USPTO Board Imposes New Indefiniteness and Enablement Rejections in a Precedential Decision
Perhaps heralding a new and stricter level of scrutiny for disclosure of sufficient corresponding structure for claim elements drafted in means plus function (M+F) (§ 112, ¶ 6) format, an expanded panel of the U.S. Patent and Trademark Office (USPTO) Board of Patent Appeals and Interferences (the Board) issued a precedential decision imposing a new grounds of rejection on M+F claim elements as being unpatentable under the indefinite and enablement requirements of § 112. Ex parte Rodriguez, Appeal No. 08-000693, (BPAI, Oct. 1, 2009) (McDonald, Vice Chief Administrative Patent Judge).
Citing to the U.S. Court of Appeals for the Federal Circuit decision in Aristocrat, the Board noted that “[T]he corresponding structure for a § 112 ¶ 6 claim for a computer-implemented function is the algorithm disclosed in the specification.” Using the example in Aristocrat, the Board noted that “a mere reference to using ‘appropriate programming’ imposes no limitation whatever on the structure corresponding to the three functions performed by the claimed game control means, as any general purpose computer must be programmed.”
Applying those principles to the present case, the Board examined one of the independent claims and found four M+F claim elements. The Board also found that the specification failed “to disclose the algorithms that transform the general purpose processor to a special purpose computer programmed to perform the disclosed functions of [these claim] elements.” Thus the Board held that Rodriguez “failed to adequately describe sufficient structure, for performing the functions recited in the means elements … so as to render the claim definite. Accordingly, [the] claim … is unpatentable under 35 U.S.C. § 112, second paragraph, as indefinite.”
Even as to claims that did not have claim elements cast in the M+F format, the Board persisted, writing, “this does not end our claim construction analysis as to [the] claim terms …, ‘system configuration generator,’ ‘system builder,’ and ‘simulation verification environment.’” Rather, the Board explained, “[W]e must determine whether the term is one that is understood to describe structure, as opposed to a term that is simply a nonce word or a verbal construct that is not recognized as the name of structure and is simply a substitute for the term ‘means for.’” Finding “no evidence that any of these terms have achieved recognition as a noun denoting structure,” the Board concluded that “none of these … terms is an art-recognized structure to perform the claimed function, and the claim … does not recite any other structure that would perform these claimed functions.”
Thus, concluded the Board, “these claim elements are verbal constructs that are not recognized as the name of a structure and are simply a substitute for the term ‘means for.’” Having determined that the subject claim recitations should be construed as M+F elements under § 112, ¶ 6, the Board found them to be indefinite under § 112, ¶ 2 for the same reason as the more classical M+F claim element recitations: a failure “to disclose any algorithm” and thus “a failure to adequately describe sufficient structure for performing the functions recited in the means elements contained in [the] claim … so as to render the claim definite.”
The Board also issued new grounds of rejections based on § 112, ¶ 1, enablement, concluding that “there is no particular structure to support the function being performed.” As explained by the Board, “[f]unctional claim language is permissible only if the scope of the functional claim language is commensurate in scope with an enabling disclosure.”
While conceding “that functional language does not, in and of itself, render a claim improper,” in the case of the Rodriguez claims, the Board concluded “that the scope of the functional claim language … is not enabled to its entire scope,” noting that “functional claim language ... is so broad and sweeping that it includes all structures or means that can perform the function. It is not limited to any corresponding structure, material, or act disclosed in the specification and equivalents thereof.”
In a clear waning to practitioners, the Board noted that “functional limitations must be commensurate with the scope of the supporting disclosure (i.e., must be enabled).”
Practice Note: Going forward, this precedential opinion puts practitioners on notice that the Board intends to vigorously apply the Aristocrat holding regarding § 112, ¶ 2 indefiniteness to M+F claim elements and that the Board intends to carefully scrutinize purely functional claims—whether or not they are presented as M+F claim elements under § 112, ¶ 6—for compliance with § 112, ¶ 1 enablement, and § 112, ¶ 2 definiteness.
Subsidiaries Formed After Cross-License Expiration Date Nevertheless Licensed
Eric M. Shelton
In an interlocutory appeal, the U.S. Court of Appeals for the Federal Circuit reversed a district court ruling in favor of a more “fluid” scope and membership for a cross-license agreement. Imation v. Koninklijke Philips Electronics, Case Nos. 09-1208, -1209 (Fed. Cir., Nov. 3, 2009) (St. Eve, Dist. J., sitting by designation).
In 1995, Philips and 3M entered into a patent cross-license agreement covering Imation when it spun off from 3M in 1996. The agreement licensed Imation and its subsidiaries for patents filed or claiming priority prior to the expiration of the agreement. After the agreement expired in 2000, two Imation subsidiaries were formed. Imation sought a declaration, via a declaratory judgment action, that although subsidiaries were formed after the agreement expired, they were licensed. The district court ruled against Imation and certified the ruling for this interlocutory appeal.
Imation argued the agreement was a single present grant to a class composed of Imation and its subsidiaries, with new subsidiaries able to enter the licensed class after the agreement expired. Philips, on the other hand, argued the agreement granted multiple licenses over time, with no subsidiaries formed after expiration of the agreement. Specifically, Philips argued the phrase “agrees to grant” in the phrase “agrees to grant and does hereby grant” indicated future grants of licenses.
The Federal Circuit disagreed with Philips. Consistent with earlier decisions considering “agrees to grant and does hereby grant” language, the Federal Circuit held the agreement to be a present grant licensing additional patents and subsidiaries as they came into being, even after the agreement expired. The expiration date restricted which patents would be available under the license. The Federal Circuit held this interpretation was consistent with a plain reading of the agreement under New York law. Likewise, the Federal Circuit held expiration of the agreement did not foreclose new subsidiaries from being licensed under the agreement. To the contrary, the definition of “subsidiary” made use of the term “hereafter,” which the Federal Circuit interpreted expansively in its context in the agreement.
The Federal Circuit concluded, “the parties constructed licenses with a fluid scope that grew with the acquisition of additional patent rights and a fluid membership that changed as the parties—sophisticated corporations operating throughout the world—changed their corporate structures.” Thus, all Imation subsidiaries—whenever formed—are licensed under the agreement.
Grant of Preliminary Injunction Requires Express Findings on All Disputed Issues
John C. Low, Ph. D.
The U.S. Court of Appeals for the Federal Circuit recently vacated an order for preliminary injunction entered against an alleged infringer of a plaintiff’s patented method for crude oil refinement and remanded the case to the district court for further proceedings. Baker Hughes, Inc. v. Nalco Co., Case No. 09-1570 (Fed. Cir., Oct. 9, 2009) (Gajarsa, J.) (non-precedential).
At the district court, the defendant argued that the plaintiff was unable to meet its burden to show irreparable harm that would result in the absence of a preliminary injunction. While stating the parties’ respective positions in its order granting a preliminary injunction, the district court did not make findings of fact with respect to the issue of irreparable harm.
On appeal, the defendant argued that the district court’s failure to include specific findings of fact on the irreparable harm factor was an abuse of discretion. The plaintiff argued that explicit findings were not necessary and that the Federal Circuit could review the district court’s implicit findings on that issue. Citing earlier precedent, the Federal Circuit held “[t]hat is not enough under this court’s cases to provide meaningful review” and “to the extent that Reebok [Reebok Int’l Ltd. v. J. Baker, Inc., 32 F.3d 1552 (Fed. Cir., 1994)] permits a district court to decide a motion for a preliminary injunction without making express findings on all disputed issues, it is expressly limited to cases involving the denial of a preliminary injunction.” (Emphasis in original.)
Practice Note: When seeking a preliminary injunction, it is advisable for counsel to inform the court of all that is required of it to affect a proper order.
Joint Motion Notwithstanding, USPTO Remains Enjoined from Implementing Continuation and Claims
In an en banc order, the U.S. Court of Appeals for the Federal Circuit has refused to vacate the district court decision blocking the U.S. Patent and Trademark Office (USPTO) from implementing its controversial rules aimed at limiting the number of continuation application and claims. However, the Court did agree to dismiss the USPTO appeal as moot. Tafas v. Kappos, Case No. 08-1352 (Fed. Cir., Nov. 13, 2009) (en banc) (Michel, C.J.).
After the USPTO decided to withdraw the controversial regulations that provoked the district court filing by Tafas and GlaxoSmithKline, GlaxoSmithKline and Kappos filed a joint motion to dismiss the appeal and to vacate the judgment of the district court that blocked implementation of the rules. Tafas joined the joint motion by GlaxoSmithKline and Kappos for dismissal of the appeal, but opposed the joint motion for vacatur.
The Court, after noting that the USPTO has rescinded the rules that were the basis of the litigation, agreed that the issue was now moot and that dismissal of the appeal was not only appropriate but required.
However, citing the Supreme Court case of U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership, the Court determined that vacatur was not appropriate, explaining that “when a party procures the conditions that lead to a case becoming moot, that party should not be able to obtain an order vacating the lower court decision that was adverse to that party. Vacatur is only appropriate where the mootness arises from external causes over which the parties have no control, or from the unilateral act of the prevailing party, but not when the mootness is due to a voluntary act by the losing party, such as a settlement.”
Noting that the USPTO (the losing party at the district court) unilaterally and voluntarily withdrew the regulations (to thereby make the case moot) the Court agreed with Tafas, holding that vacatur was not appropriate here.
Foreign Legal Terms of Art Used in License Agreements Should Be Construed in Their Foreign Technical Sense
Keith M. Stolte
In the latest round of “an immense, unwieldy, complex” nine-year old trademark dispute, the U.S. Court of Appeals for the Seventh Circuit declared an unremarkable rule of law that a foreign technical legal term used in a license agreement should be construed in accordance with the meaning ascribed to it under foreign law, even if the agreement is to be construed generally under a domestic state law. Sunstar, Inc. v. Alberto-Culver Co., Case No. 07-3288 (7th Cir., Oct. 28, 2009) (Posner, J.).
The case generally involved the question of what rights were conveyed to a Japanese licensee to use minor variations of a licensed trademark. In 1980, Alberto-Culver, owner of the well-know ALBERTO VO5 trademark, sold Japanese trademark registrations to Sunstar, a Japanese manufacturer of hair care products. Most of the trademark registrations involved variants of “ALBERTO VO5” or “VO5.” Sunstar was obligated to transfer ownership of the Japanese trademarks to Bank One Corporation, to hold in trust for 99 years; Bank One simultaneously licensed the use of the marks back to Sunstar.
Bank One, as trustee, had the right to require Sunstar to cease using the licensed trademarks if Bank One had reasonable grounds for concluding that Sunstar committed acts that created a danger to the value or validity of Bank One’s ownership in the licensed trademarks. In the event of an actual breach of the agreement by Sunstar, Bank One had the right to rescind the license and re-convey the trademarks to Alberto-Culver. Sunstar asked permission from Alberto-Culver to use a variation of the registered VO5 trademark, which Alberto-Culver denied. Sunstar used the variation anyway. Bank One concluded that Sunstar’s unauthorized use of the variation damaged the validity the VO5 trademark and sought to rescind the license agreement. Sunstar then sought a declaratory judgment that its use of the variation was permitted under the license. The agreement between Alberto-Culver and Sunstar refers to the license granted to Sunstar as a “senyoshiyoken.” A senyoshiyoken, a legal term of art used in the Japanese Trademark Act, conveys to the holder of the senyoshiyoken the exclusive use of the marks in the geographic territory, the right to register the license with the Japanese Trademark Office and the right to sue infringers in its own name. The suit was tried to a jury. Because the agreement, by its terms, was to be construed under Illinois law, the district court refused to instruct the jury as to the Japanese legal construction of “senyoshiyoken.” The jury found for Alberto-Culver; Sunstar appealed.
The Seventh Circuit determined that, under Japanese law, a senyoshiyoken also permits the holder to use variations of the licensed trademark. Thus, the Seventh Circuit vacated and remanded, declaring that a foreign technical legal term in a license agreement is presumed to be used in its foreign technical sense and held that the district court erred in failing to so instruct the jury.
Another .com Mark Found to Be Generic
Contact Paul Devinsky
In an appeal from the final decision of the United States Patent and Trademark Office (USPTO) Trademark Trial and Appeal Board (TTAB), the U.S. Court of Appeals for the Federal Circuit affirmed the Board’s refusal to register the mark “MATTRESS.COM,” finding the mark to be generic. In re 1800Mattress.com IP, LLC, Case No. 09-1188 (Fed. Cir., Nov. 6, 2009) (Lourie, J.).
Dial-A-Mattress filed a U.S. trademark application to register the mark MATTRESS.COM for services identified as “online retail store services in the field of mattresses, beds, and bedding.” After the trademark examiner issued a final refusal of the mark on the basis that it was generic, the applicant appealed to the TTAB. The Board affirmed the examiner’s refusal, finding that because “mattress” identified such a key aspect of Dial-A-Mattress’s services (online retail services in the field of mattresses, beds and bedding), it was generic for those services. Again, Dial-A-Mattress appealed, this time to the U.S. Court of Appeals for the Federal Circuit.
At the Federal Circuit, Dial-A-Mattress urged that Court find that the Board’s conclusion was not supported by substantial evidence, overlooked evidence that brick-and-mortar stores (i.e., businesses outside the genus of online retail services) use “mattress.com” as a component of their domain names and improperly looked to the component parts of the mark instead of the mark as a whole to determine genericness. Dial-A-Mattress also argued that MATRESS.COM is a mnemonic or double entendre capable of evoking the quality of comfort in a mattress.
The Federal Circuit applied a two-step analysis as set forth in H. Marvin Ginn Corp. for determining genericness. First, the Court looked at genus of the goods or services at issue. Second, the Court determined whether the term is understood by the relevant public to primarily refer to that genus of goods or services. The parties agreed that the genus of services is “online retail store services in the field of mattresses, beds, and bedding.” Therefore, the Court only considered whether there was sufficient evidence to support the TTAB’s conclusion that the relevant public understands MATTRESS.COM to refer to that genus of services.
Neither party disputed that the components “mattress” and “.com” are, individually, generic. Relying on its 2009 decision in In re Hotels.com, the Federal Circuit concluded the mark as a whole is also generic. It cited evidence of multiple websites that operate under the term “mattress.com” to provide mattresses online. This, the Court reasoned, was sufficient evidence for the TTAB to conclude that the relevant public understands the mark MATTRESS.COM to be “no more than the sum of its constituent parts, viz., an online provider of mattresses.” The Court rejected Dial-A-Mattress’s argument that the relevant public would not use the term to describe the genus of online mattresses as an irrelevant inquiry. Instead, the Court explained, the proper inquiry is whether the term is understood by the relevant public to primarily refer to the genus of online mattresses.
The Court rejected Dial-A-Mattress's argument that the “.com” portion of MATTRESS.COM evokes the quality of comfort in mattresses and is therefore a mnemonic. In re Steelbuilding.com, the Court emphasized that “[o]nly in rare instances will the addition of a [top level domain] indicator to a descriptive term operate to create a distinctive mark.” Here, the Federal Circuit determined that Dial-A-Mattress had not presented evidence that the mark MATTRESS.COM operates as a mnemonic or evoked anything but a commercial internet domain.
Cancellation Petitioner’s Burden Is to Prove that § 2(f) Registration Has Not Acquired Distinctiveness, Not That Mark Is Descriptive
Sara E. Coury
The U.S. Court of Appeals for the Federal Circuit recently overruled the Trademark Trial and Appeal Board (TTAB) cancellation of the mark COLD WAR MUSEUM for lack of acquired distinctiveness. Cold War Museum, Inc. v. Cold War Air Museum, Inc., 2009 U.S. App. LEXIS 24470 (Fed. Cir., Nov. 5, 2009) (Moore, J.).
The application to register COLD WAR MUSEUM for museum services on the Principal Register was based on acquired distinctiveness under § 2(f) of the Lanham Act. After the examining attorney refused registration based on descriptiveness, the applicant submitted a declaration stating that the mark had been in use for at least five years. The examining attorney then required the applicant to submit additional evidence of acquired distinctiveness, asserting the mark was “highly descriptive.” In response, the applicant submitted more than two hundred pages of material supporting acquired distinctiveness. The U.S. Patent and Trademark Office (USPTO) accepted this evidence, and the application matured to registration.
The Cold War Air Museum petitioned to cancel the mark COLD WAR MUSEUM on the basis that the mark was merely descriptive for museum services related to the Cold War. As evidence of descriptiveness, the Air Museum submitted search engine results showing the public’s understanding of the term “Cold War” and excerpts from the Cold War Museum’s website and brochure. The Cold War Museum argued that the USPTO’s acceptance of its evidence of acquired distinctiveness during the application process was sufficient proof of distinctiveness, but it did not resubmit the evidence. After the TTAB sustained Air Museum’s petition for cancellation, the Cold War Museum appealed.
On appeal, the Federal Circuit held that the TTAB erred by refusing to consider the Cold War Museum’s acquired distinctiveness evidence in the application file because the entire registration is automatically part of the record. Therefore, procedurally, the burden was on the Air Museum to rebut the Cold War Museum’s evidence.
The Federal Circuit then held that the TTAB had erred in sustaining the Air Museum’s petition for cancellation. Marks registered on the Principal Registration are presumed to be valid, and a party seeking to cancel a registration must overcome the presumption of validity with a preponderance of the evidence. Here, the evidence offered by the Air Museum focused only on descriptiveness, which is presumed for marks registered under § 2(f). However, the Court held that the Air Museum failed to submit evidence relating to acquired distinctiveness, or even argue that the mark had not acquired distinctiveness, and therefore failed to carry its burden.
FDA Proceeding Takes Precedence over Lanham Act on Issue of Drug Labeling
Margaret M. Duncan
In an extensive discussion of the interplay between Food and Drug Administration (FDA) procedures and the Lanham Act by Judge Posner, the U.S. Court of Appeals for the Seventh Circuit affirmed the district court’s dismissal, without prejudice, of a Lanham Act claim for false advertising, in part, because the plaintiff “jumped the gun by suing before the FDA addressed the misbranding issue.” The Court held that a district court was correct in dismissing a Lanham Act claim without prejudice pending the FDA’s decision on whether a generic drug must be pulled from the market or relabeled due to “misbranding.” Schering-Plough Healthcare Products, Inc. v. Schwarz Pharma, Inc., Case Nos. 09-1438, 1462, 1601 (7th Cir., Oct. 29, 2009) (Posner, J.).
The case involves a claim of false advertising under the Lanham Act § 43(a), brought by plaintiff Schering against four defendants. The parties are all manufacturers of an oral laxative with a chemical name of polyethylene glycol 3350. Schering sells its over-the-counter drug under the trademark “MiraLAX.” The four defendants sell the generic version under its chemical name (two of the defendants also use the name “GlycoLax”). The defendants’ version is sold as a prescription drug with the required symbol “RX only.”
Originally, Schering’s MiraLAX was a prescription drug and. after the patent expired, the FDA approved the defendants’ Abbreviated New Drug Applications (ANDAs), which authorized them to sell the generic version. Later the FDA approved the over-the-counter MiraLAX sold by Schering, but required the label contain a warning to “use no more than 7 days.” FDA regulations require that the labeling of the generic version be the same as that of the original drug, i.e., the prescription-only version of MiraLAX. FDA law also requires that the label of a generic drug approved as a prescription drug must bear the symbol “RX only.”
The district court had dismissed the case without prejudice, suggesting that Schering could refile it if and when the FDA decided that the defendants’ drugs were misbranded. Schering appealed, arguing that no reasonable trier of fact could fail to conclude that the terms “RX only” and “a prescription only laxative” on the labels of the defendants’ drugs are literally false and therefore violate the Lanham Act regardless of the Federal Food, Drug, and Cosmetic Act (FD&C Act).
Schering asserted that the labels on the containers and the package insert for polyethylene glycol 3350 sold by defendants are false. Schering argued because the labels and package inserts state that polyethylene glycol 3350 is sold only by prescription, while Schering’s over-the-counter MiraLAX does not require a prescription, not all polyethylene glycol 3350 may be sold only by prescription.
Judge Posner noted that the FDA is simultaneously conducting a proceeding to determine whether the defendants’ drugs are misbranded in view of the over-the-counter version of the drug. Because the Food, Drug, and Cosmetic Act does not permit both by-prescription-only and over-the-counter versions of the same drug to be sold at the same time, the FDA proceeding encompasses whether there is a “meaningful difference” between the pioneer drug and the generic drug or whether they are really “the same” drug. (Defendants argue they are not selling the same drug because they do not use the warning “use no more than 7 days.”) If the FDA determines that they are “the same,” the result will be that the generic drug can no longer be sold, and if it determines that they are different, it may decide that the labeling of the generics has to be changed. Judge Posner observed that “maybe the FDA doesn’t care whether the labeling of the generic products obscures the existence of an over-the-counter equivalent; maybe all it cares about is that the labeling leads consumers to use the product safely.”
The FDA also wrote letters to the defendants that their drugs are misbranded because the label says “RX only,” even though polyethylene glycol 3350 can also be sold without a prescription—i.e., MiraLAX. The Seventh Circuit noted that a hearing had not yet been scheduled by the FDA.
Procedurally, the Seventh Circuit confirmed that dismissals without prejudice are appealable when the case comes to an end in the district court, unless the reason for dismissal is an easily fixable problem.
On the merits, the Seventh Circuit set aside the letters from the FDA indicating that these were not final agency action binding on the district court. The Seventh Circuit also set aside any argument by plaintiff that the defendant’s drugs are misbranded because they are labeled prescription drugs, finding “they are prescription drugs, so their labels have to say that, even if a close substitute (over-the-counter MiraLAX) is not.” The Seventh Circuit went on to note: “Nor do we think that just because the provision of the Lanham Act … is intended to protect competitors from the effects of false advertising or labeling, while the misbranding provision of the [FDCA] is intended to protect the consumers of drugs, there can be no conflict between the statutes, hence no occasion for delaying this litigation to let the FDA weigh in.”
Judge Posner also found merit in the defendants’ contention that the district court was correct to deny the plaintiff’s motion for partial summary judgment on its Lanham Act claim regardless of how the FDA rules, because plaintiff made no attempt to prove that anyone was misled. Judge Posner also affirmed that “literal falsity” was not enough to make out a Lanham Act claim on these facts.
Corporate Restructuring Results in Loss of Software License
In a situation in which a corporate restructuring resulted in an original software licensee being restructured out of existence, the U.S. Court of Appeals for the Sixth Circuit determined that the ultimate holder of the software license after restructuring was not a permitted transferee and thus was liable for copyright infringement. Cincom Systems, Inc. v. Novelis Corp., Case No. 07-4142 (6th Cir., Sept. 25, 2009) (Gibbons, J.).
Affirming the district court—and citing its 1979 decision in PBG Industries, Inc. v. Guardian Industries Corp.—the Sixth Circuit found that as a result of a series of mergers that Novelis underwent as part of an internal corporate restructuring resulted in a prohibited transfer of a software license granted to a former Novelis subsidiary.
Cincom licenses software under terms that permit its customers to use its programs for an annual fee. Cincom licensed two of its software products to Alcan Rolled Products (Alcan), a corporation that would later become known as Novelis. The license granted to Alcan “a non-exclusive and non-transferable license” to use the software. Alcan was only permitted to load the software on designated computers. Alcan listed the designated computer as one located at its facility in Oswego, New York. The license agreement further provided that Alcan could “not transfer its rights or obligations under this Agreement without the prior written approval of Cincom.”
Before Alcan’s internal reorganization, it was a wholly-owned subsidiary of Alcan, Inc., a Canadian corporation. Later, Alcan created a separate corporation known as Alcan of Texas (Alcan Texas). Alcan Texas, like Alcan, was also a wholly-owned subsidiary of Alcan, Inc. Still later, Alcan merged into Alcan Texas, with Alcan Texas remaining as the surviving corporate entity. The next day, Alcan Texas simultaneously merged into itself and its three Texas subsidiaries. As a result, the former rolled products division of Alcan became a subsidiary of Alcan Texas known as Alcan Fabrication Corporation. Still later, Alcan Fabrication changed its name to Alcan Aluminum Corporation. After a final name change, Alcan Aluminum Corporation became Novelis. The software Alcan licensed from Cincom remained on the same computer in Oswego, New York, but in a plant now owned by an entity named Novelis. At the time of this restructuring, Alcan never sought or obtained Cincom’s written approval for the “transfer.”
Upon learning of the corporate changes, Cincom filed suit, alleging that Novelis’s actions violated the license agreement Cincom entered with Alcan and that Novelis was therefore an infringer. On summary judgment, the district court determined that Alcan’s merger with Alcan Texas effected a transfer of the license and entered summary judgment in favor of Cincom. Novelis appealed.
Novelis argued on appeal that the district court misinterpreted PPG by failing to look at the individual contracting parties’ intent as expressed in the licensing agreement. Specifically, Novelis argued that while the agreement at issue in PPG showed a clear intent to prevent the license from coming into the possession of a competitor, Cincom’s license demonstrates no concern with preventing internal corporate reorganizations. Novelis also argued that as a result of a change in Ohio substantive corporate law since the PPG decision, no transfer of the license occurred as a result of Alcan’s merger with Alcan Texas.
The Reorganization Did Result in a Transfer Under PPG
The Sixth Circuit noted that despite the federal common law rule that copyright licenses are not assignable absent express language to the contrary, states remain are free to regulate the use of intellectual property so long as the regulations are not inconsistent with federal law and that state contract law governs the interpretation of a license “because a license is merely a type of contract.”
The Court also looked to state law to determine whether a merger results in the transfer of an intellectual property license, noting that “where state law would allow for the transfer of a license absent express authorization, state law must yield to the federal common law rule prohibiting such unauthorized transfers.”
Applying these principles, the Court likened the facts of this case to those of PPG and rebuffed Novelis’s argument that this case could be distinguished from PPG based on the specific intent of the contracting parties. “As in PPG, Cincom granted Novelis a non-exclusive and non-transferrable license. [...] The plain text of the license is clear. No transfers are permissible without express written approval. […] The fact that the license at issue in PPG ultimately found its way into the hands of a competitor does not serve to distinguish our holding from the present set of facts.” Thus (addressing Novelis’s first issue) the Court held that “if Ohio law served to transfer the license from Alcan to Novelis as a result of the internal merger, Novelis violated the express terms of its non-transferrable license.”
Ohio Law Effects Transfer on Merger
Turning to the issue of whether Ohio’s statutory merger law has changed since PPG, the Court recited that 30 years ago Ohio’s statutory merger law provided that “all property of a constituent corporation shall be ‘deemed to be [t]ransferred to and vested in the surviving or new corporation without further act or deed.’” (Emphasis in original.)
The current statue provides that, “The surviving or new entity possesses all assets and property of every description, of each constituent entity and …. all obligations belonging to or due to each constituent entity, all of which are vested in the surviving or new entity without further act or deed.”
Novelis argues that the deletion of the prior statute’s language explaining that all property shall be deemed “[t]ransferred to” the surviving corporation prevents a finding that Alcan’s merger with Alcan Texas transferred the license.
The Sixth Circuit disagreed, noting that Alcan, the rightful holder of the Cincom license, no longer exists as a legal entity under Ohio law and that the license once held by Alcan automatically vested by operation of law in Novelis after the completion of the corporate restructuring. Reasoning that the vesting of the license in the surviving entity could not occur without being transferred by the old entity, the Court quoted PPG to the effect that a “transfer is no less a transfer because it takes place by operation of law rather than by a particular act of the parties.” Concluding that the deletion of the word “transferred” does not change the analysis, the Sixth Circuit found that the only legal entity that can hold a license from Cincom is Alcan: “If any other legal entity holds the license without Cincom’s prior approval, that entity has infringed Cincom’s copyright because a transfer has occurred. Simply put, in the context of a patent or copyright license, a transfer occurs any time an entity other than the one to which the license was expressly granted gains possession of the license.” (Emphasis in original.)
Practice Note: When doing a corporate restructuring, a routine aspect of the necessary due diligence is to review all license agreements to seek necessary approvals for transference of licenses to the surviving entity.
Partial Ownership of a Copyright is Sufficient to Establish Standing
by Babak Akhlaghi
Addressing the district court’s dismissal of copyright infringement complaint, the U.S. Court of Appeals for the Fifth Circuit held that a partial owner of a copyright has standing to bring an action for copyright infringement. Isbell Records v. DM Records, Case No. 09-40343 (5th Cir., Oct. 22, 2009) [2009 WL 3386546] (Engelhardt, Dist. J., sitting by designation).
Alvert Music is a publishing company that owns musical composition. Alvert transferred fifty percent of its interest in the copyright to Bridgeport Music, retaining the other fifty percent. The assignment also provided that the interest Alvert transferred to Bridgeport included “all claims for infringement of the copyrights, whether now or hereafter existing.”
Alvert subsequently filed a complaint against DM Records, alleging that DM Records infringed its copyright in two songs. DM Records moved to dismiss the complaint on the grounds that Alvert did not have standing to sue for copyright infringement because it transferred those rights to Bridgeport. The district court granted the motion, concluding that the assignment deprived Alvert of any right to pursue copyright infringement claims. Alvert appealed.
The Fifth Circuit, reviewing the contract interpretation de novo, reversed. The Court reasoned that the district court’s interpretation ignored the language of the contract as a whole and rendered the contract contradictory. In particular, the Court stated that if the right transferred to Bridgeport regarding the right to sue for infringement is construed to mean an assignment of all rights to pursue copyright infringement claims, then it would contradict the “clear language” of the assignment, whereby Alvert only assigned to Bridgeport fifty percent of its interest in musical compositions.
Reviewing the contract as a whole, the Court held that the transfer of “all claims for infringement of the copyright” relates to the fifty percent interest assigned to Bridgeport, not to all of the interest associated with the musical compositions. Accordingly, the Court held that the assignment did not deprive Alvert of its rights to pursue its claims against DM Records.
Use Not Required for Misappropriation
Leigh J. Martinson
The United States Court of Appeals for the First Circuit interpreted “misappropriation” under the Rhode Island Uniform Trade Secrets Act according to its statutory definition, which does not require “use.” Astro-Med Inc. v. Nihon Kohden America, Inc. and Kevin Plant, Case Nos. 08-2324, -2335 (1st Cir., Oct. 22, 2009) (Woodcock, Dist. J., sitting by designation).
Astro-Med is based in Rhode Island and deals in instruments for sleep and neurological research and clinical applications of sleep science and brain wave recording and analysis. As part of its course of business, Astro-Med maintain highly confidential information such as its financial arrangements with its sales team, its marketing strategy, and its pricing and cost structure. Astro-Med hired Kevin Plant and ultimately made him a district sales manager. At the time of his hire, Plant signed an employment agreement that contained a non-competition clause and a trade secrets clause. Further, the agreement contained a choice-of-law provision that designated Rhode Island.
Nihon Kohden (Nihon) is a California company that competes directly with Astro-Med. Plant learned of an opening with Nihon and submitted his resume. After numerous telephone and in-person interviews, Nihon offered Plant job selling directly competing products in the same territory that Plant worked for Astro-Med.
Astro-Med initially sued Plant for breach of contract and misappropriation of trade secrets. Later Astor-Med added a third claim of unfair competition against Plant and joined Nihon as a defendant. Astro-Med asserted claims of tortuous interference and misappropriation of trade secrets against Nihon. The jury handed Astro-Med a victory and awarded them more than $1.1 million in total damages. Nihon and Plant appealed on nine grounds of alleged legal error.
The First Circuit rejected each of Nihon’s arguments with respect to jurisdiction, venue, the non-competition agreement, damages and other procedural grounds. Also, the First Circuit rejected Nihon’s argument that in order to find misappropriation of Astro-Med’s trade secret, Nihon or Plant must have “used” the information.
The First Circuit stated that the Rhode Island Uniform Trade Secrets Act controlled, not Massachusetts tort law, as suggested by Nihon. The term “misappropriation” is defined in the Act to include “disclosure of a trade secret by one who acquired it while under a duty to maintain its secrecy and the acquisition of a trade secret by one who knows that it was acquired by breach of a duty to maintain secrecy.” Using the statutory definition, the First Circuit concluded that “use” is not required to establish a misappropriation, disclosure or acquisition.