in Advertising (the “Endorsement Guides”).83 The FTC treats testimonials and endorsements
identically in the context of advertising, and describes both as:
any advertising message (including verbal statements, demonstrations, or depictions of the
name, signature, likeness or other identifying personal characteristics of an individual or
the name or seal of an organization) which message consumers are likely to believe reflects
the opinions, beliefs, findings, or experience of a party other than the sponsoring advertiser.
The party whose opinions, beliefs, findings, or experience the message appears to reflect
will be called the endorser and may be an individual, group or institution.84
The FTC Endorsement Guides also provide examples of advertisements that do and do not constitute
endorsements. A famous golfer hitting golf balls in an advertisement for those golf balls would
constitute an endorsement, as would a quote from a movie critic used in the advertisement for a new
movie.85 On the other hand, an advertisement depicting two women in a grocery store, in which one
tells the other that she only uses a specific brand to clean all of her family’s clothing would not.86
If “the advertisement represents that the endorser uses the product, then the endorser must have
been a bona fide user of it at the time the endorsement was given” so as not to constitute false
advertising.87 Nor can the advertisement continue to be used if the advertiser no longer has a “good
reason to believe” that the endorser is still a bona fide user of the product.88
80
81
82
83
84
85
86
87
88
747 F.2d 114.
Id. at 116.
Id. at 120.
16 C.F.R. § 255.0 (2008), available at http://www.ftc.gov/bcp/guides/endorse.htm.
Id. § 255.0(a)–(b).
Id. § 255.0(d).
Id. § 255.0(d).
Id. § 255.1(c).
Id. § 255.0(d).
Advertising 101
321
KILPATRICK TOWNSEND
A leading case illustrating how an advertiser can run afoul of endorsement requirements is Waits
v. Frito Lay.89 In that case, Frito Lay used a Tom Waits song sung by a sound-a-like artist without
Waits’s permission in its advertisement for Doritos. Waits prevailed on a false endorsement theory
under the Lanham Act, with the court holding that the unauthorized imitation of his distinctive voice
may lead consumers to believe that Waits actually approved of the product and sponsored it.90
In December 2008 and January 2009, the FTC accepted comments on its proposed revisions to
the Endorsement Guides, particularly regarding “consumer endorsements, expert endorsements,
endorsement by organizations, and disclosure of material connections between advertisers and
endorsers.”91 The FTC noted that “[o]n the issue of consumer endorsements, the proposed revisions
state that testimonials that do not describe typical consumer experiences should be accompanied
by clear and conspicuous disclosure of the results consumers can generally expect to achieve
from the advertised product or program.”92 These suggested revisions would affect, for example,
advertisements in which a spokesperson states that he has lost fifty pounds using the advertised
product, but the typical consumer loses significantly less weight when using the product.
I.
Specific Language Used in Advertising
1.
“Recyclable,” “Biodegradable,” “Compostable,” and Other Environmental
Advertising Claims
The FTC’s Guides for the Use of Environmental Marketing Claims, often referred to as the “Green
Guides,” set out guidelines for use of specific terminology in advertising, but do not purport to
define the terms scientifically or offer proper performance standards for those terms.93 For example,
when an advertisement or product package uses such terms as “degradable” or “biodegradable,”
[a]n unqualified claim that a product or package is degradable, biodegradable or
photodegradable should be substantiated by competent and reliable scientific evidence
that the entire product or package will completely break down and return to nature, i.e.,
decompose into elements found in nature within a reasonably short period of time after
customary disposal. Claims of degradability, biodegradability or photodegradability should
be qualified to the extent necessary to avoid consumer deception about: (1) the product or
package’s ability to degrade in the environment where it is customarily disposed; and (2)
the rate and extent of degradation.94
89 978 F.2d 1093 (9th Cir. 1992) (voice misappropriation in TV ad).
90 Id. at 1111.
91 FTC, FTC Approves Federal Register Notice on Advertising Endorsements and Testimonials, Nov. 21, 2008, available at http://www.ftc.
gov/opa/2008/11/endorsements.shtm; see also http://www.ftc.gov/os/2008/11/P034520endorsementguides.pdf.
92 FTC, FTC Approves Federal Register Notice on Advertising Endorsements and Testimonials, supra note 91.
93 FTC, Reporter Resources: The FTC’s Green Guides, available at http://www.ftc.gov/opa/reporter/greengds.shtm (last visited Mar. 17,
2009). The FTC is currently reviewing its Green Guides to determine whether they should be modified. The Green Guides were first
issued in 1992 and modified in 1996 and 1998. The FTC has been reviewing the Green Guides since November 2007, but has yet to
issue modifications as of November 2008. See also FTC, FTC: Eco in the Market: Green Guides Review, http://www.ftc.gov/bcp/edu/
microsites/energy/about_guides.shtml (last visited Mar. 17, 2009). Note that FTC Guides are not binding and generally include the
following statement: “This publication provides the FTC Staff’s view of the law’s requirements. It is not binding on the Commission.” See
FTC, Facts for Business, Complying with the Environmental Marketing Guides, http:www.ftc.gov/bcp/edu/pubs/business/energy/bus42.
shtm (last visited Mar. 17, 2009).
94 16 C.F.R. § 260.7 (2008).
Likewise, manufacturers may mark a product or package as “recyclable” only “if it can be separated
and collected from household and commercial trash for reuse, or to make another product or
package, through an established recycling program.”95 Furthermore, advertisers may only claim
that a product or package is recycled or contains recycled content if “it is made with materials that
have been recovered or separated from the trash during the manufacturing process (pre-consumer)
or after consumer use (post-consumer).”96 The FTC lists previously used newspapers, shipping
cartons, plastic bottles, glass containers, and metal cans as examples of post-consumer waste, and
leftover manufacturing scraps as pre-consumer waste. If a product contains used, reconditioned, or
remanufactured parts, and an advertiser chooses to label the product as “recycled,” “the label also
must say the product is ‘used,’ ‘reconditioned’ or ‘remanufactured’ unless that fact is obvious to
the buyer.”97 It is also important to note that, before labeling a product “recycled,” manufacturers
must indicate the percentage of recycled content, unless it is 100%.98 Lastly, use of the universal
recycling symbol indicates that a product is both recyclable and made of recycled materials.99 If
either of the two indications is untrue, the advertiser must indicate which does not apply.100
2.
“Free”
Nothing attracts consumers quite like a bargain or deal. Offers of “free,” “two for the price of
one,” “buy one, get one free,” and other similar statements used in advertising must adhere to strict
guidelines to avoid running afoul of false advertising laws.
To this end, the Federal Trade Commission has issued a Guide Concerning Use of the Word ‘Free’
and Similar Representations.101 In that Guide, the FTC explicitly defines “free” in the context of
advertising and sets the acceptable parameters within which the word can be used. For example,
the free offer must be “based upon a regular price for the merchandise or service which must be
purchased by consumers in order to avail themselves of that which is represented to be ‘Free.’”102
The FTC also provides a precise definition for “regular price:” “the price, in the same quantity,
quality and with the same service, at which the seller or advertiser of the product or service has
openly and actively sold the product or service in the geographic market or trade area in which he is
making a ‘Free’ or similar offer in the most recent and regular course of business, for a reasonably
substantial period of time.”103
The Better Business Bureau (“BBB”) has likewise adopted a definition of the term “free,” which
the National Advertising Division (“NAD”) uses in deciding cases.104 That definition, contained in
95 FTC, FTC Consumer Alert: Eco-Speak: A User’s Guide to the Language of Recycling (July 1998), http://www.ftc.gov/bcp/edu/pubs/
consumer/alerts/alt049.shtm (last visited Mar. 17, 2009).
96 Id.
97 Id.
98 Id.
99 Id.
100 Id.
101 16 C.F.R. § 251.1 (2008).
102 Id. § 251.1(b)(1).
103 Id. § 251.1(b)(2).
104 See discussion infra Part III for more information about the NAD.
Advertising 101
323
KILPATRICK TOWNSEND
the Code of Advertising, states that the term may be used only when “the advertiser is offering an
unconditional gift.”105 If the “free” item is conditional on a purchase, then this condition must be
disclosed by the advertiser clearly and conspicuously next to the “free” offer.106 Small disclosures,
like a mere asterisk next to the word, are considered inadequate.107 Like the definition in the FTC
Guide, the BBB’s definition affirms that the normal price of the goods cannot be increased, nor can
the quality or quantity of goods be reduced when offered in conjunction with the “free” offer.108
Finally, the definition requires that the “free” offer be temporary in nature.109
3.
“New”
According to a widely-followed FTC advisory opinion, codified in the Code of Federal Regulations
in 1967, a manufacturer should advertise a product as “new” only within the first six months of
the product’s introduction into the market.110 In fact, the FTC has explicitly stated that “it would
be inclined to question use of any claim that a product is ‘new’ for a period of time longer than 6
months.”111 The FTC nevertheless opted not to adopt a rigid rule, instead establishing “a tentative
outer limit for use of the claim . . . leaving itself free to take into consideration unusual situations
which may arise.”112 Despite this seemingly flexible approach, the FTC further noted that the
“general rule would apply unless exceptional circumstances warranting a period either shorter or
longer than 6 months were shown to exist.”113 Moreover, “[w]hen the word ‘new’ is used to denote
an old product made from an improved formula or method, the advertising used should make clear
that the word is used in that limited sense.”114
As a general matter, claims that a product is “new”—as opposed to used or recycled—should only
be made in connection with merchandise that is “made throughout of new material and parts, has
not been subjected to any use since completion of original manufacture, is unimpaired in appearance
and condition, and is of a model or style of current manufacture.”115 If the product is not entirely
new, it must have been “changed in a functionally significant and substantial respect.”116 “A product
may not be called ‘new’ when only the package has been altered or some other change made which
is functionally insignificant or insubstantial.”117 In the context of textiles, the fabric cannot be
105 2 Do’s & Don’ts in Advertising § 19 at 275–280 (Council of Better Business Bureaus 1996).
106 Id.
107 Id.
108 Id.
109 Id.
110 Permissible Period of Time During Which New Product May Be Described as “New,” 16 C.F.R. § 15.120(d) (1967); see also Facts for
Business: Frequently Asked Questions: A Guide for Small Business (Apr. 2001), available at http://www.ftc.gov/bcp/edu/pubs/business/
adv/bus35.shtm.
111 16 C.F.R. § 15.120(d), supra note 110.
112 Id.
113 Id.
114 Do’s & Don’ts in Advertising, supra note 105, § 19 at 1054.
115 Id. at 1052.
116 15 C.F.R. § 15.120(b) (1967).
117 Id. § 15.120(b).
325
Notably, advertised products are presumed to be “new,” even if they are not so labeled. Full disclosure
must be made that “merchandise is used, second-hand, rebuilt, remanufactured, reconditioned,
repaired, overhauled, or repossessed,” as the FTC considers concealment of such facts to be an
unfair trade practice.120
4.
“Made in the U.S.A.”
In 1997, the FTC promulgated the Enforcement Policy Statement on U.S. Origin Claims that requires
“all or virtually all” of a product to be made in the United States before any advertising or labeling of
the product as “Made in the U.S.A.” is permitted.121 To help advertisers understand the requirements
of this labeling, the FTC also released a Business Guide that provides details and explanations for
compliance with the “Made in the U.S.A.” standard.122
Like other advertising claims, claims that a product is made in the United States can be either express
or implied. Claims that a product is a “product of the U.S.A.” or that products are “American-made”
are express, while the inclusion of the United States flag or a map of the United States on a product’s
label, or even an address with U.S. headquarters, can constitute implied claims that the product is
made in the United States.123
In evaluating goods under the “all or virtually all” standard, the FTC “focuses on the overall
impression of the advertising, label, or promotional material.”124 Taking this into consideration and
focusing on important considerations for consumers, a product must have been “last substantially
transformed in the U.S. into its marketable form” to satisfy the “Made in the U.S.A.” standard.
Although this factor is primary, other considerations such as proportion of U.S. manufacturing costs,
and how far removed the foreign content is from the finished product are also evaluated.125
Even if a product does not fulfill the requirements above, the FTC allows advertisers to make
“qualified” “Made in the U.S.A.” claims. These claims must describe “the extent, amount or type
of a product’s domestic content or processing” and indicate that a product is not entirely of United
States origin.126 For example, claims that a product is “made in the U.S.A. of U.S. and imported
118 Facts for Business, supra note 110.
119 Id.
120 Do’s & Don’ts in Advertising, supra note 105, § 19 at 1052.
121 Enforcement Policy Statement on U.S. Origin Claims (Dec. 1997), available at http://www.ftc.gov/os/1997/12/epsmadeusa.htm.
122 FTC, Facts for Business, Complying with the Made in the U.S.A. Standard, available at www.ftc.gov/bcp/edu/pubs/business/adv/bus03.
shtm.
123 Id.
124 5 J. Thomas McCarthy, McCarthy on Trademarks & Unfair Competition § 29:54.50 (4th ed. 2008). See also FTC, FTC To Retain “All
or Virtually All” Standard for “Made in USA” Advertising and Labeling Claims, available at http://www.ftc.gov/opa/1997/12/musa2.
shtm.
125 FTC, FTC To Retain “All or Virtually All” Standard, supra note 124.
126 Id.
Advertising 101
“new” if it has been reclaimed or respun.118 Likewise, when advertising tires, the use of the word is
prohibited if the tires are retreads.119
KILPATRICK TOWNSEND
parts” or “assembl[ed] in the U.S. of foreign components” are acceptable qualified claims. Just as
with any other “Made in the U.S.A.” claim, a qualified claim must be truthful and substantiated.127
5.
“Organic” Food Products
As a result of increased public awareness of the need for healthier products and lifestyles, the
United States Department of Agriculture (“USDA”) in 2002 created the “USDA Organic” seal
for use on labels and packaging of eligible food products. To qualify for use of this label, a food
product must comply with national standards set forth by the USDA under its National Organic
Program.128 Developed in part based on recommendations of the National Organic Standards Board
and public comment, the USDA regulations generally divide eligible food and food products into
three categories.129
If a product contains only organically-produced ingredients, excluding added water and salt,
advertisers may use “100 percent organic” and the “USDA Organic” seal on labels and advertising
for that product.130 If the food or food product consists of at least 95% organically-produced
ingredients, again excluding water and salt, and the remaining 5% of ingredients are “nonagricultural
substances approved on the National List or non-organically produced agricultural products that are
not commercially available in organic form,” then manufacturers are permitted to use the term
“organic,” as well as the “USDA Organic” seal.131 In the last category of organic products, those food
products that contain at least 70% organic ingredients, the label “made with organic ingredients”
may be used, but the “USDA Organic” seal is prohibited.132
If a product contains less than 70% organic ingredients, advertisers are not allowed to use the term
“organic” on any packaging or advertising associated with that product. Nevertheless, if individual
organic ingredients are included in the product, those ingredients can be designated as “organic” on
the ingredient list of the product packaging.133
As a note of caution, advertisers should comply strictly with the above labeling requirements, as a
civil penalty of up to $11,000 can be assessed on anyone who “knowingly sells or labels as organic
a product that is not produced and handled in accordance with the National Organic Program’s
regulations.”134
127 Id.
128 See National Organic Program: Program Overview, available at http://www.ams.usda.gov/AMSv1.0 (follow link to “National Organic
Program” from main page).
129 Susan J. Keri & Elisabeth A. Langworthy, “Organic” – Says Who?, INTA Bulletin, Vol. 61, No. 13 (July 15, 2006); National Organic
Program: Organic Labeling and Marketing Information (April 2008), available at http://www.ams.usda.gov/AMSv1.0/getfile?dDocNam
e=STELDEV3004446&acct=nopgeninfo [hereinafter Organic Labeling and Marketing Information].
130 See Organic Labeling and Marketing Information, supra note 129; National Organic Program: Labeling Packaged Products, Jan. 2003,
http://www.ams.usda.gov/AMSv1.0/getfile?dDocName=STELDEV3004323&acct=nopgeninfo (last visited Mar. 17, 2009).
131 Organic Labeling and Marketing Information, supra note 129.
132 Id.
133 Id.
134 Id.
327
The National Advertising Division is a part of the National Advertising Review Council, which
was formed in 1971 through the combined efforts of the Association of National Advertisers, the
American Association of Advertising Agencies, the American Advertising Federation, and the
Council of Better Business Bureaus, with a purpose to ensure accurate national advertising through
self-regulation by parties.135 The NAD reviews advertisements on its own initiative, and contacts
advertisers to request information to assess whether the advertisements are truthful and adequately
supported. In addition, competitors and consumers can bring NAD proceedings challenging
advertisements they believe to be false, misleading, or inadequately supported.
The NAD provides several advantages to litigating false advertising disputes in the courts. For
one thing, it is much less expensive and decisions generally take just a matter of months. From the
advertiser’s perspective, another advantage is the opportunity to submit proprietary and confidential
information to the NAD without having to disclose that information to the challenger, as would
be required in traditional litigation. Further, the NAD can choose to exercise its discretion in
determining whether survey or other consumer perception evidence is necessary to establish that
a literally true claim nevertheless is misleading, whereas there is no such discretion in traditional
litigation.
The NAD process is not without drawbacks, however. For a challenger, one disadvantage may be
the lack of any opportunity to conduct discovery and potentially uncover helpful evidence for its
challenge. Moreover, the NAD’s recommendations are not binding on parties, although if a party
refuses to participate in the NAD self-regulatory process, or if a party that has participated in this
process later refuses to follow the NAD’s recommendations, the NAD will likely refer the claim to
the FTC for enforcement.
For those seeking a quick and relatively inexpensive resolution of an advertising dispute, the NAD
provides a good avenue. Moreover, challengers are free to file suit in court if resolution in the NAD
proves unsatisfactory or if a party refuses to comply with the NAD’s recommendations.
IV.
Conclusion
The scope of advertising law, and the challenges it presents to advertisers, is broad and varied.
Before deciding to go forward with any proposed advertisement, whether in print, on television,
online, or through any other medium, advertisers should ensure that their advertisement, taken as
a whole, conveys only truthful and verifiable messages to consumers. It is prudent to consider the
topics discussed above as a starting point, and to consult an attorney to ensure compliance with all
aspects of advertising law.
135 See National Advertising Review Council, NARC Partners, http://www.narcpartners.org/about/partners.aspx (last visited Mar. 17, 2009).
Advertising 101
III.
The National Advertising Division: An Alternative to Litigating False Advertising
Disputes
KILPATRICK TOWNSEND
Appendix A: Online Resources
For more information, please visit the following online resources:
Federal Trade Commission
http://www.ftc.gov
FTC Division of Advertising
Practices
http://www.ftc.gov/bcp/bcpap.shtm
FTC Advertising Guides and
Policy Statements
http://www.ftc.gov/bcp/menus/resources/guidance/adv.shtm
FTC Green Guides
Memorandum of Understanding
Between the FTC and the F.D.A.
(1971)
http://www.ftc.gov/bcp/grnrule/guides980427.htm
http://www.ftc.gov/opa/reporter/greengds.shtm
http://www.ftc.gov/bcp/menus/resources/guidance/36FR18539.pdf
National Advertising Division of
the Council of Better Business
Bureaus
http://www.nadreview.org
Better Business Bureau: Code of
Advertising
http://us.bbb.org/us/code-of-advertising
Commercial Practices, C.F.R.
Title 16, Chapter 1: Federal
Trade Commission, parts 0-901
http://ecfr.gpoaccess.gov (search for Title 16)
Sweepstakes and Game Promotions Basics
J. David Mayberry, Daniel H. Marti, Tywanda Harris Lord, and Amanda L. McCoy
For the savvy brand owner, sweepstakes and consumer-based prize contests are popular promotional
techniques used to generate consumer interest, revenue, and brand awareness. This article provides
an overview of the major legal issues to consider when structuring, advertising, and conducting
such a promotion, and highlights best practices for complying with applicable state and federal
regulations.
I.
What is a Game of Chance?
Various terms are used to describe prize contests where an element of chance is involved, including
“sweepstakes,” “game promotions,” “gift enterprises,” “prize promotions,” and “games of chance.”
For purposes of this article, the terms will be used interchangeably and refer generally to contests
that are conducted in connection with the sale of consumer products or services in which prizes are
awarded on the basis of a chance event over which the participants exercise no control.1
II.
Structuring a Game of Chance in View of State Lottery Laws
When structuring a game promotion, it is critical to keep in mind that the contest must not violate
state laws prohibiting illegal lotteries. A “lottery” is generally defined as a game in which the
elements of prize, chance, and consideration are present.
(1) Prize:
Anything of value awarded to the winner(s).
E.g., a sum of money; a free trip; a television.
(2) Chance:
The outcome of the game depends upon factors not in the
participant’s control.
E.g., a random drawing; scratch-off instant win.
(3) Consideration:
Monetary: the payment of money for the opportunity to participate.
E.g., purchase of a product; payment of an entry fee;
cashing-in of loyalty program points.
Non-monetary: the expenditure of a substantial degree of effort for the
opportunity to participate.
E.g., multiple visits to a store; completion of a lengthy questionnaire.
Because the right to conduct a lottery is typically reserved to the state itself, a non-state entity
conducting a sweepstakes contest must ensure that one of the three elements listed above is
eliminated. Where the sponsor has elected to retain the elements of prize and chance, as in the case
of a sweepstakes, the element of consideration must be removed in order to render the promotion
1
See, e.g., Fla. Stat. Ann. § 849.094(1)(a) (West Supp. 2009) (“‘Game promotion’ means, but is not limited to, a contest, game of chance,
or gift enterprise, conducted within or throughout the state and other states in connection with the sale of consumer products or services,
and in which the elements of chance and prize are present.”).
Sweepstakes / Promotions 101
329
KILPATRICK TOWNSEND
lawful.2 Thus, for example, a company might be conducting an illegal lottery where: (1) contest
participants are required to purchase the sponsor’s product to enter, (2) a winner is selected in a
random drawing from among all eligible entries received, and (3) the winner receives two round
trip airline tickets.
A person or entity found to be conducting an illegal lottery may be guilty of a misdemeanor or a
felony, and/or subject to a fine. In North Carolina, for example, an offender will be guilty of a Class
2 misdemeanor, which may include a fine of up to $2,000.3 In Florida, conducting an illegal lottery
is a felony of the third degree.4
The most common way to eliminate consideration and avoid an illegal lottery is to offer a free
alternative method of entry (commonly known as an “AMOE”). In the above example, if contest
participants are given the option to enter the sweepstakes by either purchasing the sponsor’s product
or mailing the entrant’s name and contact details to the sponsor without requiring a purchase, then
the risk that the promotion would be considered an illegal lottery is significantly decreased. Allowing
participants to enter a contest by calling a toll-free telephone number is another possible AMOE.
Note that minimal costs associated with an AMOE do not necessarily create an illegal lottery. For
example, when the AMOE is a mail-in entry method, the cost of the paper and stamp to send the
entry is generally not deemed to be consideration.
When implementing a game promotion, all entries received through a free AMOE must be treated
with “equal dignity” as those entries submitted through purchase. For example, an operator may
not create a separate prize pool for the free entries, and the sponsor should avoid separate entry
deadlines for free entries and purchase entries. Similarly, each free entry should have the same value
as each purchase entry.
Often what is more difficult than eliminating consideration is recognizing consideration in the first
place. As new modes of technology are developed, this question has become even more murky.
For example, where a contest is only conducted via the Internet, it is now generally accepted that
the cost of subscribing to an Internet Service Provider is not deemed consideration because: (1)
subscription to Internet service has become increasingly commonplace; (2) an entrant is not likely
to subscribe to an Internet service solely for the purpose of entering a contest; and (3) free access to
the Internet is readily accessible in public libraries and other community centers.5
By contrast, the practice is not as well settled with respect to text messaging promotions since the
technology is newer and there have been fewer test cases. Where a participant can only enter a
promotion by sending a text message entry to the sponsor, there is still some question as to whether
standard text messaging charges constitute consideration. Note, however, that premium billed
2
3
4
5
See, e.g., Id. § 849.094(2)(e) (“It is unlawful for any operator . . . [t]o require an entry fee, payment, or proof of purchase as a condition
of entering a game promotion.”).
See N.C. Gen. Stat. § 14-290 (2007).
See Fla. Stat. Ann. § 849.09(2) (West Supp. 2009).
Notably, however, an in-store promotion with an AMOE that is only available on the Internet may not provide “equal dignity” unless
the AMOE is given equal prominence to the purchase method of entry in the advertising and promotional material. See Press Release,
Office of the Attorney General for the State of New York, CVS Pays Fine for Sweepstakes Violation (Oct. 16, 2006) (on file with author),
available at http://www.oag.state.ny.us/media_center/2006/oct/oct16a_06.html.
charges would likely be deemed consideration. As new means of e-commerce continue to develop,
an AMOE should be offered if there is any question that the method of entry might require payment
on the part of the consumer.
Finally, because consideration can be non-monetary, it is also critical to assess the level of time
and effort that an entrant will incur to enter the contest. For example, where a consumer must
complete a burdensome or lengthy questionnaire in order to enter a sweepstakes, the sponsor may
not have effectively eliminated the element of consideration. A short and simple survey, on the other
hand, is less likely to raise a red flag. As a general rule, the greater the degree of effort required to
enter, the greater the risk that consideration may be found to exist. Although challenges to contests
requiring non-monetary consideration have been rare, it is possible that requiring contestants to
make significant efforts to enter could be deemed consideration.6 Therefore, best practices dictate
that any significant efforts for entry—such as completing a lengthy survey or making multiple store
visits—should be curtailed unless an AMOE is offered.
III.
Structuring a Game of Chance in View of State and Federal Gambling Laws
Although sweepstakes are less frequently challenged under state and federal gambling laws as they
are under lottery laws, a promotion operator should be wary of structuring a promotion that might
be considered a “game for game’s sake,” and therefore illegal gambling.
In a traditional game of chance, the opportunity to win a prize is generally incidental or secondary to
the purchase of a product or service offered by the sponsor. Thus, the participant receives something
of value. Gambling, by contrast, is less about the promotion of the product or service, and more
about the game itself. Therefore, where the product or service promoted is wholly incidental to the
game, it is possible that even an AMOE will not be sufficient to save the contest from running afoul
of gambling laws.7 If the participants are paying primarily for a chance to win as opposed to the
underlying product or service, then the sponsor should seek counsel as to whether the promotion
might constitute illegal gambling.
IV.
Preparing the Official Rules for a Game of Chance
Every promotion should be governed by official rules that set forth the material terms of the
promotion, including certain disclosures described in the categories below. Many of these provisions
are required by state laws and all are recommended as a best practice. Rules should be posted
conspicuously wherever participants may enter the game (e.g., on the Internet, in retail outlets) and
must not be modified once published. The rules should be clear and unambiguous, not repetitive,
and not overly dense.
A.
Eligibility
Explain who is eligible to participate in the promotion. Consider age, geographic restrictions, and
other special restrictions (such as licensed drivers or employees in a particular trade). Take care to
6
7
See, e.g., Seattle Times Co. v. Tielsch, 495 P.2d 1366 (Wash. 1972) (finding consideration where participants were required to spend hours
in following a football forecasting contest and the benefit flowed to the promoter).
See, e.g., F.A.C.E. Trading, Inc. v. Dep’t of Consumer & Indus. Affairs, 717 N.W.2d 377 (Mich. Ct. App. 2006).
331
KILPATRICK TOWNSEND
list any excluded parties (e.g., employees of the sponsor and the sponsor’s advertising and promotion
agencies, and immediate family members of each such employee). The promotion should be “void
where prohibited.”
B.
How to Enter
Specify the beginning and end dates of the promotion and provide clear instructions for each
available method of entry (including an AMOE). The disclosure “no purchase necessary” must be
made clearly and conspicuously.
C.
Prizes and Selection of Winners
Specify the odds of winning (this may be a fixed number or may depend on the number of entries
received); the date on which potential winner(s) will be selected; how the winner(s) will be selected;
the number of prizes to be awarded; a description of each prize to be awarded; the approximate
retail value of each prize; and how the prizes will be awarded. If the prize consists of a vacation
or trip, include details pertaining to the number of days/nights, dates, destination, transportation,
accommodations, meals, spending money, etc. Disclose that federal, state, and other tax liabilities
arising from the contest are the sole responsibility of the winner.
D.
Suggested Releases and Limitations on Liability
“Sponsor is not responsible for lost, late, stolen, incomplete, illegible, inaccurate, undelivered,
delayed, or misdirected entries.”
“Sponsor reserves the right, in its sole discretion, to modify or terminate this Sweepstakes in the
event of any act, occurrence, or reason that it believes would corrupt the integrity, administration,
or fairness of the Sweepstakes.”
“By participating in the Sweepstakes, participants agree to release, discharge, and hold harmless
Sponsor, its respective parents, affiliates, subsidiaries, advertising and promotion agencies, and
other individuals engaged in the development or execution of this Sweepstakes, from any liability,
claims, losses, and damages arising out of or relating to their participation in this Sweepstakes or the
acceptance, use, misuse, or possession of any prize received in this Sweepstakes.”
E.
Winners List
Specify how to request a list of winners without charge. Include a deadline for receiving requests in
order to avoid having to fulfill such requests indefinitely.
F.
Sponsor Information
Include the complete name and address of the sponsor of the contest.
The promotion must be implemented in accordance with the written rules. Consequently, a sponsor
is advised not to wait until the last minute to finalize the specific elements and structure of the game.
Particularly in states where registration is required in advance (see below), these details should be
settled ahead of time.
Obviously, a game promotion may be considered illegal under various state laws if winners are
predetermined, the game is manipulated for winners in a certain geographic region, entries are
arbitrarily removed or rejected, or the sponsor circulates deceptive game promotion literature. These
schemes should clearly be avoided.
V.
State Registration and Bonding Requirements for a Game of Chance
The states of Florida and New York require registration of games of chance, and either a trust
account or a surety bond, for any game promotion in which the total value of all prizes offered is
over $5,000. Rhode Island also requires registration, but only when the promotion is offered in retail
outlets.
Florida has taken the position that where a game of chance is not open to the public, it does not need
to be registered. Unfortunately, however, there is not a standard definition for what constitutes the
“public.” For example, it is possible that a game that is open only to the employees of the sponsor’s
organization may not be considered open to the public, and therefore exempt from registration
requirements, whereas a game that is open to the employees of a third party organization may be
subject to registration requirements. This is a fine line to be sure, and it is possible that the various
states requiring registration will decide differently which contests should be registered. New York
could take the position that a contest need not be registered, while Florida might accept registration
of the very same contest. When in doubt, it is preferable from a legal standpoint to err on the side
of registering the contest, and allowing the state to decide whether such registration is unnecessary.
Consequences for failure to register a game promotion include criminal and civil penalties. In
Florida, an entity that fails to register is guilty of a misdemeanor of the second degree and a civil
penalty of up to $1,000.8 Failure to register in New York is a Class B misdemeanor.9
Details regarding registration in Florida, New York, and Rhode Island follow below.
A.
Florida10
Florida requires that the operator of a game promotion file an application for registration with the
Department of Agriculture and Consumer Services and either establish a trust account or obtain a
surety bond if:
(1)
(2)
(3)
The promotion is conducted in connection with the sale of consumer products or services;
The elements of chance and prize are present; and
The total value of the prizes offered is greater than $5,000.
Details regarding Florida registration and bonding are as follows:
8 Fla. Stat. Ann. § 849.094(9)(a)–(b) (West Supp. 2009).
9 N.Y. Gen. Bus. § 369-e(1) (McKinney 1996).
10 Fla. Stat. Ann. § 849.094(4) (West Supp. 2009).
333
KILPATRICK TOWNSEND
(1)
(2)
(3)
(4)
(5)
B.
The application for registration is available online at: http://www.doacs.state.fl.us/onestop/forms/10951.pdf.
A copy of the Official Rules and a $100 filing fee must accompany the application.
A trust account must be established, or a surety bond must be obtained, in an amount
equivalent to the total value of all prizes offered.
The application and bond must be filed with the State at least 7 days before the commencement of the promotion.
A certified list of winners (for all prizes valued over $25) must be filed with the State
within 60 days after the winners have been finally determined.
New York11
The State of New York requires that the operator of a game promotion file an application
for registration with the Secretary of State and either establish a trust account or obtain a surety
bond if:
(1)
(2)
(3)
The promotion is conducted in connection with the promotion, advertising, or sale of
consumer products or services;
The elements of chance and prize are present; and
The total value of the prizes offered is greater than $5,000.
Details regarding New York registration and bonding are as follows:
(1)
(2)
(3)
(4)
(5)
C.
The application for registration is available online at: http://www.dos.state.ny.us/corp/
pdfs/mrgoc.pdf.
A trust account must be established, or a surety bond must be obtained, in an amount
equivalent to the total value of all prizes offered.
The application and bond must be filed with the State at least 30 days before the commencement of the promotion.
A list of winners (for all prizes valued over $25) must be filed with the State within 90
days after the completion of the promotion.
Rhode Island12
Rhode Island requires that an operator of a game promotion file an application for
registration with the Secretary of State if:
(1)
(2)
The promotion is one in which a retail establishment offers the opportunity to receive
prizes, as determined by chance; and
The total value of the prizes offered is greater than $500.
11 N.Y. Gen. Bus. Law § 369-e (McKinney 1996).
12 R.I. Gen. Laws § 11-50-1 (2002).
Details regarding Rhode Island registration are as follows:
(1)
(2)
(3)
(4)
(5)
VI.
The application for registration is available online at:
http://www.sec.state.ri.us/corps/GC/gc.html.
There is no trust account or surety bond requirement.
The Rhode Island statute does not provide a stated timeframe in which the application
must be filed. As a best practice, the application should be filed as soon as it is completed, and in all cases, prior to the commencement of the contest.
Although Rhode Island does not require that the sponsor file a list of winners with the
State, the sponsor must maintain a list of winners for a period of six months following
the completion of the contest in the event that the Secretary of State desires to review
the same.
Advertising a Game of Chance
Any advertising or promotion of a game of chance should be consistent with the official rules, and
certain states require posting of the rules at retail establishments. At a minimum, some states provide
that advertisements should clearly and conspicuously disclose the “material terms” of the contest,
including:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
“No purchase necessary” and free method of entry;
Disclosure of where the game is void;
Eligibility requirements, including age and geographic location;
Beginning and end dates of promotion, and times if applicable;
Odds of winning;
Name of sponsor of the promotion; and
Promotion subject to complete Official Rules, and where complete rules can be obtained.
Consider also the context of the advertisement: the more heavily a purchase is encouraged in the
advertising, the more prominent the “no purchase necessary” disclosure should be. In 2005, the
Attorney General of New York challenged a sweepstakes promotion conducted by Johnson &
Johnson with respect to its Tylenol® brand. Advertising for the promotion contained large bold print
reading “BUY TYLENOL.” Even though an AMOE was offered, information about the AMOE
appeared only in the fine print at the bottom of the advertisement. The settlement required disclosure
of the AMOE with “equal prominence” to the payment method of entry.13
In addition, any materials sent through the U.S. Postal Service that include entry forms for a
sweepstakes must comply with the federal Deceptive Mail Prevention and Enforcement Act.14 Such
materials must disclose not only that “no purchase is necessary to enter,” but also that “a purchase
13 Press Release, Office of the Attorney General for the State of New York, Tylenol Manufacturer to Amend Sweepstakes Ads (Sept. 10, 2004)
(on file with author), available at .http://www.oag.state.ny.us/media_center/2004/sep/sep10a_04.html.
14 39 U.S.C.A. §§ 3001–3017 (West, WESTLAW current through P.L. 111-12).
335
KILPATRICK TOWNSEND
will not improve an individual’s chances of winning.”15 The materials must also include all terms
and conditions of the sweepstakes or contest, including entry procedures, the sponsor, estimated
odds of winning, the quantity, estimated retail value, and nature of each prize, and the schedule of
any payments made over time.16 Moreover, sponsors must adopt reasonable practices to prevent the
mailing of such matter to any person who requests removal from the sponsor’s sweepstakes mailing
list, and the sponsor must maintain records of all such requests for a period of five years.
Another point to consider with respect to advertising: If a sponsor wishes to use a third party
trademark in connection with its promotion, the safest course of action is to obtain clearance from
the trademark owner for use of its intellectual property. For example, if the sponsor of a promotion
is offering a Acme Company Widget® as the grand prize, the sponsor may wish to seek Acme’s
approval before using the Widget® name and mark on its promotional materials. While nominative
fair use of a trademark may not be problematic, sponsors should always keep federal and state
unfair competition laws in mind. If offering a third party product as a prize, the sponsor should be
careful not to cause confusion or mistake, or to deceive with respect to the affiliation, connection,
or association of the sponsor with the third party, or the sponsorship or approval of the promotion
by the third party.17
VII.
What is a Game of Skill?
A game of skill, in contrast to a game of chance, is a promotion in which prizes are awarded to
winners based on their skill or ability to perform certain required tasks. Because the element of
chance is eliminated, a skill contest is not considered an illegal lottery and (with the possible
exception of Arizona) does not trigger state registration requirements.
Skill contest sponsors must be particularly careful not to introduce chance into the contest, thereby
subjecting the contest to state lottery laws. For these reasons, objective judging criteria should be
established and clearly communicated to participants prior to their entry in the contest, and the rules
should clearly disclose the specific and objective criteria on which entries will be judged, and the
weight given to each criteria. Also include a description of the judges’ qualifications and methods
of judging.
Most states employ the “dominant element test” to determine whether chance has been introduced
into a promotion. Under this test, all factors of the contest are considered; if chance predominates in
determining the winner, then the game will be deemed a game of chance rather than a game of skill.
(1)
Examples of Skill Contests:
(a) Trivia questions
(b) Photography contests
15 See id. § 3001(k)(3)(A)(ii)(I)–(II) (Matter is not acceptable in the mail if it “does not contain a statement that discloses in the mailing, in
the rules, and on the order or entry form, that no purchase is necessary to enter such sweepstakes; [and] (II) does not contain a statement
that discloses in the mailing, in the rules, and on the order or entry form, that a purchase will not improve an individual’s chances of
winning with such entry.”)
16 Id. § 3001(k)(3).
17 See 15 U.S.C. § 1125 (2006).
(2)
(c) Essay-writing contests
Examples of Non-Skill Contests:
(a) Predicting the outcome of a sports event
(b) Guessing the number of beans in a jar
Even tie-breakers should be based on pre-established skill criteria, not chance. By way of example,
where a company sponsors an essay contest in which two participants receive the same high score,
and the first place winner is determined by a random drawing between the two, the sponsor may
not have effectively eliminated the element of chance. To avoid this scenario, the sponsor might
consider providing for an additional “run-off” skill contest, or awarding duplicate prizes to the
highest scorers.
Even assuming that chance has been properly eliminated in a skill contest, some states also restrict
entry fees, purchase requirements, or other payment in skill contests. The following representative
state regulations provide examples of the general restrictions and guidelines surrounding
consideration in skill contests:
(1)
(2)
(3)
(4)
No additional payment or fees should be required to advance to next level or to be
eligible for prize (e.g., Arizona18, California19).
Requirement that contestant purchase a product (as compared to an entry fee) to participate is prohibited in various states (e.g., Maryland20).
The winning prize cannot constitute a fund from which the “purse prize” is to be paid;
that is, entry fees should not be pooled to serve as the “jackpot” (e.g., Florida21).
Some states prohibit the requirement of any kind of entry fee, service charge, purchase
or similar consideration in order to enter or to continue to remain eligible in any kind
of game of skill, contest, sweepstakes, giveaway, or other promotion (e.g., Vermont22).
Notably, Arizona requires that the operator of an “intellectual contest or event” in which a purchase
is required register with the State Attorney General’s Office.23 Details regarding Arizona registration
are:
(1)
(2)
(3)
18
19
20
21
22
23
The application is available online at:
http://www.azag.gov/consumer/gambling/RegForm.pdf.
A copy of the Official Rules (including rules applicable in the case of a tie) must accompany the application.
The application must include a sworn statement that no increment has been added to
the established purchase price for the product.
Ariz. Rev. Stat. Ann. § 13-3301 to 3312 (West 2001 & Supp. 2008).
Cal. Bus. & Prof. § 17539.1(a)(14) (West 2008).
Md. Code, Com. Law § 13-305(b) (West 2002).
Fla. Stat. Ann. § 849.094 (West Supp. 2009).
Vt. Stat. Ann. Tit. 13, § 2143b (1998).
Ariz. Rev. Stat. § 13-3301, 13-3311.
337
KILPATRICK TOWNSEND
(4)
(5)
(6)
(7)
VIII.
There is no filing fee.
There is no surety bond requirement.
The application must be filed with the State before the commencement of the promotion.
A list of winners (for all prizes) must be filed within 10 days following the award of
all prizes.24
A Note on Charitable Raffles
A raffle, by definition, includes the elements of prize, chance, and consideration. While contests
inclusive of all thr

Intellectual Property Desk Reference

Transcription

Similar documents

TOOLS TECHNOLOGY AND EQUIPMENT, SA DE CV

our mission

SCENERA RESEARCH LAUNCHES NEW WEBSITE

Please wait

Intellectual Property/Patent Folders

SDIPLA Newsletter - San Diego Intellectual Property Law Association

Section 3 (pp. 11-13)

Retaining Wall Systems Solid Solutionsl

impianto di produzione acqua sterile tramite filtrazione

here