Category: Antitrust & Trade Regulation

Congratulating A Celebrity Could Cost You A Lawsuit re: Right of Publicity and False Endorsement

When a celebrity does a good deed or a sports figure achieves a major accomplishment, companies may feel like sending a public “shout out” to that individual – whether it be through a tweet, a Facebook post, or some other media.  However, companies need to be very careful that such a reference to the public figure does not suggest any type of endorsement of or association with its products or services, which could constitute a right of publicity violation.  The right of publicity is generally understood to be the right of a person to control the commercial exploitation of his or her identity, and prevent commercial appropriation of his or her identity by others without permission.  Generally, a right of publicity violation consists of unauthorized use of a protected aspect of identity (i.e. name, image, likeness) for commercial purposes, such as use on commercial products and in commercial advertising.

Last year we mentioned basketball legend Michael Jordan’s right of publicity lawsuit against Jewel Food Stores. In 2009, Jewel Food Stores ran an advertisement in Sports Illustrated magazine containing congratulatory text about Jordon’s induction in the Basketball Hall of Fame along with a photo of Jordan’s namesake basketball shoes.  However, the advertisement also featured Jewel’s trademarks: its red and white logo and the slogan “Good Things Are Just Around the Corner.”  The ad copy played on the slogan to refer to Jordan as a “fellow Chicagoan who was ‘just around the corner’ for so many years.”

In response, Jordan filed suit against Jewel for right of publicity violation, false endorsement under the Lanham Act, and unfair competition, seeking $5 million in damages.  Jewel argued that the notice was non-commercial speech and should be protected by the First Amendment, and the district court agreed.  However, the Court of Appeals held that although the advertisement had a celebratory theme, there was an unmistakable commercial function also.  Even though it did not purport to sell any specific product, it served to enhance the store’s brand in the minds of consumers.  Specifically, the court noted it was

image advertising, aimed at promoting goodwill for the Jewel-Osco brand by exploiting public affection for Jordan at an auspicious moment in his career.

There has been some activity by the court since our last post and the suit’s remand.  In response to Jewel filing third-party claims against Time Inc. (publisher of Sports Illustrated) for contribution and indemnification, the district court ruled that Time could not be held liable, as state law would prevent Jewel from imposing contribution liability on Time.  Additionally, the court has denied Jordan’s request for summary judgment on his claim under the Illinois Right of Publicity Act, stating that the appellate court’s conclusions about the function of the ad under the First Amendment did not answer the question as to whether Jordan’s identity was used for a commercial purpose under state law.  Finally, just last week the court ruled that Jordan has a statutory right to sue Jewel, in response to Jewel’s assertion that Jordan had transferred his publicity rights to his loan-out company, rendering him the improper plaintiff.

A jury trial for this case is set for December 8.

Companies who may be considering using a celebrity’s name or likeness in any contextwithout permission should think again, especially in light of lawsuits like this one.

ARTICLE BY Beth L. Goldstein of Squire Patton Boggs (US) LLP
© Copyright 2015 Squire Patton Boggs (US) LLP

Court Dismisses Text-Message TCPA Suit Against AOL, Finding Instant Messaging Service Does Not Constitute an ATDS

On June 1, the Northern District of California dismissed a putative TCPA class action against AOL, finding that the plaintiff had failed to allege that AOL utilized an automated telephone dialing system (ATDS), as required to state a cause of action under the TCPA.  In dismissing the plaintiff’s complaint in Derby v. AOL, the court rejected the plaintiff’s arguments that AOL Instant Messenger (AIM), which allows individuals to send instant messages as text messages to cell phones, constitutes an ATDS.  Instead, the court agreed with AOL’s argument that AIM relied on “human intervention” to send the messages at issue, which foreclosed the possibility of potential TCPA liability.  (Covington represented AOL in this case.)  The decision should be beneficial to a variety of services that enable their users to send text messages to cell phones.

The TCPA’s prohibitions include a ban on using an ATDS to call cellular telephones for informational purposes without the prior express consent of the recipient.  The FCC and courts have extended the reach of the statute to include text messages.  However, the FCC has stated that only equipment that has the capacity to operate “without human intervention” may qualify as an ATDS.  The plaintiff in Derby alleged that he received three text messages from an AIM user that were intended for another individual, which the court recognized were “presumably . . . the result of the sender inputting an incorrect phone number.”  After the receiving the third message, the plaintiff alleged that he sent a text message to AIM to block future texts from the AIM user, and that he received back a text confirmation of his request.

In analyzing TCPA liability for the first three text messages, the court noted that the plaintiff’s complaint “affirmatively alleges that AIM relies on human intervention to transmit text messages to recipients’ cell phones.”  The court followed precedent from other Ninth Circuit district courts rejecting ATDS arguments where the equipment at issue relied on humans to press buttons on phones or manually enter telephone numbers into the system.  Since the complaint demonstrated that “extensive human intervention is required to send text messages through defendant’s AIM service,” the court held that the complaint failed to state a claim under the TCPA with respect to the three text messages sent by an AIM user.

The court also analyzed potential TCPA liability for the separate confirmation text message that Derby alleged he had received from AIM.  Again citing relevant authority, the court held that “a single message sent in response to plaintiff’s text . . . is not the kind of intrusive, nuisance call that the TCPA prohibits.”  The court concluded that Derby, having sent the “block” request from his cell phone, had “knowingly released” his number to AIM and consented to receive a confirmation text from AIM at that number.  The court’s opinion advocated for a “common sense” approach to TCPA liability, finding that the statute should not be utilized to “punish the consumer-friendly practice of confirming requests to block future unwanted texts.”  Accordingly, the court also dismissed the TCPA claim based on the confirmation text message for failure to state a claim.

ARTICLE BY Caleb Skeath of Covington & Burling LLP
© 2015 Covington & Burling LLP

Catch of the Day: Tuna Fish Brand StarKist Swims into a Sea of Trouble After Agreeing to Settle Claims Against It

StarKist Co. recently agreed in principle to a $12 million settlement with a putative class of plaintiffs concerning alleged under-filling of tuna fish cans. But agreeing on the dollar figure seems to have been the easy part; the parties in this bitterly-fought case have become embroiled in motion practice about the allocation of that $12 million payout.

The case under discussion is Hendricks v. StarKist Co., No. 3:13-cv-0729-HSG in the Northern District of California. Plaintiff alleged that StarKist had been under-filling its cans of tuna fish, resulting in a product weight that fell below the federally mandated minimum averages of 2.84 to 3.23 ounces of tuna per 5 ounce can. This practice, plaintiff alleged, violated California’s Consumer Legal Remedies Act, California’s False Advertising Law, California’s Unfair Competition Law, and plaintiff also brought various common law claims.

StarKist moved to transfer or dismiss the case, and the Court denied the motion to transfer and mostly denied StarKist’s motion to dismiss. The Court also denied StarKist’s motion for reargument. Plaintiff subsequently moved to certify a nationwide class for his common law claims, moved for sanctions relating to alleged discovery misconduct, and several interested parties sought to intervene and certify statewide sub-classes under other states’ laws. On the morning that all those motions were to be argued, the parties signed a binding settlement term sheet under which StarKist would make available $8 million in cash and $4 million in vouchers to the settlement class.

There was a catch, however, over how to allocate payments from the settlement fund. Plaintiff proposed a flat-rate payout of $25 in cash or $50 in vouchers to class members. Plaintiff’s proposal would potentially exhaust the settlement fund quickly, and Starkist objected to it. Specifically, StarKist argued that it is “arbitrary and bear[s] no relationship to the number of StarKist products each class member purchased or the extent of purported injury” (emphasis in original). By contrast, StarKist’s allocation proposal would award each class member $1.00 for up to ten products purchased, and an additional $1.00 for every ten cans of StarKist tuna fish purchased with an upper limit set at 250 cans or $25.00. StarKist also proposed that vouchers be available in lieu of cash at a value of $1.50 per ten cans of StarKist tuna fish purchased with a maximum value of $37.50.

It remains to be seen whether StarKist’s arguments will persuade the Court to can plaintiff’s flat-rate payout. We will, of course, monitor developments in this case, but in the interim it bears repeating that sometimes the dollar figure is the easy part of settling a putative class action.

ARTICLE BY

Lawrence I Weinstein & Benjamin M Rattner of Proskauer Rose LLP
© 2015 Proskauer Rose LLP.

In Affirming a Preliminary Injunction Against Drug Companies, Second Circuit Finds Coercion in Product Hopping Scheme

In an earlier posting, I wrote about the lawsuit filed on December 10, 2014 by the Attorney General for the State of New York, People of the State of New York v. Actavis, PLC and Forest Laboratories, LLC .1  In that action, New York challenges on antitrust grounds plans by the defendant pharmaceutical companies to cease marketing the drug Namenda IR and substitute in the market-place a newer drug, Namenda XR.  Both drugs are used for the treatment of moderate to advanced Alzheimer’s disease.  Namenda IR and Namenda XR are the brand names for the drug memantine, and defendants have a monopoly for memantine in the United States. On May 22, 2015, the Second Circuit issued an Order affirming a preliminary injunction granted by the United States District Court for the Southern District of New York, enjoining Actavis and Forest Laboratories (“Forest”) from discontinuing the marketing of Namenda IR, and substituting its newer drug Namenda XR.2  The Second Circuit filed an opinion under seal concurrently with the issuance of its Order, allowing the parties to submit proposed redactions by May 26, 2015.  The court of appeals on May 28, 2015 issued a redacted version of its opinion.  At the time of my previous posting on the antitrust suit brought by New York against Actavis and Forest, the Second Circuit had not released it redacted version of its opinion.

In its opinion, the Second Circuit ruled that the district court did not abuse its discretion in granting a preliminary injunction, as sought by New York, precluding the defendants from implementing a marketing scheme known as “product hopping.”  This tactic was a means of maintaining the defendants’ monopoly in the memantine market and precluding competition by generic brands of that drug.  Of critical import to the court of appeals was that defendants relied upon consumer coercion, rather than persuasion on the merits of competing generics.  The coercive aspect of defendants’ marketing scheme violated section 2 of the Sherman Act.3  

The Second Circuit’s ruling in People of the State of New York v. Actavis, PLC and Forest Laboratories, LLC affirming the district court’s preliminary injunction is the first appellate decision to specifically opine on the antitrust implications of product hopping in the pharmaceutical industry.

Background

Forest holds a patent for its brand-name drug Namenda IR, with market exclusivity to expire on July 11, 2015.  On that date, Forest will no longer have market exclusivity for memantine.  Actavis and Forest issued several public statements regarding plans to withdraw Namenda IR from the market, ultimately announcing in June 2014 that Namenda IR would be available for sale until the fall of 2014.  Defendants indicated that upon withdraw Namenda IR from the market in the fall of 2014, its newer drug Namenda XR would be available as a substitute for the treatment of moderate to advanced Alzheimer’s disease.  Defendants took steps to notify physicians and caregivers of the discontinuance of Namenda IR and to contemplate switching from Namenda IR to Namenda RX.

Namenda XR has the same therapeutic effect as Namenda IR.  There is a difference between the two drugs regarding time-release.  Namenda IR is the immediate-release version of that drug, whereas Namenda XR is an extended-release version. Thus, consumers would take Namenda IR twice daily; in contrast, Namenda XR would be taken once daily.  Additionally, Namenda IR is in tablet form, and Namenda XR is in capsule form.

There are implications for generic drug competition in the market for memantine that arise from the marketing plans announced by Actavis and Forest.  In 1984, Congress enacted the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the “Hatch-Waxman Act.”4    That statute provides for dual purposes. On the one hand, Congress allowed a manufacture of a generic drug to use an abbreviated process to obtain approval to market the drug from the Food and Drug Administration (“FDA”).  Provision for an abbreviated process was to encourage price competition from  generic drugs.  The generic drug manufacturer can file an Abbreviated New Drug Application (“ANDA”) provided that the generic drug is “bioequivalent” to a previously approved brand-name drug.  This regulatory approach allows the generic manufacturer to rely on scientific data previously submitted for the brand-name drug to seek approval to market the generic drug.  The ANDA process affords generic manufacturers considerable cost savings, and a shorted period of FDA review.  The other purpose under the Hatch-Waxman Act was to incentivize drug innovation.  To do this, Congress provided that the manufacturer of a brand-name drug can obtain an additional extension of up to five years to the patent term of the drug to compensate for regulatory delay when seeking approval from the FDA for the new brand-name drug.5  Additionally, under amendments to the Hatch-Waxman Act by the Food and Drug Administration Modernization Act of 1997,6 provision was made for six months of non-patent “pediatric exclusivity” for qualifying pediatric research conducted by the drug manufacturer.7

States have drug substitution laws that either mandate or allow the substitution of a generic drug for a prescribed brand-name drug, except where the prescribing physician, or consumer, indicates otherwise. A generic drug that receives approval from the FDA under the ANDA process may be “AB- rated” by the FDA when the generic drug is “therapeutically equivalent” to its brand-name drug counterpart.  A generic drug deemed AB-rated allows a pharmacy, under a state’s substitution laws, to substitute the generic drug for the more expensive brand-name drug.  State substitution laws complement the provisions under the Hatch-Waxman Act which liberalize the drug approval process for generic drugs, to lower drug costs by encouraging greater competition from generic drugs in the market-place.

In the antitrust lawsuit filed by New York against Actavis and Forest, the State Attorney General alleges violations of the Sherman Act8 and state antitrust laws.9  In the action, New York contends that the marketing practice of product hopping that the defendants intend to pursue will have dire consequences for competition from generic drugs for Forest’s Namenda IR that would have occurred upon the expiration of market exclusivity for Namenda IR on July 11, 2015.  This anticompetitive impact will arise, according to New York, as a direct result of defendants’ plans to stop marketing Namenda IR and “force switch” physicians and payors to use Forest’s newer drug Namenda XR prior to loss of market exclusivity for Namenda IR on July 11, 2015.10  New York argues that removal from the market of Namenda IR prior to the loss of market exclusivity for Namenda IR will thwart state substitution laws since generics for the drug Namenda IR will not have been AB- rated for the newer Namenda XR, critical to enable pharmacists to substitute a generic version for the newer drug Namenda XR.  New York contends that defendants’ scheme will thus extend the national monopoly that Forest has for memantine for the term of the patent it has for Namenda XR, to expire in 2029.

In its lawsuit, New York argues that there is no legitimate business justification for the product hopping scheme defendants intend to pursue.  In its amended complaint, the State insists that Manenda XR lacks any meaningful benefits compared with Namenda IR.11  New York accuses the defendants of erecting barriers to entry to thwart competition from makers of the generic form of the drug Namenda IR.  The State contends that steps to force switch the prescribing of Namenda XR would impact negatively on thealready “financially strapped”12 health care system, and on Alzheimer’s patients who “must bear…unwanted costs” and “unnecessary changes to their medical routine.”13

The Second Circuit’s Analysis            

On appeal, the Second Circuit ruled that the district court did not abuse its discretion in granting a preliminary injunction, enjoining Actavis and Forest from discontinuing the marketing of Namenda IR.  Applying a heightened standard under the law in the Second Circuit for review of a preliminary injunction, the court of appeals concluded that New York demonstrated a “substantial likelihood of success on the merits” of its monopolization and attempted monopolization claims under section 2 of the Sherman Act, and has made “a strong showing” that defendants’ conduct “would cause irreparable harm to competition” in the memantine drug market and to consumers.14

The Second Circuit wrote that monopoly power does not, in and of itself, raise an antitrust concern.  To establish a violation of section 2 of the Sherman Act, it must be proved that the defendant not only possessed monopoly power in the relevant market, but that it “willfully acquired or maintained that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”15  The court of appeals recognized that defendants’ patent on Namenda IR grant them a legal monopoly in the national memantine drug market until July 11, 2015.  Thus, the Second Circuit explained that the issue is whether defendants “willfully sought to maintain or attempted to maintain” that monopoly in violation of section 2.  Citing United States v. Microsoft Corp.16 the court of appeals embraced a rule-of-reason test to determine when a product change violates section 2.  It wrote that generally, courts question assertions that competition is harmed by a dominant firm’s product design changes.  Such design changes can benefit consumers and represent innovation and efficiency. Thus, the court explained that, to be anticompetitive, a dominant firm’s design changes are those that impede competition through means “other than competition on the merits.”17  Relying  on its analysis in Berkey Photo, Inc. v. Eastman Kodak Co.,18 the Second Circuit reasoned that product withdrawal or product improvement, standing alone, is not anticompetitive.  The court wrote that under Berkey Photo, when a monopolist “combines product withdrawal with some other conduct,” such that consumers are “coerced” rather than persuaded based on the merits, and to “impede competition,” such actions are anticompetitive.19  The court of appeals concluded that defendants’ plan to force switch Alzheimer’s patients from taking Namenda IR to the newer drug Namenda XR (for which generic Namenda is not therapeutically equivalent) would impede generic competition by thwarting state substitution laws for generics.  Defendants’ force switch scheme “crosses the line from persuasion to coercion and is anticompetitive.”20  

The Second Circuit agreed with the district court’s view that the pharmaceutical market is unique, and the critical role that state substitution laws play in facilitating price competition between brand-name drugs and generics.  Competition through state substitution laws “is the only cost-efficient means” for generic drugs to compete.21  The court of appeals explained that defendant’s plan to force patients to switch to Namenda XR would preclude generic substitution because generic Namenda IR is not AB-rated to Namenda XR.  The Second Circuit viewed defendants’ plan to force switch consumers to Namenda XR as a practice not based on competition on the merits.  As such, defendants’ scheme was exclusionary, with the anticompetitive “effect of significantly reducing usage of rivals’ products and hence protecting its own monopoly,”22 in violation of section 2 of the Sherman Act.  The court of appeals took note of the record before the lower court indicating the defendants’ own predictions on the effect of its plan to force switch consumers.  Such a scheme would convert, in defendants’ judgment, 80-100 of Namenda IR patients to Namenda XR prior to entry into the market by generic Namenda IR.  Thus, there would be virtually no meaningful market in which generics could compete based on price for Namenda IR.23  The court of appeals also took note of defendants’ own views regarding the very low prospects that consumers would revert back to the generic version of Namenda IR once they were forced to switch to Namenda XR and manufacturers were free to sell the generic version of Namenda IR.24

The Second Circuit rejected the defendants’ procompetitive justifications for its marketing scheme as pretextual.  Relying on the record before the lower court, the court of appeals wrote that there is ample evidence indicating that defendants’ stated intent was to erect barriers to thwart generic competition, and maintain a monopoly in the memantine market.  Defendants argued that their conduct is procompetitive since introducing a new product, like Namenda XR, enhances competition and encouraging product innovation.  The Second Circuit disagreed.  It wrote that while introducing Namenda XR may, standing alone, be procompetitive, there is no competitive justification for withdrawing Namenda IR.25

The Second Circuit also concluded that New York made a strong showing “that competition and consumers will suffer irreparable harm” in the absence of the preliminary injunction awarded by the district court.26

The views and opinions expressed in this article are those of the author, and cannot be attributed to the Office of the Inspector General for the District of Columbia Government.

ARTICLE BY Stuart Silverman of American University Washington College of Law
Copyright American University Washington College of Law

1  Amended Complaint, Case No. 14-CV-7473 (RWS) (S.D.N.Y. filed Dec. 10, 2014).

2 Case No. 14-4624 (2nd Cir. May 22, 2015)

3 15 U.S.C. § 2.  

4 Pub. L. No. 98-417, codified at: 21 U.S.C. § 355, 21 U.S.C. § 2201, and 35 U.S.C. §§ 156, 271, 282.

5 35 U.S.C. § 156.  

6 Pub. L. No. 105-115.

7 35 U.S.C. § 156; 21 U.S.C. § 355a.   

8 15 U.S.C. §§ 1 and 2.  

9   New York State General Business Law §§ 340-47; New York State Executive Law § 63(12).      

10 The district court’s preliminary injunction bars defendants from withdrawing Namenda IR until 30 days after July 11, 2015, the date when generic memantine will first be available in the market.    

11 Amended complaint, par. 78.  

12 Id. at par. 6.  

13 Id. at par. 100.  

14 Slip op. at 28.  

15 Id. at 29, quoting Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407 (2004) (internal quotation marks and citation omitted).    

16 253 F.3d 34, 58-60 (D.C. Cir. 2001) (en banc).  

17 Slip op. at 32.  

18 603 F.2d 263 (2nd Cir. 1979).  

19 Slip op. at 35-36.  

20 Id. at 37.  

21 Id. at 40-41. 

22 Id. at 40.                  

23 Id. at 39-40.  

24 Id. at 41-42.   

25 Slip op. at 47-49.  

26 Id. at 54.

Apple-Samsung Trade Dress Case Demonstrates Potential Value of Design Patents

A jury awarded Apple more than $1 billion in damages after finding that smartphones sold by Samsung diluted Apple’s trade dress and infringed Apple’s design and utility patents. After a partial retrial limited to determining the appropriate amount of damages, Apple still arose victorious with a $930 million award. Samsung moved for judgment as a matter of law and for a new trial. The district court denied those motions, and Samsung appealed. On May 18, 2015, the Federal Circuit upheld the jury’s verdict of design and utility patent infringement, but reversed the finding of trade dress dilution.

Trade Dress Claims

At issue on appeal was whether Apple’s purported registered and unregistered trade dress associated with its iPhone 3G and 3GS products is functional. Because trademark law gives the trademark owner a “perpetual monopoly,” a design that is functional cannot serve as protectable trade dress. Apple Inc. v. Samsung Elecs. Co., Ltd., No. 14-1335, slip op. at 7 (Fed. Cir. May 18, 2015). The standard is even higher when the owner claims trade dress protection over the configuration of a product, as opposed to product packaging or other forms of trade dress. Slip op. at 8. In fact, the court noted that Apple had not cited a single Ninth Circuit case finding trade dress of a product configuration to be non-functional. Id.

Apple claimed the following elements as its unregistered trade dress:

  • a rectangular product with four evenly rounded corners;
  • a flat, clear surface covering the front of the product;
  • a display screen under the clear surface;
  • substantial black borders above and below the display screen and narrower black borders on either side of the screen; and
  • when the device is on, a row of small dots on the display screen, a matrix of colorful square icons with evenly rounded corners within the display screen, and an unchanging bottom dock of colorful square icons with evenly rounded corners set off from the display’s other icons.

Slip op. at 9. “In general terms, a product feature is functional if it is essential to the use or purpose of the article or if it affects the cost or quality of the article.” Id. (quoting Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 850 n.10 (1982)). Because this case came to the Federal Circuit on appeal from a district court sitting in the Ninth Circuit, the Federal Circuit applied the Ninth Circuit’s Disc Golf test for determining whether a design is functional. Under that test, courts consider whether: (1) the design yields a utilitarian advantage; (2) alternative designs are available; (3) advertising touts the utilitarian advantages of the design; and (4) the particular design results from a comparatively simple or inexpensive method of manufacture. Slip op. at 10. Because this purported trade dress was not registered, Apple had the burden to prove its validity, which required Apple to show that the product features at issue “serve[] no purpose other than identification.” Id. (citing Disc Golf Assoc., Inc. v. Champion Discs, 158 F.3d 1002, 1007 (9th Cir. 1998)). The court of appeals applied those factors and found extensive evidence supporting Samsung’s claim that the alleged trade dress was functional. Slip op. at 12–14.

In addition to the unregistered product configuration discussed above, Apple also asserted a claim based on US Registration 3,470,983, which covered the design details in each of the 16 icons on the iPhone’s home screen framed by the iPhone’s rounded-rectangular shape with silver edges and a black background. Slip op. at 15. Although Apple enjoyed an evidentiary presumption of validity for its registered trade dress, the court again looked to the Disc Golffactors and found that Samsung met its burden of overcoming that presumption and proving the trade dress was functional and the registration invalid. Slip op. at 16. Because the court held Apple’s purported trade dress was functional, it vacated the jury’s verdict on Apple’s claims for trade dress dilution and remanded that portion of the case for further proceedings. Slip op. at 17.

Design Patent Claims

Apple fared better on its design patent claims. Here, Apple asserted three design patents directed to the “front face” (D’677 patent), “beveled front edge” (D’087 patent) and “graphical user interface (GUI)” (D’305 patent) of its iPhone products.

design patent claims - apple samsung

Samsung challenged the court’s claim construction and jury instructions for failing to “ignore[]” functional elements of the designs from the claim scope, such as rectangular form and rounded corners. Slip op. at 20. The court disagreed, finding that Samsung’s proposed rule to eliminate entire elements from the scope of design claims was unsupported by precedent. Id. Rather, the court found that both the claim construction and jury instructions properly focused the infringement analysis on the overall appearance of the claimed design. Id. at 21.

This victory was financially significant for Apple, as the court found they were entitled to Samsung’s entire profits on its infringing smartphones as damages. Like the district court, the court of appeals found that 35 U.S.C. § 289 explicitly authorizes the award of total profit from the article of manufacture bearing the patented design, rather than an apportionment of damages based only on the infringing aspects of the device (i.e., external features and not internal hardware/software). The court of appeals interpreted Samsung’s argument as imposing an “apportionment” requirement on Apple—a requirement the Federal Circuit previously rejected in Nike, Inc. v. Wal-Mart Stores, Inc., 138 F.3d 1437, 1441 (Fed. Cir. 1998). Thus, Apple maintains a claim to at least a significant portion of the $930 million damages award in the case.

Summary and Takeaways

Ultimately, after holding that Apple’s purported trade dress covering elements of the iPhone’s overall shape, black-bordered display screen, and matrix of colorful square icons was invalid, the district court upheld the jury’s verdict that Samsung’s devices infringed Apple’s design patents relating to the iPhone’s overall shape, display screen, and matrix of colorful square icons. The image depicted in Apple’s now-invalid trade dress registration is below on the left. Figures from two of its still-valid design patents are on the right. Although the overlap in what was claimed in these different forms of intellectual property is readily apparent, Apple lost on one set of claims and prevailed on the other.

design patent apple samsung iphone

It remains to be seen how damages associated with the design patent claims differ from damages associated with the now-invalid trade dress claims. But this much is clear: the Federal Circuit has given a reason for companies to reevaluate the role of design patents in their intellectual property portfolios. The time and expense associated with obtaining design patents will not suit all products, but for the right product, they can provide a valuable method of recovery in litigation involving similar product designs.

ARTICLE BY Kristin J. Achterhof, Karen Artz Ash, Richard P. Bauer & Floyd A. Mandell of Katten Muchin Rosenman LLP
©2015 Katten Muchin Rosenman LLP

EU Investigating Geo-Blocking of Online Video Games

On May 6, 2015, the European Competition Commission released a new Digital Single Market Plan, and simultaneously launched a broad antitrust investigation into e-commerce.  The DSM plan, consisting of sixteen proposals, seeks to create a single digital European market where access to digital goods and services is unfettered across all 28 member states.  The European Competition Commission will investigate whether firms’ restrictions on cross-border online trade violate the EU competition laws, and attempt to remedy them through enforcement mechanisms.  High on the list is the geo-blocking of online content, including video games.  The impending probe will likely target some large U.S. technology companies.

Geo-blocking is a technical barrier that allows online merchants to charge different prices or restrict users’ access based on physical location or credit card information.  For example, a German resident may have to pay more for a pair of shoes purchased online from an Italian retailer than someone living in Italy.  With respect to gaming, the investigation will focus on the geo-blocking of video games that are sold online for use on personal computers.  The Digital Single Market plan is highly critical of geo-blocking―which it describes as violating the EU’s goal of free movement of commerce within its borders―and proposes to eliminate the practice altogether.  But the Competition Commission cannot seek to change a firm’s business practice unless it violates EU antitrust law, necessitating a rigorous investigation.

To determine whether certain geo-restricting practices are anticompetitive, the Commission will analyze game publishers’ business practices, probing into their contractual limitations on the distribution of online video games.  EU Competition Chief Margrethe Vestager said that geo-restrictions “are often the result of arrangements that are included in contracts between manufacturers and content owners on one side and their distributors on the other.”  Accordingly, the Commission is willing to go as far as “examining the clauses in their contracts.”  But the Commission also recognizes that companies use geo-blocking for legitimate and procompetitive reasons, like restricting information to paying customers and protecting copyrighted material.

The probe will begin with comprehensive questionnaires sent to companies involved in e-commerce within the EU and could potentially lead to formal inquiries and enforcement actions.  Commissioner Vestager hopes to have preliminary findings by mid-2016.

The probe may target large U.S. technology companies, especially if they are suspected of abusing their dominant position to restrict trade.  EU competition law places certain duties on companies that are “dominant” in their markets (a fairly low bar compared to US standards), and abuse of a dominant position can be illegal.  American technology companies tend to be larger and more successful than their European counterparts, so they may trigger the Commission’s scrutiny.  Accoring to Vestager, “every company that sells products online, including their suppliers and their technology providers, will be affected. Potentially, the scope will be very wide.”  On the gaming front, the probe may affect large online game developers.

The Commission hopes that the creation of a single digital market will boost European startups by making it easier for them to launch and grow quickly across borders, similar to the advantage American companies have to rapidly gain a national user base in the U.S.  “We want companies in Europe to use the Digital Single Market to scale up, not move out,” said Andrus Ansip, the EC’s Vice President of Digital Single Market.  So it’s not surprising that the proposal and investigation come on the heels of the EU’s crackdown on American tech giants, the re-opening of the Google investigation being the most recent example.  Indeed, some commentators have characterized the move as protectionist, given Europe’s recent concerns over the increasing power of large U.S. web companies.

The ramifications of the DSM plan are not yet clear, but game companies that use geo-blocking may have to look for other solutions in the future.

ARTICLE BY

Nadezhda Nikonova of Sheppard, Mullin, Richter & Hampton LLP

Senators Booker and Hoeven Introduce the Commercial UAS Modernization Act to Streamline Drone Integration

Today, Senator Cory Booker (D-NJ) and John Hoeven (R-ND) introduced the Commercial UAS Modernization Act, legislation designed to streamline the integration of commercial unmanned aircraft systems (UAS) in the United States. The legislation would establish an interim rule governing small UAS operations, provide the Federal Aviation Administration (FAA) with some flexibility on issues like visual-line-of-sight (VLOS), reduce the regulatory burden for commercial operators, create a new deputy administrator position at the FAA focused on UAS and encourage maximum use of current FAA UAS test sites.

The FAA has already taken several steps in 2015 to expedite commercial use of UAS, including releasing the Notice of Proposed Rulemaking focused on the Operation and Certification of small UAS (UAS NPRM), approving blanket Certificate of Waiver Authorizations (COAs) and altering the Section 333 exemption process to reduce the burden on operators. While the Section 333 exemption process has resulted in nearly 300 approvals for UAS operations to date, the FAA’s proposed regulatory program may not be finalized until 2016 or even 2017.   The Commercial UAS Modernization Act would put a regulatory program in place before that time period, allowing the U.S. to take advantage sooner of what is expected to be $82 billion in expected economic impact over the next decade.

Commercial UAS Modernization Act

In general, the Commercial UAS Modernization Act:

  • Creates an interim rule for commercial use and testing of small UAS while the FAA finalizes rules covering commercial UAS.

  • Builds a framework for the registration and use of UAS for commercial purposes.

  • Strengthens the FAA’s oversight authority by creating a new position, the Deputy Associate Administrator for Unmanned Aircraft and by streamlining regulations.

  • Ensures that FAA test sites are being used to the maximum extent to facilitate research into new technologies, in partnership with industry and other relevant government entities.

The primary goal of the Commercial UAS Modernization Act is to create a regulatory gap filler until the FAA’s UAS NPRM is finalized. The legislation would allow small UAS operations without an airworthiness certificate. Many of the conditions set forth in the legislation are the same as what is found in the FAA’s UAS NPRM, including registration, certification and operator testing requirements. As for operations, the VLOS standard is still in place as well as the flight ceiling of 500 feet. Small UAS operators would also be required to obtain liability insurance covering operations and provide proof of that insurance to the FAA.

Interestingly, Section 338(e) of the legislation includes a requirement that the FAA “expedite and expand exemptions from the interim operating restrictions.” This appears to be the flexibility that many stakeholders had hoped for with the UAS NPRM. Under Section 338(e), the FAA may consider exemptions relating to (1) beyond VLOS operations; (2) programmatic exemptions based on previous analysis; (3) extension of VLOS and marginal visual flight rules weather conditions; (4) heavier unmanned vehicles.

The Commercial UAS Modernization Act would also create a new position, the Deputy Associate Administrator for Unmanned Aircraft. The new Deputy Administrator would be tasked with addressing some of the more challenging issues facing commercial UAS operations, including (1) aircraft spectrum issues; (2) barriers to beyond VLOS operations; (3) barriers to payload carriage; and (4) barriers to utilizing automated unmanned aircraft systems. The legislation also makes research a priority, including identifying safety standards for detect and avoid, command and control, autonomous aircraft systems, and air traffic management for beyond VLOS operations.

What has the FAA Done in 2015 to Expedite Integration

Small UAS Proposal

Earlier this year, the FAA released its Notice of Proposed Rulemaking focused on the Operation and Certification of small UAS within the United States. The UAS NPRM applies to small UAS defined UAS weighing less than 55 pounds. The UAS NPRM proposes to add a new Part 107 to Title 14, which would prescribe “rules governing the registration, airman certification, and operation of civil small UAS within the United States.” The public comment period for the NPRM ended on April 24, 2015. Now, the FAA will consider input from stakeholders while developing a final rule. That final rule may not arrive until 2016-2017. In the interim, commercial operators are left with the Section 333 exemption process.

Summary Grant Process

Speaking of the Section 333 exemption process, as of May 2015, the FAA has approved nearly 300 petitions for exemption. The pace of the FAA’s Section 333 approvals has increased as the agency tweaks the process. Recently, the FAA introduced a “summary grant” process. With the summary grant process, the FAA looks to see if a new Section 333 petition request is similar to a previously approved petition request. If the new request is similar to an already approved Section 333 petition, the FAA will rely on its prior analysis and issue a summary grant. The FAA has indicated that most of the Section 333 petitions that it has received are either for film and television production or for the collection of aerial data and that future similar petitions will be handled via the summary grant process. The FAA will still perform a detailed analysis for unique Section 333 petitions. Unique Section 333 petitions will also be subject to public comment.

The FAA has modified other pieces of the Section 333 approval process to reduce the barriers to approval. For example, in most Section 333 approvals to date, the FAA required operators to at least have a private pilot certificate. The FAA recently modified this requirement and now may approve operations by people who hold a recreational or sport pilot certificate.   Recreational and sport pilot certificates are generally easier to obtain than a private pilot certificate. Also, the FAA previously required UAS operators to have a third class medical certificate. The FAA eliminated that requirement as well. Now, an operator will only need a valid driver’s license to satisfy the medical requirement.

“Blanket” COA

Finally, one other streamlining tool the FAA adopted in the first part of 2015 is the concept of a “blanket COA”. In the past, once the FAA granted a Section 333 Exemption, the exemption holder would also have to file for a separate COA to fly the UAS in a particular block of airspace. The COA approval process can take 60-days.   To cut down on that time, the FAA announced in March that companies with current Section 333 approvals and all future such approvals would be covered by a “blanket” COA as long as operations were at or below 200 feet.

The “blanket” COA applies to any UAS operator that has been granted a Section 333 exemption for aircraft that weigh less than 55 pounds, that operate below 200 feet, during daytime Visual Flight Rules (VFR) conditions, within VLOS of the pilots, and that stay certain distances away from airports or heliports. UAS operations outside of these parameters still require the standard COA.

ARTICLE BY Michael Weller of Bracewell & Giuliani LLP
© 2015 Bracewell & Giuliani LLP

Auto Insurers Again Seek Dismissal of In RE Auto Body Shop Antitrust Litigation

In early March, the auto insurer defendants in the In re Auto Body Shop Antitrust Litigation renewed their motions seeking the dismissal of plaintiffs’ action, this time directed at plaintiffs’ Second Amended Complaint. The insurer defendants urged the Court to dismiss the action with prejudice, maintaining that, despite three attempts, the plaintiff auto body shops have still failed to include sufficient facts to make their claim of conspiracy plausible.

The action, commenced well over a year ago as A&E Auto Body v. 21st Century Centennial Insurance Co. and subsequently transformed into a multidistrict litigation proceeding (In re Auto Body Shop Antitrust Litigation, MDL 2557) after similar cases were filed in a multitude of states, centers upon a claim that many of the leading auto insurers in the country conspired to reduce rates for the repair of damaged vehicles and to steer insureds away from auto repair shops that refused to accept lower reimbursement rates for their services. The cases were consolidated before Judge Gregory Presnell (M.D. Fla.) in late 2014, and in early 2015 Judge Presnell dismissed plaintiffs’ First Amended Complaint, finding that the plaintiffs had failed to plead an antitrust conspiracy with the degree of specificity required under Bell Atlantic v. Twombly, 550 U.S. 544 (2007).

In February, plaintiffs filed their Second Amended Complaint, seeking to cure the deficiencies in the complaint identified in Judge Presnell’s prior rulings. In March, the defendants filed several new motions to dismiss the action. One group of defendants (including State Farm, Allstate, Progressive and 21st Century) maintained that the plaintiffs’ allegations still failed to include sufficient factual support to plead an actionable antitrust conspiracy, which they described as the “crucial question” in the case. Claiming that the plaintiffs’ allegations demonstrated nothing more than “parallel conduct” towards the plaintiffs, not agreement, these defendants renewed their request to have the action dismissed as to them. Another group of defendants (which includes Hartford, Nationwide and Zurich American) went a step further, arguing that the plaintiffs had failed to allege any material facts specifically about them, despite Judge Presnell’s express instruction in his prior dismissal order in January (without prejudice, on that occasion) that plaintiffs provide detailed allegations about each defendant’s involvement in the alleged conspiracy. Finally, one defendant (Old Republic) filed a separate motion not only seeking dismissal, but sanctions as well, based on the claim that the plaintiffs had been put on notice by the Court that particularized allegations as to each defendant’s alleged conduct was required, and that plaintiffs’ failure to include any additional factual support for their claims against Old Republic was sanctionable conduct.

In late March, the plaintiffs filed an “omnibus” response to all of the defendants’ motions, arguing that dismissal of the case at this juncture was not warranted. Asserting that “the Second Amended Complaint complies in every respect with the Court’s [January] Order,” the plaintiffs urged the Court to permit them to proceed into discovery. Specifically, the plaintiffs maintained that the parallel conduct alleged in the Second Amended Complaint constitutes “circumstantial evidence of conspiracy” and that the Supreme Court has never expressly held how many “plus factors” supporting a claim of conspiracy are required to satisfy a plaintiff’s pleading obligations. Plaintiffs contended, therefore, that they are not required to “set out specific facts establishing the time, place or persons involved in the conspiracy” nor are they required to allege an “express agreement.” Instead, they maintained, their allegations of parallel conduct, coupled with their allegations about the defendants’ collective market share, motive to conspire and opportunity to do so are more than sufficient to meet their pleading obligations.

In early April, the auto insurers filed reply briefs responding to the plaintiffs’ contentions. Perhaps most significantly, those defendants that had argued that the Second Amended Complaint still failed to contain any significant allegations about their specific conduct noted that the plaintiffs’ response had failed to refute that assertion in any meaningful way (“Rather than simply admit that they failed to allege anything against the moving defendants under the Sherman Act…plaintiffs point to allegations against the other defendants….” emphasis in original).

The entire set of motions are now before Judge Presnell for consideration, with the defendants urging the Court to take a “three strikes, you’re out” approach to the plaintiffs’ case. Whether Judge Presnell will adopt defendants’ baseball analogy and dismiss the case, with prejudice, as to all or some of the defendants remains to be seen. What is certain is that this matter will continue to be a significant focus of attention for the entire auto insurance industry over the coming months. Stay tuned.

Authored by James M. Burns of Dickinson Wright PLLC

© Copyright 2015 Dickinson Wright PLLC

DaVita Agree to $495 Million Settlement in Alleged Medicare Fraud Lawsuit Filed by Qui Tam Whistleblowers

On Monday, May 4, 2015, DaVita Kidney Care, a division of DaVita Healthcare Partners, Inc. (DaVita), and one of the leading dialysis services providers in the United States, agreed to pay the U.S. Government $450 million for allegedly violating the False Claims Act (FCA) when it continuously discarded good medicine and then billed Medicare and Medicaid for it. DaVita also agreed to pay $45 million for legal fees.

According to the lawsuit filed in 2011 by two former employees of DaVita, between 2003 and 2010, when DaVita administered iron and vitamin supplements such as Zemplar, Vitamin D, and Venofer, vials containing more than what the patients needed were used and the rest was thrown away. For example, if a patient only needed 25 milligrams of medicine, DaVita allegedly used a 100 milligram vial, administered only 25 mg, and tossed the rest in the trash. Although before 2001, this practice was condoned by the National Centers for Disease Control and Prevention (CDC) in order to prevent infectious outbreaks caused by the re-entry of the same vial of medicine, the CDC subsequently changed it policies to outlaw this practice.

This FCA lawsuit alleging that DaVita misused and mishandled of medicine, and overbilled Medicare and Medicaid is not the first such allegation against DaVita, which is not a stranger to FCA lawsuits. In fact, DaVita previously settled two other lawsuits in which it allegedly violated the FCA. In October 2014, DaVita agreed to pay the U.S. Government $350 million for allegedly persuading physicians or physician groups to refer their dialysis patients to DaVita by offering kickbacks for each patient referred. And in 2012, DaVita agreed to pay $55 million to the federal government for overbilling the government for Epogen, an anemia drug. These lawsuits were filed by former employees who decided to come forward as whistleblowers and to help to uncover what they considered to be illegal practices by DaVita. Under the FCA, such whistleblowers can bring what is known as a “qui tam” lawsuit, which is brought by a private citizen to recover money obtained by fraud on the government. As an incentive to bring qui tam lawsuits, the FCA provides that qui whistleblowers receive between 15 and 30 percent of the amount of funds recovered for the government.

Provisions of the FCA make it unlawful for a person or company to defraud governmental programs, such as Medicare or Medicaid.

Posted by the Whistleblower Practice Group at Tycko & Zavareei LLP

© 2015 by Tycko & Zavareei LLP

New Data Security Bill Seeks Uniformity in Protection of Consumers’ Personal Information

Morgan, Lewis & Bockius LLP.

Last week, House lawmakers floated a bipartisan bill titled the Data Security and Breach Notification Act (the Bill). The Bill comes on the heels of legislation proposed by US President Barack Obama, which we recently discussed in a previous post. The Bill would require certain entities that collect and maintain consumers’ personal information to maintain reasonable data security measures in light of the applicable context, to promptly investigate a security breach, and to notify affected individuals of the breach in detail. In our Contract Corner series, we have examined contract provisions related to cybersecurity, including addressing a security incident if one occurs.

Some notable aspects of the Bill include the following:

  • Notification to individuals affected by a breach would generally be required within 30 days after a company has begun taking investigatory and corrective measures (rather than based on the date of the breach’s discovery).

  • Notification to the Federal Trade Commission (FTC) and the Secret Service or the Federal Bureau of Investigation would be required if the number of individuals whose personal information was (or there is a reasonable basis to conclude was) leaked exceeds 10,000.

  • To advance uniform and consistently applied standards throughout the United Sates, the Bill would preempt state data security and notification laws. However, the scope of preemption continues to be discussed, and certain entities would be excluded from the Bill’s requirements, including entities subject to existing data security regulatory regimes (e.g., entities covered by the Health Insurance Portability and Accountability Act).

  • Violations of the Bill would be enforced by the FTC or state attorneys general (and not by a private right of action).

ARTICLE BY

Michael L. Pillion
A. Benjamin Klaber
Morgan, Lewis & Bockius LLP