IP Update, Vol. 15, No. 4, April 2012

By McDermott Will & Emery

Apr 30, 2012

IN THIS ISSUE

Patents

Patent Applicants Can Submit New Evidence to the District Court in Civil Actions Under §145

To Quote Mark Twain, “Reports of My (Inequitable Conduct) Death Have Been Greatly Exaggerated”

Computer-Implemented § 112 ¶6 Claims Require a Disclosed Algorithm

Licensing Discussions Give Rise to Declaratory Judgment Action

Reexamined Claims Do Not Create a New Cause of Action

Reversal of Summary Judgment of Non-Infringement Rests on Construction of a Single Term not Found in Claims

Government Contractor Is Immune from Individual Liability for Alleged Patent Infringement

Eastern District of Texas Unveils E-Discovery Model to Curb Abuse

USPTO Issues Examination Guidelines in View of the Prometheus Decision and Pilot After Final Program

Trademarks

Laches Period Begins from Knowledge of Confusing Use, Not Mere Knowledge of Use

Caution Canal Street Counterfeiters—Plaintiffs May Recover Attorneys’ Fees in Addition to Statutory Damages

U.S. Chamber of Commerce Denied Registration of “National Chamber” Mark

No Trademark Protection for Design of Closure Cap for Medical Collection Tubes

A Unique Arbitrary Word Mark Does Not Lose Strength as Trademark when Identified Along with Manufacturer

Damages May Not be Used to “Punish” Willful Trademark Infringement

Misleading UDRP Exhibits Could Create Liability Under Anticybersquatting Consumer Protection Act

Patents / Section 145

Patent Applicants Can Submit New Evidence to the District Court in Civil Actions Under §145

by Paul Devinsky and Charles J. Hawkins

In an unanimous decision, the U.S. Supreme Court affirmed the U.S. Court of Appeals for the Federal Circuit and held that 35 U.S.C. §145 imposes no special limitation on a patent applicant’s right to introduce new evidence in a civil action involving district court appeals from final determinations of the U.S. Patent and Trademark Office (PTO). Kappos v. Hyatt, Case No. 10-1219 (Supr. Ct., Apr. 18, 2012) (Thomas, Justice). (Sotomayor, Justice and Breyer, Justice, concurring).

The case stems from a patent application filed by Gilbert P. Hyatt. During prosecution, the examiner issued a final office action rejecting all pending claims for a failure to comply with the requirements of 35 U.S.C. § 112. Hyatt appealed to the PTO Board of Patent Appeals and Interferences (Board). The Board reversed some of the examiner’s rejections, but upheld others. Rather than pursue a direct appeal to the Federal Circuit via 35 U.S.C. §141, Hyatt filed a civil action at the District Court for the District of Columbia under §145.

In response to a summary judgment motion filed by the PTO, Hyatt submitted a declaration identifying portions of the specification that he claimed supported the rejected claims under § 112. The PTO objected to the declaration, arguing that the new evidence should not be considered because Hyatt did not raise it before the PTO, despite being able to do so.

The district court agreed with the PTO, ruling that Hyatt’s failure to present the evidence to the PTO constituted a negligent act. With no new evidence submitted, the district court reviewed the Board’s fact findings for substantial evidence and granted the PTO’s summary judgment motion. Hyatt appealed to the Federal Circuit.

In a panel ruling (see IP Update, Vol. 12, No. 8), the Federal Circuit affirmed the lower court’s ruling. The panel majority, while acknowledging that new evidence can be submitted in §145 proceedings under certain circumstances, concluded that new evidence should not be permitted if it could and should have been introduced at the PTO. The panel also held that the Administrative Procedures Act (APA) imposed limitations on the introduction of new evidence in §145 actions.

The Federal Circuit then heard the appeal en banc and ruled that applicants are free to introduce new evidence in § 145 proceedings subject only to the Federal Rules of Evidence and the Federal Rules of Civil Procedure, even if the applicant had no justification for failing to present the evidence to the PTO (see IP Update, Vol. 13, No. 3). The court also held that the district court must make de novo findings to take new, conflicting evidence into account during § 145 proceedings.

The Supreme Court Ruling

The Supreme Court began by analyzing the language of §145, concluding that the statute neither imposes unique evidentiary limits in district court proceedings nor establishes a heightened standard of review for factual findings by the PTO.

The Supreme Court then considered the PTO’s argument that district courts should give administrative deference to its factual findings and only consider new evidence if the party did not have an opportunity to present it to the agency. The Supreme Court rejected the argument, finding that no matter how great its expertise, the PTO cannot account for evidence that it has never seen. Thus, the Court concluded, it makes little sense for the district court to apply a deferential standard of review to PTO factual findings that are contradicted by the new evidence. The Court further held that the principles of administrative exhaustion do not apply in a § 145 proceeding because, by the time such a proceeding occurs, the PTO’s process is complete.

The Supreme Court concluded that when new evidence is introduced in a §145 proceeding, the district court, in its role as fact finder, must assess the credibility of new evidence, reconcile the new evidence with the administrative record and evaluate the weight the new evidence deserves. The Supreme Court explained that, “where new evidence is presented to the district court on a disputed fact question, a de novo finding will be necessary to take such evidence into account together with the evidence before the board.” The Court moreover agreed with the Federal Circuit that the district court may, in its discretion, “consider the proceedings before and findings of the Patent Office in deciding what weight to afford an applicant’s newly admitted evidence.”

The Court found it unlikely that patent applicants would withhold evidence from the PTO intentionally with the goal of presenting that evidence for the first time to a non-expert judge, noting that an applicant that pursues such a strategy would be intentionally undermining his claims before the PTO on the speculative chance that he will gain some advantage in the §145 proceeding by presenting new evidence to a district court judge.

Concurring Opinion

In her concurring opinion, Justice Sotomayor noted that there may be situations in which an applicant’s conduct before the PTO calls into question the propriety of admitting evidence presented for the first time in a § 145 proceeding before a district court. (Justice Breyer joined in the opinion.) In those situations, a district court maintains its authority to exclude evidence “deliberately suppressed” from the PTO or otherwise withheld in bad faith, consistent with “the ordinary course of equity practice and procedure.” Otherwise, when a patent applicant fails to present evidence to the PTO due to ordinary negligence, a lack of foresight, or simple attorney error, the applicant should not be estopped from presenting the evidence for the first time in a §145 proceeding.

Practice Note: Patent applicants need not fear that if they fail to bear the financial burden of submitting essentially all possible evidence to the Board, they are foreclosed from using §145 as an effective vehicle for supplementation of the record on appeal. However, in cases in which no new evidence is introduced in a §145 procedure, the standard of review will be the same as that which applies in a §141 appeal, i.e., the “substantial evidence” standard. Thus, there is no reason to file a §145 appeal unless the introduction of new evidence is contemplated.

Given the similarity between §145 and its Lanham Act counterpart, 15 U.S.C. §1071(b), the standards set forth in the Hyatt v. Kappos decision are likely to apply to proceedings challenging decisions of the Trademark Trial and Appeal Board (TTAB).

Patents / Inequitable Conduct

To Quote Mark Twain “Reports of My (Inequitable Conduct) Death Have Been Greatly Exaggerated”

by Paul Devinsky

Notwithstanding the rigorous test for proving inequitable conduct established by the en banc U.S. Court of Appeals for the Federal Circuit last May in its Therasense decision (see IP Update, Vol. 14, No. 6), the Federal Circuit upheld a district court decision finding that the patents covering Aventis Pharma’s blockbuster anti-cancer drug Taxotere were unenforceable due to inequitable conduct. Aventis Pharma S.A. v. Hospira, Inc., Case No. 11-1018 (Fed. Cir., Apr. 9, 2012) (Prost, J.).

The patents in question cover intravenous formulations of Taxotere as delivered in a diluted aqueous solution called a “perfusion.” The patented formulation was designed to overcome stability and toxicity problems in a prior formulation by use of a different surfactant and by limiting the amount of ethanol as compared to prior art formulations.

The district court concluded that specific claims of each of the Aventis patents were invalid for obviousness, not infringed and unenforceable. In terms of its decision on inequitable conduct, the district court (in a pre-Therasense ruling) made separate and distinct findings on intent and materiality, finding that two prior patents were material to patentability and that the inventor intentionally withheld them intending to deceive the U.S. Patent and Trademark Office (PTO). Aventis appealed.

In Therasense, the Federal Circuit rejected the “sliding scale” approach to proving inequitable conduct “where a weak showing of intent may be found sufficient based on a strong showing of materiality, and vice versa” and held that “[i]ntent and materiality are separate requirements.” As for materiality, the Therasense Court held that “but-for materiality is the standard for evaluating the materiality prong of the analysis unless there is affirmative egregious misconduct.” In affirming the district court, the Federal Circuit that “although the district court did not have the benefit of our Therasense opinion when it rendered its inequitable conduct decision, the [district] court nevertheless found that the withheld references were but-for material to patentability and made distinct intent and materiality findings rather than employing the now-abrogated sliding scale approach.”

Aventis argued on appeal that the inventor had explained why he did not disclose the references to the PTO and that the district court’s finding that he acted with the intent to deceive “was not the single most reasonable inference that could be drawn from the evidence.” Additionally, Aventis contended that the withheld references were not material because they were duplicative of references already before the PTO.

Materiality

After explaining that the standard for establishing “but-for materiality” in the inequitable conduct context requires only “a preponderance of the evidence, giv[ing] claims their broadest reasonable construction,” the Court made short work of Aventis’ materiality argument noting that, “when a claim is properly invalidated in district court based on the deliberately withheld reference, then that reference is necessarily material for purposes of the inequitable conduct inquiry.”

Intent

The Federal Circuit, after reiterating that in order to satisfy the Therasense intent requirement, “the accused infringer must prove by clear and convincing evidence that the applicant knew of the reference, knew that it was material, and made a deliberate decision to withhold it,” nevertheless concluded that Hospira had met its burden.

Giving due regard to the district court’s credibility determination, the Federal Circuit concluded that the district court's finding that the inventor acted with a specific intent to deceive the PTO in “withholding those references is not clearly erroneous.” At trial, the inventor testified that he considered his prior art work a “failure” and that he therefore believed he did not need to disclose it to the PTO. Aventis argued that based on this testimony the court erred in finding that the inventor “had the specific intent to deceive the PTO because the finding was not the single most reasonable inference that could be drawn.”

However, noting the totality of inventor’s testimony, including his testimony that his prior experiments (reported in the withheld reference) was one of the “main factors that shaped [his] thinking” in choosing a surfactant for the claimed invention, the Federal Circuit concluded the district court was justified in finding the inventor’s explanation to not be credible, especially since the inventor disclosed to the PTO other prior art that presented the problem he was attempting to solve (without disclosing a possible solution).

Practice Note: In this case, since the district court’s invalidity findings were affirmed (based on a clear and convincing evidence standard), satisfaction of the materiality prong (based on the preponderance standard) was a forgone conclusion.

On a related note, the remand to the district court in the Therasense case that gave rise to the en banc Federal Circuit decision has now resulted in a ruling that even under the far stricter test now in effect, the Therasense patent is unenforceable due to inequitable conduct. Therasense v. Becton Dickinson, Case No. 3:04-cv-02123-WHA (ND Cal., March 27, 2012) (Alsup, Distr. J.). In the remand decision, the court found that the withheld briefs were material under the “but for materiality” test and that the persons who withheld it did so with the specific intent to deceive the PTO. Early on his decision, in reference to the Federal Circuit’s Therasense decision, Judge Alsup seems to question the wisdom of an inequitable conduct standard under which “an applicant or his attorney may knowingly and deliberately withhold from the PTO any reference known to be inconsistent with a position taken by him or her before the PTO so long as the withholder does not know that the reference itself would lead to a rejection.”

Patents / Means-Plus-Function Claims

Computer-Implemented § 112 ¶6 Claims Require a Disclosed Algorithm

by Hasan Rashid

Further disincentivizing the use of means-plus-function claim elements in software patents, the U.S. Court of Appeals for the Federal Circuit upheld an indefiniteness ruling, concluding that the specification in issue failed to disclose an algorithm to perform all of the functions assigned to the means-plus-function element. Noah Sys., Inc. v. Intuit Inc., Case No. 11-1390 (Fed. Cir., Apr. 9, 2012) (O’Malley, J.).

The patent-in-suit relates to a system for automated financial accounting. The claims recite an “access means” for providing authorized users access to a master ledger on a financial accounting computer so that the user can enter, delete, review, adjust and process data in the ledger.

Without hearing expert testimony, the district court held that Noah’s specification does not disclose an algorithm supporting the claimed “access means” as required by Federal Circuit precedent for computer-implemented means plus function claim elements. Noah appealed. The issues on appeal were whether the district court was required to consider expert testimony and whether the patent specification adequately supported the claimed “access means.”

On appeal, the Federal Circuit considered the claim element and concluded that the claimed “access means” performs two functions: authorizing users and permitting users to enter, delete, review, adjust and process data. However, the Court disagreed with the district court in finding that the specification did indeed disclose an algorithm for the first function, namely using a pass code system to grant access to a user. However, the Court also found that the specification did not disclose an algorithm for permitting a user to modify data. By analogy, the Court analogized the situation to giving a user a pass code to unlock a Microsoft Word document but without providing the user a program to modify the document.

Finding support in the specification for only one of two recited functions, the Court turned to whether the indefiniteness issue could be decided without expert testimony. The Court noted two lines of cases—the first where a specification discloses no algorithm and the second where an algorithm is disclosed but the adequacy of the disclosure (in terms of satisfying the definiteness requirement of § 112, ¶ 2 in the context of § 112, ¶ 6 claim elements) was in dispute (see Aristocrat,IP Update, Vol. 11, No. 4). The first line of cases stand for the proposition that evidence as to the view of one skilled in the art is unnecessary as “a direct consequence of the requirement that the specification itself adequately disclose the corresponding structure.” Where, as here, an algorithm is disclosed for performing only some of multiple claimed functions, the Court concluded that the claim falls into the first line of cases and no expert testimony is required to decide the indefiniteness issue.

Citing Aristocrat and Blackboard, the Federal Circuit also rejected Noah’s argument that the specification was adequate because one skilled in the art would have known how to program a computer to permit a user to modify data. The Federal Circuit concluded that argument could not withstand scrutiny—and was the same argument it rejected in Finisar (see IP Update, Vol. 11, No. 5)—because, if accepted, a means plus function claim’s scope would include any conceivable structure for performing the claimed function, contrary to the specificity required for such claims to be definite.

Practice Note: This case, along with the Ergo Licensing decision (decided on March 26, 2012), indicates the Federal Circuit’s continued trend to strictly analyze compliance with the § 112, ¶ 2 definiteness requirement of software related means-plus-function (§ 112, ¶ 6) claim elements.

Patents / Licensing

Licensing Discussions Give Rise to Declaratory Judgment Action

by Avani C. Macaluso

Addressing the issue of whether a case or controversy exists in a declaratory judgment action in which the patentee alleged possible infringement during patent licensing discussions, the U.S. Court of Appeals for the Federal Circuit vacated and remanded a district court’s determination that jurisdiction did not exist under the facts as alleged in the complaint. 3M Company v. Avery Dennison Corp., Case No.11-1339 (Fed. Cir., Mar. 26, 2012) (Lourie, J.).

This case involves competitors, 3M and Avery, each of which utilize retroflective sheeting technology in a variety of applications including road signs. The parties have a history of engaging in IP litigation dating back to 2001 when Avery sued 3M for patent infringement, including two patents not currently at issue. During settlement of that prior litigation, the parties engaged in confidential discussions at which time 3M became aware that Avery was prosecuting reissue applications for the two patents presently at issue—the Heenan patents. In March of 2009, Avery’s counsel initiated a call to 3M’s counsel stating that 3M’s retroflective sheeting material “may infringe” the Heenan patents and that “licenses are available,” an offer 3M’s counsel rejected. Avery’s counsel responded that an analysis had been conducted and Avery would “send claim charts.” No such charts were sent.

About a year later, 3M filed a declaratory judgment action of non-infringement, invalidity and intervening rights with respect to the Heenan patents. Avery filed a motion to dismiss 3M’s declaratory judgment claims for lack of subject-matter jurisdiction. The district court agreed and concluded that subject-matter jurisdiction did not exist at the time the complaint was filed.

The district court outlined a number of reasons for dismissal, noting that the jurisdictional inquiry is objective and so finding 3M’s subjective beliefs of Avery’s motives for initiating the reissue proceedings immaterial. The district court also discounted the history of prior litigation because those cases involved unrelated patents and products. Finally, the district court concluded that the discussions between counsel were informal because Avery did not provide a detailed infringement analysis or deadline for 3M to respond, and that the passage of time from those discussions to the date 3M filed its declaratory judgment action indicated insufficient immediacy to warrant a declaratory judgment action. 3M appealed.

The Federal Circuit acknowledged there is no bright-line rule in determining whether a case or controversy exists. However, citing to Hewlett-Packard Co. v. Acceleron LLC, (see IP Update, Vol. 12, No. 12) the Court explained that for a dispute to be “definite and concrete,” more is required than “a communication from a patent owner to another party, merely identifying its patent and other party’s product line.” Rather there must be an “affirmative act by the patentee relating to the enforcement of its patent rights.”

On the facts of the present case, the Federal Circuit took issue with the district court’s determination that counsels’ discussions were informal, finding that Avery effectively charged 3M with infringement of the Heenan patents. Notwithstanding the fact that Avery’s counsel employed the term “may infringe” (rather than “does infringe”) the Court concluded there was an “effective” charge of infringement in view of the offer to license the Heenan patents and the representation that claim charts were being sent. Of particular importance to the Court was the fact that Avery’s counsel initiated, without provocation, the communications with 3M. The Court found some of the fact cited by Avery as mitigating against declaratory judgment jurisdiction to be not particularly probative, including whether the contact was by telephone and the passage of time between the contact and declaratory judgment filing. The parties’ past litigation history was characterized by the Court as “equivocal” (in terms of its analysis) as was Avery’s initiation of the reissue proceedings. The case was remanded for the district court to resolve Avery’s factual challenges as to the actual contacts and as to whether the discussions were subject to a confidentiality agreement in order to determine if a case or controversy exists.

Patents / Res Judicata

Reexamined Claims Do Not Create a New Cause of Action

by Gregory D. Yoder

The U.S. Court of Appeals for the Federal Circuit upheld a district court ruling that claims that emerge from a reexamination do not create a new cause of action that did not exist before. Aspex Eyewear, Inc. v. Marchon Eyewear, Inc., Case No. 11-1147 (Fed. Cir., Mar. 14, 2012) (Bryson, J.).

Aspex Eyewear sued Marchon Eyewear for patent infringement in 2006, alleging Marchon’s old design of eyeglass frames infringed its patent. While that case was pending, Marchon began making and selling a new design of frames that were substantially similar to the old design. In early 2008, Aspex and Marchon entered into a settlement agreement that included a stipulation to dismiss with prejudice all claims that could have been raised in the settled litigation. The stipulation specifically referred to Marchon’s old design of eye frames, and Marchon agreed to stop producing and selling the old design.

A third party requested a reexamination of the Aspex patent. After the 2006 case was settled, the reexamination ended with Aspex amending claim 23 and adding new claim 35. Aspex then filed a new suit against Marchon, accusing Marchon’s old design and new design of infringing the reexamined claims. Marchon argued that the suit was barred by res judicata and by the 2008 settlement agreement. The district court held that the newly asserted patent claims were the same as the old claims and the accused products were the same, therefore the suit was barred by res judicata.

By statute, claims that emerge from a reexamination cannot be broader in scope than the original claims. In addition, the district court found that even though the reexamined claims did not exist at the time the 2006 suit was filed, and therefore could not have been brought at that time, the reexamined claims were merely new versions of claims that were part of the Aspex patent prior to its reexamination. Aspex appealed.

The Federal Circuit, affirming the district court in part, noted that because the reexamined claims were narrower in scope than the original claims, and because the changes to the claims were insubstantial, the district court’s correctly concluded that Aspex’s allegations against Marchon’s old design was barred by res judicata.

However, the Federal Circuit declined to bar Aspex’s allegation of infringement by Marchon’s new design because those products were not made or sold before the 2006 suit. Marchon argued that the new design was essentially the same as the old design, therefore the claims should be barred. However, the Federal Circuit concluded that because a claim for patent infringement against the new design could not have been made at the time the 2006 complaint was filed, res judicata did not apply. This claim was remanded to the district court.

The Federal Circuit also concluded that the terms of the 2006 settlement agreement did not bar Aspex from suing Marchon over the new design, regardless of whether they were made or sold before the effective date of the settlement agreement. The general rule is that the products at issue in a patent suit are those that exist at the time the complaint is filed. Because there was not an express agreement that the new design was included in the dismissal stipulation, the general rule applied and claims against the new design were not barred.

Patents / Claim Construction

Reversal of Summary Judgment of Non-Infringement Rests on Construction of a Single Term not Found in Claims

by Heather Morehouse Ettinger, Ph.D.

Disagreeing with the district court’s construction of a word appearing in the court’s construction of a claim term, but not present in the patent’s claims, the U.S. Court of Appeals for the Federal Circuit reversed and remanded the district court’s grant of summary judgment of non-infringement. Advanced Fiber Technologies (AFT) Trust v. J&L Fiber Services, Inc., Case No. 11-1243 (Fed. Cir., Apr. 3, 2012) (Lourie, J.)(Dyk, J. dissenting). Specifically, the Federal Circuit found the district court’s reliance on extrinsic evidence that contradicted the specification of the patent to be erroneous and therefore remanded the case for a determination of infringement, based on the Federal Circuit’s construction.

AFT sued J&L Fiber Services for willful infringement of its patent directed to pulp and paper screening devices and methods of using these devices. The district court construed the claim terms “screening medium” and “screening plate” to include the non-claim term “perforated.” A principal focus for the Federal Circuit was whether the definition of a “perforated barrier” was limited to a something “pierced or punctured with holes” or could include a wedgewire screen. A wedgewire screen, a structure included in the accused J&L product, is made by assembling closely spaced parallel wires, not by piercing or puncturing.

The Federal Circuit disagreed with the district court that a “perforated barrier” did not include wedgewire screens, pointing to the fact that wedgewire screens, although not claimed, were expressly included as an embodiment in the specification. Specifically, the Federal Circuit found fault with the district court’s dismissal of the wedgewire embodiment set forth in the specification simply because it was just one sentence, pointing to the maxim that brevity in a patent disclosure should generally be applauded. Furthermore, the Federal Circuit found the district court’s reliance on extrinsic evidence to exclude wedgewire screens from the claim scope to be erroneous.

As for the district court summary judgment dismissal of AFT’s claim of willful infringement, the Federal Circuit noted significant doubt as to the patent’s validity given J&L’s compelling non-infringement and invalidity arguments, a compelling prior art rejection made during the prosecution of the reissue, and the fact that the meaning of some key claim terms in the original patent only became clear via AFT’s arguments during reissue prosecution. The Court therefore affirmed the district court dismissal of the willfulness claim.

In dissent, Judge Dyk while agreeing with the majority on the issue of willfulness, disagreed with its construction of “perforated” and therefore its decision to set aside the judgment on non-infringement. In Dyk’s view, arguments made by AFT during the prosecution of the reissue regarding the definition of perforated plate is intrinsic evidence, that considered with the language of the claims themselves, required exclusion of wedgewire screens from the proper claim scope.

Patents / Government Immunity

Government Contractor Is Immune from Individual Liability for Alleged Patent Infringement

by Kenneth L. Cage

An en banc U.S. Court of Appeals for the Federal Circuit reversed a U.S. Court of Federal Claims decision that allowed a patent holder’s patent infringement claim against a government contractor under 35 U.S.C. § 271(g), holding that 28 U.S.C. § 1498(a) protects contractors from infringement suits arising from work they perform for the government. Zoltek Corporation v. United States et al., Case No. 09-5135; -5100, (Fed. Cir., Mar. 14, 2012) (Gajarsa, J.). The Federal Circuit sua sponte voted to take the case en banc for the limited purpose of vacating its earlier Zoltek decision and held that the trial court (Court of Federal Claims) had erred as a matter of law in authorizing the amendment of Zoltek’s claim against Lockheed and transfer of the case to a federal district court.

Zoltek patented a method for manufacturing a carbon sheet product that is used by the United States in making the low-radar-signature F22 fighter plane designed and built by Lockheed Martin. The carbon fibers and carbon fiber mats and sheets were manufactured in Japan and were provided to Lockheed’s subcontractors for use in the F22 fighter plane. Zoltek alleged that the mats and sheets were made for the United States using the claimed processes.

In 2006 the Federal Circuit affirmed a decision of the Federal Claims Court that the United States could not be sued under § 1498 because all method steps in making the carbon-fiber mats and sheets were not performed in the United States, basing government liability under § 271(a). In so doing, the Court relied on § 1498(c), which states “The provisions of this section shall not apply to any claim arising in a foreign country.” In its 2006 decision, the Court also reversed the judgment of the Federal Claims Court that the patent owner could allege patent infringement as Fifth Amendment taking under the Tucker Act, 28 U.S.C. § 1491. (See Zoltek Corporation v. United States,IP Update, Vol. 9, No. 4.) The Federal Circuit denied a petition for rehearing en banc on its holding that the U.S. Court of Federal Claims lacks jurisdiction of a takings claim for just compensation for unauthorized use by the government under the Tucker Act. (See IP Update, Vol. 9, No. 10.)

In Zoltek’s continuing saga of seeking compensation for the alleged infringement of its patent, the Federal Circuit now concluded (en banc) that the issue was whether the Court of Federal Claims properly allowed Zoltek to amend its complaint and transfer its claim for infringement under § 271(g) against Lockheed and remove the case to a United States district court under 28 U.S.C. § 1631. On the facts of this case, the Court held that the amendment and transfer were legal error occasioned in part by the Federal Circuit’s earlier decision.

In its new decision, the Court focused on § 1498(a), which states as follows:

Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner’s remedy shall be by action against the United States in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation for such use and manufacture.

According to the Court, the earlier panel decision, limiting § 1498 to infringement under § 271(a), is inconsistent with the plain meaning of the statute and vitiates a Congressional scheme that spreads across three titles of the United States Code. According to the Court, the panel’s error created the possibility the U.S. government procurement of important military material could be interrupted via infringement actions against contractors, the exact result that the enactment of § 1498 was meant to avoid. The Court held that § 1498(a) “is more than a waiver of immunity and effects an assumption of liability by the government.” Thus, the Court concluded that the earlier per curiam interpretation of § 1498(a) was rooted in a fundamental misreading of the statute. By limiting § 1498(a) to activities within the United States, the earlier court had rendered § 1498(c) superfluous.

Practice Note: Under the Federal Circuit’s ruling, § 1498 provides a comprehensive scheme, independent and apart from § 271, to protect contractors, inventors and the United States. The proper forum for all such cases is the U.S. Court of Federal Claims.

Patents / Discovery

Eastern District of Texas Unveils E-Discovery Model to Curb Abuse

by Brock Wilson

Recognizing e-discovery in patent litigations carries “staggering time and production costs that have a debilitating effect on litigation,” in September of 2011, the U.S. Court of Appeals for the Federal Circuit adopted the Model Order Limiting E-Discovery in Patent Cases (the “model order”)—which places limits on the number of custodians and search terms that can be used for electronically stored information (ESI) discovery—and invited district courts to use the model order as a starting point for “streamlining e-discovery, particularly email production.” Last month (Mar. 2012), the U.S. District Court for the Eastern District of Texas (E.D. Tex.) accepted the Federal Circuit’s invitation and adopted its own e-discovery order.

The E.D. Tex. order uses the Federal Circuit’s model order as its baseline, but contains several modifications which appear to be aimed at harmonizing the E.D. Tex. order with the district’s liberal, mandatory discovery policies, including modifications that broaden provisions regarding the identification and number of search terms and custodians. The E.D. Tex. order also explicitly exempts production of certain information, where the information does not exist in the normal course of business or is not generated for the litigation and sets forth a particular format for ESI discovery. Several of these modifications and additions are summarized in the table below:

ProvisionFederal Circuit Model OrderEastern District of Texas modification of the order for good cause in the court’s discretion or by agreement of the parties scope of e-mail requests limited to specific issues, rather than general discovery of a product or businessprovision stricken number of identified custodians no number specified specific identification of 15 most significant e-mail custodians identification of e-mail custodians, search terms and time frame parties shall cooperate to identify parties shall cooperate to identify and requesting party may propound up to five written discovery requests and take one deposition per producing party timing of e-mail production after exchange of initial disclosures and basic documentation about the patents, the prior art, the accused instrumentalities and relevant finances after exchange of initial disclosures, listing of e-mail custodians, infringement contentions, invalidity contentions and preliminary information on damages e-mail custodians e-mail production limited to five custodians e-mail production limited to eight custodians e-mail search terms e-mail production limited to five search terms e-mail production limited to ten search terms costs for additional requests for production requesting party bears costs for production from additional custodiansprovision stricken—E.D. Tex. comments state that the limits of eight custodians and ten search terms should operate as “hard limits” cost shifting disproportionate ESI production requests or dilatory tactics shift costsprovision stricken—E.D. Tex. comments state this provision is an unnecessary restatement of Fed. R. Civ. P. 26(c) inadvertent disclosure of privileged ESI discovery shall not be used to challenge attorney-client privilege or work product protectionprovision stricken—E.D. Tex. comments states removal intended to avoid conflicts with Fed. R. Evid. 502, Fed. R. Civ. P. 26(b)(5)(B) and common protective order provisions production format no corresponding provision TIFF format with load file, indicating unitization and location of TIFF files text searchable documents no corresponding provision no obligation to produce text searchable documents unless the documents already exist in text searchable form or are made text searchable in the course of the litigation native files no corresponding provision shall be produced upon reasonable request backups no corresponding provision no need to restore any form of media upon which backup data is maintained voicemail and mobile devices no corresponding provision voicemails, PDAs and mobile phones are deemed not reasonably accessible and need not be collected and preserved

Ultimately, the E.D. Tex. order favors parties propounding ESI discovery (as compared to the Federal Circuit model order). Specifically, modifications such as increasing the number of custodians and search terms; explicitly including written discovery requests and a deposition to determine custodians, search terms and time frames; removing the provision requiring ESI requests not to be generally directed to a product or business; and removing the provision that inadvertent disclosure cannot be used to challenge the protection or privilege of that disclosure; among others, appear to favor the propounding party. On the other hand, the E.D. Tex. order endeavors to curtail imposing additional burdens on the producing party by limiting information produced to that which exists in the normal course of business. Moreover, the E.D. Tex. did not adopt the order as a local rule, but included it only as an appendix to the local rules which, as stated by the court, “allows maximum flexibility for both litigants and the court as attempts are made to tailor e-discovery planning to differing facts, case to case.” E.D. Tex. judges, and the agreeing parties, thus have some discretion to tailor the e-discovery order to the facts of a case, and early familiarity with the particular discovery landscape of a case can allow for requests for modifications, if needed.

Patents / USPTO Procedures

USPTO Issues Examination Guidelines in View of the Prometheus Decision and Pilot After Final Program

by Bernard P. Codd

Prometheus

The United States Patent and Trademark Office (USPTO) issued preliminary guidelines to examiners in the wake of the recent Supreme Court decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc.According to the preliminary guidelines, applications should be examined for compliance with 35 U.S.C. § 101 using the existing Interim Bilski Guidance issued July 27, 2010 (see IP Update, Vol. 13, No. 8), factoring in the additional considerations below.

To be patent-eligible, a claim that includes an exception to patent eligibility (e.g., law of nature, natural phenomenon or abstract idea) must also recite other elements so that the claimed product or process will amount to significantly more than the ineligible law of nature, natural phenomenon or abstract idea. Under the Prometheus decision, the threshold of “significantly more” is not met by recitation of conventional steps. According to the new USPTO guidelines, if a claim is directed to one of the above exceptions and does not meet the Prometheus eligibility requirements, the examiner should reject the claim under § 101 as being directed to non-statutory subject matter. If a claim is rejected under § 101 on the basis that it is drawn to an exception, the applicant will have an opportunity to explain why the claim is not drawn solely to the exception.

The USPTO is continuing to develop further detailed guidance on patent subject-matter eligibility.

"After Final" Pilot Program

The USPTO "After Final" Pilot Program recently instituted a pilot program for examination protocols after final responses. The duration of the pilot program is limited to the third quarter of the current fiscal year (March to June) but may be extended. Under the After Final Consideration Pilot, examiners should review responses under 37 C.F.R. § 1.116(b) and, using their professional judgment, decide whether the nature and extent of the amendments or arguments presented can be fully considered within the limited amount of time authorized by the pilot program. If not, examiners should treat the response according to current practice. An examiner’s participation in the pilot program is optional.

In accordance with the pilot guidelines (subject to limitations) if an examiner determines a response can be fully considered within three hours for plant and utility applications or one hour for design applications, the examiner will be entitled to take that amount of (non-examining) time regardless of whether the consideration of the amendment ultimately results in allowance of the application.

Under the pilot program guidelines, a response after final rejection should be entered after a complete review in the following situations:

The amendment places the application in condition for allowance by canceling claims or complying with formal requirement(s) in response to objection(s) in the final office action.
The amendment places the application in condition for allowance by rewriting objected-to claims in independent form.
The amendment places the application in condition for allowance by incorporating limitations from objected-to claims into independent claims, if the new claim can be determined to be allowable with only a limited amount of further consideration or search.
The amendment can be determined to place the application in condition for allowance with only a limited amount of further search or consideration.
The amendment can be determined to place the application in condition for allowance by adding new limitation(s) which require only a limited amount of further consideration or search.
The response comprises a perfected 37 C.F.R. § 1.131 or 37 C.F.R. § 1.132affidavit or declaration (i.e., a new declaration that corrects formal defects noted in aprior affidavit or declaration) which can be determined to place the application incondition for allowance with only a limited amount of further search or consideration.

In situations 1 and 2, no extra (non-examination) time is authorized since such amendments would, according to current practice, normally be entered. In those instances in which an interview is conducted as a result of consideration of an after final response, additional time is authorized by the pilot program: up to two hours for plant and utility applications with an additional one hour for the actual interview.

Trademarks / Laches

Laches Period Begins from Knowledge of Confusing Use, Not Mere Knowledge of Use

by Rita J. Yoon

Reviewing a defendant’s laches defense to a trademark infringement claim, the U.S. Court of Appeals for the Fourth Circuit held that a district court applied the wrong legal standard in determining when the defense was triggered, incorrectly measuring the laches period from the date plaintiff first knew of defendants’ use of a similar mark, instead of when a likelihood of confusion arose between the parties’ marks. Ray Communications Inc. v. Clear Channel Communications Inc., Case No. 11-1050 (4th Circuit, Mar. 8, 2012) (Davis, J.).

Ray Communications sued Clear Channel Communications and other defendants for alleged infringement of its federally registered AGRINET service mark and for unfair competition under the Lanham Act. The defendants asserted the affirmative defenses of laches, acquiescence and abandonment, alleging that the plaintiff knew of the defendants’ allegedly infringing use since the 1970s, but unreasonably delayed in bringing suit for more than 30 years.

The plaintiff countered that while it knew of the defendants’ use of the AGRINET mark since the 1970s, such use was limited to a separate geographic region and was licensed by the plaintiff at that time. Thus, Ray Communications argued, there was no likelihood of confusion 30 years ago. The district court granted summary judgment to defendants, concluding that Ray Communications’ knowledge of the defendants’ use of the AGRINET mark since the 1970s was sufficient to trigger the laches period. The plaintiff appealed.

The 4th Circuit vacated the district court’s grant of summary judgment and remanded, holding that the district court applied the wrong legal standard and failed to conduct a fact-intensive inquiry about when a likelihood of confusion arose. In determining whether the laches defense bars a trademark infringement claim, courts consider three factors: whether the owner of the mark knew of the infringing use; whether the owner’s delay in challenging the infringement of the mark was inexcusable or unreasonable; and whether the infringing user has been unduly prejudiced by the owner’s delay. Further, delay is measured from the time the owner knew of an infringing use, and legal action is not required until there is a real likelihood of confusion.

The 4th Circuit held that the district court erred by measuring the laches period from the time the plaintiff first knew of defendants’ use of the AGRINET mark in the 1970s, when the plaintiff and defendants’ use of their marks was geographically separate and thus unlikely to cause confusion. “Although a senior federal registrant has superior priority which extends nationwide,” the court explained, “there is no likelihood of confusion for a court to enjoin unless and until the senior user shows a likelihood of entry into the junior user’s territory.” As the movant for summary judgment on laches, the court found that defendants were “charged with presenting evidence demonstrating that at some identifiable point in time a likelihood of confusion existed and that RCI unreasonably delayed thereafter in taking responsive legal action.”

For the third prong (prejudice arising from Ray Communications’ delay), the 4th Circuit found the record below contained no legally cognizable evidence of prejudice. Other than the length of time the defendants’ used the mark, the defendants did not adduce any evidence of economic prejudice, such as loss of revenue from ceasing use of their mark. In remanding, the 4th Circuit also instructed the district court to address whether the laches defense bars the plaintiff’s right to pursue injunctive relief, which the district court failed to address on summary judgment.

Trademarks / Remedies

Caution Canal Street Counterfeiters—Plaintiffs May Recover Attorneys’ Fees in Addition to Statutory Damages

by Rita Weeks

Considering for the first time whether a trademark owner who elects to recover statutory damages for a defendant’s counterfeiting rather than actual damages and defendant’s profits is precluded from also recovering attorneys’ fees, the U.S. Court of Appeals for the Second Circuit held that a trademark owner may recover both, upholding an award of $3 million in statutory damages and well over half a million dollars in attorneys’ fees and costs. Louis Vuitton Malletier S.A. v. LY USA Inc., et al., Case No. 08-4483 (2d Cir., Mar. 29, 2012) (Sack, J.).

French fashion house Louis Vuitton sued defendants for trademark counterfeiting, trademark infringement and false designation of origin under the federal Lanham Act. Louis Vuitton alleged that the defendants were engaged in a large-scale counterfeiting operation distributing tens of thousands of handbags and related goods bearing at least five counterfeits of the plaintiff’s Louis Vuitton trademarks. The defendants were uncooperative during discovery. More than a year after Louis Vuitton filed the lawsuit, defendants were arrested in a parallel proceeding for criminal counterfeiting, and requested a stay of the civil lawsuit. The defendants alleged that they could not conduct meaningful discovery because law enforcement had removed computers, documents, merchandise and other significant items from defendants when executing a search warrant for the criminal case. Louis Vuitton argued that the defendants were using the criminal case inappropriately as a shield against the civil case. In denying the defendants’ requested stay, the court noted that the case had been pending for over a year, considerable discovery had been conducted and Louis Vuitton needed prompt redress.

Louis Vuitton noticed the depositions of individual defendants and FRCP 30(b)(6) depositions for the corporate defendants. First, the individual defendants refused to appear based on their Fifth Amendment right against self-incrimination. After the court granted Louis Vuitton’s motion to compel those depositions, those defendants appeared for their depositions but asserted their Fifth Amendment privileges and refused to answer almost every question. The corporate defendants refused to produce witnesses to testify at the Rule 30(b)(6) depositions.

After full briefing and oral argument, the district court granted summary judgment to Louis Vuitton on its trademark counterfeiting and infringement claims. The court also granted a permanent injunction barring defendants from any use of Louis Vuitton’s marks. The court did not explicitly draw an adverse inference from the individual defendants’ invocation of the Fifth Amendment, but did draw an adverse inference from the corporate defendants’ refusal to produce FRCP 30(b)(6) witnesses. The district court awarded Louis Vuitton $3 million in statutory damages and approximately $560,000 in attorneys’ fees and costs. The defendants appealed.

On appeal, the defendants argued that the district court abused its discretion in refusing to stay the civil case pending the outcome of the parallel criminal case. The 2d Circuit disagreed. The court explained that staying a civil case to permit conclusion of a related criminal prosecution is “an extraordinary remedy” and that “[a] defendant has no absolute right not to be forced to choose between testifying in a civil matter and asserting his Fifth Amendment privilege.” While noting that a few of the relevant factors would have supported a stay, the 2d Circuit found that the defendants had not demonstrated that they were deprived of their constitutional rights or otherwise suffered grave and unnecessarily prejudice as to reverse the district court. The court specifically noted that the defendants had shown a pattern of dilatory tactics developed over a year prior to the criminal indictments. The court also noted that despite the district court’s indication that it was open to hearing alternatives to a stay, the defendants never sought the court’s help to obtain alternative forms of relief such as protective orders, quashing or modifying subpoenas or sealing confidential material.

The defendants also argued that the district court erred in awarding Louis Vuitton both statutory damages and attorneys’ fees. The Lanham Act permits a plaintiff in a trademark counterfeiting case to recover either actual damages pursuant to § 1117(a) (defendant’s profits, plaintiff’s damages and costs of the action) or statutory damages pursuant to § 1117(c) (ranging from $1,000 to $200,000 per mark, or up to $2,000,000 per mark for willful counterfeiting). The defendants argued that a plaintiff that opts to recover statutory damages under § 1117(c) waives its right to recover attorneys’ fees under § 1117(a). After considering the statutory text and legislative history, the 2d Circuit concluded that defendants’ interpretation could not stand because it would frustrate the purpose of the statute and reward defendants for not maintaining or producing sales records to avoid paying a plaintiff’s attorneys’ fees. Therefore, the 2d Circuit held that “an award of attorney’s fees is available under § 1117(a) in ‘exceptional’ cases even for those plaintiffs who opt to receive statutory damages under § 1117(c).”

Trademarks / Descriptiveness

U.S. Chamber of Commerce Denied Registration of “National Chamber” Mark

by Bryan James

The U.S. Court of Appeals for the Federal Circuit upheld the decision of the Trademark Trial and Appeal Board (TTAB) to refuse the service mark “NATIONAL CHAMBER” as merely descriptive of the web services promoted by the Chamber of Commerce of the United States of America. In re The Chamber of Commerce of the United States of America, Case No. 11-1330 (Fed. Cir., Apr. 3, 2012) (Reyna J.).

The U.S. Chamber of Commerce (COC) filed two intent-to-use applications for the service mark NATIONAL CHAMBER in conjunction with services for directory information regarding state and local chambers of commerce, information and news in the field of business, and discount programs for goods and services, as well as analysis of governmental policy and regulatory activity relating to businesses for the purpose of promoting the interests of businessmen and businesswomen, and business data analysis. The examining attorney refused registration of the mark pursuant to Section 2(e)(1) of the Lanham Act, which prohibits registration of any trademark that is merely descriptive of the goods or services with which it is used. The examining attorney reasoned that NATIONAL describes services that are nationwide in scope, and CHAMBER is descriptive of services that promote the interests of businesspersons, a purpose common to chambers of commerce.

The TTAB affirmed the examiner’s refusal. The TTAB reviewed the U.S. COC’s website and certain articles from local chambers of commerce describing their services. The TTAB also relied on a dictionary definition of “chamber” that can refer to “a chamber of commerce,” and a definition of “chamber of commerce,” which is an association of businesses and/or businesspersons for the promotion of commercial interests. The U.S. COC appealed the refusal to the Federal Circuit.

On appeal, the Court noted that there could be no recourse to secondary meaning or acquired distinctiveness because the applications are based not on actual use, but intent to use. Thus, the analysis must turn on the descriptiveness of the terms themselves. Further, a mark is merely descriptive if it describes even a single feature or attribute of the relevant goods or services; it need not recite each and every feature in detail.

The Court found that substantial evidence to support the TTAB’s factual finding that the mark was merely descriptive of at least one of the services described in the applications. The Court cited as examples services for providing directory information regarding local and state chambers of commerce, promotion of the interests of businesspersons and activities to help members become informed and involved in business-related legal and policy decisions by governments.

Further, the Court noted that a term is merely descriptive if it immediately conveys knowledge of a function of the goods and services for which it is to be used. Because the applications expressly recite the function of promoting the interests of businesspersons, within the traditional sphere of chambers of commerce, registration of the mark was rightly refused for being merely descriptive of that function.

Trademarks / Functionality

No Trademark Protection for Design of Closure Cap for Medical Collection Tubes

by Rita Weeks

Considering whether a medical device company was entitled to obtain a trademark registration for its design of a closure cap for medical collection tubes, the U.S. Court of Appeals for the Federal Circuit affirmed a final decision of the Trademark Trial and Appeal Board (TTAB) that the design could not be registered because it is functional. In re Becton, Dickinson and Co., Case No. 11-1111 (Fed. Cir., Apr. 12, 2012) (Clevenger, J.) (Linn, J. dissenting)

Becton, Dickinson (BD) applied to register a particular design of a closure cap for blood collection tubes. The trademark examining attorney refused registration under 15 U.S.C. § 1052(e)(5) on the grounds that the cap design is functional, as well as on the basis that even if the design is non-functional, the cap design is a non-distinctive configuration of the goods under 15 U.S.C. §§ 1051-1052 and 1127. A shape or design is “functional,” and therefore may not be protected as a trademark, if it is “essential to the use or purpose of the article or affects the cost or quality of the article.” TrafFix Devices, Inc. v. Marketing Displays, Inc. (see IP Update, Vol. 4, No. 4). The examining attorney requested that BD provide additional information concerning the cap design. BD did, providing several of its utility and design patents, samples of advertising materials and photographs of medical closure caps manufactured by third parties. The examining attorney issued a final refusal and BD appealed to the TTAB.

The TTAB assessed the design’s utilitarian functionality under the Morton-Norwich factors: the existence of a design patent disclosing the utilitarian advantages of the design sought to be registered; advertising by applicant that touts the utilitarian advantages of the design; whether the design results from a comparatively simple or inexpensive method of manufacture; and the availability of alternative designs. The Board found applicant’s cap to be a functional design based on the first two factors. A utility patent disclosed at least two utilitarian advantages of the cap’s design and thus supported functionality. Also, some of BD’s advertising materials extolled the utilitarian advantages of several design features of the proposed mark. Becton, Dickinson appealed.

On appeal, the majority of the Federal Circuit agreed with the TTAB, finding substantial evidence supporting the first two Morton-Norwich factors. First, the Court noted that the utility patent disclosing features of applicant’s cap design was strong evidence of functionality. BD argued that the references should not be given such probative value because they were found in the specification of the patent and not the actual patent claims. The Court rebuffed the argument, explaining it was not limited to consider only the actual patent claims in evaluating trademark functionality. The Court also gave great weight to BD’s own advertising materials touting the utilitarian advantages of its design.

In dissent, Judge Linn argued that the Board and majority improperly compared the functional features against the non-functional features of applicant’s cap design to determine whether the mark as a whole is functional and non-registerable. “The proper inquiry,” Judge Linn explained, “is to examine the degree to which the mark as a whole is dictated by utilitarian concerns (functional or economic superiority) or is arbitrary (‘without complete deference to utility’).” In other words, if a particular design is not required to look the way it does, the design is non-functional. Further, Judge Linn stated that more weight should have been given to the third and fourth Morton-Norwich factors, i.e., existence of alternative designs and whether the design resulted in a less expensive method of manufacture. Linn argued that the TTAB and the majority discounted “the most probative evidence submitted” in the case which were the design patents and third-party alternative designs. Linn explained that three distinct design patents showed that the shape of the container could be varied and still perform the same function, weighing against a finding of functionality. Linn explained that even though BD’s advertising materials may be viewed supporting finding of functionality, those same materials could also be viewed supporting non-functionality because they showed the existence of alternative cap designs different from the mark.

Trademarks / Strength

A Unique Arbitrary Word Mark Does Not Lose Strength as Trademark when Identified Along with Manufacturer

by Alesha M. Dominique

The U.S. Court of Appeals for the Federal Circuit reversed a decision of the Trademark Trial and Appeal Board (TTAB) dismissing tire manufacturer Bridgestone’s opposition to the registration of the mark MILANZA for use with tires. The Federal Circuit found that the mark MILANZA did not lose its strength as a trademark simply because the BRIDGESTONE mark was used concurrent with MILANZA. Bridgestone Americas Tire Operations v. Federal Corp., Case No. 10-1376 (Fed. Cir., Mar. 16, 2012) (Newman, J.).

Applicant Federal filed an intent-to-use application to register the mark MILANZA for tires. Bridgestone opposed applicant’s registration of MILANZA on the ground of likelihood of confusion with Bridgestone’s marks POTENZA and TURANZA for tires. The TTAB concluded that confusion as to source of tires was not likely because it determined that there was no commercial strength or fame of the POTENZA and TURANZA marks independent of the mark BRIDGESTONE. Specifically, the TTAB found that the POTENZA and TURANZA marks were not strong or famous marks because they were usually accompanied in advertising by the mark BRIDGESTONE or Bridgestone’s “B” logo. Thus, the TTAB found that while Bridgestone’s marks were inherently distinctive, any market strength was tied to the BRIDGESTONE mark. Bridgestone appealed.

Reversing the TTAB, the Federal Circuit explained that concurrent use of the BRIDGESTONE mark did not diminish the status of POTENZA and TURANZA as strong marks for tires. The Federal Circuit found that Bridgestone’s marks had commercial strength independent of its BRIDGESTONE mark based on the prolonged exclusive use of the marks, extensive promotion and marketing and billions of dollars of sales of tires bearing the marks. The Federal Circuit concluded that a unique arbitrary word mark does not lose its strength as a trademark when the manufacture is identified along with the branded product, as each identification may have trade significance.

The Federal Circuit noted that prior users of marks are entitled to the traditional protections of its marks of trade as against newcomers choosing a confusingly similar mark for the same goods. In light of the identity of the goods, the lengthy prior use of POTENZA and TURANZA, the market strength of the marks, and the similarities of words, sounds, and connotation with MILANZA, the Federal Circuit found sufficient similarly was shown that the mark would cause consumer confusion, deception or mistake. Thus, the Federal Circuit reversed the Board’s decision.

Trademarks / Damages

Damages May Not be Used to “Punish” Willful Trademark Infringement

by Sarah Bro

The U.S. Court of Appeals for the Ninth Circuit upheld a jury award of $6.6 million against an internet and phone-based marketer of skydiving services, but rejected the enhancement of the damages, holding that the district court’s doubling of actual damages was improperly punitive rather than compensatory. Skydive Arizona v. Quattrocchi, Case No. 10-16033 (9th Cir., Mar. 12, 2012) (Smith, Jr., J.) (Noonan, J., partial concurrence and partial dissent).

Plaintiff Skydive Arizona, one of the most well known skydiving centers in the world, has used the “SKYDIVE ARIZONA” trademark in commerce since 1986. Skydive Arizona sued multiple defendants for false advertising, trademark infringement, and cybersquatting based on claims that defendants used numerous domain names that referenced Arizona (e.g., phoenixSkydiving.com, arizonaSkyDive.com), alleging that through false advertisements on their websites, the defendants misled consumers into believing that Skydive Arizona would accept defendants’ discounted skydiving certificates at Skydive Arizona’s centers.

The district court awarded partial summary judgment on the false advertising claims, and a jury then found for Skydive Arizona on the trademark infringement and cyber squatting claims. The court awarded Skydive Arizona $1 million in actual damages for false advertising, $2.5 million in actual damages for trademark infringement, $2.5 million in profits and $600,000 for cybersquatting, totaling $6.6 million. The district court then increased the actual damages to $7 million and issued a permanent injunction, which prevented the defendants from using the terms “SKYDIVE ARIZONA,” or similar variations, as well as other references to Skydive Arizona in the state of Arizona. The defendants appealed the summary judgment ruling and the damages award, including the enhancement of actual damages. Skydive Arizona appealed the injunction, believing that it should be applicable nationwide.

Concerning the false advertising claim, the 9th Circuit reviewed a customer declaration stating that he purchased a certificate from the defendants based on their representations that he could redeem the certificate with Skydive Arizona. The statements on the defendants’ websites and advertisements were found to be material and likely to influence consumer purchasing decisions. While the defendants argued that Skydive Arizona needed to provide consumer survey to prove the materiality, the court found that it was not limited to consumer surveys and use of a personal declaration was sufficient.

Concerning the defendants’ appeal of the damages award, the 9th Circuit affirmed the district court on each award with the exception of the enhancement of actual damages. On that issue, the court looked to the plain language of the Lanham Act, which states that treble damages may be awarded, as long as the total is found to be proper compensation rather than a penalty for infringement. Because the district court opinion focused on the defendants’ “purposely deceitful” conduct and disregard for the consumers who were confused, the court believed that such language suggested a “punitive motivation” for the enhancement.

Finally, the 9th Circuit also rejected Skydive Arizona’s cross-appeal for a nationwide injunction, because Skydive Arizona had not proven that the defendants’ conduct outside of the state of Arizona was illegal, and the injunction was affirmed for Arizona only.

Issuing a partial dissent in connection with the jury’s $2.5 million actual damages award, Judge Noonan explained that the evidence submitted by Skydive Arizona concerning its advertising expenditures may have been relevant to the value of the goodwill of its trademark, but that such evidence did not prove any actual damage to that goodwill. He also indicated that the defendants’ profits were not a measure of Skydive Arizona’s actual damages.

Trademarks / ACPA

Misleading UDRP Exhibits Could Create Liability Under Anticybersquatting Consumer Protection Act

by Elisabeth (Bess) Malis

In an unpublished opinion, the U.S. Court of Appeals for the Fifth Circuit held that a company that allegedly redacted portions of an exhibit submitted in connection with a complaint under the Uniform Domain Name Dispute Resolution Policy (UDRP) may be liable for misrepresentation under the Anticybersquatting Consumer Protection Act (ACPA). ISystems v. Spark Networks, Ltd., Case No. 10-10905 (5th Cir., Mar. 21, 2012) (per curiam).

In 1997, defendant Spark Networks Limited purchased the domain name jdate.com, through which it provides online dating services that cater to Jewish singles. The defendant registered the “JDate” mark with the U.S. Patent and Trademark Office for its web-based introduction services in January 2001. In May 2001, plaintiff ISystems purchased the domain name jdate.net to market its Julian date (or “JDATE”) computation software product. The plaintiff later allowed an organization called the Jewish Dating Network to use a subdomain of its jdate.net website to provide a non-profit service that rates Jewish online dating resources. When the plaintiff did not comply with the defendant’s request that the plaintiff transfer to it the jdate.net domain, the defendant filed an arbitration complaint under the UDRP. The defendant won transfer of the jdate.net domain, causing the plaintiff to file a complaint in federal district court against the defendant and its parent company alleging, among other claims, that the defendant’s efforts in the UDRP action violated the Anticybersquatting Protection Act (ACPA). The district court ultimately granted the defendant’s motion to dismiss, and the 5th Circuit affirmed the district court. The 5th Circuit later granted the plaintiff’s petition for rehearing.

Under the ACPA, a party is liable for damages if a registrar transfers a domain name based on such party’s “knowing and material misrepresentation…that a domain name is identical to, confusingly similar to, or dilutive of a mark.” The plaintiff alleged that the defendant materially misrepresented the nature of the plaintiff’s site by presenting a “true and correct copy” of the plaintiffs’ webpage as an exhibit to its UDRP complaint, while blacking out certain portions of the exhibit to make its website appear to be a commercial site rather than a non-profit resource. The plaintiff claimed that an actual copy of the opening page of the site would have identified the website as a not-for-profit resource, but instead, the redacted image of the site suggested that it redirected visitors to other websites for profit. Taking the plaintiff’s factual allegations as true (consistent with the applicable motion to dismiss standard of review), the 5th Circuit agreed that the defendant’s alleged misrepresentation was material because the ACPA’s definition of dilution specifically excludes noncommercial uses of a mark. In fact, the arbitrator explicitly relied on the lack of evidence of noncommercial use of jdate.net in its decision to transfer the domain. On this basis, the 5th Circuit reversed and remanded this ACPA claim, finding that the plaintiff pled the facts with sufficient particularity to survive the motion to dismiss.

The plaintiff also met its burden under the ACPA to proceed in seeking an order that its registration of jdate.net was not unlawful at the outset, which is determined by reviewing evidence of bad faith intent to profit from the domain name. The plaintiff alleged that it selected the “JDate” name solely to use in connection with its software product and that any similarity with the jdate.com site did not benefit the plaintiff’s marketing of its software. Further, the plaintiff alleged that although the Jewish Dating Network eventually used a portion of its site, the use was purely non-commercial and resulted in no profits. Taking the plaintiff’s allegations as true, the 5th Circuit was persuaded that the plaintiff lacked bad-faith intent and reversed and remanded this ACPA claim as well.

Practice Note: Practitioners should exercise caution in submitting UDRP-related filings, as any alteration to exhibits may be construed as misrepresentation.