Publications / McDermott Newsletters / IP Update, Volume 4, No. 7, July 2001

IP Update, Volume 4, No. 7, July 2001

July 2001

IN THIS ISSUE

Copyright/Database

U.S. Supreme Court Rules Republication of Freelance Articles as Part of an Electronic Database Is Improper Under Copyright Law
By Paul Devinsky

The U.S. Supreme Court ruled in favor of freelance writers who sell their articles for publication in the print media finding that, absent a separate conveyance, when a freelance writer sells his/her rights in an article for publication in a newspaper or magazine, the publisher has no right to publish an electronic copy of that article by making the contents available in an electronic database. N.Y. Times v. Tasini, 121 S. Ct. 2381 (June 25, 2001).

If there is demand for a freelance article standing alone or in a new collection, the Copyright Act (Sec. 201(c)) allows the freelancer, after authorizing initial publication, to also sell the article to others, even if the article is part of a collective work in which a publisher holds the copyright. While the publisher may also further produce and distribute the collective work, the Supreme Court held that § 201(c) of the Copyright Act does not authorize the copying at issue here because the databases reproduce and distribute articles standing alone and not in context, i.e., not "as part of that particular collective work" to which the author contributed, or "as part of … any revision" thereof, or "as part … of any later collective work in the same series."

The court found the publishers’ warning that a ruling for the authors will have "devastating" consequences, punching gaping holes in the electronic record of history to be "unavailing." The court found that "[I]t hardly follows from this decision that an injunction against the inclusion of these articles in the databases (much less all freelance articles in any databases) must issue." Rather, "[t]he [a]uthors and [p]ublishers may enter into an agreement allowing continued electronic reproduction of the [a]uthors’ works; they, and if necessary the courts and Congress, may draw on numerous models for distributing copyrighted works and remunerating authors for their distribution. In any event, speculation about future harms is no basis for this court to shrink authorial rights created by Congress. The court leaves remedial issues open for initial airing and decision in the district court."

In his dissent, Justice Stephens found "no compelling reason why a collection of files corresponding to a single edition of the New York Times, standing alone, cannot constitute a ‘revision’ of the day’s New York Times." In Justice Stephens’ view, since "the New York Times has the right to reprint its issues in Braille, in a foreign language, or in microform, even though such revisions might look and feel quite different from the original," it similarly has the right "to convert the single collective work newspaper into a collection of individual ASCII files…as long as each article explicitly refers to the original collective work and as long as substantially the rest of the collective work is, at the same time, readily accessible to the reader of the individual file."

As Justice Stephens further noted in his dissent, "the primary purpose of copyright is not to reward the author, but is rather to secure the general benefits derived by the public from the labors of authors." If the publishers carry out their threat of purging the databases of these articles, it is clear that the public will be harmed. Referencing a "friend of court" brief submitted by Ken Burns and others, Justice Stephens goes on to say, "the omission of these materials from electronic collections for any reason, on a large scale or even an occasional basis, undermines the principal benefits that electronic archives offer historians: efficiency, accuracy and comprehensiveness." While there will still exist archives of these documents in their original form (microfilm and the like), users will be unable to reliably use these databases and know they have found all of the articles they are looking for. As viewed by Justice Stephens, the court’s decision "will provide little, if any benefit to either authors or the readers."

Patents/Litigation/Markman Hearing

District Court Sanction: Exclusion of Late Presentation of Claim Construction Evidence
By Paul Devinsky

A trial court, relying on an unpublished circuit court decision discussing sanctions under Fed. R. Civ. Pro. 37(c ) (1), barred the use of an untimely expert report asserting new theories of infringement. Rambus Inc. v. Infineon Technologies AG, Case No. 3:00cv524, (E.D. Va, 6/12/01).

Rambus filed a patent infringement suit against Infineon, and Infineon counterclaimed that the patents were invalid and not infringed. Each party submitted a timely expert report, and each also submitted additional expert reports after the court ordered due date.

Rambus later filed a supplemental report containing entirely new theories of literal and equivalents infringement and of patent validity that responded to the claim construction urged in the Infineon expert report. Two days later, the district court issued its claim construction that generally conformed to the claim constructions asserted by Infineon.

Infineon moved to exclude the supplemental Rambus expert report and to impose sanctions on Rambus pursuant to Rule 37 (c ) (1). Rambus, relying on the Fourth Circuit decision in Wilson v. Volkswagen of America Inc., argued that in order to impose sanctions, the court must find that: (1) the noncomplying party acted in bad faith; (2) the noncompliance was prejudicial; (3) deterrence is necessary; and (4) less drastic sanctions would not be appropriate. Infineon looked to the language of Rule 37(c ) arguing that the court need only find (1) that Rambus failed to disclose without substantial justification, and (2) that the failure resulted in harm.

In its decision, the district court relied on a recent (2000), unpublished 4th Circuit decision, Burlington Insurance Co. v. Shipp, finding that the test for imposing sanctions looks to: (1) the surprise to the party against whom the witness was to have testified; (2) the ability of the party to cure that surprise; (3) the extent to which allowing the testimony would disrupt the trial; (4) the explanation for the party’s failure to name the witness before trial; and (5) the importance of the testimony.

Applying the Burlington test, the district court found that Infineon had certainly been surprised by the supplemental expert report containing new theories on infringement and validity, noting that the doctrine of equivalents had not even been mentioned in the prior Rambus expert report.

As to the second factor, the court found that there was no effective opportunity to cure the prejudice or surprise as to the new theories of literal and equivalents infringement, pointing to extensive testing required to rebut theories applying a new claim construction. As to the third factor trial disruption, the court said that a continuance due to Rambus’s late disclosure would be extremely disruptive.

The court found that the fourth factor, the explanation for the late disclosure, also favored Infineon, noting that it was incumbent on Rambus to have had its expert examine Infineon’s claim construction and offer alternative opinions he had on infringement and validity: "By deliberately choosing to ignore any other possible claim construction, Rambus acted at its own peril and thus must bear the attendant consequences of having certain expert testimony excluded."

Patents/On-Sale

Federal Circuit Applies the Two-Part Test of Pfaff to Determine On-Sale Bar
By Natalia Blinkova

The Federal Circuit, in reversing a trial court’s grant of summary judgment of invalidity, stated that "only an offer which rises to the level of a commercial offer for sale, one which the other party could make into a binding contract by simple acceptance (assuming consideration), constitutes an offer for sale under § 102(b)." Group One, Ltd. v. Hallmark Cards, Inc., 2001 U.S. App. LEXIS 13291, *17 (Fed. Cir., June 15, 2001).

Prior to filing his PCT application, the patentee had several contacts with Hallmark in an attempt to generate interest in his invention, a machine for producing curled and shredded ribbon for decorative packaging. The patentee offered Hallmark a license to his technology, arranged a meeting to discuss the details of the machine and, prior to the meeting, prepared and signed a CDA (which Hallmark never signed). The patentee then held a telephone conference with a Hallmark engineer to discuss the details of the curling and shredding machine and method. Hallmark subsequently cancelled the meeting and did not take a license on the technology.

On appeal, the parties did not dispute the district court’s conclusion that no commercial offer to sell was made under the facts of this case. Instead, the parties focused on Federal Circuit dicta from RCA Corp. v. Data General Corp., which noted that the requirement for "an offer to sell" may be met by "a patentee’s commercial activity which does not rise to the level of a formal ‘offer’ under contract law principles."

The Group One court disagreed, holding that the Supreme Court’s decision in Pfaff swept away the "totality of circumstances" approach to the on-sale bar of RCA Corp. and replaced it with a two-part test: "First, the product must be the subject of a commercial offer for sale…Second, the invention must be ready for patenting." The court then interpreted "a commercial offer for sale" to mean
"an offer for sale in the contact sense, one that would be understood as such in the commercial community." The Supreme Court test, the Federal Circuit reasoned, applies established concept of contract law "rather than some more amorphous test…" which "opens up a vast sea of uncertainty…" To further uniformity within the patent law, the court also held that the question of whether an invention is the subject of a commercial offer for sale is a matter of Federal Circuit law rather than state law, to be analyzed under the law of contracts as generally understood. To this end, the Federal Circuit noted that the Uniform Commercial Code is a "useful, though not authoritative, source…"

Patent/Litigation

Affirmative Defense of Patent Invalidity Does Not Entitle Infringement Defendant to Jury Trial
By Paul Devinsky

In a case of first impression, the U.S. Court of Appeals for the Federal Circuit has affirmed the district court, holding that where the patentee sought only injunctive relief—no damages—the defendant is not entitled to a jury trial on its invalidity affirmative defense. Tegal Corp. v. Tokyo Electron America, Inc., Case Nos. 00-9009, -1209, -1307 (Fed. Cir., July 16, 2001).

Tegal initially requested a jury trial for its patent infringement suit against TEA, seeking both injunctive relief and damages. TEA asserted affirmative defenses, including invalidity of the patent in suit, but did not file counterclaims. Six days before trial, Tegal informed the district court judge that it was dropping its claim for damages. Tegal’s understanding was that by withdrawing its damages claim, it would lose its right to a jury trial. In response to Tegal’s withdrawal, the district court judge issued an order that the trial would proceed without a jury. TEA, desiring a jury trial on its affirmative defenses, filed a motion for reconsideration of that order, which the district court denied.

The Federal Circuit found the issue of whether a defendant, asserting only affirmative defenses but no counterclaims, has a right to a jury trial when the only remedy sought by the plaintiff-patentee is an injunction, to be one of first impression.

In deciding the issues, the Federal Circuit applied the test set forth by the U.S. Supreme Court in Tull v. United States for determining if a right to a jury attaches to a particular case, i.e., whether the case "is more similar to cases that were tried in courts of law than to suits tried in courts of equity or admiralty" in 1791. As part of the analysis, the court is to examine the nature of the action involved and the remedy sought; the nature of the remedy being more important than that of the action. Thus, the Federal Circuit looked to "18th-century actions brought in the courts of England prior to the merger of the courts of law and equity" and examined "the remedy sought [to] determine whether it is legal or equitable in nature."

The court found "no binding precedent from this court comparing the kinds of issues involved in this action with those arising in actions in eighteenth century England." Citing to the non-binding 1995 Federal Circuit decision of In re Lockwood (which had been vacated by the Supreme Court without explanation when the issue to be decided in that case became moot) the court noted that "[i]n eighteenth-century England, allegations of patent infringement could be raised in both actions at law and suits in equity," and the choice was the patentee’s and depended on the type of remedy sought. If, the patentee sought only damages, "a court of law was used." Thus, the Federal Circuit found "the nature of Tegal’s action is equitable." As to the second prong of the Supreme Court test, the nature of the remedy sought, the Court found that "[l]ittle analysis is required; Tegal sought only an injunction, a purely equitable remedy." Thus, the Court held "that a defendant, asserting only affirmative defenses and no counterclaims, does not have a right to a jury trial in a patent infringement suit if the only remedy sought by the plaintiff-patentee is an injunction."

Patents/Title

Perfecting Your Security Interest: PTO Is Not the Only Game In Town—Think State
Contact Paul Devinsky

The U.S. Court of Appeals for the 9th Circuit has now held that recordation of a security interest in a patent with the U.S. Patent and Trademark Office (PTO) is not required in order to perfect that interest against subsequent creditors and that the Patent Act’s recording provisions do not apply to security interests. In re Cybernetic Services, Inc., Case No. 99-56856, U.S. App. LEXIS 11750 (9th Cir. 2001).

Cybernetic, the owner of a patent in a data recorder, granted a security interest in the patent to Matsco, Inc. and Matsco Financial Corporation. Matsco prepared, executed and filed its security interest with the California Secretary of State as required by California’s Commercial Code.

Sometime after Matsco’s recordation of the security interest, certain creditors of Cybernetic filed an involuntary Chapter 11 bankruptcy petition against Cybernetic, whose primary asset was the patent. Matsco responded by filing a motion for relief from the automatic stay in order to allow Matsco to foreclose on its security interest. The creditors opposed, claiming that Matsco failed to perfect its security interest because it did not record the interest with the PTO. The bankruptcy court rejected that argument and ruled that Matsco had properly perfected its security interest by following the provisions of Article 9. The Bankruptcy Appellate Panel affirmed.

On appeal, the bankruptcy trustee argued that 35 U.S.C. § 261 preempts Article 9’s filing requirements. That section of the Patent Act requires that any "assignment, grant or conveyance" be recorded with the PTO to be enforceable against subsequent purchasers or mortgagees. The trustee asserted that a security interest was an "assignment, grant or conveyance" and, therefore, the Patent Act conflicted with—and preempted—Article 9’s filing requirements.

In affirming the lower court’s decision, the 9th Circuit rejected the trustee’s argument, finding that "a security interest that does not transfer ownership is not an ‘assignment, grant or conveyance’ under section 261. "And because § 261 provides that only an ‘assignment, grant or conveyance shall be void" as against subsequent purchasers and mortgagees, only transfers of ownership interests need to be recorded with the PTO."

The Court also found that the term "subsequent purchaser or mortgagee" in § 261 does not include subsequent lien creditors. The court concluded: "The Patent Act does not require parties to record documents in order to provide constructive notice to subsequent lien creditors who do not hold title to the patent."

Trademarks/Domain Names/Cybersquatting

Intentional Misspelling of Trademarks Used as Domain Names Found to Violate Anticybersquatting Consumer Protection Act by U.S. Court of Appeals for the Third Circuit
By Wendy L. Toman

The U.S. Court of Appeals for the 3rd Circuit held that the registration of common misspellings of certain famous names or trademarks as domain names were in violation of the Anticybersquatting Consumer Protection Act (ACPA). Thecourt also upheld the lower court decision to award statutory damages in the amount of $50,000 ($10,000 per infringing domain name) and attorneys’ fees based upon the determination that the Defendant had violated the ACPA in an exceptional manner. Shields v. Zuccarini, Case No. 00-2236 (3rd Cir., June 15, 2001)

Shields, a graphic artist, creates and markets cartoons under the names JOE CARTOON and THE JOE CARTOON CO. Shields used these marks in connection with his cartoons for 15 years. He also licensed the marks for use on gift items such as T-shirts and coffee mugs, which are sold on a throughout the United States. In 1997, Shields registered the domain name www.joecartoon.com and posted a website at that address promoting his cartoon and selling merchandise bearing the JOE CARTOON trademarks. The Court held that the mark JOE CARTOON had both inherent and acquired distinctiveness.

The defendant, Zuccarini, is a self-admitted "wholesaler" of internet domain names. In November 1999, Zuccarini registered five common misspellings of the mark JOE CARTOON as domain names: joescartoon.com, joecarton.com, joescartons.com, joescartoons.com and cartoonjoe.com and posted third-party advertisements on the sites. Zuccarini received payment from the third-party advertisers based on a "per hit" fee.

Shields filed a claim under the ACPA seeking injunctive relief, statutory damages and attorneys’ fees. In order to prevail on his claim, Shields must establish: (1) the mark being infringed is "distinctive" or "famous;" (2) the trademarks and allegedly infringing domain names are identical or confusingly similar; and (3) the defendant acted with a bad faith intent to profit from the plaintiff’s distinctive and famous mark.

The court first found the JOE CARTOON mark to be protectable as "distinctive" or "famous" under the ACPA and that the misspelled domain names were confusingly similar to it. The court then analyzed whether Zuccarini exhibited a "bad faith" intent to profit from his use/registration of the confusingly similar domain names, determining that Zuccarini’s behavior satisfied eight of the nine (non-exclusive) factors listed for consideration in the statute. Specifically, the Court found that: 1) Zuccarini had no intellectual property rights in the domain names because he had never used the domain names as trademarks; 2) the domain names contained no variation on a name by which Zuccarini himself was commonly known; 3) Zuccarini had never used the domain names in connection with the offering of any goods or services; 4) the domain names were not being used for a non-commercial or fair use purpose; 5) Zuccarini chose these domain names to deliberately divert web users from Shields’ website; 6) Zuccarini’s actions harmed the goodwill associated with the JOE CARTOON mark; 7) Zuccarini’s actions in registering the domain names were driven by purely commercial incentives; and 8) Zuccarini knowingly registered names confusingly similar to the JOE CARTOON mark without the permission of the trademark owner.

Zuccarini defended his actions on First Amendment grounds, alleging use of the websites as protest sites to inform the public about the harm that the violence in the JOE CARTOON comics could cause children. As this protest was voiced only after Shields filed his suit, the court found the argument "unpersuasive."

McDermott Will & Emery

McDermott Will and Emery