Publications / McDermott Newsletters / IP Update, Vol. 9, No. 6, June 2006

IP Update, Vol. 9, No. 6, June 2006

June 2006

 

Patents / §101

U.S. Supreme Court Dismisses Labcorp’s Petition at the Eleventh Hour
By Paul Devinsky and Evan A. Parke

The U.S. Supreme Court abruptly dismissed Laboratory Corporation of America Holding’s (LabCorp) petition despite a strong dissent by Justice Breyer (joined by Justices Stevens and Souter).   The dissent argued that the patent claim in issue was directed to a “natural phenomena” and was therefore invalid.   The dissent also found fault with the U.S. Court of Appeals for the Federal Circuit’s holding in State Street Bank, suggesting that its core holding is too broad and inconsistent with Supreme Court jurisprudence.  Lab. Corp. of Am. Holdings v. Metabolite Lab., Inc., Case No. 04-607; 548 (U.S. Sup. Ct. 2006).

Though the issues had been fully briefed and argued by the parties, the government and 20 amici (and sub judice for many months), the Supreme Court dismissed LabCorp’s petition for certiorari as improvidently granted in a one-line per curium decision.   Its decision leaves open many questions about possible changes to U.S. law regarding the protectable scope of and the exclusion from patent protection of “laws of nature, natural phenomena, and abstract ideas.”   As explained in the 15-page dissent, the “technical procedural reason” for the dismissal related to an alleged failure by petitioner LabCorp to make express reference to §101 of the Patent Act in the proceedings.  The question before the Court, though not specifically couched in terms of §101, had implicated the “natural phenomena” or “law of nature” issue.  According to the dissent, the Court had already decided in Parker v. Flook (1978) that this issue “most comfortably fit[ ]” within the context of §101.

The dissent made clear its position that the issue of whether a “natural law” or “natural phenomenon” was patentable was of constitutional dimension, noting that “too much patent protection can impede rather than ‘promote the Progress of Science and useful Arts,’ the constitutional objective of patent and copyright protection.”   The dissent also cited Diamond v. Dier (1981) as a statement of Supreme Court jurisprudence excluding from patent protection laws of nature, natural phenomena and abstract ideas.

The claim at issue is directed to a method of “correlating” test results with potential vitamin deficiencies.  The claim recited the steps of correlating an “elevated level of total homocysteine” with a “deficiency of cobalamin or folate.”   At trial the inventors had admitted that the “correlating step” simply consisted of a physician’s recognizing that a test shows an elevated homocysteine level.   The inventors even went so far as admitting that since the relationship between homocysteine and vitamin deficiency was now well known, the “correlating” would automatically take place in the mind of any competent physician.

The dissent concluded that such a claim did not even fall near “the boundary” of the natural phenomena doctrine, and the claim would be “invalid no matter how narrowly one reasonably interprets that doctrine.”

Chief Justice Roberts did not participate in consideration of the case. 

Practice Note
The dissent also took direct aim at Metabolite’s reliance on the Federal Circuit’s 1998 State Street Bank decision, using language that could be viewed as heralding the unraveling—or at least retrenchment—of that landmark decision.   The dissent stated that although State Street Bank “does say that a process is patentable if it produces a ‘useful, concrete, and tangible result’…this Court has never made such a statement and, if taken literally, the statement would cover instances where this Court has held to the contrary.”

When the dissent is viewed in the context of Justice Kennedy’s concurrence in Ebay, Inc. v. MercExchange, LLC (joined by Justices Breyer, Stevens and Souter), which discussed the “potential vagueness and suspect validity” of business method patents, it would appear that as many as four justices may be ready to more fully consider the appropriate scope of §101 and the State Street Bank doctrine.   This is likely to have a restraining effect on how the Federal Circuit cites and applies its own State Street precedent in the future.

Patents / Hatch-Waxman Act

Objective Rule Triggering Exclusivity Period for Generic Drug Manufactures Affirmed
By Paul Devinsky and David A. Gay

In yet another chapter of a long and convoluted history involving generic versions of the drug Pravachol, the U.S. Court of Appeals for the District of Columbia Circuit summarily affirmed a refusal to grant a preliminary injunction forbidding the U.S. Food & Drug Administration (FDA) from allowing a generic drug manufacture to begin exclusive marketing under the Hatch-Waxman Act.  The court found that a stipulation and order in the district court stating that the challenged patent holder had no intention of suing and that the complaint should be dismissed for lack of subject matter jurisdiction was insufficient to trigger market exclusivity.  Apotex, Inc. v. Food & Drug Admin. and Teva Pharmaceuticals, Case No. No. 06-5105 (Ct App for D.C. Cir. June 6, 2006) (Per Curium).

The Hatch-Waxman Act grants an 180-day marketing exclusivity period, free from competition with other generic manufactures, to the first generic drug manufacture that files an abbreviated new drug application (ANDA).  A court decision holding a challenged patent to be invalid or not infringed triggers the exclusivity period. 

In a related set of appeals, generic drug manufacturers Teva Pharmaceuticals (Teva) and Apotex contested the sufficiency of whether a court order dismissing a suit for lack of subject matter jurisdiction can trigger the 180-dayexclusivity period.  In the initial appeal (Teva I), an FDA decision that a district court order dismissing a patent suit for lack of subject matter jurisdiction was not sufficient to trigger the exclusivity period was reversed and remanded.  Reasons included a failure to explain why such a dismissal did not meet the requirements of a triggering court decision.  

As a result, the FDA established a bright-line rule that the agency would not look beyond the face of a court order to ascertain whether it qualified as triggering court decision. It decided that a dismissal for lack of subject matter jurisdiction was not "holding" that operates to trigger the 180-day exclusivity period. The following appeal (Teva II) resulted in another remand; the appellate court rejected the "self serving" FDA justification and required the FDA to "meaningfully address" the questions posed in Teva II.

Following the substantive holdings of Teva I and Teva II, Apotex appeared to successfully trigger the 180-day exclusivity period for Teva’s generic Pravachol before Teva obtained FDA market approval.  After Teva filed an ANDA to market a generic version of Pravachol, Apotex filed a declaratory judgment suit against Bristol Myers Squibb (BMS), the patent holder of the Pravachol patents, seeking judgment that its own generic version of Pravachol did not violate the BMS patents.  After BMS’ motion to dismiss for lack of subject matter jurisdiction, the parties resolved the dispute by a “stipulation and order” that stated BMS had no intention of suing and that the complaint should be dismissed for lack of subject matter jurisdiction.  Believing itself bound by the court decision in Teva I and Teva II, the FDA ruled the stipulations did not qualify as a triggering court decision.   In the resulting appeal (Teva III), the appellate court found that the FDA’s decision was arbitrary and capricious because it mistakenly thought itself bound by the court’s earlier decisions and once again remanded the case to the FDA. 

Again on remand, the FDA re-adopted its bright-line rule requiring an actual holding expressing a determination of invalidity, non-infringement or unenforceability.  However, in this decision, the FDA reasoned it was in both the public’s and the FDA’s interest to implement a clear, easily administered legal regime to govern the exclusivity trigger.  Apotex filed suit in district court but was denied a preliminary injunction, which would have forbid the FDA from allowing Teva to begin exclusive marketing of a generic version of Pravachol.  Apotex appealed.

In the present appeal, the court affirmed the FDA and noted it never held the FDA’s bright-line rule to be untenable.  Rather, the rule was rejected only because the FDA had failed to provide a reasoned decision and justification for it.  This time the court found the FDA’s explanation sufficient justification for its bright-line test. 

The court agreed that a less objective standard than a holding-on-the-merits would force an agency lacking patent law expertise to resolve the effect of borderline patent law questions, leading to uncertainty and fruitless litigation.  Acknowledging the FDA’s rule will treat court decisions explicitly holding a patent unenforceable differently from a decision that includes a patent holder’s promise not to sue, the court found nothing inconsistent about it.  The FDA can maintain that an order holding a patent unenforceable triggers the exclusivity period while at the same time, it will not look beyond the face of such an order.  The FDA provided sufficient explanation to justify these different treatments.

Patents / Claim Construction / Means-Plus-Function Limitation

Functional Recitations Are Not Limited by the Way in Which the Corresponding Disclosed Structure Operates
By Toby H. Kusmer and Paul Devinsky

Over a vigorous dissent, a panel of the U.S. Court of Appeals for the Federal Circuit vacated a grant of summary judgment, finding that the district court had improperly imported unclaimed functions into a means-plus-function claim limitation.  Applied Medical Resources Corporation v. United States Surgical Corporation, Case No. 05-1314 (Fed. Cir. May 15, 2006) (Prost, J.; Dyk, J. dissenting).

The claim in issue related to a trocar device with a “floating septum seal” that allows a surgical instrument to be inserted into an abdomen inflated with insufflation gas.  The device simultaneously prevents the gas from leaking out, thus maintaining the inflation of the abdomen.  The disputed claim limitation recited “means disposed circumferentially outwardly of the valve portions for supporting the valve portions within the seal housing, the supporting means being movable relative to the housing to permit the valve portions to float relative to the axis of the cannula.”

Consistent with a ruling in a prior litigation, the district court found the claim term in issue to be a §112, ¶6 claim element, and the specification contained two corresponding disclosed structures.  As to one of these structures Applied conceded the accused device was not the same as or the structural equivalent of it.  Although the parties disputed the definition of several terms in the functional recitation, the district court left those unresolved but adopted Applied’s proposed construction of which the functions required.  It then concluded the accused devices performed the recited functions, albeit in a substantially different way as compared to the remaining disclosed corresponding structure.  Finding that the patentee had provided no “particularized testimony or linking argument” to establish equivalence, the court went on to hold that no reasonable jury could find the structures were equivalent.  Applied appealed. 

The Federal Circuit, considering the claim construction issue de novo, repeated its well-established syllogism that construction of a means-plus-function limitation requires (a) interpretation of “the claimed function” and (b) the identity of the corresponding structure in the written description of the patent that performs that function.  Literal infringement of a means-plus-function limitation requires “that the relevant structure in the accused device perform the identical function required in the claim and be identical or equivalent to the corresponding structure in the specification.” 

Once identified, the patentee must show the relevant structure is equivalent to the disclosed structure; the two must “perform the identical function in substantially the same way, with substantially the same result.”  Any differences between the way the functions are performed must be insubstantial.  Here, the parties agreed (a) that the claim required the performances of two functions, i.e., “supporting” and “permit to float,” and (b) the identification of corresponding disclosed structures.  However, they disagreed as to what the two functions required. 

As a general rule, the Court observed that a district court errs (1) when it improperly imports unclaimed functions into a means-plus-function limitation during claimed construction to require more than is actually claimed or (2) when it improperly determines the way in which the disclosed structure performs the previously defined function.  The majority opinion held that the lower court committed the second type of error when it improperly imported unclaimed functions into the two recited functions and then examined, for purposes of infringement, how the disclosed corresponding structures performed these other “extraneous” functions. 

In dissent, Judge Dyk argued the district court’s construction of the requirements of the claimed function did not improperly import unclaimed functions.  He opined the majority interpreted the recited function “more broadly than the claim language or written descriptions would support.”  According to the dissent, limiting the claim element by the way in which the corresponding disclosed structure performs the recited function is consistent with Federal Circuit precedent. 

Patents / Willful Infringement

Non-Infringement Opinion of Patent Counsel Based on Incomplete Facts May Be Disregarded
By Anish R. Desai

Upon examination of the evidence weighed by the jury, and despite a showing that the defendant had obtained advice of legal counsel as to non-infringement, the U.S. Court of Appeals for the Federal Circuit upheld the jury’s verdict of willful infringement and the district court’s award of enhanced damages.  Liquid Dynamics Corp. v. Vaughan Company, Inc., Case Nos. 05-1105, -1325, -1366, -1399 (Fed. Cir. June 1, 2006) (Gajarsa, J.).

Liquid Dynamics, the plaintiff, obtained a jury verdict of willful infringement of its patent relating to a system of pumps that stirs mixtures of solids and liquids in large tanks.  The district court trebled the jury’s damage award based upon the jury’s finding of willfulness and the defendant’s behavior as a litigant. 

In June 2000, Liquid Dynamics confronted Vaughan with allegations of infringement.  Vaughan then consulted with patent counsel to evaluate the potential claim provided its counsel with two computational fluid dynamics studies that analyzed the flow patterns in Vaughan’s tanks.  Liquid Dynamics presented evidence, in support of its willful infringement claim, that Vaughan’s opinion from counsel was flawed, and Vaughan had directly copied Liquid Dynamic’s engineering drawings by hiring a former Liquid Dynamic’s engineer.

The Court, in affirming the verdict of willful infringement, found it reasonable that Vaughan’s opinion from its patent counsel was insufficient to show good faith belief that its activities were not in violation of Liquid Dynamic’s patent rights.   It found flaws in the factual basis of the opinion and evidence that Vaughan copied Liquid Dynamic’s drawings.  The Court rejected Vaughan’s attempt to discount evidence of copying by noting changes in the design and stated that a jury could reasonably infer copying because the modifications were insubstantial to the patented invention.  

With respect to Vaughan’s opinion from counsel, the Court determined that a reasonable jury could discount the opinion based on Vaughn’s concealment of evidence from counsel.  In particular, the Court found the omission of vertical vector plots of fluid flow from the computation fluid dynamics studies Vaughan provided patent counsel coupled with evidence of copying was sufficient to affirm the verdict of willful infringement and the district court’s enhancement of damages.

Patents / Written Description

Written Description of Invention That Involves Biological Macromolecule Does Not Require Recitation of a Known Structure
By Astrid R. Spain

In an appeal from a decision of the Board of Patent Appeals and Interferences ("the Board") in an interference involving a patent application and an issued patent covering a mutant poxvirus vaccine, the Federal Circuit affirmed the Board’s priority award and held, inter alia, that for purposes of providing adequate written description it is not required of a specification to disclose (1) examples; (2) actual reduction to practice of the invention; and (3) the known structure of a biological macromolecule. Falko-Gunter Falkner et al. v. Stephen Inglis et al. , Case Nos. 05-1324 (May 26, 2006) (Gajarsa J.).

Falkner held a patent ("the Falkner patent") and Inglis filed a patent application ("the Inglis application"), both claiming vaccines made from a poxvirus vector having deleted or inactivated essential genes so as to reduce the risk of infection by the virus because it can not replicate in an inoculee. An interference proceeding resulted in the Board according the Inglis application the benefit of several earlier-filed applications, dating back to September 25, 1990, and the Falkner patent the benefit of earlier filed applications dating back to April 29, 1994, resulting in several of the claims in the Falkner patent being invalidated. On appeal, Falkner argued that the Board's decision invalidating its claims was incorrect because the specifications from Inglis's benefit applications failed to adequately describe and enable a poxvirus-based vaccine, and thus Inglis was not entitled to priority.

The Federal Circuit commenced its review by noting that, even though the early applications provided a detailed example of an embodiment that comprised not a poxvirus, but a herpes virus, including the identity of the deleted essential sequences therein, the differences between herpes viruses and poxviruses were sufficiently well known to have aided the person of ordinary skill in the art in the construction of poxvirus vaccines without undue experimentation. The Court also noted that, as of the time of filing of the earliest Inglis application, publications in readily accessible professional journals had disclosed the DNA sequence of the poxvirus genome along with the locations of the "essential regions, " rendering the absence of incorporation by reference unproblematic. Turning to written description, the Court pointed out that the absence of examples involving poxviruses in the Inglis applications does not render the written description inadequate. Furthermore, the Court agreed with the Board that the lack of actual production by Inglis of a poxvirus vaccine is not dispositive because an actual reduction to practice is not required for written description. Finally, the Court held that where accessible literature sources clearly provided, as of the relevant date, genes and their nucleotide sequences, in this case the "essential genes" of the poxvirus, satisfaction of the written description requirement does not require either the recitation or incorporation by reference of such genes and sequences. Accordingly, there is no per se rule that an adequate written description of an invention that involves a biological macromolecule must contain a recitation of known structure.

Patents / Validity

The Graffiti on the Wall “Reads” Like a Reversal
By Paul Devinsky

In a case of interest to all PDA-toting road warriors, the U. S. Court of Appeals for the Federal Circuit reversed a summary judgment that a patent covering Xerox’s handwriting recognition technology was invalid for anticipation.  Xerox Corporation v. 2Com Corporation (Fed. Cir. June 8, 2006) (Bryson, J.).  Finding the claims in issue were not “insolubly ambiguous,” the Court also reversed the district court’s grant of summary judgment for indefiniteness. 

In 1997 Xerox sued 3Com on claims that 3Com’s “Graffiti” system for handwriting recognition infringed its patent.  3Com provoked a re-examination of the Xerox patent, which the U.S. Patent and Trademark Office (USPTO) confirmed.  The district court meanwhile construed the claims and granted summary judgment of non-infringement. 

On Xerox’s appeal to the Federal Circuit, the district court’s claim construction was sustained, but the grant of summary judgment of non-infringement was reversed (Xerox I).  The Federal Circuit concluded the Graffiti symbols were not sufficiently “graphically separated” from each other to be “unistroke symbols” as claimed, that the Graffiti system did not allow for the claimed “definitive recognition” of symbols immediately upon pen lift by the user, and that the Graffiti system did not feature the claimed “spatial independence.” 

On remand the district court granted summary judgment of infringement and concluded the Xerox patent was not invalid, rationalizing that the Federal Circuit in Xerox I, “presumably did not construe the claims in such a way as to be invalid.”  In the subsequent appeal, the Federal Circuit affirmed the district court’s grant of summary judgment of infringement but held that its prior decision “did not obviate the need for a separate validity analysis.”  The case was again remanded to consider that issue.

In Xerox II the Federal Circuit further held that “definitive recognition” does “not require a permanent, unalterable choice of a symbol that cannot be changed if the recognition is later determined to be erroneous” but that “definitive recognition” occurs when the “system completes the recognition of the unistroke symbol.”

On remand the district court granted summary judgment of invalidity over prior art the USPTO had re-examined based on anticipation and obviousness.  The district court also held two claims invalid for indefiniteness, finding the claim term “sloppiness space” to be ambiguous and “not a term of art used in the industry.”  Thus, the district court concluded “there is no way to determine whether or not two symbols do achieve sufficient separation so as to be well separated in sloppiness space.”  Xerox appealed.

After an exhaustive discussion of the many technical arguments raised by Xerox regarding the prior art, the panel made short work of most but ultimately found a disputed material fact issue:  “a genuine issue of material fact remains as to whether [the prior art] references disclose the various ‘stroke direction’ limitations of the asserted claims.”  Because “invalidity by anticipation requires that the four corners of a single, prior art document describe every element of the claimed invention [citation omitted]…,” the Court vacated the district court’s grant of summary judgment of invalidity for anticipation and ordered the district court to reconsider its judgment as to obviousness based on the stroke direction limitation. 

As to the ambiguity of the term “sloppiness space,” the court found that while the descriptions of the term in the specification were not “rigorously precise,” they provided adequate guidance in light of the difficulty of articulating a more exact standard for the concept.  The Court concluded the term was not “insolubly ambiguous” and did not render the claims invalid for indefiniteness.

Patents / Res judicata

Res Judicata Precludes Declaratory Judgment Claim of Invalidity
By Catherine Shiang

The U.S. Court of Appeals for the Federal Circuit upheld a district court ruling that barred declaratory judgment action alleging non-infringement, invalidity and unenforceability of several Dow patents on the basis of res judicata arising from an earlier settled case.  Pactiv Corp. v. Dow Chem. Co., Case No. 05-1260 (Fed. Cir. June 5, 2006) (Dyk, J.).

Pactiv’s declaratory judgment action grew out of proceedings in 1998 in which Dow had sued Pactiv for infringement of two patents.  In those proceedings, Pactiv asserted counterclaims of invalidity and unenforceability.  Pactiv agreed to pay royalties, and pursuant to a settlement and license agreement the action was dismissed with prejudice.  However, in 2002 Pactiv ceased payments and notified Dow it believed the patents were invalid.  Pactiv responded by filing a declaratory judgment action seeking rulings on invalidity, unenforeability and non-infringement.  The district court granted Dow’s rule 12(b)(6) motion to dismiss on grounds of res judicata, holding that in the 1998 agreement Pactiv had not expressly reserved future litigation rights.

Applying Second Circuit law on the issue of claim preclusion, the Federal Circuit upheld the district court and ruled that the defense of claim preclusion is available “where the asserted claim was…raised in a prior action between the parties which has been adjudicated on the merits.”  Because the 1998 action had been dismissed with prejudice, the Court determined it had been adjudicated on the merits, thus invoking res judicata. 

The Court went on to reject Pactiv’s argument that it had reserved the right to challenge the patents in the 1998 agreement.  Applying legal standard (the right to litigate a claim otherwise barred by res judicata must be based on an express reservation   in an agreement between the parties), the Court held that the language of the 1998 agreement did not contain express language.  It also rejected Pactiv’s argument that it should allow the action because the 1998 agreement did not expressly forbid future litigation. 

The Court also discarded Pactiv’s alternative argument that res judicata did not bar its action because it had been denied “a full and fair opportunity to litigate the patents” due to Dow’s fraudulent misrepresentations during the 1998 action.  In making clear that res judicata is precluded “only where there is a denial of due process,” the Court held that because Pactiv was not claiming denial of due process, its assertion of fraud was “not sufficient to bar application of res judicata.”

Catherine Shiang wrote the above article with the assistance of Jake Freed, a summer associate in McDermott's Washington, D.C. office.

Patents / Settlement Agreements

The Plain Language of Settlement Agreement Limits Claims Against Modified Designs
By Kori Anne Bagrowski

Applying Seventh Circuit law to interpret a settlement agreement, the U. S. Court of Appeals for the Federal Circuit affirmed a summary judgment ruling that introduction of a “revised design” (i.e., from a previously accused device) was not a breach of the agreement.  Panduit Corp. v. HellermannTyton Cor., Case No. 05-1337 (Fed. Cir. June 12, 2006) (Linn, J.). 

The patent at issue involved a “modular offset power box and communication extension” for a “multi-channel power and communication wiring and raceway system.”  Raceway systems are commonly used in work spaces to install power outlets and phone lines.  In this case, the patent improved the prior art.  The power conductors on the raceway could be quickly and easily routed into a power box and isolated from the communication channel; therefore,  the device could be quickly installed. 

Panduit filed suit alleging infringement, which was shortly resolved by a settlement agreement whereby HellermannTyton agreed not to make or sell “Subject Products.”  The agreement defined “Subject Products” as “the HellermannTyton Multi-Channel Raceway Side Electric Box (HellermannTyton Part No. MCR-SEB)” and “all products, existing now or in the future, covered by any claim of the Panduit Patent.” 

After HellermannTyton introduced its “revised design,” Panduit filed suit for breach of the agreement, alleging the new design infringed its patent.  The sole difference between the previous design and the revised design was that the “wall abutting the trunking duct in the revised design is solid with no cutaway.”  The district court determined as a matter of law that the accused device was not the same as the device covered by the agreement.  It construed several limitations of the claims, concluded the revised design was non-infringing and granted HellermannTyton’s summary judgment motion. 

The Federal Circuit, applying the law of the Seventh Circuit on interpretation of the settlement agreement as well as on summary judgment determination, interpreted the contract language as limited to HellermannTyton Part No. MCR-SEB.  The Court reasoned the plain language of the contract included only the exact product and not each colorable change, modification or variation.  It also dismissed Panduit’s attempt to liken the agreement to an injunction covering colorable variations of the device in suit.  Because the revised design was not Part No. MCR-SEB or physically the same as that part number, the Court affirmed summary judgment that its introduction was not a breach of the settlement agreement. 

As to whether the revised design was an infringement, the Federal Circuit agreed with the district court’s claim construction and relied principally on the “intrinsic evidence of record, examining the claim language itself, the written description, and the prosecution history.” The Court held that several of the properly construed claim elements were not found in the revised designs and affirmed the non-infringement determination.

Trademarks / Likelihood of Confusion / Related Goods

Same Goods, Same Name…But Not Related
By John J. Dabney

The U.S. Court of Appeals for Federal Circuit held that the mere fact that both parties’ products are physically identical does not render them related for purposes of determining a likelihood of confusion.  M2 Software, Inc. v. M2 Communications, Inc., 2006 U.S. App. LEXIS 13936 (Fed. Cir. 2006) (Mayer, J.).  Rather, despite the common use of “M2” in each party’s mark and use of the respective marks on CDs, the court must examine the uses of each party’s product. 

The opposer, M2 Software, owned a trademark registration for M2 for CD-ROMs providing information in the field of music and film.  The applicant, M2 Communications, applied for the mark “M2 Communications” for CD-ROMs providing information in the fields of medicine and pharmaceuticals.  During prosecution M2 Communications disclaimed “communications” apart from the mark.  Nevertheless, the Trademark Trial and Appeal Board (TTAB) granted judgment in favor of M2 Communications, finding confusion not likely, and dismissed the opposition.  M2 Software appealed.

The Federal Circuit affirmed.  Focusing on the Dupont factor of the relatedness of the goods in question, the Federal Circuit agreed with the TTAB that the parties’ products were sufficiently dissimilar such that there was no likelihood of confusion. 

The Court rejected the argument that the fact that both parties’ products were CD-ROMs rendered them related for purposes of determining a likelihood of confusion.  “[G]iven the pervasiveness of software and software-related goods in society, it would be inappropriate to presume relatedness on the mere basis of goods being delivered in the same media format, especially where, as here, the goods described in both the application and the registration are narrowly defined, along distinct industry lines.” 

The Federal Circuit also found that M2 Communications’  customers and channels of trade did not overlap with those of M2 Software.  The Court reasoned that it “was difficult to establish likelihood of confusion” if the parties’ products and customers did not overlap.

Trademarks / Opposition

Scope of Res Judicata Examined in Trademark Registration Opposition
By Linda A.O. Lamberson

The U.S. Court of Appeals for the Federal Circuit affirmed the Trademark Trial and Appeal Board’s (TTAB) finding that a default judgment entered against an applicant for failure to defend against an opposition to registration of its word-and-design mark did not preclude an opposition filed against the applicant’s similar, pending word-mark application.  Sharp Kabushiki Kaisha v. ThinkSharp, Inc., Case No. 05-1220 (Fed. Cir. May 30, 2006) (Newman, J.).

The applicant, ThinkSharp, filed two trademark applications within four months of each other:   one for THINKSHARP and the other for THINKSHARP & DESIGN.  Sharp opposed both applications, asserting that the marks were confusingly similar to and diluted the family of SHARP marks.  ThinkSharp chose to defend only the THINKSHARP word-mark registration.  The TTAB entered a default judgment against ThinkSharp as to its word-and-design mark.  During the opposition proceedings on the word mark, Sharp argued the default judgment entered in its favor on the word-and-design mark operated as res judicata against ThinkSharp, thereby precluding ThinkSharp from contesting the opposition directed to its word mark.

The TTAB rejected Sharp’s res judicata argument, holding that an “applicant was entitled to choose to pursue one registration and abandon the other, even after oppositions had been filed.” It further explained that an “applicant is not required to defend against multiple oppositions in order to preserve its right to defend against one of them.”  The TTAB also found that there was no likelihood of confusion between the THINKSHARP and SHARP marks.  Sharp appealed on the issue of res judicata. 

In affirming the TTAB’s decision, the Federal Circuit reiterated the Supreme Court’s concerns against the offensive use of res judicata and held that “[p]recedent and sound administrative policy support the Board’s reasoning that a trademark owner is entitled to choose which opposition to defend, when the proceedings are not an attempt to evade the effect of a previous adverse judgment on the merits.” 

The Federal Circuit particularly noted the TTAB’s finding that ThinkSharp filed the two trademark applications at the same time.  Thus, this was not a situation where ThinkSharp adopted a second mark after judgment had been entered against it in another matter in an attempt to insignificantly modify its mark after an adverse ruling. 

The fact that the default judgment on the word-and-design mark was entered on procedural grounds, and without consideration of the merits, was also “highly relevant” to the Federal Circuit’s conclusion:   “when a party did not have an opportunity to litigate disputed issues, a decision to permit such litigation is favored.”

Copyright / Fair Use

All’s Fair When It Comes to the Dead: Second Circuit Upholds Dismissal of Copyright Infringement Action
By Irina R. Kushner

In a recent fair use case, the U.S. Court of Appeals for the Second Circuit affirmed the district court’s grant of summary judgment in favor of the defendants, agreeing that their reproduction of copyrighted Grateful Dead images in its book, Grateful Dead:   The Illustrated Trip, was “protected by the fair use exception to copyright infringement.”  Bill Graham Archives v. Dorling Kindersley Limited, Case No. 05-2514-cv (2nd Cir. May 9, 2005) (Restani, J.).

“This appeal concern[ed] the scope of copyright protection afford[ed] artistic concert posters reproduced in reduced size in a biography of the musical group the Grateful Dead.”  In October 2003, Dorling Kindersley Limited (DKL) published a 480-page coffee table biography of the Grateful Dead.  Of the more than 2,000 images used to represent dates in the band’s history, seven were copyrighted images owned by the Bill Graham Archives (BGA).  While DKL initially attempted to negotiate a license agreement, DKL eventually published the biography without BGA’s permission to use the images that were “originally depicted on Grateful Dead posters and tickets.” 

BGA brought suit against DKL, alleging copyright infringement and seeking to enjoin any further publication of the book.  Both parties cross-moved for summary judgment on the issue of fair use.  After applying the fair use factors (purpose and character of the use; nature of the copyrighted work; amount and substantiality of the portion used in relation to the copyrighted work as a whole; and effect of the use upon the potential market for or value of the copyrighted work), the district court “determined that DKL’s reproduction of the images was fair use and granted its motion for summary judgment.”  BGA appealed.

On appeal BGA challenged the lower court’s conclusion that the “balance of fair use factors weighs in favor of DKL.”  In particular, BGA challenged the district court’s finding with respect to the first statutory fair use factor—the purpose and character of the use—and argued that the mere placement of poster images along a timeline was insufficient to constitute transformative use.  The appellate court disagreed with BGA’s “limited” interpretation of transformative use, noting that courts have frequently afforded fair use protection to biographies “as forms of historic scholarship, criticism, and comment that require incorporation of original source material for optimum treatment of their subjects.” 

The Second Circuit agreed with the district court that DKL’s use of the disputed images was transformative and found that DKL was not “required to discuss the artistic merits of the images to satisfy [the purpose and character] factor of fair use analysis.”  The court pointed to the significantly reduced size of the reproductions, the collage layout DKL employed, the fact that the images account “for less than one-fifth of one percent of the book,” and the fact that DKL had not used any of the images in its commercial advertising. 

As to the “nature of the copyrighted work,” the court found the weight of this factor to be limited since DKL had not exploited the “expressive value of the images.”  Notwithstanding the fact that the images had been copies in their entirety, the Second Circuit agreed with the district court that the significantly reduced size of the images weighed in favor of fair use.  Finally, the court concluded “DKL’s use does not harm the market for BGA’s sale of its copyrighted artwork,” nor was there “market harm based on BGA’s hypothetical loss of license revenue.” 

Copy / Infringement

Installing Software Beyond Licensed Computers Is Not “Fair Use”
By Benjamin J. Hofileña, Jr.

The U.S. Court of Appeals for the Ninth Circuit upheld a copyright infringement finding against the Los Angeles County Sheriff’s Department and found it was not entitled to a fair use defense in a situation where it installed software beyond the number of licenses it had purchased.  The Court upheld the finding notwithstanding the fact that the computers were configured such that the total number of computers that could access the software at any one time was limited to the number of licenses purchased.  Wall Data Inc. v. Los Angeles County Sheriff’s Dept., No. 03-56559, 2006 U.S. App. LEXIS 12100, (9th Cir. May 17, 2006) (Pregerson, J.).

Wall Data develops, markets and sells a copyrighted computer terminal emulation software program called RUMBA.  The Sheriff’s Department purchased 3,663 licenses to the software.  To ensure that its employees would be able to access the software at whatever computer they were assigned to work, the Sheriff’s Department used hard drive imaging to install the software onto 6,007 different computers. 

Although RUMBA software was installed on almost every computer in its facility, the department configured the computers with passwords limiting the number of people who could access the software at any given time to the number of licenses actually purchased.  The Ninth Circuit upheld the trial court’s determination that the Sheriff’s Department was not entitled to a “fair use” defense under 17 U.S.C. § 117(a)(1) and was liable for copyright infringement.   

To determine whether the Sheriff’s Department was entitled to a fair use defense, the Court balanced the fair use factors:   (1) the purpose and character of the use, including whether such use is of a commercial nature or is for non-profit 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.   

In weighing the factors, the Court found that the Sheriff’s Department had installed the software on multiple computers to save the expense of purchasing additional authorized copies and, therefore, determined the “purpose and character” of the use was commercial.  The Court also found the use was not transformative because the Sheriff’s Department created exact copies of the RUMBA software and used those copies for the identical purpose of that of the original software.  The Court then rejected the Sheriff Department’s argument “that its copying was solely an attempt to use efficiently its licensed copies of the RUMBA software products, and accordingly, there was no negative impact on Wall Data’s market.”  The Court stated that the “Sheriff’s Department could have bargained for the flexibility it desired, but it did not.  Whenever a user puts copyrighted software to uses beyond the uses it bargained for, it affects the legitimate market for the product.” 

Copyright / Satellite Home Viewer Act

Permanent Injunction Looms Over EchoStar
By Tiffany M. Scurry

The U.S. Court of Appeals for the Eleventh Circuit recently handed television network broadcasters an important victory in their long-running battle against satellite TV provider EchoStar Communications Corp.   The court ruled EchoStar violated federal copyright law and remanded the case to district court for entry of a nationwide permanent injunction.  CBS Broadcasting v. Echostar Communications., Case No. 03-13671 (May 23, 2006) (Tjoflat, J.).

The Satellite Home Viewer Act of 1998 gives satellite carriers a compulsory, statutory license to transmit copyrighted network programming to “unserved households.”  Typically in rural areas, these are households unable to receive network programming at a specified level of intensity through conventional rooftop antennas.

In 1998 a group of network broadcasters including CBS Broadcasting, Inc.; NBC Universal, Inc.; ABC, Inc.; and Fox Broadcasting Company accused EchoStar of intentionally abusing the law by re-transmitting network broadcasts to “served” households that already received network signals.   The networks argued these were illegal transmissions that eroded the value of their copyrighted broadcast material.  The networks disputed EchoStar’s methods of assessing subscriber eligibility and EchoStar’s characterization of many of its subscribers as “unserved.”

In a first appeal the Eleventh Circuit vacated the district court’s preliminary injunction against EchoStar, which had ordered EchoStar to cease transmitting programs to “served” households.   On remand, the district court ordered EchoStar to narrowly focus its subscriber classification method.   The court declined to address whether EchoStar had engaged in a “willful or repeated pattern or practice” of violations mandating a permanent injunction.

Unsatisfied, both sides appealed.  Once again, the Eleventh Circuit remanded the case but this time for entry of a permanent injunction.   Rather than instruct the district court to make the underlying determination in the first instance, the court took it upon itself to find the “willful or repeated pattern or practice” of statutory violations that mandates the injunction:

As if the magnitude of its ineligible subscriber base were insufficiently disconcerting, we have found no indication that EchoStar was ever interested in complying with the Act.   Indeed, based on the district court’s findings, we seem to have discerned a “pattern” and “practice” of violating the Act in every way imaginable.

Practice Note
Satellite providers are likely to face new challenges as broadcasting networks, emboldened in their efforts, attempt to stem unauthorized re-transmissions of their copyrighted signals.

Copyright / Pre-Emption

State Voice Protection Statute Pre-Empted by Copyright Laws
By Jennifer M. Mikulina

The U.S. Court of Appeals for the Ninth Circuit ruled that a vocalist’s state law claims, based on protection of a performer’s voice, were pre-empted by the Copyright Act in Debra Laws v. Sony Music Entertainment, Case No. 03-57102 (9th Cir. May 24, 2006) (Bybee, J.).

Debra Laws entered into a recording agreement with Elektra/Asylum Records in 1979.  This agreement gave Elektra numerous rights in Laws’ recordings, including the exclusive rights to the song “Very Special,” which Laws recorded and released in 1981.  In turn, Elektra granted Sony a non-exclusive license to sample Laws’ “Very Special” in the 2002 hit single, “All I Have,” performed by Jennifer Lopez and LL Cool J.

In February 2003, Laws brought an action in California state court claiming violations of her common law right to privacy and statutory right of publicity based on Sony’s alleged misappropriation of her name and voice.  The case was removed to federal district court, which found that the Copyright Act pre-empted both of Laws’ state claims.

On appeal the Ninth Circuit used a two-part test to determine whether the Copyright Act pre-empted Laws’ state law claims.  In the first part of the test, the Court assessed whether the subject matter of Laws’ state law claims fell within the subject matter of the Copyright Act.  The court found this first prong was satisfied because “federal copyright law preempts a claim alleging misappropriation of one’s voice when the entirety of the allegedly misappropriated vocal performance is contained within a copyrighted medium.”

Second, the court found that the rights Laws asserted under California law were equivalent to the rights protected under the Copyright Act.  In its analysis, the court used the test set forth in Del Madera:  “[t]o survive preemption, the state cause of action must protect rights which are qualitatively different from the copyright rights.  The state claim must have an extra element which changes the nature of the action.”  Although Laws tried to argue that her right of publicity claim required proof of use for a “commercial purpose,” the court found that “the mere presence of an additional element…is not enough to qualitatively distinguish Laws’ right of publicity claim from a claim in copyright.  The extra element must transform the nature of the action.”  Because the court found that the “underlying nature of Laws’ state law claims is part and parcel of a copyright claim,” the second prong of the test was satisfied.

The court also noted that “the right of publicity is not a license to limit the copyright holder’s rights merely because one disagrees with decisions to license the copyright.”  Were this the case, “virtually every use of a copyrighted sound recording would infringe upon the original performer’s right of publicity.”

McDermott Will & Emery

McDermott Will and Emery