IP Update, Volume 3, No. 3, March 2000

IN THIS ISSUE

• Supreme Court/Trademarks - Product Design Trade Dress Plaintiff Must Prove Secondary Meaning
• Patents/Standard of Review - PTO Factfindings to be Reviewed Under "Substantial Evidence" Standard
• Patent/Antitrust - Federal Circuit Rejects Antitrust Liability for Patent Owner’s Refusal to Deal
• Patents/Doctrine of Equivalents - A Hypothetical Claim Proposed Under the Doctrine of Equivalents May Broaden Certain Limitations to Literally Cover the Accused Device, But May Not Narrow Limitations to Avoid the Prior Art
• Patents/Reissue - A Reissued Patent Based on a Lapsed but Later Reinstated Patent is Not Rendered Ineffective
• Trademarks/Damages - Sixth Circuit Permits Recovery of "Damage Control" Costs in False Advertising Case Without a Showing of Actual Confusion or Actual Damages
• Trademarks/Acquired Distinctiveness - Brantex Gets the "Kool" Shoulder from the Fifth Circuit

Supreme Court/Trademarks

Product Design Trade Dress Plaintiff Must Prove Secondary Meaning
By Paul Devinsky

In an unanimous decision, the Supreme Court has now ruled that a plaintiff in an action for trade dress infringement involving an unregistered product design, must prove that the design has secondary meaning. The Court ruled that product design, like product color, is not capable of being inherently distinctive because there is no consumer predisposition to equate the feature with the source. Wal-Mart Stores Inc. v. Samara Bros. Inc., Case 99-150 (U.S. March 22, 2000).

Samara makes a line of children’s seersucker garments for its "Small Steps" label. Wal-Mart copied 16 Samara garments. Samara sued Wal-Mart for violation of Section 43(a) of the Lanham Act. A jury found Wal-Mart liable. The Second Circuit affirmed, finding that the "overall look" of the line of children’s clothing, consisting of seersucker fabric and bold appliques, was protectable under the Lanham Act without secondary meaning evidence because the look was inherently distinctive.

Justice Antonin Scalia, writing for a unanimous Supreme Court, reversed. Justice Scalia explained that courts have universally required producers to show that their trade dress is distinctive, since a trade dress that is not distinctive would not cause confusion as to the origin of the goods. Citing Qualitex Co. v. Jacobson Product Co., 514 U.S. 159 (1995), the Court also noted that while marks may acquire distinctiveness through secondary meaning, at least one category of marks, color marks, can never be inherently distinctive and may only be protected with a showing of secondary meaning.

In this case, the court took Qualitex further, ruling that product design, like color, is not inherently distinctive.

"The attribution of inherent distinctiveness to certain categories of word marks and product packaging derives from the fact that the very purpose of attaching a particular word to a product, or encasing it in a distinctive packaging, is most often to identify the source of the product. Although the words and packaging can serve subsidiary functions… their predominant function remains source identification…"

"...where it is not reasonable to assume consumer predisposition to take an affixed word or packaging as indication of source - where, for example, the affixed word is descriptive of the product (‘Tasty’ bread) or of a geographic origin (‘Georgia’ peaches) - inherent distinctiveness will not be found. That is why the statute generally excludes, from those word marks that can be registered as inherently distinctive, words that are ‘merely descriptive’ of the goods, * * * or ‘primarily geographically descriptive of them,’ * * *. In the case of product design, as in the case of color, we think consumer predisposition to equate the feature with the source does not exist. Consumers are aware of the reality that, almost invariably, even the most unusual of product designs. . . is intended not to identify the source, but to render the product itself more useful or more appealing."

The Court distinguished its 1992 Two Pesos decision as relating to product packaging type trade dress, not product design type trade dress.

Patents/Standard of Review

PTO Factfindings to be Reviewed Under "Substantial Evidence" Standard
By Christopher D. Bright

The Federal Circuit has now held that it must review factfinding by the Board of Patent Appeals and Interferences (the "Board") under the substantial evidence standard of the Administrative Procedures Act ("APA"). In re Gartside, No. 99-1241 (Fed. Cir. Feb. 15, 2000).

An interference was declared between application Ser. No. 07/798,627 (the "‘627 application") filed by Senior Party Gartside and Norton (collectively "Gartside") and U.S. Patent No. 5,043,058 (the "‘058 patent") issued to Junior Party Forgac. After final hearing, the Board held all claims in Gartside’s ‘627 application corresponding to the count unpatentable under 35 U.S.C. § 103 as obvious in view of the prior art. The Board separately analyzed the patentability of certain claims in the ‘627 application corresponding to the count sua sponte because Forgac did not explicitly analyze their patentability. Despite Forgac’s withdrawal of his request for final hearing and his authorization to cancel his claims in the ‘058 patent corresponding to the court, the Board, based on a public interest rational, held that the interference should proceed and that the Board retained jurisdiction.

In Dickinson v. Zurko, 119 S. Ct. 1816 (1999) the Supreme Court held that lieu of the clear error standard of review of PTO findings of fact the Federal Circuit had traditionally applied, the Federal Circuit must apply one of the more deferential APA review standards. In this decision , written by Judge Lourie, a panel of the Federal Circuit held that instead of applying the more deferential "arbitrary, capricious" standard of review, it would review Board decisions based only on the record created before the Board, and that findings of fact must be supported by the "substantial evidence" standard. The arbitrary and capricious standard only requires a rational connection between the agency’s factfindings and its ultimate action, whereas the substantial evidence standard requires an examination of the whole record to determine if a reasonable factfinder could have arrived at the agency’s conclusion.

Based on the factual record presented, the Federal Circuit held that substantial evidence supported the Board’s finding that one of ordinary skill in the art would have been motivated to combine prior art references to teach the claimed invention’s solution to the problem to be solved, and thus the Board did not err as a matter of law that Gartside’s claims in the ‘627 application corresponding to the count were obvious in view of the prior art and unpatentable under § 103.

The Federal Circuit further held that the Board did not abuse its discretion in sua sponte addressing the patentability of claims not explicitly analyzed by the parties because the public interest was served as duplicative arguments were avoided, and Gartside was not procedurally prejudiced as it had opportunity to redefine the interfering subject matter by amending its claims, by filing a continuation application, and by submitting evidence in support of patentability in its opposition papers.

The Federal Circuit also extended its prior decisions in Perkins v. Kwon, 886 F.2d 325 (Fed. Cir. 1989) and Guinn v. Kopf, 96 F.3d 1419 (Fed. Cir. 1996), holding that the Board should determine patentability issues fairly raised and fully developed during the interference even if a party withdraws from the interference, and therefore that the Board did not err in its conclusion that it retained jurisdiction.

Patent/Antitrust

Federal Circuit Rejects Antitrust Liability for Patent Owner’s Refusal to Deal
By Laura Eversole

The Federal Circuit held that antitrust claims against a patent owner were barred as a matter of law where the claimants failed to establish that the patentee’s refusal to sell its patented parts exceeded the scope of the patent grant. CCU LLC v. Xerox Corp., No. 99-1323 (Fed. Cir. February 17, 2000).

The claimants, CCU and other independent service organizations ("ISO’s"), sought the ability to use and sell Xerox-patented replacement parts in connection with the ISO’s service business of Xerox copier machines. Over a period of years, Xerox had curtailed the use and sale of patented replacement parts for its copier machines in an effort to regain control over its intellectual property. Xerox refused to permit ISO’s to use and sell the patented devices in connection with their service business. The ISO’s claimed Xerox’ exercise of patent rights violated antitrust laws.

The Federal Circuit, in affirming the district court’s rejection of the ISO’s claims, refused to impose a burden upon owners of intellectual property to license. The court emphasized that in terms of a defense to a suit for patent infringement, a patent owner is exempt from the antitrust laws unless at least one of two conditions is satisfied. Either, the infringement defendant must show that the asserted patent was obtained through knowing and willful fraud, or the defendant must demonstrate that the infringement suit is a mere sham to conceal an attempt to interfere directly with the business relationships of a competitor. The Court held that unless at least one of these two conditions is satisfied, the patent owner’s subjective intent in enforcing its patents is irrelevant.

The court also rejected the ISO’s antitrust claim in connection Xerox’s refusal to deal with asserted copyrights. Finding no published opinions under the controlling authority of the Tenth Circuit, the Federal Circuit turned to the approach of the First Circuit in Data General Corp. v. Grumman Systems Support Corp., 36 F.3d 1147 (1st Cir. 1994). Data General established a rebuttable presumption of valid business justification for an author’s desire to exclude others from the use of its copyrighted work. In the absence of definitive rebuttal evidence that the copyrights were obtained by unlawful means or used to gain monopoly power beyond the copyright grant, the Court held that Xerox’s refusal to sell or license its copyrighted works did not violate the antitrust laws.

Practice Note: As a result of the 1998 decision in Nobelpharma AB, the Federal Circuit no longer defers to the body of antitrust law of the regional circuit courts with regards to issues of antitrust immunity or other antitrust claims premised on the bringing of a patent suit. Rather, the Federal Circuit now promulgates its own law with regard to those antitrust matters that come before it which relate to such issues.

Patents/Doctrine of Equivalents

A Hypothetical Claim Proposed Under the Doctrine of Equivalents May Broaden Certain Limitations to Literally Cover the Accused Device, But May Not Narrow Limitations to Avoid the Prior Art
By D. Sean Trainor

The Federal Circuit recently emphasized that, when using a hypothetical claim analysis to determine whether prior art bars application of the doctrine of equivalents, it is impermissible to expand claim limitations to cover an accused device while narrowing other limitations to avoid prior art. Ultra-Tex Surfaces, Inc. v. Hill Bros. Chemical Co., Nos. 99-1018, 99-1024 (Fed. Cir. Feb. 29, 2000).

Ultra-Tex sued Hill Brothers for allegedly infringing a claim U.S. Patent No. 5,502,941 (the ‘941 patent), directed to a process for creating ornamental concrete surfaces. The claim essentially required mixing and applying a first batch of liquid to a substrate to form a first mortar layer; removing an adhesive backing from an adhesive backed, wax impregnated template and securing the template to the first mortar layer; then mixing a second batch of mortar; applying the second batch of mortar to the template and to the first mortar layer to form a second mortar layer; and, after the second mortar layer has dried, applying a sealant coat. The only difference between the claimed method and the accused processes was the use of polycoat paper as the template rather than heavy wax impregnated paper. The district court held that the accused processes did not infringe the claim either literally or under the doctrine of equivalents. The Federal Circuit, in affirming the lower court decision, held that a hypothetical claim drafted to literally cover the accused process would be anticipated by prior art. Thus, Hill Brothers was not liable under the doctrine of equivalents.

Under prior Federal Circuit precedent, when a patentee relies on a hypothetical claim analysis to allege infringement under the doctrine of equivalents, it must present a hypothetical claim that was broad enough to literally cover the accused device. Once the patentee establishes a prima facie case of infringement by equivalence, the accused infringer must come forward with evidence demonstrating that the hypothetical claim reads on the prior art. The burden of persuasion to show that the hypothetical claim is not covered by the prior art always remains on the patentee. Thus, if the patentee is unable to show that the hypothetical claim would have been allowed by the PTO over the prior art, then the prior art bars application of the doctrine of equivalents and infringement by equivalence cannot be found.

In this case Ultra-Tex proposed a hypothetical claim that literally covered the accused processes. The proposed hypothetical claim, however, narrowed other limitations to avoid the prior art, which is impermissible. The Federal Circuit reiterated its caution that patentees are not allowed to "freely redraft" claims by broadening some limitations to read on accused devices, while narrowing some limitations to avoid the prior art. The only claim modifications permitted under a hypothetical claim analysis is a slight broadening of claim elements to cover an accused process or device. If the slightly broadened claim reads on the prior art, then the application of the doctrine of equivalents is barred.

The Federal Circuit emphasized that, in determining infringement under the doctrine of equivalents, "the hypothetical claim is only a device for limited, not substantial, inclusion of unclaimed subject matter and not for exclusion of unduly limiting subject matter."

Patents/Reissue

A Reissued Patent Based on a Lapsed but Later Reinstated Patent is Not Rendered Ineffective
Contact Paul Devinsky

A reissue patent that was based upon a patent which had lapsed for nonpayment of maintenance fees but which had later been reinstated is effective. Utecht v. Olson et al., 2000 U.S. Dist. LEXIS 1652, (D. Minn. February 16, 2000).

The patent at issue, RE 35,814 ("the ‘814 reissue patent") reissued from U.S. Patent No. 5,301,806 ("the ‘806 patent"). The ‘806 patent was in force when, on April 12, 1996 the patent owners applied to surrender the ‘806 patent for reissue. However, on April 12, 1998, the ‘806 patent lapsed for nonpayment of maintenance fees. When the ‘814 reissue patent finally issued on June 2, 1998 the ‘806 patent was no longer in effect. However, the ‘806 patent was duly reinstated on October 15, 1999.

The Court first looked to the Manual of Patent Examining Procedure ("MPEP") for guidance. MPEP § 1451.01 states that "if maintenance fees have not been paid on the original patent… and the patent has expired, no reissue patent can be granted… Once a patent has expired, the Commissioner no longer has the authority under 35 U.S.C. 251 to reissue the patent." (Citing In re Morgan, 990 F.2d 1230 (Fed. Cir. 1993)). However, the Court found that the USPTO’s interpretation of Morgan is erroneously overbroad. The Morgan decision dealt with a patent that expired because its term had completely elapsed due to passage of time, not due to a nonpayment of maintenance fees.

The Court next looked to 35 U.S.C. §§ 41(c) (1) which expressly provides that "if the Commissioner accepts payment of a maintenance fee after the six-month grace period, the patent shall be considered as not having expired at the end of the grace period." As interpreted by the Federal Circuit, "...a patent is
retroactively rendered enforceable during the lapse time period when the Commissioner accepts late payment." Fonar Corp. v. General Elec. Co., 107 F,3d 1543, 1554 (Fed. Cir. 1997).

The Court concluded stating, "[a]lthough the Fonar case did not directly address the reissue of a patent based on a lapsed patent that was later reinstated, it supports the conclusion that the above-cited plain language of Section 41(c)(1) demands that such a reissued patent not be rendered ineffective per se."

Practice Hint: Although apparently not fatal to reissue, practitioners should continue to maintain careful long term docket control over issued patents even after an application for reissue is filed.

Trademarks/Damages

Sixth Circuit Permits Recovery of "Damage Control" Costs in False Advertising Case Without a Showing of Actual Confusion or Actual Damages
By Lee Bollinger

The U.S. Court of Appeals for the Sixth Circuit recently held that a plaintiff need not demonstrate actual confusion or actual damages to recover "damage control" costs incurred in responding to a defendant’s false advertising. Balance Dynamics Corporation v. Schmitt Industries, Inc., 2000 U.S. App. LEXIS 2773 (6th Cir. 2000).

Balance Dynamics, a manufacturer of products that balance industrial grinders, brought a false advertising claim against Schmitt Industries, a competitor, after the defendant sent letters to over 3000 customers and prospective customers. The plaintiff argued that the letters contained false statements of fact likely to damage plaintiff’s business in violation of the Lanham Act. After a three-day trial, the district court granted the defendant’s motion for entry of a verdict in its favor as a matter of law. Balance Dynamics appealed.

One issue considered the Sixth Circuit was whether the district court correctly denied the plaintiff’s claim for damage control costs in the absence of a showing of actual confusion. Under previous Sixth Circuit precedent, actual confusion must be shown before a plaintiff may recover "marketplace damages" such as lost sales, lost profits or damage to goodwill. Actual confusion was required under the rational that it is an accurate proxy of marketplace damages, which are otherwise difficult to prove.

In this case, the Court distinguished damage control costs from marketplace damages, noting that proof of damage control costs are in the plaintiff’s possession and are much more easily established. As a result, the Court explained, the "actual confusion" proxy used to gauge marketplace damages is not similarly needed to determine damage control costs. Further, the Court reasoned that requiring actual confusion as a precondition to permitting the recovery of damage control costs would discourage plaintiffs from engaging in damage control efforts until proof of actual marketplace confusion arose. Such incentives would be inconsistent with one of the primary goals of damage control efforts, namely, to prevent confusion that would otherwise be created by false advertising. Noting that an injunction shares this preventative purpose, the court reasoned that a plaintiff seeking to recover damage control costs should be required to meet the same standard as a litigant seeking injunctive relief, namely, demonstrating a likelihood of, rather than actual, confusion.

Thus, under Balance Dynamics, in order to recover damage control costs in a false advertising claim brought under the Lanham Act, a plaintiff must now demonstrate that "(1) there was a likelihood of confusion or damages to sales, profits, or goodwill; (2) its damage control expenses are attributable to the violation; and (3) that its damage control efforts were reasonable under the circumstances and proportionate to the damage that was likely to occur."

Trademarks/Acquired Distinctiveness

Brantex Gets the "Kool" Shoulder from the Fifth Circuit
By Richard Y. Kim

A claim of acquired distinctiveness of a composite registered trademark pertains to the mark as a whole, not to just the word portion. Igloo Products Corp. v. Brantex, Inc., 202 F.3d 814 (5th Cir. 2000).

In a battle of the portable coolers, Brantex, Inc. ("Brantex") recently found itself on the losing end of a decision with Igloo Products Corporation ("Igloo"). Igloo filed a declaratory judgment against Brantex seeking a ruling that its use of the term "COOL PACK" did not conflict with the Brantex’s federal registration of the mark "KOOL PAK plus stylized penguin design." Brantex counterclaimed under the Lanham Act for trademark infringement, unfair competition, and related state law causes of action.

At trial, the jury found that the words "KOOL PAK" were descriptive of a feature or characteristic of portable coolers and that the words themselves had not acquired distinctiveness. Therefore, the jury concluded that Igloo’s use of the words "COOL PACK" did not create a likelihood of confusion with Brantex’s composite mark. On appeal, Brantex asserted that the jury should have been provided an instruction that its federal registration of the composite mark, featuring a stylized penguin and the words "KOOL PAK," signified that the Patent and Trademark Office ("PTO") had already determined that the word portion of the mark had acquired distinctiveness, or attained secondary meaning, and that the federal registration was prima facie evidence of such secondary meaning. The Fifth Circuit rejected this assertion, finding that the prima facie presumption of acquired distinctiveness pertained to the composite mark (in this case, "KOOL PAK" plus the stylized penguin design) rather than to any individual portion of the mark.

Practice Note: The outcome may have been different had the PTO (or Brantex) recognized that the acquired distinctiveness claim in Brantex’s federal registration was phrased to cover the entire mark, including the "non-descriptive" stylized penguin design. Had Brantex limited its claim under § 2(f) claim to only the word portion of the mark, i.e., asserting that the term "KOOL PAK" had acquired distinctiveness, Brantex presumably would have effectively isolated the word mark from the logo design, thereby providing support for its asserted presumption of secondary meaning.