IP Update, Vol. 12, No. 4, April 2009
April 2009
Patents / Obviousness - Obviousness Inquiry May Be Based on “Obvious to Try” Reasoning
Patents / Anticipation - Prior Art Reference Need Not Disclose Claimed Invention’s Utility
Patents / Marking - Marking Not Required for Method Claim Past Damages—Case Closed
Patents / Sanctions - Know the Court’s Limits in Zealous Advocacy
Patents / Discovery Misconduct - Pyrrhic Victory Over Discovery Misconduct
Patents / Assignments - Extrinsic Evidence Must be Considered if Assignment Is Ambiguous
Patents / Damages - When Is the Big Picture Too Big?
Trademarks / Laches - Ninth Circuit Denies Laches Defense Despite Six-Year Delay
Obviousness Inquiry May Be Based on “Obvious to Try” Reasoning
Contact Paul Devinsky
In a decision focusing on claims to a classic biotechnology invention, the U.S. Court of Appeals for the Federal Circuit held that claims to a specific DNA sequence were obvious in light of KSR due to the fact that it was “obvious to try” known methods to obtain the sequence. In re Kubin, Case No. 08-1184 (Fed. Cir., April 3, 2009) (Rader, J.).
The isolation and sequencing of a human gene that encodes a particular domain of a protein is the basis for many inventions in the field of biotechnology. In this case, the invention focuses on DNA molecules (polynucleotides) encoding a protein (polypeptide) known as the natural killer cell activation inducing ligand (NAIL). NAIL is a specific receptor protein on the cell surface that plays a role in activating the natural killer (NK) cells. The Kubin specification recites an amino acid sequence of a NAIL polypeptide. The specification also discloses the isolation and sequencing of a polynucleotide that encodes a NAIL polypeptide and discovery of a binding relationship between NAIL and a protein known as CD48. The claims recite, inter alia, a genus of isolated polynucleotides encoding a protein that binds CD48 and is at least 80 percent identical to amino acids 22-221 of SEQ ID NO:2—the disclosed amino acid sequence for the CD48-binding region of NAIL. The specification discloses nucleotide sequences for two polynucleotides falling within the scope of the claimed genus, one corresponding to the specific coding sequence of NAIL, the other corresponding to the full NAIL gene.
The Board of Patent Appeals and Interferences (Board) rejected the claims over the combined prior art teachings of a patent and a laboratory manual. The prior art patent discloses a receptor protein called p38 that is the same protein as NAIL and further discloses that “[t]he DNA and protein sequences for the receptor p38 may be obtained by resort to conventional methodologies known to one of skill in the art.” The patent discloses neither the amino acid sequence of p38 nor the polynucleotide sequence that encodes p38. The laboratory manual does not discuss how to clone any particular gene, but provides detailed instructions on cloning materials and techniques. Because of NAIL’s important role in the human immune response, the Board concluded that one of ordinary skill in the art would have recognized the value of isolating NAIL cDNA and would have been motivated to apply conventional methodologies, such as those disclosed in the laboratory manual and utilized in the patent.
The Federal Circuit affirmed the Board’s determination that the claims were unpatentable as obvious over the prior art. The Court held that the record supported the Board’s factual determination that a person of ordinary skill in the art would have been motivated by the prior art to make a cDNA encoding the protein at issue given the prior art’s teaching that the protein played a role in the immune response. The Court further sided with the Board that there would have been a reasonable expectation of success given the prior art’s teaching of how to use a monoclonal antibody specific to a protein to clone the corresponding gene. The Court rejected Kubin’s argument that the prior art did not teach the claim’s requirement that the “polypeptide binds CD48,” noting that this property is “necessarily present” in a polypeptide having the claimed sequence.
The Federal Circuit effectively overruled, at least in part, its 1995 holding of In re Deuel, that claims to a genus of polynucleotide sequences coding for a known protein are not necessarily obvious. The Court concluded that “[i]nsofar as Deuel implies the obviousness inquiry cannot consider that the combination of the claim’s constituent elements was ‘obvious to try,’ the Supreme Court in KSR unambiguously discredited that holding.” The Court went on to discuss its 1988 decision In re O’Farrell, which the Court believed more accurately addressed the “obvious to try” analysis. In particular, the Court explained there were two situations in which “obvious to try” could be “erroneously equated with obviousness under § 103.” First, “where a defendant merely throws metaphorical darts at a board filled with combinatorial prior art possibilities, courts should not succumb to hindsight claims of obviousness.” Second, where what was ‘obvious to try’ was to explore a new technology or general approach that seemed to be a promising field of experimentation and the prior art gave only general guidance regarding the particular form of the claimed invention or how to achieve it.
The Court also rejected any distinction between allegedly predictable and unpredictable fields of endeavor with respect to judging obviousness under KSR, noting that in this case one of skill in the “advanced art” of biotechnology would find the claimed results “profoundly predictable.”
Practice Note: This decision, along with In re Gleave (also reported in this issue), represents an ongoing trend reflected in the Federal Circuit’s jurisprudence that makes patenting of classic biotechnology inventions more challenging. More than ever, successful patenting strategies require careful planning and taking into account nuanced legal standards to ensure creation of a strong specification and prosecution record.
Prior Art Reference Need Not Disclose Claimed Invention’s Utility
By Kristin Connarn
Addressing the issue of whether a comprehensive reference listing of every relevant antisense oligodeoxynucleotide in a known nucleic acid sequence anticipates claims to specific antisense sequences, the U.S. Court of Appeals for the Federal Circuit held that anticipation merely requires that the oligonucleotide sequence was in the prior art, not that its usefulness was previously disclosed. In re Gleave, Case No. 08-1453 (Fed. Cir., March 26, 2009) (Prost, J.).
Martin Gleave and Maxim Signaevsky (collectively Gleave) filed U.S. Patent Application No. 10/346,493 (’493 application). The examiner rejected claims 1, 4, 15 and 18-21 as anticipated or obvious under 35 U.S.C. § 102(b)/103(a). Gleave appealed the prior art rejection to the United States Patent and Trademark Office’s Board of Patent Appeals and Interferences (the Board), which upheld the rejection. Gleave next appealed to the Federal Circuit.
The claims at issue are directed to an antisense oligodeoxynucleotide designed to bind two different types of insulin-dependent growth factor binding protein (IGFBP). The cited prior art reference listed every 15-base-long sense oligodeoxynucleotide in the IGFBP-2 gene, which amounted to more than 1,400 sequences. Also disclosed in the cited prior art were the general concepts that antisense oligonucleotides are preferably between 15 and 25 bases in length, as well as that some antisense oligonucleotides may be bispecific (i.e., capable of inhibiting “an IGFBP such as IGFBP-2 and/or IGFBP-3”). Finally, the prior art reference stated that “[a]ntisense oligonucleotides to IGFBP-2 may be selected from molecules capable of interacting with one or more” of the sense oligonucleotides described in the long list.
Gleave argued that the reference merely disclosed a list comprising “ink,” not disclosure of any functional antisense oligonucleotide. The Court initially reiterated that, if a reference discloses all of the claim limitations and enables the “subject matter that falls within the scope of the claims at issue,” the reference anticipates. The Court explained that, in the past, it has framed issue of enablement under § 102 as a question of whether one of ordinary skill in the art would know how to “make and use” the invention based on the reference’s disclosure. The Court conceded that, taken out of context, these formulations of the § 102 enablement standard arguably support a use or utility requirement divorced from any “make” requirement. However, the Court pointed out that a closer reading of the relevant precedent makes clear that a reference need disclose no independent use or utility to anticipate a claim under § 102. The Court explained that the confusion stems from the fact that if a method claim is at issue, it is a largely meaningless formulation of the standard to require a reference to disclose how to “make” that method in order to anticipate such that the “make” requirement becomes, in effect, a “use” requirement. The Court noted that, although the only way one can show that a reference enables the method is to show that a person of ordinary skill would know how to use—in other words, to practice or to carry out—the method in light of the reference, this does not mean that the prior art reference must demonstrate the invention’s utility. The Court noted that for Gleave’s composition claims, the prior art reference satisfied the enablement requirement of § 102(b) by showing that one of skill in the art would know how to make the relevant sequences. The Court deemed as irrelevant the fact that the cited reference provided “no understanding of which of the targets would be useful,” because Gleave admits that it is well within the skill of an ordinary person in the art to make any oligodeoxynucleotide sequence. The Court also noted that Gleave’s claims did not contain any limitation restricting their scope to functional antisense oligonucleotides. The Court emphasized that “where the claims themselves do not require a particular activity, we have no call to require something more from the anticipating reference.”
Practice Note: In its opinion, the Court noted that, “if the use Gleave discovered is new, he will be able to patent that method of use.” Accordingly, this case points out the importance of including support for methods of using a disclosed composition.
Marking Not Required for Method Claim Past Damages—Case Closed
By Leigh J. Martinson
The Court of Appeals for the Federal Circuit stated, yet again, that patent marking is not required to recover past damages when asserting only method claims. Crown Park Packing Technology Inc. and Crown Cork & Seal, Inc. v. Rexam Beverage Can Co., Case Nos. 08-1284, -1340 (Fed. Cir., March 17, 2009) (Moore, J.).
Crown Packaging Technology Inc. and Crown Cork & Seal USA, Inc. (collectively, Crown) sued Rexam Beverage Can Co. (Rexam) for infringement. Rexam counterclaimed, also for infringement. The technology at issue in Rexam’s patent related to reducing the diameter of the top of a can body using a process known as “necking.” The patent claimed an apparatus and a process for smooth die necking that uses dies of successively decreasing internal diameter to reduce the diameter of the top of a can body.
Crown purchased twenty-six machines allegedly covered by claims of Rexam’s patent over a six-year period from Belvac Production Machinery (Belvac). A license between Rexam and Belvac required Belvac, which was only licensed to make the machines, to notify its customers that they would require a separate license from Rexam to perform the smooth die necking method. Crown supposedly made over 17 billion cans per year using the unlicensed method. Rexam’s infringement theory stemmed from use of the “necking” machines sold to Crown. Notably, Rexam only asserted method claims.
Crown moved for partial summary judgment to dismiss Rexam’s counterclaim based on a failure to mark under 35 U.S.C. § 287(a). The district court issued an amended order granting Crown’s motion for summary judgment and dismissed Rexam’s counterclaim. Although Rexam had only asserted method claims, the district court dismissed Rexam’s counterclaim because the patent “also included unasserted apparatus claims.”
In reviewing the marking requirements of 35 U.S.C. § 287(a), the Court said that the “law is clear that the notice provisions of § 287 do not apply if the patent is directed to a process or method.” The Court relied on Hanson, which held that 35 U.S.C. § 287(a) did not apply if the patentee only asserted the method claims of a patent that included both method and apparatus claims. The Court concluded that Hanson is factually identical to this case and therefore considered itself bound by the precedential rule of Hanson. Consequently, the Court reversed the district court’s grant of Crown’s motion for summary judgment.
Practice Note: Even in a post-Bilski world, method claims are valuable and should be considered for any infringement action where marking might be an issue.
Trademark Cancellation / Use Requirement
Use Requirement Not Met Without Actual Offering of Services to the Public
By Han Yu
Holding that the registrant never used the mark, a split panel of the U.S. Court of Appeals for the Federal Circuit recently upheld a Trademark Trial and Appeal Board (TTAB) decision to cancel a 35-year-old registration for the mark AIRFLITE for the service of “arranging for individual reservations for flights on airplanes.” Aycock Engineering, Inc. v. Airflite, Inc., Case No. 08-1154 (Cancellation No. 92/032,520) (Fed. Cir., March 30, 2009) (O’Grady, J.; Newman, J., dissenting).
In the late 1940s, William Aycock conceived of an idea for offering a service that would connect individuals desiring to charter flights with air taxi operators. Aycock intended to serve as a middleman between customers and air taxi operators. From the mid-1960s and onward, Aycock took steps to carry out his plan, including forming Aycock Engineering, Inc. as the corporate entity to operate the service; obtaining toll-free telephone numbers that the public could use to schedule reservations; inviting virtually all certified air taxi operators to join his operation, including actually entering into contracts with some of them; and filing and registering AIRFLITE as the mark for his service, which was the term he had used in advertising to air taxi operators. However, Aycock’s operation never got off the ground, largely due to the lack of participation by an enough number of air taxi operators. His toll-free numbers were never used to book flights and not a single flight was ever arranged. Aycock never marketed his service to the general public.
In 2001, Airflite, Inc. initiated a cancellation proceeding against the AIRFLITE registration on the basis that Aycock never used the mark in connection with the service identified in the registration. The cancellation proceeding lasted six years, with the TTAB ultimately granting the cancellation petition in favor of Airflite, Inc. Aycock appealed.
The central issue on appeal was whether the steps taken by Aycock to carry out his plan satisfied the use requirement for federal registration. In resolving this issue, the Court first defined what the service of “arranging for individual reservations for flights on airplanes” should entail. The TTAB construed it to mean operating a system to book flights and not just setting up a network of air taxi operators. Aycock argued that the mere arranging of a network of air taxi operators should suffice. In siding with the TTAB, the Court found Aycock’s interpretation to be contradicted by the prosecution records of his application, including his own representations.
The Court next addressed whether Aycock made sufficient use of the mark for federal registration purposes. Given that Aycock’s application was filed in 1970, the Court looked to the use requirement that appeared in the Lanham Act in 1970, which stated that a service mark was in use in commerce “when it is used or displayed in the sale or advertising of services, and the services are rendered in commerce, or the services are rendered in more than one State or in this and a foreign country and the person rendering the services is engaged in commerce in connection therewith.” Citing TTAB precedent, the Court described the statutory use requirement as requiring more than mere adoption (selection) of a mark accompanied by preparations to begin its use or mere advertising or publicizing of a service that the applicant intends to perform in the future. Rather, the Court observed, there must at least be an open and notorious public offering of the services to those for whom the services are intended. It was the lack of such a public offering or rendering of his service that proved to be fatal to Aycock’s claim. According to the Court, Aycock engaged in merely preparatory activities toward his plan to operate a flight-arranging service, which were not sufficient to support registration.
In her dissent, Judge Newman questioned the propriety of invalidating a registration based on a flawed service description when the registration was unchallenged for decades.
Practice Note: This decision demonstrates the importance of fully understanding and complying with the statutory use requirement relating to trademark and/or service mark applications. It also demonstrates the importance of accurately describing one’s products or services in a trademark and/or service mark registration. An inaccurate description can render the resulting registration vulnerable to attacks by others.
“Bare Corporate Receipt” Not Enough to Prove Access in Copyright Infringement Cases
Contact Paul Devinsky
In a recent copyright infringement case, the Sixth Circuit refused to apply the “bare corporate receipt” doctrine to show sufficient proof of access. In affirming the district court’s grant of summary judgment, the Court acknowledged that it can be “difficult for plaintiffs to establish access where the chain of possession of a work within a corporation is difficult to prove.” “Bare corporate receipt,” however, is not enough. A plaintiff must show that the defendant had a “reasonable possibility” to have viewed the work in question. Jones v. Blige, Case Nos. 07-1051, 07-1566 (6th Cir., Mar. 9, 2009) (Cole, J.).
Plaintiffs-Appellants Leonard Jones and James E. White sued, among others, Mary J. Blige, Andre Young (Dr. Dre) and Universal-Music Publishing for copyright infringement. The plaintiffs claimed that a song by Blige, “Family Affair,” infringed “Party Ain’t Crunk,” a song recorded by Tim Acker, an aspiring rap artist. The plaintiffs had allegedly submitted a demo CD with “Party Ain’t Crunk” to Universal prior to the release of Blige’s song. “Family Affair” was released in August 2001 as the second song on Blige’s album, No More Drama. The district court granted summary judgment to defendants, finding that the plaintiffs had conceded that the lyrics of the two songs were not substantially similar, that the defendants had no access to the lyrics by failing to respond to requests for admission and that no reasonable juror could have found the lyrics of the two songs substantially similar. The plaintiffs appealed. Blige and Universal cross-appealed the district court’s denial of their motion for attorneys’ fees.
In the instant case, because there was no direct evidence of copying, the plaintiffs had to “establish an inference of copying by showing (1) access to the allegedly–infringed work by the defendant(s) and (2) a substantial similarity between the two works at issue.” On appeal, the plaintiffs asserted that Blige and Universal had access based on the “corporate receipt doctrine.” The doctrine states that “possession of a work by one employee of a corporation implies possession by another corporate employee who allegedly infringed the work.” The plaintiffs argued that because they had delivered a demo CD of “Party Ain’t Crunk” to a senior vice president at Universal Music Enterprises prior to the release of Blige’s song, it could be inferred, under the doctrine, that defendants had access to their work. The Court rejected this argument, stating that “[a]s far the record shows, [defendants] were affiliated with [the senior VP] only through an attenuated corporate connection, and to find a reasonable possibility of access, a jury would be required to make an implausible leap, unsupported by evidence other than bare corporate receipt.” The Sixth Circuit noted that the failure to offer proof of access can be excused when the two works are so strikingly similar that there is no possibility of independent creation. However, because the melodies and beats bore only “passing resemblance” to each other and the lyrics of the songs were “dissimilar,” the Court found the failure to offer proof of access cannot be excused. Furthermore, even if the plaintiffs had established an inference of copying, the defendants provided unrefuted evidence that “Family Affair” was independently created before “Party Ain’t Crunk.”
Trade Secrets / Preliminary Injunctions
Preliminary Injunction Removed Citing Lack of Potential Dissemination of Trade Secret
By Leigh J. Martinson
The Court of Appeals for the Second Circuit removed a preliminary injunction issued against an alleged misappropriator of a trade secret based on their finding that the misappropriator was unlikely to disseminate the information. Faiveley Transport
Faiveley manufactures “Brake Friction Cylinder Tread Break Units” (BFC TBU) for use on subway cars. Faiveley acquired the know how for these BFC TBUs from SAB Wabco through acquisition in 2004. As part of the acquisition, Faiveley assumed the rights and obligations under a license agreement between SAB Wabco and its then sister company Wabco, which ultimately became the defendant Wabtec. The agreement was executed in 1993.
According the license agreement, Wabco was authorized to use SAB Wabco “know-how,” including “manufacturing data, specifications, designs, plans, trade secrets” and other information, as well as “Patents, Patent Applications, and New Technology,” to produce and market BFC TBU. The agreement ran for 10 years, but could be extended for one-year terms by agreement of the parties. Upon expiration of the agreement, Wabco was to “cease manufacture” of the licensed products.
In December 2004, Faiveley notified Wabtec that the 1993 agreement would not be renewed; the 1993 agreement terminated on December 31, 2005. Wabtec immediately began to develop its own BFC TBUs through “reverse engineering.” As part of that process, Wabtec used information obtained from a former Faiveley employee who had “frequent contact” with engineering drawings related to Faiveley’s BFC TBU during the course of the agreement.
In 2007, the New York City Transit Authority awarded a “sole source” contract for BFC TBUs to Wabtec. Faiveley filed for arbitration according to the terms of the agreement and also filed suit in the United States District Court for the Southern District of New York seeking a preliminary injunction.
The district court granted Faiveley a preliminary injunction that enjoined Wabtec from disclosing “manufacturing drawings” (among other things) to the Transit Authority or any third party. Wabtec appealed.
The Second Circuit found that Faiveley was likely to succeed on the merits relying on the fact that Wabtec was unable to reverse engineer the BFC TBU without the aid of Faiveley’s former employee. Working against Wabtec was the fact that it had tried to reverse engineer the BFC TBU before hiring the Faiveley employee and failed.
However, the Court disagreed with the district’s court finding of irreparable harm. The Court reasoned Wabtec was likely not going to disseminate the drawings created using the misappropriated trade secrets. The Court relied on the 12 years of operation under the agreement and Wabtec’s treatment of the tainted drawings with the same confidentiality that it gave to its own proprietary information. Further, the Court noted that neither Faiveley nor Wabtec passed on manufacturing drawings in their ordinary course of business. These facts indicated to the Court that there was little or no risk that Wabtec would disclose or otherwise irreparably impair Faiveley’s trade secrets. Thus, the Court removed the preliminary injunction against Wabtec.
Know the Court’s Limits in Zealous Advocacy
Contact Paul Devinsky
Following precedent, the U.S. Court of Appeals for the Federal Circuit recently granted sanctions against both E-Pass and its attorneys for a frivolously filed and frivolously argued appeal. E-Pass Techs., Inc. v. 3Com Corp., 2009 U.S. App. LEXIS 6062 (Fed. Cir., March 20, 2009) (Linn, J.; Bryson, J., dissenting).
E-Pass is the assignee of a patent directed to a “method and device for simplifying the use of a plurality of credit cards, or the like.” E-Pass filed suit against 3Com and PalmSource alleging infringement. The district court granted summary judgment of non-infringement. In a previous appeal, the Federal Circuit reversed this finding based on a revised claim construction. E-Pass subsequently filed additional infringement suits, one against Visa International and Visa U.S.A. and a second suit against PalmSource. After grouping the cases together as related, the district court granted summary judgment of non-infringement as to all defendants based on the Federal Circuit’s claim construction from the first appeal. The Federal Circuit affirmed in a second appeal. While the second appeal was pending, a district court deemed each of the cases exceptional under 35 U.S.C. § 285 and awarded attorneys’ fees. The lower court’s finding was based on the inadequacy of E-Pass’s pre-filing investigation and “repeated misconduct throughout the litigation.” E-Pass appealed.
The Federal Circuit agreed that E-Pass’s appeal was frivolous. First, the Court explained that an appeal can be frivolous as filed and/or frivolous as argued. The Court held that the appeal as to PalmSource was frivolous on both grounds. E-Pass did not “explain how the trial court erred or to present cogent or clear arguments for reversal” and “made significant misrepresentations of the record and the law to the court.” The Federal Circuit showed particular distaste for E-Pass’s strategy of grouping all the defendants within the brief, notwithstanding the general inapplicability of the bulk of the arguments against PalmSource. E-Pass further upset the Court when it misstated the standard for finding an exceptional case: “The standard for an exceptional case finding is whether the case was brought in subjective bad faith and the litigation was objectively baseless,” egregiously leaving out the most relevant clause, “absent misconduct in the litigation or in securing the patent.” Given that the district court’s exceptional case finding was based in part on litigation misconduct, the Court noted that “[i]t is difficult to view E-Pass’s omission of the critical portion of the legal standard applicable to it as anything other than an attempt to mislead the court.” The Federal Circuit found that even if E-Pass did “make a non-frivolous (yet ultimately unmeritorious) argument, it would not change our determination that the appeal as a whole is frivolous.” The Court therefore imposed a sanction equal to fees for defending the appeal, including the motion for sanctions. Further, the Court held E-Pass and its counsel jointly and severally liable because the conclusion of frivolity was based on both filing and advocacy.
In dissent, Judge Bryson conceded that the “briefs on appeal fell short of the standards we expect of counsel in this court,” but opined that the appeal was “not so egregious” and it did have at least one redeeming argument.
Patents / Discovery Misconduct
Pyrrhic Victory Over Discovery Misconduct
By Ricky Chun
Addressing whether the imposition of more than $2.7 million in sanctions was appropriate in a case of discovery misconduct, the U.S. Court of Appeals for the Federal Circuit overturned a majority of the sanctions, finding them to be excessive. ClearValue, Inc. v. Pearl River Polymers, Inc., Case Nos. 07-1487, 08-1176 (March 24, 2009) (Fed. Cir., Schall, J.; Newman, J. concurring-in-part, dissenting-in-part).
ClearValue sued
More than 18 months later, the omission finally came to light, and
The Federal Circuit mostly agreed with ClearValue, reasoning that the district court should impose the least severe sanction that will serve as a deterrent from violating the discovery rules and that dismissal is a remedy of last resort. Consequently, the Court reversed the dismissal of the case as well as a large amount of the monetary sanctions awarded to
Practice Note: Defendants in patent infringement suits should request any test results related to the alleged infringement of the patented technology, as any of this information connected with an expert’s testimony is discoverable by the opposing party, whether or not the expert relies on the information in preparing his report.
European Court of First Instance Rejects Anheuser-Busch’s Application to Register BUDWEISER
By Désirée Fields
In the latest installment of the dispute over the use of the BUD and BUDWEISER trademarks by Anheuser-Busch and Czech company Budejovicky Budvar (Budvar), the European Court of First Instance upheld a decision of the Office for Harmonisation in the Internal Market (Trade Marks and Designs) (OHIM) Board of Appeal preventing Anheuser-Busch from obtaining a Community Trademark for BUDWEISER. Rejecting various procedural grounds of appeal, the Court held that Budvar had made genuine use of its earlier international registration for BUDWEISER under Article 43 of the Community Trade Mark Regulation (40/94/EEC) (Regulation). Anheuser-Busch v OHIM, Case T-191/07 (March 25, 2009).
In April 1996, Anheuser-Busch filed a Community Trademark application for BUDWEISER for “beer, ale, porter, malted alcoholic and non-alcoholic beverages” in Class 32. Budvar opposed the application on the basis of its prior international registration for the word mark BUDWEISER for “beers of any kind” and two prior international registrations for figurative marks including the word BUDWEISER. OHIM rejected Anheuser-Busch’s application on the basis that the trademark applied for was identical to the earlier international word mark BUDWEISER, protected in particular in
Analyzing the case law on genuine use, the Court noted that there was genuine use of a trademark where the mark was used in accordance with its essential function, namely to guarantee the identity of goods or services for which it is registered. Moreover, genuine use did not include token use for the sole purpose of preserving the rights conferred by a registration. When analyzing whether use of the trademark was genuine, the Court had to have regard to all the circumstances relevant to establishing whether the commercial exploitation of the mark was real in the particular case, including the nature of the goods and services, the characteristics of the market and the scale and frequency of use of the mark.
On the facts, the relevant evidence consisted of seven advertisements in Austrian newspapers and magazines that appeared between 1995 and 1997 and eight advertisements from German magazines that appeared between 1996 and 1998 in which the word “Budweiser” was used in connection with beer. Budvar also submitted 23 invoices issued to Austrian customers between 1993 and 2000 and 14 invoices issued to German customers between 1993 and 1997. The Court agreed with the OHIM Board of Appeal that Budvar had submitted sufficient evidence to show genuine use of the mark BUDWESER in connection with beer covering the relevant five-year period before the publication of Anheuser-Busch’s Community Trademark application required by Article 43 of the Regulation.
Anheuser-Busch’s argument that OHIM should not have taken into account certain evidence that Budvar filed late was rejected on the basis that OHIM had a wide discretion to decide whether to consider such documents.
Practice Note: The case confirms the principles set out in previous European case law that even minimal use of a mark is sufficient to constitute “genuine use,” provided that it has a real commercial purpose. Although Budweiser was denied a Community Trademark, the ruling will not affect its trademark rights which it holds in individual European countries.
Extrinsic Evidence Must be Considered if Assignment Is Ambiguous
By Charles J. Hawkins
In an appeal regarding patent ownership, the U.S. Court of Appeals for the Federal Circuit vacated a lower court’s summary judgment ruling that an assignee held title to a continuation-in-part patent, finding that the language of the assignment was ambiguous with regard to the patent. The Euclid Chemical Co. v. Vector Corrosion Technologies Inc. et al., Case No. 08-1170 (Fed. Cir., April 1, 2009) (Linn, J.; Newman, J., concurring-in-part and dissenting-in-part).
This appeal stemmed from a dispute over the rights to United States Patent No. 6,217,742 (the ’742 patent). Plaintiff The Euclid Chemical Company (Euclid) brought a declaratory judgment action against defendant Vector Corrosion Technologies, Inc. (Vector) concerning ownership of, among others, the ’742 patent.
In the assignment, Mr. Bennett assigned his interest to Vector in U.S., Canadian and European applications for patents and issued U.S. patent, namely, U.S. Patent 6,033,553 (the’553 patent), as well as any continuations in part.” The ‘742 patent, which is a continuation-in-part of the ‘553 patent, was not specified in the assignment, despite the fact that it had already been issued when the assignment was executed.
In a motion for partial summary judgment, Vector argued that the assignment unambiguously covered the ’742 patent by virtue of the clause assigning Vector the rights to any continuations-in-part. Applying
On appeal,
The Federal Circuit, reviewing the lower court’s ruling de novo, found that the language in the assignment was not clear and that the Court was unable to give it “definite legal meaning.” In particular, the Court noted that the assignment referred to “applications”—plural—and “issued US patent”—singular. As a result, the Court envisioned two reasonable interpretations, one including the ’742 patent and one not. The Federal Circuit concluded that, due to the ambiguity, extrinsic evidence should have been considered to ascertain the intent of the parties to the assignment, noting the extrinsic evidence presented by
The Federal Circuit further concluded that the district court abused its discretion by dismissing
Judge Newman, concurring in part and dissenting in part, agreed that the district court erred in its grant of summary judgment, but dissented from the majority’s decision that the issue of contractual intent requires trial.
When Is the Big Picture Too Big?
By Hasan Rashid
Reducing a jury’s patent infringement damage award, the Federal Circuit’s Judge Rader, sitting by designation in the Northern District of New York, condemned Cornell University’s exploitation of the entire market value rule for each of Cornell’s proffered royalty bases. Cornell Univ. v. Hewlett-Packard Co., 01-CV-1974 (N.D.N.Y., March 30, 2009) (Rader, J.).
Under the entire market value rule, a royalty base may include an entire product, including non-infringing features, if consumer demand arises from an infringing component within that product. To be eligible for this broader product scope, the patent holder must economically link the infringing component to sales of the entire product.
The infringed patent relates to computer processors that perform multiple and out-of-order instructions in one clock cycle. The royalty issue arose because Hewlett-Packard’s infringing technology operates in a small part of a big picture. Specifically, the technology is HP’s instruction reorder buffer, which is one piece of a computer processor. The computer processor, in turn, is one component of a central processing unit (CPU). The CPU is housed in a CPU brick. CPU bricks are incorporated into a cell board. Finally, that cell board is inserted into a server. Thus, the infringing technology “is a small part of the instruction reorder buffer, which is a part of a processor, which is part of a CPU module, which is part of a ‘brick,’ which is itself only part of a larger server.”
Cornell originally asserted this larger server as its royalty base under the entire market value rule. Upon a stern warning from the court that this broad base would be heavily scrutinized, Cornell suffered an unfavorable Daubert hearing excluding expert testimony on royalties. Given a second chance, Cornell aimed for the next highest royalty base, CPU bricks, which “are just one rung down the price ladder from the excluded servers.” Cornell “breezed by the unit closest to the claimed technology—the processors—as a starting point for the royalty base.”
Without “offer[ing] a single demand curve or any market evidence,” Cornell merely asserted that consumer demand arose from superior performance resulting from the infringing technology. This assertion failed to sufficiently link the broad base to the claimed invention. Even though HP sold its processors à la carte, Cornell rejected the “logical and readily apparent alternative,” the processors, which are the “smallest salable unit” incorporating the invention. Accordingly, the court reduced the damage award when it designated the processors as the royalty base.
Practice Note: Be wary of asserting a large product scope as a royalty base under the entire market value rule. A larger scope is available only if sufficient economic evidence is provided to prove that consumer demand for the entire product arose from the infringing technology employed therein.
Ninth Circuit Denies Laches Defense Despite Six-Year Delay
By Rita W. Siamas
The U.S. Court of Appeals for the Ninth Circuit recently held that an internet service provider’s trademark infringement claim against a competitor was not barred by the doctrine of laches, although the claim was brought more than six years after plaintiff knew about the defendant’s mark and despite the fact that the court determined that the plaintiff had not been diligent in enforcing its mark. Internet Specialties West v. Milon-DiGiorgio Enterprises , Case No. 07-55087 (9th Cir., March 17, 2009) (Fletcher, J.; Kleinfeld, J,. dissenting).
Internet Specialties West (ISW) and Milon-DiGiorgio Enterprises, Inc. (MDE) offered substantially similar internet services, including internet access, e-mail and web hosting. ISW began using the domain name ISWest.com in 1996 and MDE began using ISPWest.com in 1998. ISW learned of MDE’s use of the ISP WEST mark in late 1998. At that time, ISW offered dial-up and high-speed internet access nationwide, whereas MDE only offered dial-up internet access in Southern California. MDE later expanded to nationwide service in 2002 and began offering digital subscriber line (DSL) service in 2004. After MDE began offering DSL, ISW sent MDE a cease and desist letter in 2005 and subsequently brought suit against MDE in the United States District Court for the Central District of California, alleging that MDE’s use of the ISP WEST mark constituted trademark infringement.
In a bifurcated trial, a jury determined that MDE had infringed ISW’s trademark, but found no damages from the infringement. In the second phase, the district court rejected MDE’s laches defense and issued a permanent injunction barring MDE from using the ISP WEST mark, including the domain name ISPWest.com. MDE appealed, arguing, inter alia, that the district court erred in finding ISW’s claim was not barred by laches.
The district court had found that ISW’s claim, and thus the laches period, began in 2003, when MDE began offering DSL service. Because ISW had filed suit within the applicable four-year statute of limitations period, the district court found a presumption of laches did not apply. The Ninth Circuit disagreed and found a presumption of laches did apply. According to the Ninth Circuit, ISW’s claim arose in 1998 when ISW became aware of MDE’s existence, as that was the time when ISW knew or should have known about the likelihood of confusion between its domain name ISWest.com and MDE’s domain name ISPWest.com.
The Ninth Circuit concluded that the district court had properly applied the Ninth Circuit’s laches factors from E-Systems, but had erred in concluding that MDE was diligent, the second E-Systems factor. The Ninth Circuit did not excuse ISW’s delay in bringing suit because it found that MDE’s expansion into DSL service was a natural growth of its business and not a progressive encroachment into ISW’s mark, stating that, “[ISW] was not entitled to wait until [MDE’s] business grew large enough to constitute a real threat, and then sue for trademark infringement.”
Despite finding that ISW had not diligently enforced its mark, the Ninth Circuit ultimately agreed with the district court that laches did not bar ISW’s claim, holding that MDE failed to demonstrate it had suffered prejudice from ISW’s delay because it had not spent the delay period developing brand recognition of its ISP WEST mark. According to the Ninth Circuit, MDE’s prejudice must consist of more than expenditures in promoting the infringed name. Although MDE had expanded from 2,000 to 13,000 customers during ISW’s delay and made accompanying sales and expenditures, the majority of MDE’s advertising had been in the form of pay-per-click advertisements, which the court stated “creates little to no brand awareness.” Notably, MDE did not even use the ISP WEST mark in its pay-per-click advertisements. Accordingly, the Ninth Circuit upheld the district court’s permanent injunction against MDE, finding that MDE was not prejudiced within the meaning of a trademark infringement claim.
In his dissent, Judge Kleinfeld argued that the majority “defies circuit precedent” on laches’ prejudice and created a new rule with the effect to “eviscerate the defense of laches in trademark law.”
Copyright / Originality Requirement
First Circuit Expands Copyright Protection for Processes and Systems
By Amol Parikh
Addressing the proper application of the originality requirement for copyright protection of works that describe processes and systems, the U.S. Court of Appeals for the First Circuit revived a plaintiff’s case, ruling that the district court had erred in determining which aspects of the plaintiff’s work were subject to copyright protection. Situation Management Systems, Inc. v. ASP Consulting Group, Case Nos. 08-1543, 08-1518 (1st Cir., March 19, 2009) (Lynch, J.).
In 2001, Situation Management Systems (SMS) declared bankruptcy and emerged that same year with new ownership, which restructured the company and terminated the employment of two former employees who had helped create SMS’s workshops. The two terminated employees proceeded to become two of ASP’s founders. At ASP, they helped develop the three accused works consisting of training materials covering workplace communication and negotiation techniques.
Material doesn’t qualify for copyright protection unless it is sufficiently “original,” which means that the author created the material independently and that the material possesses at least some minimal degree of creativity. The district court found that SMS’s training materials did not satisfy the originality requirement because they were filled with “generalizations, platitudes, and observations of the obvious,” that they contained “not-so-stunning revelations” and taught “[a]t their creative zenith … common-sense communication skills.”
On appeal, the First Circuit stated that, although the district court had enunciated the correct standard, it had misapplied the standard by erroneously treating the originality requirement as a novelty standard and also by imparting its own subjective assessment as to the creative worth of the works. Instead, in finding SMS’s works easily satisfied the originality standard, the Court stated that SMS has not copied its works from another source, thereby making them original to SMS. The Court further noted that SMS’s works included explanations for communications and negotiations, thereby demonstrating the requisite minimal degree of creativity.
After finding that SMS’s works satisfied the originality requirement, the Court turned its attention to the extent to which SMS’s works might be excluded from copyright protection because the works describe processes and systems. Noting that the copyright statute excludes from protection the processes and systems described in a work, the Court held that to the extent a work teaches a process or system, others may freely describe the process or system by using their own original expression, but may not appropriate another’s expression when describing the process or system. Therefore, the mere fact that SMS’s works describe processes or systems does not make their expression noncopyrightable. Rather, SMS’s creative choices in describing the processes and systems, including the works’ overall arrangements and structure, are subject to copyright protection. The Court found that the district court had erred in narrowing SMS’s copyright protection to little more than the text and formatting because it lost sight of the expressiveness of the work as a whole. Finding that there were numerous ways to describe the processes and system disclosed in SMS’s works, the Court held that SMS’s works were entitled to protection beyond the textual level even though they describe processes and systems. The Court vacated the district court’s finding of non-infringement and remanded for further proceedings the question of whether a substantial similarity existed between ASP’s works and the protected portions of SMS’s works.
Patent Reform Act of 2009 Advances, Controversial Damages Provisions Replaced with Proposal that District Court Judges Act as “Gatekeepers”
By Paul Devinsky and Rita W. Siamas
On April 2, 2009, the Senate Judiciary Committee voted 15-4 to approve a significantly amended version of the Patent Reform Act of 2009 (S. 515). The bill now advances to full Senate consideration. The House version of the bill, H.R. 1260, is awaiting action. (Similar legislation passed the House in 2007, but was then unable to gain sufficient support in the Senate for passage. Therefore, it was agreed that for the present bill, Senate action would precede House consideration.)
The bill retains the first-to-file provision of the original bill, effectively eliminating the ability of an applicant to “swear behind” prior art reference by alleging an earlier date of invention and obviating patent interferences.
The amended bill includes a major compromise on the controversial damages provisions. Bill co-sponsor Senator Patrick Leahy (D-Vt.)—joined by Dianne Feinstein (D-Calif.) and Arlen Specter (R-Pa.)—amended the bill to remove the original apportioned or allocated reasonable royalty proposal. The new damages proposal puts district judges in the position of “gatekeepers” who would determine which damage calculation methodology and factors have a legally sufficient evidentiary basis and then instruct the jury concerning the “methodologies and factors” that it may consider. Other significant changes made by the compromise amendments include the following:
Venue: Codified the standard announced in In re T.S. Tech, (Fed. Cir. 2008), requiring district courts to transfer any civil action to a venue that is “clearly more convenient” than the current venue.
Best Mode: Deleted provision making failure to disclose the best mode a basis for invalidating a patent or holding it unenforceable (however, existing best mode disclosure requirement for applications remains in effect).
Post-Grant Review: Removed the ability to request re-examination based on “other evidence” such as public use and on-sale bars, during post-grant review proceedings.
Interlocutory Appeal of Claim Construction: Limits a district court’s discretion to certify an interlocutory appeal of patent claim construction to actions in which there is a sufficient evidentiary record and the appeal will either “materially advance” the termination of the litigation or will “likely control the outcome of the case.”
Pilot Program: Creates greater judicial expertise in patent litigation, establishes a pilot program that allow district courts to direct patent cases to interested judges.
Willfulness: Tightens the language consistent with the Federal Circuit Seagate decision.
Senator Orrin Hatch (R-Utah), one of the bill’s sponsors, voted against the amended bill because it lacks a provision specifically addressing inequitable conduct concerns and due to the removal of allocation of damages provisions. Senator Hatch explained that he could not support the amended bill because it ran afoul of the original issues it set forth to address, stating, “My primary purpose for doing this bill was to improve patent quality and limit unnecessary and counterproductive litigation costs. I do not believe the bill, in its current form, accomplishes these goals.”
Despite Senator Hatch’s rejection of the amended bill, Senator Leahy remained optimistic about the compromise version, stating, “[t]he agreement this committee has reached to move forward with patent reform is the culmination of months of arduous negotiations and compromise. Working together, we can make the necessary, long-overdue improvements our patent reform system requires.”
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Trademarks / Liability Coverage
Insurance Provider’s Hope for Broad Liability Exclusion Goes Up in Smoke
By Elisabeth Malis
The U.S. Court of Appeals for the Seventh Circuit recently held that a liability insurer had a duty to defend its insured against various trademark claims due to the sale of counterfeit cigarettes, notwithstanding the fact that the allegedly infringing material was first used prior to the commencement of the insurance policy. Capitol Indemnity Corp., v. Elston Self Service Wholesale Groceries, Inc., Case No. 08-1888 (7th Cir., Mar. 12, 2009) (Flaum, J.).
Defendant Elston Self Service Wholesale Groceries, Inc. (Elston) is a wholesale distributor of products, including cigarettes. In July 2003, Lorillard Tobacco Co. (Lorillard) filed suit against Elston for selling counterfeit cigarettes bearing Lorillard’s federally registered trademark NEWPORT. Lorillard alleged various Lanham Act and fraud claims and requested an injunction against continued sale of the cigarettes. Elston submitted Lorillard’s claims to its liability insurer, Capitol Indemnity Corp. (Capitol), for coverage under its liability insurance policy (the policy). Capitol filed suit against Elston, Lorillard and various related parties, seeking a declaration it owed no duty to defend or indemnify Elston.
The district court held that Capitol had a duty to defend Elston under the “advertising injury” clause of the insurance policy, which covered infringement of “copyright, title or slogan” and “misappropriation of advertising ideas.” The court reasoned that trademark infringement could be considered title infringement and is a misappropriation of advertising ideas. The court further held that any exceptions set forth in the policy were inapplicable, including the “prior publication” exception, which relieved Capitol of a duty to defend if such advertising injury arose from publication of material that took place before the policy term began. As the court found no evidence indicating when Elston began selling the counterfeit Newport cigarettes, the prior publication exception did not apply and Capitol had a duty to defend.
On appeal to the Seventh Circuit, Capitol argued in favor of the prior publication exception, reasoning that the material causing the advertising injury (the cigarette packaging containing the Newport trademarks) was first “published” prior to the policy’s effective date, when Elston sold genuine Newport cigarettes. The Seventh Circuit rejected Capitol’s interpretation of the policy language. The Court reasoned that the prior publication exception existed to prevent a party from using an insurance policy to cover illegal acts committed prior to purchasing the policy. As there was no allegation of Elston infringing Newport’s trademarks prior to the date of the policy, such use of the trademarks was not actionable and did not give rise to any injury. The Seventh Circuit affirmed the district court’s ruling, finding the prior publication exclusion inapplicable and holding Capitol responsible for defending Elston in its lawsuit against Lorillard.
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Trademarks / Injunctions
Second Circuit Upholds Anti-Suit Preliminary Injunction when Defendant Fails to Address China Trade Factors in Appeal
By Sara E. Coury
The U.S. Court of Appeals for the Second Circuit recently affirmed the U.S. District Court for the Southern District of New York’s entry of a preliminary anti-suit injunction prohibiting Consist Software Solutions AG (“Consist”) from commencing or prosecuting actions in select South American countries that either seek to compel Software AG, Inc. and Software AG (collectively SAG) to act under the parties’ 1998 distribution agreement or relate to trademarks on SAG products previously distributed by Consist. Software AG, Inc. v. Consist Software Solutions, Inc., Case No. 08-0905 (2nd Cir., March 27, 2009) (Feinberg, J.; Straub, J.; Raggi, J.).
At issue was SAG’s termination of a South American distributorship agreement with Consist. After the district court ruled that SAG had properly terminated the agreement, Consist filed parallel proceedings in
A court may enter a preliminary anti-suit injunction only if both the multi-factor test established by China Trade and the ordinary test for a preliminary injunction are satisfied. First, the court must consider the threshold China Trade factors: “(A) same parties in both matters; and (B) the resolution of the case before the enjoining court is dispositive of the action to be enjoined.” If the threshold factors are met, then the court must consider whether the parallel proceeding would “(1) frustrate a policy in the enjoining forum; (2) be vexatious; (3) threaten the issuing court’s in rem or quasi in rem jurisdiction; (4) prejudice other equitable considerations; or (5) result in delay, inconvenience, expense, inconsistency, or a race to judgment.” After satisfying the China Trade test, the enjoining party must demonstrate irreparable harm absent an injunction and a likelihood of success on the merits.
In its appeal of the district court’s decision, Consist limited the issues to those going to the “ultimate merits” and only addressed the China Trade factors in a footnote. The Court therefore found that Consist waived its rights to challenge the district court’s conclusions regarding the China Trade factors. Consist also failed to challenge the district court’s conclusion that Consist and its counsel acted in bad faith by failing to advise of the district court of the actions Consist had filed in Brazil.
The Second Circuit declined to provide a judgment on “the ultimate merits” and instead reviewed the district court’s decision for abuse of discretion. In affirming the district court’s decision, the Second Circuit found that the district court did not abuse it discretion, because the record provided sufficient support for the injunction and Consist failed to properly challenge the anti-suit provisions of the injunction.
