McDermott - Newsletters - IP Update, Vol. 12, No. 8, August 2009

The en banc U.S. Court of Appeals for the Federal Circuit has overturned its 2007 Union Carbide Corp. v. Shell Oil Co. precedent, ruling that 35 U.S.C. § 271(f) does not cover method claims. Cardiac Pacemakers, Inc. v. St. Jude Medical, Inc., Case Nos. 07-1296, -1347 (Fed. Cir., Aug. 19, 2009) (en banc) (Lourie, J.) (Newman, J.; dissenting).

Section 271(f) provides a form of offshore patent infringement relief against persons who sell the “components” of a patented invention in the United States for assembly abroad. The statue provides that one who “supplies … in or from the United States, all or a substantial portion of the components of a patented invention, where such components are uncombined in whole or in part, in such manner as to actively induce the combination of such components” shall be liable as an infringer.

The History of § 271(f) at the Federal Circuit and Supreme Court

In its 2005 decision in Eolas Technologies, Inc. v. Microsoft Corp., the Federal Circuit held that Microsoft could not avoid § 271(f) liability by exporting golden master disks containing software code that were subsequently copied onto computer hard drives and sold outside the United States. Although the Eolas decision involved both product and method claims, the context of “patented invention” in that case that was an apparatus claim. In holding that Microsoft was liable under § 271(f), the Court found that the software code on Microsoft’s master disks was a “component” of a patented invention under § 271(f) and that the term “component” was not limited to physical items.

Shortly thereafter the Federal Circuit issued its decision in AT&T Corp. v. Microsoft Corp. (AT&T I). AT&T I involved a factual scenario similar to that in Eolas; Microsoft exported golden master disks containing software that was covered by a patent held by AT&T. The software, once shipped abroad, was copied onto hard drives and sold to foreign customers. In AT&T I, the Federal Circuit, relying on its Eolas decision, held that intangible software code was capable of being a component of a patented invention and that such software was “supplied” for purposes of § 271(f) when a “single copy [was sent] abroad with the intent that it be replicated.”

In 2006, in Union Carbide a Federal Circuit panel explicitly held that § 271(f) applied to method claims. The Union Carbide case involved the export of a catalyst for performing a patented method for producing ethylene oxide. The panel held that the exportation of the catalyst and use of the patented method abroad implicated § 271(f), finding the catalyst to be “component” under § 271(f). The panel held that “because § 271(f) governs method/process inventions, [defendant’s] exportation of catalysts may result in liability” under that section.

Then, in 2007, the Supreme Court granted certiorari and reversed the Federal Circuit decision in AT&T I (AT&T II). In AT&T II, the Supreme Court held that Microsoft did not supply combinable components of a patented invention when it shipped master disks abroad to be copied. Because the foreign-made copies of Windows that were installed on computers were supplied “from places outside of the United States,” the Supreme Court held that Microsoft had not supplied components from the United States. However, the Supreme Court reserved the issue of whether “an intangible method or process … qualifies as a ‘patented invention’ under § 271(f),” but noted that if so, the “combinable components of that invention might be intangible.”

Federal Circuit Analysis

Against that background, the Federal Circuit took, en banc, the issue of whether § 271(f) applies to method claims—and ruled that it does not.

The Court disagreed with Cardiac’s definition of “component” that would encompass “the apparatus that performed the process” as “clearly contrary to the text of § 271(f)” and inconsistent with the statute considered in context. As the Court explained, § 271(c) contrasts “a component of a patented machine, manufacture, combination, or composition” with a “material or apparatus for use in practicing a patented process” thus evidencing the belief of Congress that a “component” was separate and distinct from a “material or apparatus for use in practicing a patented process.” On this basis the Court reasoned that “a material or apparatus for use in practicing a patented process is not a component of that process. The components of the process are the steps of the process.” As the majority explained, § 271(f) “requires that components be ‘supplied’ and it is that [that] requirement that eliminates method patents from § 271(f)’s reach … since supplying an intangible step … is a physical impossibility.”

In a passage almost certain to be quoted in scores of future briefs, the Court concluded:

“In sum, the language of § 271(f), its legislative history, and the provision’s place in the overall statutory scheme all support the conclusion that § 271(f) does not apply to method patents. We therefore overrule, to the extent that it conflicts with our holding today, our decision in Union Carbide (citation omitted), as well as any implication in Eolas or other decisions that § 271(f) applies to method patents.”

Applied to the facts of this case, the Court found that the implantable cardioverter defibrillators (ICDs) shipped outside of the United States do not infringe Cardiac’s method claim, which requires the steps of determining a heart condition, selecting cardioversion as the appropriate therapy and executing a cardioverting shock. Since Cardiac’s allegation is only that St. Jude is shipping a device that is capable of performing the claimed method, the court concluded that St. Jude is not liable for infringement under § 271(f) based on ICDs exported abroad.

The Dissent

In Judge Newman’s view “the statutory term ‘patented invention’ in § 271(f) has the same meaning in this subsection as in every other part of Title 35: it is the general term embracing all of the statutory classes of patentable invention.”

Judge Newman chides the majority’s “physical impossibility” analysis as it relates to delivering “components” of a process claim, noting that “[e]ach step of a process is a component thereof, which, when combined with the other steps, performs the process.” She notes that in BMC Resources, Inc. v. Paymentech, L.P., “this court held that process claims are infringed when some steps are practiced by one entity and other steps are practiced by another, provided that the charged entity controls or directs the conduct of the other.” In other words, in BMC the court necessarily concluded that “the practice of steps of the patented method can be combined, whereby the party that performs earlier steps ‘supplies’ this component to the party that performs the later steps.” Judge Newman sees the same principle in applying § 271(f) to processes that are partly performed in the United States. “Surely there is no cause to conclude, as the majority concludes, that it is a ‘physical impossibility’ to read § 271(f) as applying to processes.”

Judge Newman is concerned that under the majority view, when a patented process is practiced so that some steps are performed in the United States and other steps are performed offshore, “the purloiner of the patented process may escape liability everywhere, for United States infringement is avoided if all of the process steps are not practiced in the United States, and infringement of foreign patents is avoided for the same reason. It cannot be that the legislators intended to enable avoidance of process patents by this ploy, while correcting it for machine patents. A statutory interpretation that results in all process inventions being seriously devalued, is not free of the charge of ‘absurd result.’”

Practice Note: As always, practitioners should endeavor to protect each invention using as many statutory claim forms as possible. Now, with the § 271(f) arrow removed from the patent owners’ quiver in terms of enforcing process claims, clear and enforceable product/apparatus claims are more important then ever. Of course method or process claims remain viable enforcement candidates under §§ 271(a)-(e) and (g). The demise of the Union Carbide decision is likely to adversely affect holders of process patents to the advantage of the information and process industries that argued (in amici filings) they were improperly threatened by damage claims based on § 271(f).

Patents / Inequitable Conduct

Particularity Standard Precludes Magic Incantations of Inequitable Conduct
By Matthew McCloskey

Following the lead of the U.S. Court of Appeals for the Seventh Circuit, the U.S. Court of Appeals for the Federal Circuit held that when pleading inequitable conduct in patent cases, Rule 9(b) of the Federal Rules of Civil Procedure requires identification of the specific who, what, when, where and how of the material misrepresentation or omission committed before the U.S. Patent and Trademark Office (USPTO). Exergen Corp. v. Wal-Mart Stores, Inc., Case Nos. 06-1491, 07-1180 (Fed. Cir., Aug. 4, 2009) (Linn, J.)

S.A.A.T. Systems Application of Advanced Technology and Daiwa Products, Inc. (SAAT) appealed a district court’s denial of its motion for judgment as a matter of law (JMOL) after a jury found that SAAT willfully infringed three of Exergen’s patents directed to infrared thermometers. SAAT also appealed the lower court’s denial of its motion for leave to amend its answer to allege that two of the patents at issue were unenforceable due to inequitable conduct. Concluding that Exergen failed to introduce substantial evidence to support the jury’s finding that two of the asserted patents were infringed and also that all of the claims of the third patent were anticipated by prior art, the Federal Circuit reversed the lower court’s holding as to infringement and validity. On the issue of SAAT’s motion to amend its answer, the Court affirmed the district court’s decision that SAAT’s allegations of inequitable conduct failed to satisfy the heightened pleading requirement of Federal Rule of Civil Procedure 9(b).

In the motion for leave of the lower court to amend its answer, SAAT had alleged that two of the Exergen patents were unenforceable due to inequitable conduct by Exergen, its agents and attorneys. The main thrust of SAAT’s inequitable conduct contention was that for the prosecution of those two patents, two prior art patents known to Exergen were material and intentionally withheld by Exergen from the USPTO. One of these prior art patents was cited by Exergen for the prosecution of the third Exergen patent-in-suit, but not for the other two patents.

On appeal, SAAT argued that its allegations of Exergen’s inequitable conduct were sufficient under the U.S. Court of Appeals for the First Circuit’s “time, place, and content” test for Rule 9(b). The Court, however, disabused SAAT on this point, noting that the Federal Circuit properly applies its own law, not the law of the regional circuit, to the question of whether inequitable conduct has been pleaded with sufficient particularity under Rule 9(b). Regarding the “particularity” requirement of Rule 9(b), the Court adopted the test of the Seventh Circuit in Dileo v. Ernst & Young and held that in pleading inequitable conduct cases, Rule 9(b) requires identification of the specific who, what, when, where and how of the material misrepresentation or omission committed before the USPTO.

Noting that SAAT’s factual allegations were not specific and that deceptive intent was pleaded solely on information and belief, the Court stated that the district court was correct not to draw any permissive inference of deceptive intent with regard to the prior art patent that was cited for just the sole Exergen patent, “lest inequitable conduct devolve into ‘a magic incantation to be asserted against every patentee’ and its ‘allegation established upon a mere showing that art or information having some degree of materiality was not disclosed.’”

Practice Note: Going forward, supplemental inequitable conduct pleadings may be required after initial discovery to meet the standard announced in this case.

Patents / Obviousness

Bayer Patent Is KSR’d As “Obvious to Try”
By Paul Devinsky

Affirming the district court ruling invalidating Bayer’s patent covering the birth-control drug Yasmin® on the basis of obviousness, a divided panel of the U.S. Court of Appeals for the Federal Circuit held that claims to a “microized” (in terms of particle size) drug formulations was an obvious way to try to increase the exposed surface, notwithstanding prior art that said it couldn’t be done. The dissent argued that what might seem obvious to judges in retrospect, was not obvious to scientists at the time the drug was developed. Bayer Schering Pharma AG v. Barr Laboratories, Inc., Case No. 08-1282 (Fed. Cir., Aug. 5, 2009) (Mayer, J.) (Newman, J., dissenting).

The use of drospirenone as an oral contraceptive was well known. In additional to inhibiting ovulation, it was known to be a diuretic and to have anti-acne qualities. However, drospirenone was also known to be acid-sensitive. Also, because drospirenone has poor water solubility, in order to increase bioavailability pharmaceutical producers commonly employ a technique called “micronization,” whereby the drug’s particle size is reduced, increasing its overall surface area. However, micronizing an acid-sensitive composition has the deleterious effect of increasing its sensitivity to the acid.

One prior art method used to surmount acid-sensitivity was to deliver the drug via an enteric-coated pill, i.e., a pill that releases its drug only after it has passed to the small intestine. However, enteric-coated tablets present an obstacle to absorption, thus further reducing the drug’s already limited bioavailability. Such coatings also introduce a significant and patient-variable delay in the onset of therapeutic response, making a one-size-fits-all dose tablet problematic.

Tack, a Bayer scientist, began work in 1983 to develop drospirenone into an oral contraceptive. At the time, another Bayer scientist, Krause, had been working with a related compound, spirorenone, as a diuretic. When consumed, spirorenone metabolizes into drospirenone, which is still a diuretic, but was found to have contraceptive effects resulting from the appearance of drospirenone when it metabolized. Tack considered Krause’s work with drospirenone, including in vivo studies that indicated drospirenone was a metabolite of spirorenone.

Tack’s studies led him to conclude that an enteric coating was needed. For five years, Bayer used this coated pill in its studies, even reconfirming in 1988 that drospirenone needed an enteric coating because of stomach acid issues. However, during later studies, Tack found that the uncoated pill and the enteric-coated pill resulted in the same bioavailability. Following this study, Bayer developed drospirenone in a “normal,” i.e., uncoated pill, which was claimed in the ’531 patent.

During prosecution Bayer relied on Tack’s finding that drospirenone could be absorbed in an uncoated pill form to overcome an obviousness rejection, noting that the prior art taught against micronizing drospirenone without also using an enteric coating. The examiner allowed the claims, giving the specific reason that the prior art suggested that micronizing drospirenone would not work in an acid environment.

After Barr filed an Abbreviated New Drug Application (ANDA) with the U.S. Food and Drug Administration (FDA) seeking approval to market a generic version of Yasmin®, Bayer filed suit. The parties agreed that if the ’531 patent is valid, Barr infringes. Barr alleged that claims were obvious. Based on the Krause studies, the district court found the claims to be invalid as obvious, notwithstanding the prior art teaching that micronizing drospirenone would only increase its sensitivity to stomach acid. The district court reasoned that a person of ordinary skill would be aware of the study’s shortcomings, and would verify, with further tests, whether micronized drospirenone could be absorbed. Thus, the district court held that under KSR, it would have been obvious to a person having ordinary skill in pharmaceutical formulation to try an uncoated pill in formulating micronized drospirenone as an oral contraceptive. Bayer appealed.

In KSR, the Supreme Court stated that an invention may be found obvious if it would have been obvious to a person having ordinary skill to try a course of conduct. The Federal Circuit explained that the “obvious to try” prong of KSR occurs in two settings. An invention would not have been obvious to try when the inventor would have had to try all possibilities in a field unreduced by direction of the prior art. “When what would have been ‘obvious to try’ would have been to vary all parameters or try each of numerous possible choices until one possibly arrived at a successful result, where the prior art gave either no indication of which parameters were critical or no direction as to which of many possible choices is likely to be successful an invention would not have been obvious.” Rather, an invention is obvious to try only where “the number of options [are] small or easily traversed.”

In addition, the Supreme Court explained that “an invention is not obvious to try where vague prior art does not guide an inventor toward a particular solution. A finding of obviousness would not obtain where what was obvious to try was to explore a new technology or general approach that seemed to be a promising field of experimentation, where the prior art gave only general guidance a to the particular form of the claim invention or how to achiever it.” This, the Supreme Court explained, comports with KSR’s “requirement that the identified solutions be ‘predictable.’”

The Federal Circuit reasoned that in this case, a person having ordinary skill in the art would have reached “a crossroads where he must choose between two known options,” i.e., delivery of micronized drospirenone by an uncoated pill or delivery of drospirenone by an enteric-coated pill. Concluding that this is a case of finite number of identified, predictable solutions the majority concluded that the invention would have been obvious.

In dissent, Judge Newman argued that “it would [not] have been obvious to do that which was indisputably unobvious to the experienced formulation scientists whose assignment was to formulate the known product drospirenone.” Judge Newman faulted her colleagues for “employing their own expertise” in concluding “the scientist working in this field turned out to be mistaken” and that “it would have been obvious that it was not necessary to take steps to prevent acid degradation.” Judge Newman further faults the majority for discounting the testimony of the scientists and ignoring the knowledge concerning product instability in acid in order to find that what appeared to be an unlikely to succeed process obviously should have been tried. “That is not the law of obviousness.”

According to Judge Newman, the Supreme Court in KSR explained that the standard for “obvious to try” is whether there was a “reasonable expectation of success” at the time. Here , Judge Newman concludes “it was not reasonably expected that uncoated micronized drospirenone would be 99+% effective as an oral contraceptive when ingested into the acidic stomach, when it was known to degrade rapidly in acid.”

Judge Newman would reverse the district court, noting that its conclusion regarding obviousness under the “obvious to try” standard was based on a finding that micronization was a viable option, although success was uncertain. In Judge Newman’s view, “viability” implies that the experiment may or may not succeed and is not the correct standard. “What the law requires is not guesswork, not dumb luck, but a reasonable degree of predictability of success.”

Patents / Claim Construction

Infringing Characteristic Need Not Be Present in Finished Product
By Kevin P. Shortsle

The U.S. Court of Appeals for the Federal Circuit affirmed a district court’s claim construction, holding that a structural component defined in terms of its function need only be flexible at the time of manufacture and not in the finished product. Gemtron Corp. v. Saint-Gobain Corp., Case No. 2009-1001 (Fed. Cir., July 20, 2009) (Linn, J.).

Gemtron accused Saint-Gobain of infringing Gemtron’s patent directed to a two-piece refrigerator shelf comprised of a frame and a glass panel, in which the frame includes “a relatively resilient end edge portion that temporarily deflects and subsequently rebounds to snap-secure” the glass panel. Saint-Gobain did not dispute that during manufacture of the accused shelves, the frame was heated to a temperature at which it became flexible enough to temporarily deflect upon insertion of a glass panel and subsequently rebound to snap-secure the glass panel. However, Saint-Gobain showed that the accused shelves were not sufficiently flexible to allow insertion of glass into the frame at room temperature because the frame lost its flexibility after cooling. The district court construed “relatively resilient” as a characteristic occurring when the glass was inserted into the frame during manufacture, rather than at the time of actual use in a refrigerator or freezer. As a result, the accused shelves were found to infringe the patent-in-suit. Saint-Gobain appealed.

The Federal Circuit affirmed. Saint-Gobain argued that “relatively resilient” should mean that the end edge portion is sufficiently flexible to permit glass in the finished product to be pushed out of the frame and back into the frame. The Court disagreed and found that the claim language suggested that the claimed resilience only needed to be exhibited during assembly. The Court also found that, even though the claim language tied the “relatively resilient” characteristic to its function in assembling the shelf, “that characteristic is nonetheless a structural attribute possessed by the claimed frame and is not a process limitation.” In addition, the Court relied on the specification to show that the “relatively resilient” terminology was always mentioned in the context of how the shelf was assembled and was never mentioned any purpose or value of being “relatively resilient” other than in the context of facilitating assembly of the shelf.

Saint-Gobain also argued that the Court’s construction transformed the limitation into a product-by-process limitation. The Court stated that the claim requires the glass panel be snap-secured in the frame, which is a structural relationship possessed by the claimed shelf. Accordingly, defining a structural component by both its functional and physical characteristics was different from defining a structure solely by the process of making the structure. Therefore, the Court concluded that its construction did not transform the claim language into a product-by-process limitation.

Even though Saint-Gobain manufactured the accused shelves outside the United States, the importation and sale of the shelves inside the United States constituted infringement. The Court noted that the claim was directed to an apparatus, not a process, and the “relatively resilient” limitation required that the frame include the structural characteristic of having been deflected and subsequently rebounded to snap-secure the glass at the time of manufacture. Therefore, Saint-Gobain infringed the patent-in-suit by importing and selling shelves having this characteristic in the United States.

Patents / Obviousness / Timeliness of Appeal

Rejections Reversed Where Board Just Did Not Understand Claim Limitations
By Mary B. Boyle, Ph.D.

Finding that the Board of Patent Appeals and Interferences (Board) may have misunderstood the claim limitations, the U.S. Court of Appeals for the Federal Circuit reversed claim rejections applying the substantial evidence test. The Court also found that based on the date of the mailing of Board decision, the appeal was timely, notwithstanding the date of the Board’s decision. In re McNeil-PPC, Inc., Case No. 08-1546 (Fed. Cir., July 31, 2009) (Michel, C. J.) (Dyk, J., dissenting).

The patent is for a tampon for feminine hygiene made of absorbent material with a solid fiber core and radially projecting ribs. As claimed, the fiber core is denser than the ribs. The less dense ribs have a coarser capillary structure than the fiber core. Also, the ribs are narrower at their base where they join the core than at their distal ends.

Patent owner McNeil asked the U.S. Patent and Trademark Office (USPTO) to reexamine its patent in view of an unexamined Japanese application (Sasaki). The examiner rejected the claims for anticipation and obviousness. The Board affirmed the examiner’s rejections. The Board found that “Sasaki reasonably appears to depict a tampon having a generally cylindrical absorbent portion with a generally cylindrical compressed solid fiber core from which longitudinal ribs extent radially outward.” The Board also found that Sasaki disclosed “a tampon wherein each of the ribs is compressed less than the fiber core, thereby having a coarser capillary structure than the fiber core.”

After receiving the appeal, the Federal Circuit issued an order to show cause why the appeal should not be dismissed for lack of jurisdiction. The issue turned on whether the Board “decided” McNeil’s motion for reconsideration on May 30 or June 2. The Board’s opinion states “Decided: May 30, 2008.” The Federal Circuit nonetheless held that the Board issued its decision on the date indicated on the order’s mailing sheet, June 2, 2008, which made the appeal timely. McNeil presented a declaration from a retired member of the Board who stated that the time to respond to the USPTO was historically triggered by the date of mailing. The USPTO did not challenge any of the factual assertions in the declaration or provide alternative explanations. Judge Dyk dissented on the grounds that the appeal was too late and beyond the Court’s jurisdiction.

On the merits of the anticipation rejection, the Federal Circuit held that the Board’s findings were not supported by substantial evidence. The Court found no substantial evidence that Sasaki disclosed a tampon with a “core” at all. Moreover, there was no evidence that Sasaki disclosed ribs that were compressed less than the fiber core. Moreover, the Sasaki patent did not disclose anything regarding relative coarseness of different portions of the tampon. The Court mused whether the Board actually understood the claims and reversed the claim rejections for anticipation and obviousness.

Patents / Inventorship

Lab Notebook Entries Save the Day for University of Pittsburgh in an Inventorship Contest
By Christina A. Ondrick

The U.S. Court of Appeals for the Federal Circuit upheld a district court’s finding that based on notebook entries evidencing early appreciation of the claimed inventions by two of the named inventors that five other researchers were improperly named as inventors on a patent. University of Pittsburgh v. Hedrick, Case. No. 2008-1468 (Fed. Cir., July 23, 2009) (Mayer, J.).

The University of Pittsburgh (Pitt) filed suit seeking to remove five inventors from a patent relating to adipose-derived (i.e., fat-derived) stem cells. The patent at issue listed seven inventors. Two prior provisional applications listed four of those seven as inventors. In addition, the improperly named inventors provided information to Pitt to include in the patent application and provided a paper, which was submitted to the Patent Office, showing their research that the adipose-derived stem cells were different from a prior art stem cell.

The Federal Circuit held that the patent resulted from the work of only two Pitt researchers, Katz and Llull, and that the other five inventors should be removed. Lab notebook entries and an article confirmed that Katz and Llull discovered that the mature fat cells could transform into more primitive stem cells and then transform back into mature fat cells. In addition, the inventors had recorded in the lab notebook entries ways to isolate such cells from each other and ways to differentiate the adipose-derived stem cells into muscle, nerve, bone and cartilage cells.

The removed inventors did not challenge the factual findings, but rather argued that Katz’s and Llull’s research was highly speculative and inconclusive until others added their efforts. They further argued that Katz and Llull were required to know that the invention contained every limitation of each claim at the time of conception and further asserted that Katz and Llull did not have such knowledge until other researchers confirmed the claimed properties.

The Federal Circuit found that the removed inventors misunderstood what it means to “know” the limitations of the claims. Knowledge by an inventor “does not mean proof to a scientific certainty that the [inventive] construct is exactly what a scientist believes it is. Conception requires a definite and permanent idea of the operative invention, and necessarily turns on the inventor’s ability to describe his invention. Proof that the invention works to a scientific certainty is reduction to practice.” According to the Court, in the absence of evidence to corroborate the true inventors’ actual knowledge, corroboration can be provided from the knowledge of one of ordinary skill in the art at the time of the alleged conception. Here, the knowledge of one of ordinary skill in the art corroborated obvious properties of stem cells as claimed in the patents. The Court concluded that it was entirely proper for the district court to credit Katz and Llull as having a firm and definite idea that these properties existed in the cells.

Practice Note: This case highlights the importance of implementing effective lab notebook programs and demonstrates how the knowledge of one of ordinary skill in the art can support conception claims.

Patents / Reexamination

Adding Material from an Ancestor Application to an Issued Patent During Reexamination Not Allowed
Contact Paul Devinsky

Addressing the issue of permissibility of adding a subject matter from its ancestor application back into the issued patent during its reexamination, the U.S. Court of Appeals for the Federal Circuit upheld the finding of the Board of Patent Appeals and Interferences (Board) that it is impermissible to do so without showing that the subject matter was inherently present in the continuation-in-part application for the patent. In re Reiffin Family Trust, Case No. 08-1544 (Fed. Cir., July 27, 2009) (Bryson, J.) (non-precedential).

In 1982, Martin G. Reiffin filed a patent application that disclosed an invention for providing compilation of a software program concurrently as the program is being entered or edited by the programmer. The application disclosed the compiler function of the system is interrupted in favor of the editor function, but not vice versa. The application also disclosed the compiler that performs “lexical, syntactic and semantic analyses of the source code” and informs the programmer if the sequence of symbols violates a syntactic or semantic rule.

In 1990 and 1994, Reiffin submitted two continuation applications that ultimately issued, respectively, U.S. Patent Nos. 5,694,603 and 5,694,604. The ’604 patent is directed to a “preemptive multithreading computer system with clock activated interrupt” and some of the claims are directed to the spell-checking and grammar-checking functions. Although syntactic and semantic analyses performed by the compiler are included in the 1982 application, Reiffin omitted the material in his 1994 application.

In 1998, Reiffin sued Microsoft Corporation alleging that the operating system and the spell-checking and grammar-checking features of Microsoft’s Word program infringed his ’604 patent. The district court ruled that the ’603 patent was invalid for failing to comply with the written description requirement and that the ’604 patent was not entitled to claim priority to a filing date of 1990 or earlier. Reiffin then voluntarily requested re-examination of the ’604 patent, arguing that he had disclosed “multithreading” in his 1982 application and that the ‘604 patent is entitled to a 1982 priority date. The examiner found that the 1982 application did not describe multithreading and the Board agreed with the examiner in finding that “multithreading” requires all threads to be interruptible, but the 1982 application did not disclose the editor to be interruptible. The Board found that the ’604 patent was entitled to 1994 priority date and held most of the claims invalid as anticipated or obvious by a 1988 prior art.

The Board also rejected the ’604 patent claims directed to the spell-checking and grammar-checking functions for lack of written description. Although a continuous chain of copending applications allows the applicant to add matters from an earlier application to be added through amendment to a continuation-in-part application, the Board found that Reiffin’s decision to omit the relevant material in his 1994 application created a break in the chain of disclosures when he let the ’604 patent issue without amending its application; the break cannot be cured by an amendment during reexamination of the patent.

In affirming the Board’s findings, the Court reasoned that although a patentee is permitted to amend both the claims and the specification of his patent on reexamination, he is not allowed to do so in a manner that has the effect of enlarging the scope of the patent’s claims. The Court acknowledged that Reiffin did not directly seek to broaden the scope of claims in question, but the amendment he sought would have had the same effect and broadened the scope of the invention and expanded the universe of potentially infringing products. The Court went on to apply the rule of Dart Industries, Inc. v. Banner, which had a similar facts involving reissue application instead of reexamination. The Dart court also concluded that continuity was lost when the continuation-in-part application was filed without the material from its prior application. When the patent issued from the continuation application, the applicant’s “failure to maintain a continuity of disclosure of [the feature in question] became uncorrectable.”

Practice Note: This case highlights the importance of maintaining the continuity of disclosure when filing subsequent copending patent applications. A thorough analysis of prior applications’ disclosure to ascertain continuity is vital as it will no longer be correctable once the patent issues.

Patents / Section 145

Patentee’s Actions Before USPTO Determine Admissibility of New Evidence in Section 145 Cases
Please contact Paul Devinsky

The U.S. Court of Appeals for the Federal Circuit recently considered whether evidence not introduced during proceedings at the U.S. Patent and Trademark Office (USPTO) could be considered by a district court in a 35 U.S.C. §145 action. The Court held that such actions are not truly de novo. Rather, restrictions on the introduction of new evidence should be considered in light of the patentee’s conduct before the PTO. Hyatt v. Doll, Case No. 07-1066 (Fed. Cir. Aug. 11, 2009) (Michel, C. J.) (Moore, J., dissenting).

Hyatt, a registered patent agent, prosecuted his own patent application dealing with computer and software technology. The application consisted of 117 claims, a 238-page specification and 40 pages of drawings. The patent examiner rejected all 117 of Hyatt’s claims for, inter alia, a lack of adequate written description. Hyatt chose not to disclose to the Board of Patent Appeals and Interferences (Board) or the examiner the particular sections in the specification that dealt with particular limitations. The Board affirmed most of the examiner’s rejections. After Hyatt’s request for rehearing was denied, he filed suit in the U.S. District Court for the District of Columbia under 35 U.S.C. §145. Shortly thereafter, the USPTO filed a motion for summary judgment which Hyatt opposed. In support of his opposition, Hyatt proffered his own declaration and his request for rehearing before the Board. The USPTO objected to the declaration on the ground that Hyatt failed to submit it before the Board in a timely manner. The court agreed, finding that Hyatt had been negligent in failing to submit the declaration to the examiner or the Board. The court granted the USPTO’s motion for summary judgment based solely on the record before the Board. Hyatt appealed.

The Federal Circuit agreed with the D.C. district court’s decision to exclude the declaration offered by Hyatt. After tracing the history of §145 actions, the Court determined that the Administrative Procedures Act (APA) limits evidence in §145 actions. Thus, the Court concluded that a §145 trial is not truly de novo. Further, the Court found that the negligence standard (adopted by some judges) inappropriately implied a duty where the submission of information often is up to the judgment of the patentee.

Instead of the existing negligence standard, the Federal Circuit focused on the “pertinent factors” concerning whether new evidence should be admitted. Here, ostensibly, the pertinent factors included Hyatt’s failure to provide information sought by the examiner, his failure to cooperate with the USPTO, his willful decision to “keep the PTO in the dark” and his lack of an acceptable excuse. While focusing on these case-specific factors, the Court explicitly decided to “express no opinion as to admissibility of evidence in … factual scenarios that may arise in the future.” Instead, the Court held that whether or not new evidence should be permitted must be answered in light of the patentee’s actions before the USPTO.

Patents / Rule 11 Sanctions

Twenty-One Day Safe Harbor Applies To Rule 11—No Matter What
By Leigh J. Martinson

The U.S. Court of Appeals for the Federal Circuit confirmed that the service and filing of a motion for sanctions under Rule 11 must occur prior to final judgment or judicial rejection of the offending motion in order to prevail. Orenshteyn v. Citrix Systems, Inc., Case Nos. 03-1427, 08-1378, -1400 (Fed. Cir., July 24, 2009) (Lourie, J.) (non-precedential).

Alexander Orenshteyn sued Citrix System (Citrix) for patent infringement on April 9, 2002. On March 6, 2003, after the close of discovery, Citrix moved for summary judgment of non-infringement and invalidity. Citrix presented its motion for Rule 11 sanctions to Orenshteyn’s counsel on May 16, 2003. Four days later, the district court entered final judgment of non-infringement. On June 19, 2003, 35 days after presenting its motion to counsel, Citrix filed its motion for Rule 11 sanctions with the district court. Rule 11 requires that a motion for sanctions “must not be filed … if the challenged … claim … is withdrawn within 21 days after service.” The district court found Orenshteyn liable for sanctions under Rule 11 and his attorneys both liable under both Rule 11.

Orenshteyn and his counsel appealed. The Court reviewed the construction of the term “controller” and determined the district court erred by improperly limiting the term to exclude CPUs. Thus the Court held that summary judgment based on the district court’s construction was erroneous.

While addressing the award of the Rule 11 sanctions, the Court looked to the U.S. Court of Appeals for the Eleventh Circuit, which had interpreted the safe harbor provision as requiring a motion for Rule 11 sanctions to be filed prior to final judgment. In doing so, the Eleventh Circuit sided with the with the U.S. Court of Appeals for the Second, Fourth and Sixth Circuits, which had previously determined that “the service and filing of a motion for sanctions must occur prior to final judgment or judicial rejection of the offending motion. Any argument to the contrary renders the safe harbor provision a mere formality. The provision cannot have any effect if the court has already denied the motion; it is too late for the offending party to withdraw the challenged contention.”

Here, the district court entered its final judgment of non-infringement four days after Citrix presents its motion to Orenshteyn’s counsel. Citrix did not file its motion with the court until after the final judgment was entered. Therefore, Orenshteyn was unable to avail himself of the 21-day safe harbor provision. Thus, the Court determined that the “district court awarded Rule 11 sanctions in circumstances where Orenshteyn was deprived of a benefit provided by the rule, in effect, on an erroneous view of the law.”

Practice Note: When Rule 11 sanctions may be at issue, be sure to pay particular attention to the timing of the filing of your motion.

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Patents / Personal Jurisdiction

Virginia Court Has Jurisdiction over Canadian Attorney Who Never Entered the State
By Charles J. Hawkins

Addressing the issue of personal jurisdiction in the context of attorney malpractice, the U.S. Court of Appeals for the Federal Circuit reversed and remanded a district court’s dismissal of a malpractice suit against a Canadian law firm and patent attorney. Touchcom, Inc. v. Bereskin & Parr, Case Nos. 08-1229 (Fed. Cir., August 3, 2009) (Lourie J.) (Prost, J., dissenting).

Plaintiff Touchcom, Inc. engaged the defendants to procure patents covering inventions relating to a pump system. Bereskin & Parr (B&P) filed a Canadian application that included a complete set of the relevant source code. Later, however, B&P filed a Patent Cooperation Treaty (PCT) application that did not contain the complete set of code. The PCT application, with the code omitted, was later transmitted to the U.S. Patent and Trademark Office (USPTO) as part of a national phase application.

In due course, the applications issued into patents. Several years later the plaintiff commenced patent infringement actions in the United States. In the course of those actions, its patents were held invalid for indefiniteness as a result of the missing code. Touchcom filed a malpractice action. B&P moved to dismiss the complaint for lack of personal jurisdiction and the district court granted the motion, focusing on Fed. R. Civ. P. 4(k)(1)(A) and the requirements of the applicable Virginia long-arm statute. Touchcom appealed.

The Federal Circuit performed a personal jurisdiction analysis under both Fed. R. Civ. P. 4(k)(1)(A) and 4(k)(2), noting that plaintiff failed to raise Rule 4(k)(2) as a basis for jurisdiction at the lower court. Under Rule 4(k)(1)(A), the Federal Circuit found that defendants were not subject to personal jurisdiction, concluding that the defendants did not purposefully avail themselves of the privilege of doing business in Virginia and thus, under the Virginia long-arm statute, did not have minimum contacts. The only relevant contact in Virginia was the filing of the patent applications and B&P had not even visited Virginia in the course of prosecution.

The Court then looked to Rule 4(k)(2), which requires three things: a claim arising under federal law; that the defendant is not subject to jurisdiction in any other state in the United States and that due process is not violated. Under the first element, the Court concluded that the malpractice claims arose under federal law because patent scope and validity were ultimately at issue. Next, the Court found that it was B&P’s burden to show that it was subject to personal jurisdiction in another U.S. jurisdiction and that B&P had not done so.

In considering the third element, the Court used a due process analysis different than the one under Rule 4(k)(1)(A) because Rule 4(k)(2) considers nationwide contacts. In considering fairness in this context, the Court considered five factors: the burden on the defendant, the forum’s interest in the dispute, the plaintiff’s interest in obtaining relief, the interstate judicial system’s interest in obtaining the most efficient resolution and the shared interest of the states in furthering fundamental policies. The Court concluded that a finding of personal jurisdiction under Rule 4(k)(2) did not violate due process. Thus, the Federal Circuit reversed the lower court and found that the district court possessed personal jurisdiction over the defendants.

In dissent, Judge Prost agreed with the majority’s analysis of Rule 4(k)(1)(A) and its treatment of the first two elements of Rule 4(k)(2). Judge Prost stated further that this was one of the “rare situations” in which minimum contacts are present, but exercising personal jurisdiction would nevertheless violate due process because of the attenuated nature of plaintiff’s interest and state’s interest in adjudicating the dispute in the forum.

Patents / Obviousness

Patent Unobvious If Examiner Fails to Articulate Factual Basis for Rejection
By Aamer S. Ahmed

The U.S. Patent and Trademark Office Board of Patent Appeals and Interferences (Board) recently reversed a final rejection in the reexamination of Competitive Technologies, Inc’s. U.S. Patent No. 4,940,658, for which the U.S. Supreme Court previously granted and subsequently dismissed certiorari over a spirited dissent by Justice Breyer. The Board found the rejection of claims lacked a sufficient factual basis to support the conclusion of obviousness. Ex parte Competitive Technologies, Inc., Appeal No. 09/5519 (B.P.A.I., July 30, 2009) (Spiegel, APJ).

Illustrative claim 13 of the patent was directed to “a method for detecting a deficiency of cobalamin or folate in warm-blooded animals comprising the steps of: assaying a body fluid for an elevated level of total homocysteine; and correlating an elevated level of total homocysteine in said body fluid with a deficiency of cobalamin or folate.” The ’658 patent was licensed to Metabolite, which in turn sublicensed the patent to LabCorp. LabCorp originally performed total homocysteine assays under the sublicense, but later switched to an assay developed by Abbott Laboratories and discontinued royalty payments to Metabolite. In response, Metabolite sued LabCorp for infringement.

In requesting certiorari, LabCorp asserted that the ’658 patent was invalid under 35 U.S.C. §101 because it was attempting to patent a natural phenomenon. This came after a decision from the Federal Circuit rejecting LabCorp’s appeal alleging that claim 13 was invalid under §§ 112, 102 and 103.

In his dissent from the decision to dismiss certiorari, Justice Breyer contended that claim 13 was invalid no matter how narrowly the natural phenomenon doctrine is interpreted. In his view, there could be little doubt that the correlation between homocysteine and vitamin deficiency set forth in claim 13 was a “natural phenomena,” citing respondent’s brief for the assertion that the correlation recited in claim 13 is an observable aspect of biochemistry in at least some human populations.

Reversing the examiner’s rejection of claim 13, the Board explained that the dispositive issue was whether the applied prior art teaches, or would have suggested, all of the claim limitations to one of ordinary skill in the art. The Board found that, according to the ‘658 patent, both cobalamin (vitamin B₁₂) and folate deficiencies result in an elevated homocysteine level, but an elevated homocysteine level cannot distinguish between a folate and/or cobalamin deficiency. The primary reference was found to disclose a method to determine total homocysteine, but the three secondary references were not found to fairly teach or suggest a correlation between elevated total homocysteine levels and a folate deficiency, as recited in claim 13.

Basing its decision solely on the issue of obviousness under § 103(a) and not addressing whether or not the subject matter of claim 13 was patent eligible (per Justice Breyer’s dissent), the Board held that the examiner failed to provide a sufficient factual basis for her conclusion that the applied prior art teaches or suggests all of the claim limitations.

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Patents / Attorney’s Lien

Massachusetts Attorney’s Lien Statute Applies to Patent Prosecution Costs
By Leigh J. Martinson

The Supreme Judicial Court of Massachusetts determined, in a case of first impression, that Massachusetts’s attorney’s lien statute permits placing a lien on a patent (and any proceeds later derived from that patent) for legal fees earned while representing a client before the U.S. Patent and Trademark Office (USPTO). Ropes & Gray LLP v. Jalbert, Case No. SJC-10333 (Mass. S.J.C., July 28, 2009) (Spina, J.)

R&G represented Engage, Inc. (Engage) from approximately June 2002 through May 2003 in connection with the prosecution of various patents. On June 19, 2003, Engage filed bankruptcy petitions under Chapter 11 in Massachusetts. In a filing with the Bankruptcy Court, R&G asserted that it was owed over $100,000 for patent prosecution work, secured by an attorney’s lien under Massachusetts law. Engage sold off its patents and applications before and after filing under Chapter 11.

In the bankruptcy proceedings, Engage’s liquidating supervisor, Jalbert, contended that the attorney’s lien did not apply to patents and that the debt owed to R&G was therefore unsecured. After the bankruptcy court agreed, R&G appealed first to the U.S. District Court, which affirmed the bankruptcy court, and then to the U.S. Court of Appeals for the First Circuit, which decided to certify the following two questions to the Supreme Judicial Court of Massachusetts for its interpretation of Massachusetts law on two issues:

1. Does the statute grant a lien on patents and patent applications to a Massachusetts attorney for patent prosecution work performed on behalf of a client?

2. If the statute does grant a lien and the issued patents or patent applications are sold, does the attorney’s lien attach to the proceeds of the sale?

In answering yes to both questions, the Supreme Judicial Court of Massachusetts emphasized that the attorney’s lien protects attorneys “against the knavery of their clients, by disabling the clients from receiving the fruits of recoveries without paying for the valuable services by which the recoveries were obtained.” Further, the Court stated that “[t]he purpose of the lien statute would be eviscerated if an inventor could just sell a valuable property right, one that was obtained by the attorney’s work in the first instance, and pocket the proceeds.” In the end, the Court announced that “[a] patent attorney who successfully secures a patent for his client in proceedings before the USPTO is entitled to the same protection under [the statute] as an attorney who obtains a favorable judgment for his client in court.”

Practice Note: Although the issue had never been raised in Massachusetts, two other states— New York and Minnesota—had previously held that the lien applies to patent prosecution.

Trademarks / Registration

“.com” Does Not Convert a Generic Term into a Brand Name
Contact Paul Devinsky

The U.S. Court of Appeals for the Federal Circuit recently affirmed a decision by the Trademark Trial and Appeal Board, refusing registration of the mark “hotels.com” because it is generic. In re Hotels.com, Case No. 2008-1429 (Fed. Cir., July 23, 2009) (Newman, J.).

Hotels.com originally applied to register a service mark, “hotels.com,” for the service of providing information, specifically, “providing information for others about temporary lodging; travel agency services, namely, making reservations and bookings for temporary lodging for others by means of telephone and the global computer network.” During prosecution, applicant argued that its mark was registrable, and not descriptive, because the company is in the business of providing information, not providing hotel services.

The trademark examiner disagreed and denied registration on the basis that “hotels.com” is merely descriptive of hotel reservation services. Hotels.com appealed the rejection, but the examiner’s decision was affirmed. The Board found that the word “hotels” identified “the central focus of the information and reservation services” provided on the Hotels.com website and consequently held that the term “hotels.com, consisting of nothing more than a term that names that central focus of the services, is generic for the services themselves.” Moreover, the Board found that the addition of “.com” to a mark “did not impart registrability to a generic term.” Hotels.com appealed.

At the Federal Circuit, Hotels.com argued that its mark was not generic because its website does not provide lodging and meals for its users, i.e., it is not a hotel. It argued that, therefore, the mark, is not synonymous with the word “hotel.” Instead, Hotels.com argued, its “hotels.com” mark is associated with the company itself, and is not publicly viewed as a generic term or a common name for hotel services.

The Federal Circuit, after noting that although generic terms cannot be registered as trademarks but that descriptive terms can acquire distinctiveness and become trademarked, concluded that adding “.com” to a mark is not a method by which a descriptive term can become distinctive. The Court further noted that the addition of “.com” to the mark did not render a new meaning to the term “hotels.”

Thus, the Court affirmed the Board and concluded that the term “hotels.com” has the same meaning as the word “hotels” by itself and that the term is descriptive of the company’s services: providing information and reservation services for hotels.

Trademarks / Likelihood of Confusion

Similarity of Marks Should Be Determined by Marks as Encountered in the Marketplace
By Sara E. Coury

The U.S. Court of Appeals for the Fifth Circuit reversed a district court’s grant of summary to defendant Xtended Beauty, Inc. (Xtended) on plaintiffs Xtreme Lashes, LLC (Xtreme) infringement claims, explaining that the district court’s focus on visual, side-by-side comparison of the features of the two marks (“Xtreme Lashes” and “Xtended Beauty”) was not the correct way to judge similarity. The Fifth Circuit also held that the district court erred by ordering the cancellation of Xtreme’s EXTEND YOUR BEAUTY mark. Xtreme Lashes, LLC v. Xtended Beauty, Inc., Case No. 08-20578 (5th Cir., July 15, 2009) (Barksdale; J., DeMoss; J., Stewart, J.).

Both Xtreme and Xtended sell eyelash extension kits used by professional cosmetologists. Xtreme had used the marks XTREME LASHES and EXTEND YOUR BEAUTY since 2005, and Xtended had been using its XTENDED BEAUTY mark since 2006. The district court held that there was no likelihood of confusion between the marks and found EXTEND YOUR BEAUTY was descriptive as a matter of law. Xtended Beauty appealed.

In evaluating the likelihood of confusion between XTREME LASHES and XTENDED BEAUTY, the Fifth Circuit applied eight non-exhaustive “digits” of confusion. The Court found that all of the digits either weighed in favor of Xtreme or were neutral. In evaluating the second digit of confusion, the similarity of the marks, the Court stated that it is improper to compare marks side-by-side in courtroom and focus on the dissimilar visual elements, rather than as the marks are viewed in actual market conditions. Given that both marks contain a large stylized “X” and appear in nearly identical contexts on the companies’ kits, a consumer could believe that XTENDED BEAUTY was a product line offered by Xtreme. The Court further noted that a finding of likelihood of confusion turns on confusion of origin, not confusion of marks. In addition, the fact that the companies sold nearly identical products to the same class of consumers and targeted their advertising to that same class of consumers weighed in favor of Xtreme. The Fifth Circuit also rebuked the district court for disregarding Xtreme’s evidence of actual confusion, stating that ignoring evidence of actual confusion as “anecdotal or irrational tramples upon the province of the trier of fact.”

With regard to the EXTEND YOUR BEAUTY mark, the Court held that the mark was entitled to trademark protection because customers had to use “imagination, thought and perception” to conclude that “extend your beauty” referred to eyelash extensions rather than another cosmetic product. The Court further stated that the commonness of the constituent terms of a compound mark do not render the entire mark descriptive. As with the XTREME LASHES mark, in terms of the infringement issue, the Court found that most of the digits of the confusion analysis weighed in Xtreme’s favor and as such there was genuine issue of fact for the jury.

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Trademarks / Laches

A Champagne Toast to Reversal of Laches Decision
By Suzanne Wallman and Rita J. Yoon

The U.S. Court of Appeals for the Eighth Circuit recently overturned a district court’s dismissal of a trademark infringement suit on the basis of laches, holding that the district court abused its discretion by failing to conduct “a meaningful analysis” of key factors relevant to a laches defense in trademark infringement cases. Champagne Louis Roederer v. J. Garcia Carrión, S.A., Case No. 08-2907 (8th Cir., June 24, 2009) (Shepherd, J.).

Champagne Louis Roederer, the maker of CRISTAL champagne, sued J. Garcia Carrión, S.A., the Spanish maker of CRISTALINO sparkling wine, for trademark infringement in 2006.

Roederer had previously opposed registration of the CRISTALINO mark in Spain in 1990. Roederer first learned that CRISTALINO was being sold in the United States in 1995, when Roederer’s attorneys discovered an affidavit indicating that a Spanish sparking wine called CRISTALINO was being sold in California. Seven years later in 2002, Carrión’s U.S. trademark application to register the CRISTALINO mark was published for opposition. Roederer responded with a cease-and-desist letter. After settlement talks failed, Roederer filed a notice of opposition at the Trademark Trial and Appeal Board (TTAB), as well as the present suit.

Carrión moved for summary judgment, arguing that Roederer’s delay in filing its trademark action was unreasonable and prejudiced Carrión because Carrión had already invested millions to expand its sales of CRISTALINO in the United States. The district court agreed, ruling that Roederer’s seven-year delay from 1995 to 2002, the time it first objected to Carrión’s use of the CRISTALINO mark in the United States, was inexcusable and constituted laches. Roederer appealed.

The Eighth Circuit reversed, holding that the district court failed to properly analyze laches in a trademark context. To successfully assert a laches defense, a defendant must prove that the plaintiff delayed in asserting a right or a claim, that the delay was not excusable and that there was undue prejudice to the defendant. The Eighth Circuit focused its analysis on two additional factors that courts apply when evaluating the merits of a laches defense in a trademark context: “(1) the doctrine of progressive encroachment, and (2) notice to the defendant of the plaintiff’s objections to the potentially infringing mark.”

As for progressive encroachment, the Eighth Circuit found that "the time of delay is to be measured not from when the plaintiff first learned of the potentially infringing mark, but from when such infringement became actionable and provable." As the Court explained, the rational for the doctrine of progressive encroachment is to avoid placing trademark holders on "the horns of an inequitable dilemma—sue immediately and lose because the alleged infringer is insufficiently competitive to create a likelihood of confusion or wait and be dismissed for unreasonable delay."

As to the notice issue, the Court further observed that if the defendant knew that the plaintiff objected to the use of the mark, a laches defense generally will not lie. This rule can be understood either as an analogue to assumption of risk or as a factor that prevents the plaintiff from suffering undue prejudice. In either event, being forewarned of a trademark owner’s objections generally prevents a defendant from raising a successful laches defense.

The 8th Circuit found that the district court erred by failing to adequately analyze these factors. The Eighth Circuit noted that since Roederer had opposed several trademark registration applications filed by Carrion in Spain, the U.S. and Columbia in the early and late 1990s—long before Carrion had made a significant investment in improving a particular production plant in 2003—Carrion was certainly on notice of Roederer’s objection to Carrion’s use of the CRISTALINO trademark.

In addition, the Eighth Circuit also held that the district court erred in finding that defendant was prejudiced by plaintiff’s delay in bring its suit. “When a defendant has invested generally in an industry, and not a particular product, the likelihood of prejudicial reliance decreases in proportion to the particular product’s role in the business,” the Court wrote. Given the fact that the majority of defendant’s investments were for the benefit of the defendant’s general private label brands rather than the specific product line at issue, undue prejudice was not established. This failure of the defendant to show undue prejudice as a result in the plaintiff’s delay in bringing suit is by itself sufficient to bar the laches defense.

Practice Note: Laches is no bar to trademark infringement suit when defendant was forewarned that plaintiff objected to defendant’s use of its trademark, no undue prejudice is established by the defendant and the plaintiff acted reasonably soon after the claim became actionable.

Trademarks

European Court of Justice Delivers Judgment on the Meaning of “Unfair Advantage”
By Hiroshi Sheraton and Désirée Fields

The European Court of Justice has handed down a landmark judgment having implications as to the concept of brand and protectable trademarks in a case concerning the importation and distribution in the UK of perfumes that looked and smelled similar to L’Oréal’s fragrances. The English Court of Appeal referred five questions to the ECJ relating to the interpretation of Directive 89/104 (Trade Marks Directive) and Directive 89/104 (Comparative Advertising Directive) that addressed the meaning of “unfair advantage” and whether “free riding” amounts to trademark infringement even where there is no blurring, tarnishment or other negative impact on a registered mark. L’Oréal v. Bellure, Case No. C-487/07 (ECJ, June 18, 2009).

The ECJ confirmed that unfair advantage does not require a likelihood of confusion or detriment to the mark and covers cases in which, “by reason of a transfer of the image of the mark or of the characteristics which it projects to the goods identified by the identical or similar sign, there is clear exploitation on the coat-tails of the mark with a reputation.”

To determine whether the use of a sign took unfair advantage of the distinctive character or repute of the mark, it was necessary to undertake a global assessment, taking into account all relevant factors, including the strength of the mark’s reputation, the degree of distinctive character of the mark, the degree of similarity between the marks, the nature and degree of proximity of the goods or services, as well as whether there was a likelihood of dilution or tarnishment of the mark.

Specifically, the ECJ stated that unfair advantage was taken “where that party sought by that use to ride on the coat-tails of the mark with a reputation in order to benefit from the power of attraction, the reputation and the prestige of that mark and to exploit, without paying any financial compensation, the marketing effort expended by the proprietor of the mark in order to create and maintain the mark’s image.”

Further, the stricter trade mark protection provided for identical goods/services and for well known marks does not require damage to the essential function of a trade mark (of guaranteeing the origin of goods/services), provided that at least one of the other functions of the mark were affected. Those other functions included “in particular that of guaranteeing the quality of the goods or services in question and those of communication, investment or advertising.”

Finally, the ECJ considered the extent to which the Comparative Advertising Directive provides a defence to trademark infringement. It pointed out that the Comparative Advertising Directive provided cumulative conditions that advertisements have to meet to be permissible under the directive, each of which must be met to qualify.

The court also indicated that an advertisement need not explicitly state that the product is an imitation and that the statement of imitation can relate only to “an essential characteristic” of that product (such as the smell of the goods in question).

Practice Note: The decision has been warmly welcomed by owners of well known brands as it strengthens and clarifies the requirements for “unfair advantage” infringement of marks with a reputation. Whereas dilution and tarnishment have recently been held to require a “change in economic behaviour” of consumers, no such requirement is mentioned in cases of unfair advantage. Indeed, it is now explicit that no confusion or other detriment to the mark or its owner is required and that transfer of the image of the mark can suffice. However, the judgment may also restrict the extent to which comparative advertisements can refer to individual elements of the characteristics of a competitor’s goods. Thus, in terms of so-called famous marks, it seems that EU and China may be moving in opposite directions, with the EU set on expanding the concept of brand and protection of famous marks. See IP Update Vol. 12, No. 7, “The Supreme People’s Court Set Limits on Recognition of Well-Known Trademark.”

Trademarks / Parallel Imports (China)

Parallel Imports in China Are Forbidden for Goods Without 3C Approval
By Jia Yau*

The Changsha Intermediate People’s Court held two tire dealers liable for trademark infringement for selling Japanese-made Michelin tires without authorization from the mark owner and without mandatory China Compulsory Product Certification (3C) approval. Michelin Group v. Tan Guoqiang and Ou Can, ChangZhongMinSanChuZi, Case No.0073 (2009).

After the Michelin Group engaged an agent to purchase Michelin branded tires from two tire dealers in Changsha, China, it brought a lawsuit against those tire dealers seeking injunctive relief against further sales, destruction of all Michelin branded tires in stock and monetary damages. The defendants engaged in the sales of authentic, Japanese-manufactured, Michelin branded tires in China, but without authorization from Michelin Group. Moreover, the tires had not been approved under China’s 3C system, which is a statutory safety certification system used to safeguard consumers’ rights and interests. The dispute centered on whether sales of genuine imported goods bearing a registered trademark, but unauthorized by the trademark owner for sale in China, infringe the holder’s trademark rights if the products are not certified in accordance with the domestic quality control system.

The first instance court found that the products in question were subject to the inspection and approval required by the 3C system before entering the Chinese market and that, as a consequence of the importers’ failure to obtain such approval, the tires had not been legally imported into China and should not have been sold in the Chinese market. The court also found that the defendants’ sales of the tires were in violation of Chinese law.

The court also noted that because the tires had not been inspected under the 3C standards, certain quality and safety issues may arise, and it is foreseeable that consumers will attribute any such problems to the Michelin Group as the manufacturer. Consequently, the standard of quality denoted by the Michelin trademark and plaintiff’s reputation as a leading tire manufacturer could be substantially damaged. Thus, the court found that even though the products were not counterfeit, the defendants’ sales of the tires without Michelin’s approval and without 3C certification constituted an infringement of the trademark owner’s rights.

Practice Note: The importance of this case was that Michelin received a ruling of infringement for parallel imports into China on the basis that the imports were neither authorized by Michelin nor approved under the required 3C certification. Given that parallel imports of trademarked products is not addressed under Chinese statutory law and there are few judicial cases considering this issue, this unappealed (and now final) decision stands for the proposition that when sales of imported products violate the mandatory quality control regulations and are shown to be detrimental to the trademark owner’s reputation, Chinese courts are likely to find trademark infringement even if the products in issue are not counterfeit. Thus, this decision offers a new offensive tool to rights holders to attack unauthorized sales of products that are manufactured outside China and sold within China, especially if imported without 3C certification.

*Jia Yau is foreign counsel at MWE China Law Offices. McDermott Will & Emery has a strategic alliance with MWE China Law Offices, a separate law firm based in Shanghai, China.

Copyright / CDA

“Objectionable Material” Under CDA Means More than Just Porn
By Paul Devinsky

The U.S. Court of Appeals for the Ninth Circuit has confirmed that the safe harbor provisions of the Communications Decency Act (CDA) applies to screening or blocking software and covers more then just pornography; it covers spyware as well. Zango, Inc. v. Kaspersky Lab, Inc., Case No. 07-35800 (9th Cir., June 25, 2009) (Rymer, J.) (Fisher, J., concurring).

Zango provides access to a catalog of online videos, games, music, tools and utilities to consumers who agree to view advertisements while they browse the Internet. It brought this action against Kaspersky, which distributes software that filters and blocks potentially malicious software, alleging that Kaspersky’s screening software improperly blocked Zango’s software.

The Kaspersky software detects malware in e-mail, web pages and software programs and warns the user that the download contains malware. The Kaspersky software classified Zango’s programs as a type of malware that causes pop-up ads to appear on a computer screen. These pop-up ads open links to websites and computer servers that host the malware. Kaspersky invoked the protection of the safe harbor provision of the CDA (47 U.S.C. § 230(c) and the district court granted summary judgment in Kaspersky’s favor, holding that it was a provider of an “interactive computer service,” entitled to immunity for actions taken to make available to others the technical means to restrict access to “objectionable material.” Zango appealed.

On appeal Zango argued that Congress intended statutory immunity under § 230(c) to apply to Internet content providers, not to companies that provide filtering tools. The Ninth Circuit disagreed, finding that “the statute plainly immunizes from suit a provider of interactive computer services that makes available software that filers or screens material that the user or the provider deems objectionable.”

The Court noted that material that can be blocked under the exemption includes “material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected.”

The Court agreed with the district court that Kaspersky was, under the statute, an “interactive computer service” and an “access software provider” and therefore was entitled to claim the safe harbor of the CDA. Kaspersky is a “provider” of an “interactive computer service” under the statute since it “provides or enables computer access by multiple users to a computer server” and is an “access software provider” since it provides its customers with online access to its update servers.

The Court explained that under the statute “a provider of software or enabling tools that filter, screen, allow, or disallow content that the provider or user considers obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable may not be held liable for any action taken to make available the technical means to restrict access to that material, so long as the provider enables access by multiple users to a computer server.”

In his concurring opinion, Judge Fisher concurred that based on the issue presented by Zango in framing the appeal, Kaspersky was entitled to immunity under the CDA. However, Judge Fisher warned that the breath of the “otherwise objectionable” language was not put in issue by Zango in its appeal and warned against the possibility of an abuse of immunity by blocking software vendors that might attempt to use such immunity “to block content for anticompetitive purposes or merely at its malicious whim,” invoking the “otherwise objectionable” category. Judge Fisher would impose a good faith limitation on what a blocking software vendor might consider “otherwise objectionable.”

Copyright / Infringement

Copyright Registrations Can Be Invalidated Based on Intentional Misrepresentations of Originality
By Jeremy T. Elman

Addressing the inter-related issues of cyberpiracy, copyright infringement and trademark infringement, the U.S. Court of Appeals for the Eleventh Circuit affirmed a district court’s ruling that a website was owned by the employer but the copyright was invalid because the employer misrepresented the former employee’s contribution to that website. St. Luke’s Cataract and Laser Institute, P.A. v. Sanderson, Case No. 08-11848 (11th Cir., July 9, 2009) (Hull, J).

The defendant physician, Dr. James C. Sanderson, worked at the plaintiff hospital and collaborated with other employees on creating websites for “laserspecialist.com” and “lasereyelid.com” for his cosmetic eye surgery work in the late 1990s. The site was linked to the hospital’s website, as were other specialty websites related to specialty services. In 2003, Dr. Sanderson left the hospital to start his own practice. Sanderson surreptitiously switched ownership of the domain names to his own practice and used content from the hospital’s website on his own website, which used the same domain names as previously used at the hospital.

After learning of these actions, the hospital registered the two versions of the websites as its own copyrighted materials, although it included some of Sanderson’s own materials. The hospital then sued Sanderson for violations including copyright infringement, violation of the Digital Millennium Copyright Act, Anti-Cybersquatting Protection Act, trademark infringement and various other torts. A jury found that the hospital deliberately misrepresented Dr. Sanderson’s contributions to prevent his ownership of the copyrighted materials. St. Luke’s appealed.

The Eleventh Circuit affirmed, finding that the copyright registrations were invalid because the hospital made numerous intentional misrepresentations about authorship and originality of the websites in its copyright applications. The court found that although the hospital called these misrepresentations “clerical mistakes,” it affirmed the jury’s finding that the misrepresentations were deliberate.

However, the court also found that Dr. Sanderson had infringed the hospital’s trademark of the stylized version of the laserspecialist.com mark, which was used conspicuously on the hospital’s website. The court found that the laserspecialist.com service mark was likely a suggestive mark or at least qualified as descriptive within the spectrum of trademark classifications and thus was entitled to protection. The hospital had used the mark continuously to promote Dr. Sanderson’s practice for five years before he left, and the mark appeared on the laserspecialist.com website for three years. Since the likelihood of confusion was clear based on Dr. Sanderson’s competing practice, the court affirmed the jury’s finding of trademark infringement.

Practice Note: Registering a copyright is not a mere formality. Only original work may be copyrighted and only by the author, work-for-him author or assignee of the author.

Trade Secrets / Misappropriation / Tort

Four Factor Test when Use of Information Is Business Tort
By Christopher L. May

In a case of first impression, a panel of the U.S. Court of Appeals for the Third Circuit articulated a standard under which the use of information that is not protectable as a trade secret may still form the basis of a tort action under New Jersey law. Thomas & Betts Corp. v. Richards Mfg. Co. et al., Case No. 08-3117 (3rd Cir., June 26, 2009) (Barry, J.)

Richards hired the former engineering director of Thomas & Betts (T&B). Within 18 months of his hire, Richards began successfully competing with T&B in a product area in which T&B had held an effective monopoly for the previous 20 years. The district court found that the information that Richards used to build the product was not protectable as a trade secret. Nevertheless, the court ruled that use of the information could be a business tort under New Jersey law, based on a four factor test that considered the following: the degree to which the information is generally known in the industry, the level of specificity and specialized nature of the information, the employer/employee relationship and the circumstances under which the employee was exposed to the information, as well as whether the information is of current value to the employer. The district court ruled that the plaintiff could not satisfy these factors and granted summary judgment. T&B appealed

The appeals court remanded, finding that the district court had based its analysis on post-employment restrictive covenants, which were not at issue. According to the Third Circuit, New Jersey law protects some trade information, even if it “does not raise to the level of trade secret.” While keeping the four factor test, since this was not a trade secret case the Third Circuit modified the factors to consider whether the information was generally available to the public, whether the employee would have been aware of the information if not for his employment, whether the information gave the defendant a competitive advantage versus the plaintiff and if the employee knew the employer had an interest in protecting the information to preserve its competitive advantage.

The court further noted that on remand, when examining the first factor, the district court should examine the plaintiff’s information in totality rather than as individual items, and as to the third factor, the court should consider that the importance of the plaintiff’s information may derive solely from its relationship to other information, even if the other information is well known.

Trade Secrets / Damages

Trade Secret Plaintiff Loses Customers to Defendant but Is Not Entitled to Damages
By Peter Siavelis and Rita J. Yoon

The U.S. Court of Appeals for the Eighth Circuit recently affirmed a district court’s grant of summary judgment in favor of a trade secret plaintiff on the issue of liability, while also upholding a jury verdict denying the plaintiff damages for lack of proximate cause. PFS Distribution Co. v. Raduechel, Case Nos. 08-1701, -1789 (8th Cir., July 28, 2009) (Riley, J.).

The plaintiff, Pilgrim’s Pride Corp., a poultry company, and its subsidiary PFS Distribution Co. sued two former long-time managers for misappropriation of trade secrets. These managers were responsible for the operation of a PFS distribution center in Iowa and had access to confidential financial information, including customer sales and PFS financial information. After Pilgrim’s Pride acquired the PFS distribution center, it attempted to renegotiate the managers’ compensation agreements. The managers formed a competing company while still employed by PFS and then ultimately resigned, taking two of PFS’s largest poultry customers to the competing company.

On summary judgment, the district court held that the former managers were liable for trade secret misappropriation and granted the plaintiffs a preliminary injunction. Thereafter, the defendants’ company ceased operations, but the former customers who defected to the competing company did not return to plaintiffs as customers.

The district court left the issues of causation and damages for the jury. The jury returned a verdict in favor of the defendants, finding that the defendants’ misappropriation of trade secrets was not a proximate cause of damage to plaintiff. PFS appealed.

The Eighth Circuit affirmed, holding that a reasonable jury could have concluded that the defendants’ misconduct did not proximately cause PFS to lose the defecting customers. Multiple witnesses testified that the defecting customers were dissatisfied with PFS’s services and quality and as a result, were planning on leaving PFS regardless of the formation of defendants’ new company. The court concluded that “the jury’s proximate cause finding was not a miscarriage of justice, and the district court did not abuse its discretion in denying PFS’s motion for a new trial.”

Practice Note: When evaluating the recoverable damages in a potential trade secret misappropriation claim based upon the departure of a customer, it is prudent to investigate whether the plaintiff can prove that but for the alleged breach, the defecting customer would not have left.

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IP Update, Vol. 12, No. 8, August 2009

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