Federal Circuit Aligns Its Obviousness Test
By Paul Devinksy
Responding perhaps to the briefing now ongoing in the U.S. Supreme Court in the case of KSR International v. Telflex (Case No. 04-1350), the U. S. Court of Appeals for the Federal Circuit has reversed a district court, finding a group of six claims in issue would all have been obvious under 35 U.S.C. § 103. Ormco Corp. v. Align Technology, Inc., Case No. 05-1426 (Fed. Cir., Aug. 30, 2006) (Dyk, J.).
Align Technology is the holder of U.S. Patent No. 6,544,611 (the `611 patent) and U.S. Patent No. 6,398,548 (the `548 patents), which relate to orthodontic devices for moving teeth from an initial configuration to a final configuration. The patents disclose a series of at least three retainers: the first is designed to move a patient’s teeth from an initial position to an intermediate position, the next moves the teeth an additional amount and so on.
The prior art included an orthodontic technique that involved taking a single mold of a patient’s teeth, repositioning the tooth cavities on the mold to their desired positions and making three appliances from the repositioned mold, each with a different thickness. A thinner appliance, which applied less force, was used before a thicker appliance. Patients were given one appliance at a time, with the orthodontist providing instructions to the patients regarding order of use of the appliances. (This is known as the Truax prior art.) A second prior art technique (the Rains prior art) involved the use of a series of three plastic retainers, made one at a time, to incrementally adjust a patient’s teeth. An orthodontist would take a mold of a patient’s teeth and create an appliance based on that mold. The district court ruled on cross motions for summary judgment that the claims of the `611 patent were not invalid in view of the Truax and Rains references. Ormco appealed.
Noting that Dr. Truax promoted his system to other orthodontists through seminars and clinics and distributed his instruction sheet at those clinics, the Federal Circuit agreed that the Truax technique was prior art under § 102(a) (public use), instructing that public use includes “any use of [the claimed] invention by a person other than the inventor who is under no limitation, restriction or obligation of secrecy to the inventor.”
After citing the statutory language of § 103 and the venerable Supreme Court obviousness case, Graham v. John Deere Co., the Court bit through Align’s argument that although Dr. Truax created several appliances at one time, he never provided his patients with all these appliances in a single package and that it would not have been obvious to do so.
The Court noted that a “claim can be obvious even where all of the claim features are not found in a single prior art references, where ‘there is a showing of suggestion or motivation to modify the teachings of [the prior art] to the claim invention.’” Citing its recent decision in In re Kahn, the Federal Circuit explained that the teachings does not have to be found explicitly in the prior art, as “the teaching, motivation, or suggestion may be implicit from the prior art as a whole, rather than expressly stated in the references. … The test for an implicit showing is what the combined teachings, knowledge of one or ordinary skill in the art, and the nature of the problem to be solved as a whole would have suggested to those of ordinary skill in the art.”
Align Technology argued that Truax taught away from providing all appliances at one time and that it would not have been obvious to provide all appliances to a patient in a single package. The Federal Circuit, after noting that Truax, like the patented device, avoided the necessity for adjustment by the dentist by the use of multiple appliances that were changed periodically, found nothing in the claim language that required the devices be substitutable by the patient or that precluded visits to the dentist during treatment. In its decision, the Court noted, “Under these circumstances, we do not think that the single package limitation makes the device of the `611 patent claims patentably distinct. Providing the devices to the patient in one package, as opposed to two packages or three packages is not a novel or patentable feature in the light of the well-known practice of packaging items in the manner most convenient to the purchaser.”
As for the “instructions limitation,” the Court noted that the Federal Food, Drug and Cosmetic Act (FDCA) generally requires instructions for medical devices and that, “whether or not these regulations apply to the specific orthodontic devices involved here, they supply ample evidence of a motivation to provide instructions as to how to use the devices.”
After again paying homage to Graham, the Court chewed up Align Technology’s argument that any prima facie obviousness is negated by the commercial success of its product that practiced the invention. As the Court noted, “[e]vidence of commercial success, or other secondary considerations, is only significant if there is a nexus between the claimed invention and the commercial success.” Here, although Align Technology’s product was commercially successful, the Court found that the presumption that the success was due to the claimed and novel features had been rebutted since Align Technology’s own witness testified that commercial success was due to unclaimed or non-novel features of the device — the aesthetic appeal and improved comfort of transparent devices lacking brackets and wire, as well as the computerized design and manufacture of the appliances.
The Federal Circuit cited both the statute (§ 103) and the Supreme Court decision in Graham — and provided a footnote citing five Federal Circuit cases where a claimed invention had been held invalid for obviousness. This may reflect a sensitivity at the Federal Circuit over the ongoing briefing at the Supreme Court in the case of KSR v. Teleflex where the “motivation-suggesting-teaching” requirement, a mainstay of Federal Circuit jurisprudence for 20 years, is under attack as being a non-statutory requirement that is too rigidly applied by the Federal Circuit. In KSR,the Federal Circuit reversed a district court finding directed to the combination of a movable pivot automobile accelerator pedal with a throttle position sensor controlled engine management system based on what it believed to be an insufficient application of the MST requirement.
How Flexible Is the MST Test?
By Paul Devinsky
In its second obviousness decision issued within a week, the U.S. Court of Appeals for the Federal Circuit, in an opinion apparently written as much to the Supreme Court as to the parties, the lower courts and the Bar, defended its “motivation-suggesting-teaching” (MST) test as preventing “statutory proscribed hindsight” and ensuring that obviousness determinations are “based on evidence rather than mere speculation or conjecture.” Alza Corp. v. Mylan Laboratories, Inc., Case No. 06-1019 (Fed. Cir., Sept. 6, 2006) (Gajarsa, J.).
This litigation arose from Mylan’s filing of an Abbreviated New Drug Application (ANDA) for once-daily, controlled-release formulations of oxybutynin, a drug used to treat urinary incontinence. The district court found the asserted claims of Alza’s patent to be invalid as obvious in light of the prior art. Alza appealed.
The Federal Circuit, apparently mindful of the criticism it had received from the petitioner and amicus curiae filings in the recently filed Supreme Court briefs in KSR v. Telflex, opened its discussion with focus on the statute, § 103, as well as the seminal Supreme Court case on obviousness, Graham v. John Deere Co. Quoting from Graham, the Court likened the motivation requirement to the Graham objective evidence on secondary considerations “serv[ing] to guard against slipping into use of hindsight and to resist the temptation to read into the prior art the teachings of the invention in issue.” Then, quoting its own recent In re Kahn decision, the Federal Circuit explained that “[a]ccording to the ‘motivation-suggesting-teaching’ test, a court must ask ‘whether a person of ordinary skill in the art, possessed with the understandings and knowledge reflected in the prior art, and motivated by the general problem facing the inventor, would have been led to make the combination recited in the claims.”
Apparently stung by criticism that MST requirement, as applied by the Court, has been intractable and inflexible, the Court insisted that “[t]here is flexibility in our obviousness jurisprudence because a motivation may be found implicitly in the prior art. We do not have a rigid test that requires an actual teaching to combine before concluding that one of ordinary skill in the art would know to combine references. This approach, moreover, does not exist merely in theory but in practice, as well.” Finally, and in an apparent nod to the chorus of voices criticizing the perceived rigidity of the MST requirement, the Court noted that its “approach has permitted us to continue to address an issue of law not readily amenable to bright-line rules, as we recall and are guided by the wisdom of the Supreme Court in striving for a ‘practical test of patentability.’”
Emphasizing this flexibility, the Court affirmed the district court’s invalidity finding. The Court focused its discussion on “one predicate to a finding of obviousness: that a person of ordinary skill in the art would have had a ‘motivation to combine’ the prior art to achieve the claimed invention and would have had a ‘reasonable expectation of success’ in doing so.” Alza argued that a person of ordinary skill in the art in 1995 would have had no reason to expect that an extended-release oxbutynin formulation would have therapeutic value. The Court disagreed, noting that under its “non-rigid ‘motivation-suggesting-teaching’ test, a suggestion to combine need not be found in the prior art.” (Emphasis supplied.) In the present case the Court looked to the expert testimony regarding absorption of oxybutynin in the GI tract and concluded that the findings of the district court “were not clearly erroneous.”
This case, viewed together with the recently decided Ormco Corp. v. Align Technology, Inc. case discussed above suggests an effort by the Federal Circuit to undercut the petitioner’s arguments in the pending KSR International v. Telflex Supreme Court appeal that the Federal Court motivation-suggesting-teaching requirement is an inflexible, non-statutory and ultimately obviousness-defeating overlay to § 103 and Graham v. John Deere that has led to a plethora of junk patents.
Circuitry Connotes Structure
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Vacating a grant of summary judgment of non-infringement, a divided U.S. Court of Appeals for the Federal Circuit determined that a district court had erred in construing the claim term “aesthetic correction circuitry” as a means-plus-function limitation under § 112 ¶6 and held that the term “circuitry” together with a description of the operation of the circuit was sufficient to avoid §112 ¶6. Massachusetts Institute of Technology v. Abacus Software, Case No. 05-1142 (Fed. Cir., Sept. 13, 2006) (Dyk, J.; Michel, C.J., dissenting).
The claim in issue related to a color processing system that produced copies of color originals by scanning an original color image, interactively editing the scanned image and selecting colorants to generate a reproduction of the original image. One of the disputed claim terms was “aesthetic correction circuitry,” whose recited function was “interactively introducing aesthetically desired alterations into said appearance signals to produce modified appearance signals.” Another disputed claim term was “colorant selection mechanism,” for which the recited functions were “receiving said modified appearance signals” and “selecting corresponding reproduction signals.” Although neither term included the word “means,” in the district court’s view the presumption against means-plus-function treatment under § 112 ¶6 was overcome for both terms because of the failure in both cases to recite a sufficiently definite structure.
According to the panel majority, the district court properly construed the term “colorant selection mechanism” as a means-plus-function limitation, but erred in holding that the presumption against § 112 ¶6 treatment was overcome for the term “aesthetic correction circuitry.” Relying on dictionary definitions and Federal Circuit precedent, the Court concluded that the term “aesthetic correction circuitry” connoted sufficient structure to avoid treatment as a “means-plus-function” limitation, whereas the term “colorant selection mechanism” did not connote sufficient structure to avoid § 112 ¶6 treatment. Observing that the patentee had used the words “mechanism” and “means” as synonyms and quoting a dictionary definition that equated “mechanism” with “means,” the Court determined that a generic term such as “mechanism,” standing alone, did not connote any more structure than the term “means.” In contrast, the Court found that dictionary definitions established that the term “circuitry” by itself connoted structure. Citing Linear Technology and Apex as precedent, the Court held that the term “circuit,” combined with a description of the function of the circuit, connoted sufficient structure to one of ordinary skill in the art to avoid § 112 ¶6 treatment, because the claim language added further structure to the term “circuit” by describing the operation of the circuit. The Court reasoned that the claim limitation at hand recited a circuit having “appearance signals” as input, “modified appearance signals” as output, and which operated by “interactively introducing aesthetically desired alterations into said appearance signals.” In the eyes of the Court, such description of the operation of the circuit was sufficient to avoid § 112 ¶6. In a 15-page dissent Chief Judge Michel argued that, in view of its specific language, “aesthetic correction circuitry” was correctly construed as a means-plus-function claim limitation and accused the majority of misapplying the cited precedent.
Equivalents Infringement Precluded By “All Limitations” Rule
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Applying the “all limitations” rule, the U.S. Court of Appeals for the Federal Circuit reversed a district court's judgment of infringement, finding that the accused ACell VetTM product did not infringe Cook’s asserted claims under the doctrine of equivalents. Cook Biotech Inc. v. ACell Inc., Case Nos. 05-1458, -1558,-1559 (Fed. Cir., Aug. 18, 2006) (Prost, J.).
Cook Biotech and PRF sued ACell for, inter alia, patent infringement of claims of a patent and correction of inventorship for a number of issued ACell patents. The patent in question is directed to a urinary bladder submucosa-derived tissue graft composition comprising bladder submucosal tissue “delaminated from the abluminal muscle layers and at least the luminal portion of the tunica mucosa of the urinary bladder tissue,” that can be implanted to replace or support damaged or diseased tissues. The `389 patent names four inventors, one of whom is Dr. Badylak. Pursuant to his employment contract, Dr. Badylak assigned the `389 patent and the rights to other patents on inventions he had developed to PRF, which in turn granted Cook Biotech its exclusive license.
In construing the claims, the district court believed that the invention disclosed in the `389 patent was broad enough to include compositions that contained tissues other than submucosa. The district court granted Cook Biotech’s motion for partial summary judgment rendering as the only triable issue “whether the ACell product contained any urinary bladder submucosa.” A jury found that ACell infringed the asserted claims of the `389 patent, but that the infringement was not willful. Cook Biotech appealed.
The Federal Circuit, citing Phillips, noted that the `389 specification revealed a special definition that differs from the meaning it would otherwise possess and that the inventor’s lexicography governs. The specification defined the invention to be “urinary bladder submucosa delaminated from abluminal muscle cell layers and at least the luminal portion of the tunica mucosa of the urinary bladder tissue” and disclosed that the resulting composition “typically” consists essentially of urinary bladder submucosa. Based on these teachings in the specification, the Court concluded that the composition clearly includes urinary bladder submucosa and may also include other tissues, such as the non-luminal portion of the tunica mucosal layer. However, the Court held the patentees to its definition and noted that the claimed composition cannot include that which was expressly excluded in the definition, i.e., the “abluminal muscle cell layers and at least the luminal portion of the tunica mucosa.” The Federal Circuit noted that “[a] claim that specifically excludes an element cannot through a theory of equivalence be used to capture a composition that contains that expressly excluded element without violating the ‘all limitations rule.’”
With regard to inventorship in ACell patents, the Court affirmed the district court’s finding that PRF failed to raise a genuine issue of material fact that Dr. Badylak “contributed in some significant manner” to the conception of the inventions. In this regard, the Court deemed testimony from Dr. Spievack of ACell that he at some point had talked with Dr. Badylak about the invention insufficient to create a genuine issue of material fact as to whether Dr. Badylak contributed “to the conception of the claimed invention that is not insignificant in quality” by sharing his knowledge of graft compositions, some of which was also memorialized in a written disclosure Dr. Badylak had created in 1994. The Court attributed significance to the fact that Dr. Badylak had subsequently disavowed any role in the conception of the invention in his testimony and in a letter he sent to the U.S. Patent and Trademark Office.
"Consisting Of" Transition Does Not Always Preclude Unrecited Elements
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Even though an accused process contained unrecited components in addition to those the claimed invention “consisted of,” the U.S. Court of Appeals for the Federal Circuit affirmed a district court’s claim constructions and its legal conclusions of infringement. Conoco, Inc. v. Energy & Envtl. Int'l, L.C ., Case Nos. 05-1363, -1461 (Fed. Cir., Aug. 17, 2006) (Gajarsa, J.).
Conoco is the holder of U.S. Patent No. 5,244,937 (the `937 patent) and U.S Patent No. 6,172,151 (the `151 patent), which it asserted EEI had infringed. The technology relates to processes for making drag-reducing agents (DRAs) for use in oil and gas pipelines. The addition of DRAs increases pumping efficiency by reducing the friction experienced by liquid as it flows through a pipeline. The active ingredient of DRAs are high-molecular-weight polymers. The district court held that EEI processes for making DRAs literally infringed the `937 patent and infringed Conoco’s `151 patent under the doctrine of equivalents.
On appeal, various claim constructions were at issue. In particular, an asserted claim of Conoco's `937 patent contains a limitation that the claimed process “consists of” water or a water-alcohol mixture. In challenging the district court’s construction, EEI contended that Conoco’s use of the transition phrase “consisting of” limits the scope of the patent to cover processes performing only the recited steps of the patent and nothing further. Accordingly, EEI contended its accused processes should escape infringement because it used methyl isobutyl ketone (MIBK), a non-alcohol component not recited on the `937 patent claims.
The Federal Circuit stated that, although the transitional phase “consisting of” is a term of art in patent law and signifies restriction and exclusion of unrecited steps or components, this exclusion is not absolute. For example, “consisting of” does not exclude impurities that a person of ordinary skill in the art would ordinarily associate with the recited materials. Also, “consisting of” does not exclude additional components or steps that are unrelated to the invention.
Since EEI did not challenge the “consisting of” construction prior to appeal, the Federal Circuit declined to review the construction de novo and instead applied a clear error analysis. The Federal Circuit found substantial evidence that MIBK is a common impurity in industrial alcohols. MIBK is added to alcohols to prevent a liquor tax from being applied because it makes the alcohol undrinkable by humans. As such, MIBK is normally associated with the alcohol component of the `937 invention and is implicitly adopted by the ordinary meaning of the components themselves. With regard to the asserted equivalents infringement of the `151 claim, the Court agreed that an examiner’s amendment to add the fatty acid wax limitation to one of the claims was not related to patentability and did not preclude.
Roundup Patents Survive Antitrust Challenge But Case Is Remanded for eBay Test
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In a decision that addressed, inter alia, issues of antitrust, patent misuse and the eBay injunction test, the U.S. Court of Appeals for the Federal Circuit affirmed a lower court’s judgment in favor of Monsanto, but remanded the lower court’s decision granting Monsanto a permanent injunction in light of eBay Inc. v. MercExchange, LLC, 126 S. Ct. 1837 (2006). Monsanto Co. v. Scruggs, Case Nos. 04-1520, 05-1120, -1121 (Fed. Cir., Aug. 16, 2006) (Mayer, J.).
The Monsanto patents at issue related to Roundup Ready and Bollgard/Roundup Ready soybeans and cotton, which are resistant to glyphosate herbicide and certain insects. Monsanto licensed its technology to seed sellers. Although the licenses allowed seed growers to incorporate the Monsanto technology in their germplasm, they also imposed various restrictions on seed sellers as well restrictions on seed growers, including a no-replant policy. Scruggs purchased the seeds from seed companies but did not sign a license agreement. It planted the seeds and, after harvesting the soybeans and cotton, retained the new generation of seeds from which it planted subsequent crops. Monsanto filed suit for patent infringement and the trial court issued a preliminary injunction. Scruggs asserted, inter alia, antitrust and patent misuse defenses. Monsanto filed for, and the trial court granted, summary judgment on infringement and the antirust and patent misuse defenses. The trial court also issued a permanent injunction in favor of Monsanto. Scruggs appealed.
The Federal Circuit affirmed the lower court’s grant of summary judgment but reversed the grant of a permanent injunction. With regard to the antitrust and patent misuse issues, Scruggs argued that Monsanto’s grower license agreements, which included an exclusivity provision, a no-replant policy, a no-research policy and the payment of a technology fee, were illegal anticompetitive practices. The Federal Circuit rejected Scruggs’ argument, finding that Monsanto’s practice was a valid exercise of its rights under the patent laws and that Scruggs did not point to any activities falling outside of Monsanto’s patent. With regard to the issuance of a permanent injunction, the Federal Circuit vacated and remanded the decision, stating that eBay required courts to consider the standard four-part test for a permanent injunction in patent cases.
Permanent Injunction Junction: eBay at Work
By Amol Parikh
In the months following the U.S. Supreme Court’s decision in eBay Inc. v. MercExchange, LLC, district courts have had several opportunities to consider the circumstances under which a permanent injunction should issue against patent infringers. In particular, two cases — one issuing a permanent injunction, the other denying a permanent injunction — shed light on the factors district courts analyze in determining whether to issue a permanent injunction.
In Paice LLC, v. Toyota Motor Corp., Case No. 2:04-CV-211-DF (E.D. Tex., Aug. 16, 2006) (Folsom, J.), the court denied Paice’s request for permanent injunctive relief against Toyota. In denying the request, the court applied the traditional four-factor test, reiterated by the Supreme Court in eBay v. MercExchange, which requires that, in order for a court to grant an injunction, the plaintiff must demonstrate (1) that it has suffered irreparable harm; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.
Specifically, the court focused on the first two factors — irreparable harm and adequate remedy at law — of the traditional four-factor test. Focusing on the first factor, the plaintiff argued that that absence of a permanent injunction had resulted in an inability to successfully license the patented technology. The court summarily dismissed this argument stating there was evidence in the record that potential licensees may have declined business deals for other reasons. The court went on to state that irreparable harm lies only when injury cannot be undone by monetary damages. The court found that the plaintiff does not manufacture products that compete with the defendant’s infringing product, but rather the plaintiff is geared towards licensing its technology. As a result, the plaintiff’s losses from the defendant’s sales of the infringing products could only be remedied via monetary damages.
With respect to the second factor, the court found that the infringed claims make up only a “small component” of the overall accused products and cited the jury’s reasonable royalty rate as demonstrative of the relatively small contribution of the plaintiff’s invention to the accused product as a whole. Moreover, the reasonable royalty rate determined by the jury could easily be calculated for future sales on the accused devices, thereby removing any uncertainty from future damage calculations. In addition, the court noted that the infringement was found only under the doctrine of equivalents and was not to be found willful. However, it is unclear as to whether the court considered these factors in denying the plaintiff’s motion for entry of a permanent injunction.
Conversely, in TiVo Inc., v. EchoStar Communications Corp., Case No. 2:04-CV-1-DF (E.D. Tex., Aug. 17, 2006) (Folsom, J.), the same judge granted the plaintiff’s request for a permanent injunction. Again, the court applied the traditional four-factor test and again, focused on the first two factors of the test. In explaining the difference between Paice v. Toyota and this case, the court stated that the plaintiff, TiVo, continues to suffer irreparable harm in the absence of an injunction and that there is no adequate remedy at law. Of particular significance, the defendant competes directly with the plaintiff by marketing its infringing products to potential customers as an alternative to purchasing the plaintiff’s products. This availability of infringing products leads directly to a loss of market share for the plaintiff. The court found that the plaintiff was losing market share at a critical time in the market’s development and would not have the same opportunity to capture the market share once the market matures. As a result, the court focused on the loss of market share in the still-emerging market place as a key consideration in finding that the plaintiff suffers irreparable harm.
In considering the second factor — inadequate remedy at law — the court again focused on the marketplace. Specifically, the court noted that impact of the defendant’s continued infringement is shaping the market to the detriment of the plaintiff and results in long-term customer loss. Further, because the plaintiff is a relatively new company with only one primary product, a loss in market share and customer base as a result of infringement causes severe injury that cannot be remedied by monetary damages. In addition, the court noted that, unlike the defendant in Paice v. Toyota, the defendant in TiVo v. EchoStar had literally and willfully infringed the claims of the patent. Again, it is unclear whether the court considered these factors in granting the plaintiff’s motion for entry of a permanent injunction.
The initial district court cases after eBay v. MercExchange indicate that the “irreparable harm” and “inadequate remedy at law” factors will be the primary battleground in determining whether to issue a permanent injunction once a defendant is found to infringe. In particular, a plaintiff who is a non-practitioner of patented technology, such as a patent troll, is less likely to obtain a permanent injunction than a plaintiff who is a marketplace competitor of the defendant.
Trademarks Are Not Aesthetically Functional
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Saying that deciding otherwise “would be the death knell for trademark protection,” the U.S. Court of Appeals for the Ninth Circuit held that the doctrine of aesthetic functionality does not render trademarks unprotectable, even when it is the trademarks themselves that consumers wish to buy. Au-Tomotive Gold, Inc. v. Volkswagen of America, Inc., et al, 457 F.3d 1062 (9th Cir., Aug. 11, 2006) (McKeown, C.J.).
Au-Tomotive Gold sells car accessories such as key chains and license plate holders featuring famous car manufacturers’ trademarks. It is licensed by some manufacturers, but Volkswagen and Audi refused to grant Au-Tomotive Gold a license because the firms already licensed others to make such products. Au-Tomotive Gold brought an action for declaratory judgment that its products did not infringe Volkswagen’s and Audi’s trademarks. The auto manufacturers counter-claimed for trademark infringement and dilution. Au-Tomotive Gold argued that because consumers purchase its products for the trademarks themselves and not because the trademarks indicate the products’ source, the trademarks are aesthetically functional and thus unprotectable on these goods. The district court agreed and enjoined Volkswagen and Audi from enforcing their trademarks against Au-Tomotive Gold. The car companies appealed.
The Ninth Circuit began its analysis by tracing the history of the aesthetic functionality doctrine in the Ninth Circuit and the Supreme Court. It noted that under the Supreme Court’s TrafFix precedent, evaluating functionality is a two-step process. First, a court must determine whether under the Inwood test the trademark is functional, i.e., whether it is essential to the use or purpose of the product or affects the product’s cost or quality. If so, the trademark is unprotectable. The Court held that Volkswagen’s and Audi’s trademarks were not functional under Inwood, because Au-Tomotive Gold’s products would still hold keys or frame license plates if they didn’t bear the trademarks. Proceeding to the second step, the court applied the Qualitex test, examining whether the auto companies’ exclusive use of their trademarks on these types of goods would put Au-Tomotive Gold at a significant non-reputational competitive disadvantage. The court answered no to the second question, holding that the desirability of the trademarks is related to their source-indicating nature. Consumers desire Au-Tomotive Gold’s products bearing the trademarks because the trademarks are related to Audi and Volkswagen, not because the trademarks are aesthetically pleasing. Thus, “[a]ny disadvantage Au-Tomotive Gold claims in not being able to sell Volkswagen or Audi marked goods is tied to reputation and association with Volkswagen and Audi.” The court went on to hold that Au-Tomotive Gold’s use of the trademarks created a likelihood of confusion.
Any Way You Slice It, “BRICK OVEN” Is Generic when Used to Identify Pizza
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The U. S. Court of Appeals for the Eighth Circuit affirmed a district court granting a motion for summary judgment that the term BRICK OVEN for pizza is generic and therefore cannot be afforded trademark protection. Schwan’s IP LLC v. Kraft Pizza Co., Case No. 05-3463 (8th Cir., Aug. 18, 2006) (Wollman, J.).
In March 2003, Schwan’s began selling its Freschetta brand of frozen pizzas using the term BRICK OVEN, a term that Kraft also had considered but rejected using in connection with its line of frozen pizzas in early 2003. However, several months after Schwan’s launch of its BRICK OVEN line of pizzas, Kraft created and marketed its Tombstone BRICK OVEN style pizza to compete with Schwan’s. Schwan’s sued Kraft for trademark infringement, and Kraft filed for summary judgment on the basis the term BRICK OVEN is generic as used to identify pizza, or in the alternative, is descriptive and lacked secondary meaning. The district court granted Kraft’s motion, finding the term BRICK OVEN to be generic, or at the very least, to be descriptive without secondary meaning. Schwan’s appealed.
The Eighth Circuit affirmed, explaining that a generic term is incapable of functioning as a trademark because it does not identify the source of a product, but rather the basic nature of the product; in other words, “it denotes the thing itself.” As such, a party cannot have the exclusive right to use a generic term, regardless of whether the term is associated with a single source of the product, because third parties must be allowed to describe the fundamental characteristics of competing products.
In reviewing the evidence that supported a finding that the term BRICK OVEN was generic, the Eighth Circuit cited the statement by the head of Schwan’s Freschetta brand that brick oven pizza is “a pizza that is cooked in a brick oven.” Further, certain language in Schwan’s patent application supported the genericness of the term, and Schwan’s had even certified to the U.S. Department of Agriculture that it baked its pizza’s crust in a “direct-fire brick oven.” Additionally, there was substantial evidence that third parties in the industry also used the term to identify pizza baked in a brick oven. Moreover, the U.S. Patent and Trademark Office (USPTO) had denied registration of Schwan’s trademark on three occasions, ultimately concluding that BRICK OVEN was generic of frozen pizza and pizza in general. Schwan’s attempts on appeal to distinguish restaurant pizza and frozen pizza markets were also unavailing where the head of the Freschetta brand also testified that frozen pizza purchasers were merely a subset of restaurant pizza purchasers.
Finally, the Eighth Circuit rejected Schwan’s argument that the district court erred in refusing to consider Schwan’s survey evidence. The Court held that where the term at issue was generic prior to its association with the product at issue in the case, survey evidence is irrelevant because it could only demonstrate that consumers had come to identify the term with that product and not that a generic term had become protectable as a trademark.
Language used in patents is often considered by trademark examiners when evaluating an application for trademark registration. Accordingly, it is important to counsel clients against adopting a mark that is similar to language in a utility patent that could call into question the distinctiveness of the mark. Further, attorneys are advised to review any patents or patent applications associated with the product to be offered under the proposed mark to determine whether language in the patent could adversely affect the overall strength and registrability of the mark.
Trademark Law Does Not Provide Exclusion Rights Equivalent to Patent Rights
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The U.S. Court of Appeals for the Sixth Circuit affirmed the district court’s finding that an asserted trademarked product configurations, which were the subject of design and utility patents, were functional and therefore could not be protected. Fuji Kogyo Co., Ltd. v. Pacific Bay International, Inc., Case No. 05-5854 (6th Cir., Aug. 23, 2006) (Boggs, J.).
Fuji Kogyo, a family-run company, manufactures fishing line guides. With regard to the products at issue, Fuji Kogyo had been granted three trademark registrations, four utility patents and seven design patents. Fuji distributes its products exclusively through Anglers Resource in the United States. The three defendants, Pacific Bay, Batson Enterprises and Amtak Ltd. all compete against Anglers Resource through the importation and reselling of allegedly infringing line guides. Fuji filed suit alleging infringement of three registered trademarks and one unregistered trademark, counterfeiting of goods and similar state law claims under Tennessee law. After a bench trial the district court dismissed Fuji Kogyo’s trademark claims and canceling its asserted trademark registrations, concluding that the “trademarked product configurations were functional and therefore could not be protected.” The district court relied mainly upon Fuji Kogyo’s own statements in its expired utility patents but also considered expert testimony. Fuji Kogyo appealed.
The Sixth Circuit concluded that the district court’s determination was not clearly erroneous as its “investigation was properly illuminated by the language of the patents, consideration of the doctrine of equivalents, and witness testimony.” As the court explained, a “product feature is functional if it is essential to the use or purpose of the article or if it affects the cost or quality of the article.” Fuji Kogyo argued that by virtue of its registrations it enjoyed a presumption of nonfunctionality, claiming that the district court “misplaced” the burden of proof. The Sixth Circuit rejected this argument, finding that the defendants had overcome the presumption and Fuji Kogyo was unable to rebut the showing of functionality by demonstrating that the configuration was not functional.
Fuji further argued that the district court erred by considering the utility patents as evidence of design functionality without first determining whether the product configuration was claimed in any of the patents. The Court rejected this argument as well, noting that the district court need not analyze what had been claimed in the utility patents. Rather, it was only necessary to determine whether the product configurations were disclosed as functional.
Fire Sale Avoids Trademark Abandonment
By Paul Devinsky
Reversing a district court finding of abandonment, the U. S. Court of Appeals for the Ninth Circuit has found that use of a trademark by a troubled and failing company in the course of depleting its inventory is sufficiently bona fide to avoid abandonment. Electro Source, LLC v. Pelican Products, Inc., Case No. 04-56648 (9th Cir., Aug. 14, 2006) (McKeown, J.).
In 1995, Ronald Mallett began selling goods under the Pelican Mark and obtained a registration for the mark, covering wallets, backpacks, tote bags and luggage. Mallett transported and sold goods branded with the Pelican Mark from 1995 through 2002. At first, sales were promising but Mallett later suffered several business setbacks. From 1999 to 2002, Mallett sold Pelican Mark products out of the trunk of his car and also sold products at a Florida trade show twice a year. In 2002 Mallett assigned the Pelican Mark, along with all the goodwill of the business, to Electro Source for $15,000 and a grant-back license to use the Pelican Mark on certain goods, subject to maintenance of product quality. At the time of the assignment, Mallett had at least 10 boxes of inventory bearing the Pelican Mark. Using his license, Mallett continued to market Pelican Mark goods until he sold his remaining inventory to Electro Source.
Pelican Products, Inc. (PPI) manufactures, markets and distributes a variety of products under the trademark “Pelican Products.” PPI also registered the mark “www.pelican.com.” Electro Source sued PPI for infringement of its Pelican Mark. In defense, PPI alleged that Mallett had abandoned the Pelican Mark prior to the assignment to Electro Source and moved for and was granted summary judgment. PPI appealed.
The Court, focusing on § 1127 of the Lanham Act, noted that abandonment requires discontinuance of trademark use and intent not to resume. The Court reasoned that “use” of a trademark defeats an allegation of abandonment “when the use includes placement on goods sold or transported in commerce; is bona fide; is made in the ordinary course of trade; and is not made merely to reserve a right in a mark.” The Court found nothing in the statute that would exclude use of a trademark by a struggling or even a failing business from meeting those requirements.
PPI argued that Mallett’s transactions could not have been bona fide trademark use because they were not made by or in connection with any business to which goodwill accrued in light of Mallett’s intent to abandon his business after his inventory was depleted. Although the district court agreed with this argument, the Ninth circuit held that the district court “did not hew to the strict statutory standard for abandonment, which requires complete discontinuance of use, even for a business on its way out.” If there is continued use, a prospective intent to abandon the mark or business does not decide the issue of abandonment.
Alternative, Independently Sufficient Findings Have Preclusive Effect
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Adopting the view advanced by the First Restatement of Judgments and sustained by other courts of appeals, the U.S. Court of Appeals for the Third Circuit applied collateral estoppel to bar a party from relitigating an alternate, though independently sufficient, holding of the Trademark Trial and Appeal Board’s (the Board) decision rendered in a prior cancellation action. Jean Alexander Cosmetics, Inc. v. L'Oreal USA, Inc., Case No. 05-4321 (3rd Cir., Aug. 14, 2006) (Rendell, J.).
In 1988, L’Oreal USA, Inc.’s predecessor-in-interest began use of its original SHADES EQ mark in connection with hair-care products. In 1990, Jean Alexander Cosmetics began use of the EQ SYSTEM mark, which it registered in 1993. In 1996, L’Oreal sought to register a modernized, 1992 version of its SHADES EQ mark. However, the trademark examiner refused registration based on a likelihood of confusion with Jean Alexander’s registered EQ SYSTEM mark.
L’Oreal then initiated a cancellation proceeding against Jean Alexander’s registration, contending that, if there was a likelihood of confusion, the Jean Alexander registration should be cancelled due to the priority of the original and modernized EQ SYSTEM marks. In support of the cancellation petition, L’Oreal argued that its use of the original SHADES EQ mark preceded Jean Alexander’s use of EQ SYSTEM, as well as that the first date of use of the original mark could be tacked on to extend its claimed use of the modernized mark, a legal equivalent of the original mark, thereby giving the modernized mark priority. Jean Alexander denied L’Oreal’s priority claims and any likelihood of confusion. After four years of extensive proceedings, the Board found that, although the original SHADES EQ mark enjoyed priority over Jean Alexander’s mark, it was not a legal equivalent to the modernized SHADES EQ mark. Thus, the respective use periods could not be tacked and L’Oreal could not establish priority of the modernized SHADES EQ mark, which it sought to register. The Board further held that there was no likelihood of confusion between the marks and denied L’Oreal’s petition to cancel.
Because the Board’s decision negated the trademark examiner’s rejection, L’Oreal’s modernized SHADES EQ mark was published for opposition in 2002. Jean Alexander initiated an opposition based on a likelihood-of-confusion argument. However, the Board foreclosed this opposition, and Jean Alexander commenced a federal trademark infringement suit premised on the same issue, i.e., likelihood of confusion. The district court dismissed the complaint, holding that, in view of the Board’s holdings the doctrine of issue preclusion, also termed collateral estoppel, precluded Jean Alexander from relitigating the likelihood of confusion between the marks. Jean Alexander appealed.
The key issue on appeal was whether the Board’s likelihood of confusion determination, which could be deemed alternate or secondary to the priority determination, should be given preclusive effect. Jean Alexander argued that the “necessity” required to apply collateral estoppel was absent because, once the Board determined the modernized SHADES EQ lacked priority, the likelihood-of-confusion pronouncement was not required to deny the cancellation petition. L’Oreal countered that the finding should be given a preclusive effect because, though alternative, i.e., “not strictly necessary to the judgment … [as] there was another stated basis for the decision],” it was independently sufficient to uphold the cancellation decision.
The Third Circuit agreed with L’Oreal, finding that the preclusive effect of alternate findings furthered the doctrine of collateral estoppel, in part by preventing needless litigation of “actually [fully] litigated issues” and the “inefficient use of private and public litigation resources.” The Court noted that this approach would be particularly effective under circumstances where it is obvious that the alternative finding is a product of careful judicial reasoning.
Infringement of Architectural Works
By Matthew McCloskey
Analyzing for the first time a copyright suit under the Architectural Works Copyright Protection Act (AWCPA), the U.S. Court of Appeals for the First Circuit reversed the district court’s summary judgment against the plaintiff, finding tryable issues of fact. T-Peg, Inc., v. Vermont Timber Works, Inc., Case No. 05-2866 (1st Cir., Aug. 18, 2006) (Lynch, J.).
The plaintiff filed a copyright infringement suit under the AWCPA against the defendants, including Vermont Timber Works (VTW) and a property owner who hired T-Peg to provide architectural designs and a construction material package for a timber frame house. The property owner terminated its relationship with T-Peg after having seen T-Peg’s architectural plans and then hired VTW for construction of a timber frame house with elements similar to T-Peg’s design. Based on its comparison of the relative architectural designs, the district court granted a summary judgment for the defendants, finding the no reasonable jury could conclude that VTW copied T-Peg’s architectural work or that VTW’s frame was “substantially similar” to T-Peg’s registered plans. T-Peg appealed.
The First Circuit noted that under the Copyright Act, in order to establish copyright infringement the copyright owner must establish two elements: ownership of a valid copyright and copying of elements of an original work. Proof of the latter may be in the form of a showing that the defendant actually copied the work, through either direct or indirect evidence, or that the infringing and copyrighted works are substantially similar. The court noted that the AWCPA added “architectural works” as a new category of copyrightable works defined expansively to include the design of a building embodied in any tangible medium of expression, including other buildings, architectural plans or drawings. The court noted further the holder of a copyright in an architectural plan has two copyrights: one under the provision for an architectural work and another under the provision for a “pictorial, graphical or sculptural work.”
The court concluded that a factual dispute existed regarding direct evidence of copying, and that the necessary elements needed to indirectly establish copying could have been inferred by a reasonable jury. The First Circuit thus concluded there were genuine issues of material fact as to substantial similarity between the accused and copyrighted works. The Court found that the district court erred in failing to consider those similarities that went to “overall form” as well as the “arrangement and composition of spaces and elements,” noting that according to the AWCPA legislative history: “[t]he phrase ‘arrangement and composition of spaces and elements’ recognizes that … creativity in architecture frequently takes the form of a selection, coordination, or arrangement of un-protectible elements into an original, protectible whole.”
Willful Copyright Infringement Damages are Not Dischargeable in Bankruptcy
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Addressing the issue of discharging debts under bankruptcy laws, the U.S. Bankruptcy Appellate Panel for the Ninth Circuit affirmed the bankruptcy court’s decision holding that statutory damages based on willful copyright infringement are not dischargeable when the infringer had the requisite intent to injure another’s property interest. In re Albarran, BAP No. SC-05-1398-MaSPa (9th Cir., July 24, 2006) (Marlar, J.).
The plaintiff, New Form, acquired exclusive rights to manufacture, sell and distribute 10 Spanish language films known as the India Maria Pictures. Defendants duplicated and distributed Spanish language films, including the India Maria Pictures. After sending three cease-and-desist letters to the defendant, New Form filed a civil action for willful copyright infringement in the District Court for the Central District of California. The district court’s jury returned a verdict holding that defendants willfully infringed New Form’s copyrights and awarded statutory damages to New Form.
Shortly after the district court decision, the defendants voluntarily filed for bankruptcy. New Form moved that the district court’s statutory damages verdict be declared nondischargeable as willful and malicious under bankruptcy law, 11 U.S.C. § 523(a)(6). The bankruptcy court concluded that statutory damages, like punitive damages, support the injury prong of § 523(a)(6), and, that defendants actions were willful in accordance with § 523(a)(6). The defendant appealed.
Under bankruptcy law a debtor remains responsible for debts incurred due to willful and malicious actions that cause “injury” to the property of another. A bankruptcy debtor’s actions are considered willful when the debtor “intends the consequences of his action(s).” The Appellate Bankruptcy court addressed (1) whether statutory damages “injury” in accordance with bankruptcy laws and (2) whether, when willful copyright infringement is shown willful intent (under bankruptcy law) is present.
On appeal, the Appellate Bankruptcy Court affirmed the lower court’s decision, concluding that a willful copyright infringer met the requisite willful intent factor and that New Form’s statutory damages award constituted an injury under bankruptcy law, even though there was insufficient evidence to make a calculation of actual damages.
Although this case related to the area of copyright law, it may affect intellectual property damages decisions in other areas of law. The Albarran court expressly acknowledged the applicability of this decision to patent law cases, stating “[i]t is appropriate to look to patent law for guidance because of the kinship between it and copyright law.” Further, where there is willful infringement, there is a strong argument that the defendant has willfully and maliciously accrued the resulting benefits of that infringement and thereby should be held responsible for the resulting damages. Arguably, damages based on willful infringement, whether it be trademark, copyright or patent infringement, will (at least in the Ninth Circuit) constitute a willful and malicious debt and therefore not be nondischargeable under bankruptcy laws.