Category: Dispute Resolution

Rosetta Stone v. Google: No Easy Exit for Google from AdWords Trademark Suits

An article about Rosetta Stone v. Google written by J. Roger Williams, Jr. of Andrews Kurth LLP recently appeared in The National Law Review:

Rosetta Stone, Inc., which provides technology-based language learning products and services, sued Google in the U.S. District Court for the Eastern District of Virginia for direct and indirect trademark infringement and trademark dilution arising out of Google’s sale of Rosetta Stone’s trademarks as keywords in Google’s AdWords program. Google triumphed in the trial court, with the District Court granting summary judgment in favor of Google on all claims. Earlier this month, however, in Rosetta Stone, Inc. v. Google, Inc.,[1] the U.S. Court of Appeals for the Fourth Circuit reversed the ruling and remanded the case for further proceedings on all trademark claims. For Google, the ruling means that it has no easy way to exit any trademark case arising out of its AdWords program. For brand owners, the ruling provides a road map for how to hold e-commerce web sites (Google, eBay) responsible for counterfeiters who advertise on the web site.

The primary issue in Rosetta Stone’s claim of direct trademark infringement was whether the Sponsored Links generated by Google’s AdWords Program create a likelihood of confusion. The District Court held that the only meaningful “digits of confusion” were Google’s intent in auctioning the keywords, the evidence of actual confusion, and the sophistication of the consuming public; and on each of these elements Rosetta Stone had failed to provide sufficient evidence to defeat summary judgment. The Fourth Circuit, after intense scrutiny of the evidence, disagreed with the trial court and held that there was sufficient evidence on each of these factors to force a trial.

The court’s analysis on the “intent” issue is remarkable. The record contained evidence of internal business studies done by Google that suggested that there would be “significant source confusion among Internet searchers when trademarks were included in the title or body of the advertisements.”  Although the Rosetta Stone marks were not involved in these studies, the Fourth Circuit nevertheless held that these studies provided sufficient evidence “that Google intended to cause confusion in that it acted with the knowledge that confusion was very likely to result from its use of the marks.” Because Google’s studies were not specific to the Rosetta Stone marks, the reasoning of this holding appears applicable to every brand owner that asserts a trademark infringement claim against Google over its use of AdWords. In other words, the opinion indicates that any trademark plaintiff may be able to defeat summary judgment for Google on the “likelihood of confusion” issue by showing that Google was provided with evidence that confusion was “very likely.”

Google also gave up its win on the “functionality” doctrine, which holds that a functional product feature cannot be trademarked or the subject of a trademark infringement suit. Finding that the trademarks used as keyword triggers are functional because they are essential to the functioning of Google’s search service, the District Court had granted summary judgment for Google on this defense. The Fourth Circuit reversed, reasoning that the functionality doctrine affords no protection to Google because Rosetta Stone, the mark owner, did not use the marks as a functional product feature.

Also reversed was Google’s summary judgment on Rosetta Stone’s claim of contributory infringement, i.e., Rosetta Stone’s claim that Google is liable for trademark infringement by the advertisers who directly infringe Rosetta Stone’s marks in the Sponsored Links. The central issue was the evidence that Rosetta Stone had notified Google of approximately 200 instances of specific Sponsored Links advertising counterfeit Rosetta Stone products and that Google nevertheless continued to allow the very same advertisers to purchase Rosetta Stone marks to trigger Sponsored Links for other web sites owned by the advertisers. The trial court was “unpersuaded” that this evidence met the legal standard for contributory infringement set by the Second Circuit in its Tiffany v. eBay decision.[2]  In theTiffany case, the Second Circuit held that eBay was not contributorily liable for trademark infringement despite its general knowledge that sellers were selling counterfeit Tiffany products on eBay. The major difference between the facts in the two cases is that Tiffany’s demand letters, in Tiffany v. eBay, did not identify particular sellers who Tiffany thought were then offering or would offer counterfeit goods, whereas Rosetta Stone’s notification to Google, in Rosetta Stone v. Google, apparently did identify particular sellers who were offering or were likely to offer counterfeit products. This evidence, according to the court of appeals, sufficed to force a trial on the issue of whether Google contributed to trademark infringement by continuing to supply its services to known infringers.

In any event, the Fourth Circuit’s reasoning has clear practical implications for brand owners who are fighting counterfeiters: Diligently provide notice to the e-commerce site of the identity and web site of each counterfeiter who is or might be selling counterfeit products.

Not all the news was bad for Google. The holding that Google was not vicariously liable for infringement by counterfeiters was affirmed; and although Rosetta Stone is going to get its day in court, nothing in the Court of Appeals’ holding suggests that Rosetta Stone will be able to prevail at trial. Even so, this ruling was a significant setback for Google. Google, understandably, has been searching for a “safe harbor” to avoid entanglement in trademark disputes between online advertisers and brand owners over the advertiser’s use of the brand owner’s mark in Sponsored Links.  One potential safe harbor for Google has already been eliminated by the Second Circuit in its 2010 holding in Rescuecom v. Google that Google’s sale of keywords constituted a trademark “use in commerce.”[3]  It appeared that the District Court’s ruling in Rosetta Stone had given Google several additional “safe harbors” under the theories that Google’s mere sale of keywords did not create a likelihood of confusion, that Google did not contribute to infringement by supplying its services to known infringers, that Google’s keywords were merely functional, and that Google’s sale of keywords fell within the “fair use” exception to dilution; but now the Fourth Circuit has rejected the notion that any of these defenses shields Google as a matter of law from trademark liability for its AdWords program. For the foreseeable future, Google has no easy exit from any trademark suit based on its AdWords program.

1. Rosetta Stone, Inc. v. Google, Inc., __ F.3d. __, 2012 WL 1155143 (4th Cir. April 9 2012).

2. Tiffany Inc. v. eBay Inc., 600 F.3d 93 (2d Cir. 2010).

3. Rescuecom Corp. v. Google Inc., 562 F.3d 123 (2d Cir. 2009).

© 2012 Andrews Kurth LLP

“Brogrammers” Giving Silicon Valley a Bad Name?

An article by Emily Holbrook of Risk and Insurance Management Society, Inc. (RIMS) regarding “Brogrammers” recently appeared in The National Law Review:

According to a recent article, Silicon Valley tech firms are using marketing tactics geared more towards fraternity brothers than programming savants. The problem? Not only is it sexist at times, but it is alienating a large chunk of qualified tech professionals. Here are a few examples:

Of course, this is only a snipet of what’s going on as many of the antics are never publicized. Barbaic events like these may not only cost companies money (several businesses pulled their sponsorship from the Sqoot event), but it alienates those who may be talented programmers, but don’t adhere to the frat boy mentality.

There’s also an audience that feels left out of the joke. Women made up 21% of all programmers in 2010, down from 24% in 2000, according to the U.S. Bureau of Labor Statistics. Anything that encourages the perception of tech as being male-dominated is likely to contribute to this decline, says Sara Chipps, founder of Girl Develop It, a series of software development workshops. “This brogramming thing would definitely turn off a lot of women from working” at startups, says Chipps.

But is this really a serious problem in Silicon Valley or just young men being young men? I’ve heard both sides of the argument. Some companies that have taken this seriously, such as Etsy, have decided to do something about it. The e-commerce website is donating $5,000 to at least 10 women in an attempt to lure female coders to New York’s Hacker School this summer.

Whether this is an epidemic that should cause concern or merely programmers acting their age, one thing is for sure — having a working envrionment void of diversity is aiken to siloed idea generation. Silicon Valley should know this.

Risk Management Magazine and Risk Management Monitor

Supreme Court to Decide if First Sale Doctrine Permits Importation of Foreign-Made Copyrighted Works Without Authorization

Recently an article by Paul Devinsky and Rita Weeks of McDermott Will & Emery regarding First Sale Doctrine was published in The National Law Review:

The “first sale doctrine” in copyright law permits the owner of a lawfully made copy of a copyrighted work to sell or dispose of that copy as it sees fit.  The Supreme Court of the United States has agreed to hear a case that will decide whether the first sale doctrine permits the importation of foreign-made goods containing copyrighted materials into the United States without the copyright owner’s permission.

The Supreme Court of the United States has agreed to hear Kirtsaeng v. John Wiley & Sons, Inc., a case involving “gray market” resale of copyrighted works and the defense of the “first sale doctrine.”  In copyright law, the “first sale doctrine” permits the owner of a lawfully made copy of a copyrighted work to resell or otherwise dispose of that copy without limitations imposed by the copyright holder.  The Supreme Court’s decision will resolve whether the first sale doctrine applies to works manufactured outside of the United States that are imported and resold in the United States, and therefore is of particular importance to importers, distributors and retailers of copyrighted goods produced abroad.

U.S. textbook publisher John Wiley & Sons brought a copyright infringement suit in the Southern District of New York against Kirtsaeng, a University of Southern California graduate student from Thailand.  Kirtsaeng’s friends and family shipped him foreign editions of Wiley textbooks printed abroad by Wiley’s affiliate Wiley Asia, which Kirtsaeng then sold on commercial websites such as eBay for allegedly substantial profits.  Wiley alleged Kirtsaeng violated Wiley’s copyrights by unauthorized importation of textbooks only intended for a foreign market.  Kirtsaeng attempted to proffer the defense of the “first sale doctrine,” but the district court prohibited him from raising the defense and rejected the applicability of the defense to foreign editions of textbooks.  A jury found Kirtsaeng liable for willful copyright infringement and awarded Wiley $600,000 in statutory damages.

Kirtsaeng appealed, arguing the district court erred in holding that the first sale doctrine was not an available defense.  Last year the U.S. Court of Appeals for the Second Circuit affirmed the district court.  (IP Update, Vol. 14, No. 9).  Reviewing §109(a) of the Copyright Act, which codifies the first sale doctrine, the Second Circuit noted that the language instructing that the defense applies to works “lawfully made under this title” was ambiguous such that §109 itself did not compel or foreclose the application of the first sale doctrine to works manufactured abroad.  Therefore, the Second Circuit looked to §602(a)(1) of the Copyright Act, which prohibits the importation of a work acquired abroad without the copyright owner’s authorization, and the Supreme Court’s guidance in Quality King Distributors, Inc. v. L’anza Research International, Inc.  Quality King involved copyrighted works manufactured in the United States that were exported to foreign distributors, who then re-imported the works back into the United States for resale without the copyright owner’s permission.  In that context, the Supreme Court unanimously held that the first sale doctrine limited the scope of §602(a) and thus the foreign distributor who re-imported the works could assert the first sale doctrine as a defense.  The Supreme Court did not rule on whether the first sale doctrine would apply to works manufactured outside of the United States, however.  Relying on Quality King, the Second Circuit in Kirtsaeng held that the first sale doctrine only applies to products physically manufactured in the United States.  To find otherwise, the Second Circuit reasoned, would nullify the protections of §602(a)(1) in the vast majority of cases.

Among other reasons, the grant of certiorari is significant because the Supreme Court issued a rare 4-4 decision in a similar case in 2010, Costco Wholesale Corp. v. Omega, S.A. (see Supreme Court Deadlocks on Applying First Sale Doctrine to Foreign-Made Copyrighted Items for more information).  In that case Costco legitimately acquired Omega-brand watches through a New York company that bought and imported the watches from overseas at much lower prices than Costco would have paid.  While copyright owner Omega had authorized the initial foreign sale of the watches, it did not authorize their importation into the United States or their resale by Costco.  The U.S. Court of Appeals for Ninth Circuit held that the first sale doctrine did not apply to purchases made outside of the United States, and the Supreme Court agreed in a split decision.  Due to the split, caused by the recusal of Justice Elena Kagan who filed an amicus brief in the case in her previous position as Solicitor General, the ruling is only binding on the Ninth Circuit.  Therefore, the Supreme Court’s decision in Kirtsaeng should resolve the outstanding question of how the first sale doctrine and §602 apply to copies of copyrighted works made and legally acquired abroad, then imported into the United States.

In granting cert, the Supreme Court order indicated it will consider whether such a foreign-made product (1) can never be resold within the United States without the copyright owner’s permission; (2) can sometimes be resold within the United States without permission, but only after the owner approves an earlier sale in this country; or (3) can always be resold without permission within the United States, so long as the copyright owner authorized the first sale abroad.  Oral arguments will be heard in the fall (2012).

© 2012 McDermott Will & Emery

ICC Institute Masterclass for Arbitrators

The National Law Review is pleased to bring you information about the upcoming ICC Conference  Masterclass Arbitrators:

Join us for an intensive 2 1/2 day training for professionals interested in working as international arbitrators!

June 4-6, 2012 at ICC Headquarters in Paris.

ICC Institute Masterclass for Arbitrators

The National Law Review is pleased to bring you information about the upcoming ICC Conference  Masterclass Arbitrators:

Join us for an intensive 2 1/2 day training for professionals interested in working as international arbitrators!

June 4-6, 2012 at ICC Headquarters in Paris.

ICC Institute Masterclass for Arbitrators

The National Law Review is pleased to bring you information about the upcoming ICC Conference  Masterclass Arbitrators:

Join us for an intensive 2 1/2 day training for professionals interested in working as international arbitrators!

June 4-6, 2012 at ICC Headquarters in Paris.

ICC Institute Masterclass for Arbitrators

The National Law Review is pleased to bring you information about the upcoming ICC Conference  Masterclass Arbitrators:

 

 

 

Join us for an intensive 2 1/2 day training for professionals interested in working as international arbitrators!

June 4-6, 2012 at ICC Headquarters in Paris.

Identity Theft Continues to Top FTC’s List of Consumer Complaints

Recently The National Law Review published an article by Rachel Hirsch of Ifrah Law regarding FTC’s Top Consumer Complaints:

For more than a decade, the Federal Trade Commission has been releasing its list of the top ten categories of consumer complaints received by the agency in the previous year. This list always serves as a good indication of the areas toward which the FTC may choose to direct its resources and increase its scrutiny.

For the 12th year in a row, identity theft was the number one complaint received by the FTC. Out of more than 1.8 million complaints the FTC received last year, 15% – or 279,156 – were about identity theft. Of those identity theft complaints, close to 25 percent were related to tax or wage-related fraud. The number of complaints related to identity theft actually declined in 2011 from the previous year, but this type of fraud still topped the list.

Most identity theft complaints came from consumers reporting that their personal information was stolen and used in government documents — often to fraudulently collect government benefits. Complaints about government document-related identity theft have increased 11% since 2009 and represented 27% of identity theft complaints last year. These numbers are likely to increase as concerns about consumer data privacy continue to garner the attention of the FTC.

After ID theft, the FTC’s top consumer complaints for 2011 were as follows:

• Debt collection complaints
• Prizes, sweepstakes, and lotteries
• Shop-at-Home and catalog sales
• Banks and lenders
• Internet services
• Auto-related complaints
• Imposter scams
• Telephone and mobile services
• Advance-fee loans and credit protection or repair

While credit cards are intertwined with many of the above complaints, complaints about credit cards themselves are noticeably absent from the 2011 list. In past years, credit card fraud was a major source of complaints from consumers. The drop in credit card-fraud-related complaints, however, is not surprising given the passage of the Credit CARD Act of 2009. This landmark federal legislation banned interest rate hikes “at any time for any reason” and limited the instances when rates on existing card balances could be hiked by issuers. The law also required lenders to give customers at least 45 days advance notice of significant changes in terms to allow card users time to shop around for better terms.

With the upcoming changes to the FTC’s advertising guidelines, there may very well be new additions to the consumer complaint list next year. Those complaints that already appear on the list are also likely to receive increased scrutiny.

© 2012 Ifrah PLLC

Shareholder Disputes: How to Prevent a Corporate Divorce

An article regarding Shareholder Disputes written by David J. Treacy and John M. Spires of Dinsmore & Shohl LLP was recently published in The National Law Review:

Small and medium-sized businesses provide valuable goods, services, and jobs. Often, they are run as corporations in which the controlling officers and directors also are the major shareholders. Frequently, friends and family found these businesses together. But even successful businesses owned by friends and family aren’t immune to problems resulting from circumstances and relationships that change over time.

Shareholders may start the business together, but wish to leave at different times based on life events. New, valuable employees might want to be owners, too. Business deals may be made with companies in which some, but not all, of the directors or shareholders overlap. In situations like these, interests can collide.

Successful businesses last a long time, and change is inevitable. But preparation on the front end may eliminate big problems that could arise down the road. While there are few “one size fits all” rules, we suggest some best practices to consider when forming a business.

  1. Put your agreement in writing. Business relationships founded on a handshake may begin with good intentions, but are unlikely to stand the test of time. Businesspeople who spell out their expectations in written agreements obtain greater security about what their understandings really are – and have a contract to look to if problems arise. Shareholders’ agreements also let you address how to handle major events – like adding shareholders, or an owner’s retirement – before they happen.
  2. Pick your partners wisely. Closely-held corporations are like marriages. When personalities mesh and goals are aligned, the family can prosper. When they don’t, you may end up in a nasty divorce. And when you have a very different idea from your partners in the beginning about what’s fair, or what everyone’s role should be, or what the business will look like in ten years, a divorce is inevitable.
  3. Hold formal meetings and keep good records. Important decisions are made when a business is formed, as well as when it is established and thriving. Your fellow shareholders may seem happy with those decisions, but looks can be deceiving. A good corporate secretary, keeping records of votes and discussion on important decisions in corporate minutes, may prove invaluable later on if someone wasn’t as happy as you thought they were. Good minutes are more than a mere formality.
  4. Know what you signed up for. Board membership is a serious responsibility. Directors owe special duties to the corporation and its shareholders. This fiduciary relationship is sacred in the law, and you are held to a higher standard of conduct as a result. Consider training your board members on their responsibilities so that they know how to discharge them faithfully.
  5. Consider outside voices. Once your corporation is established, hiring an outside director (someone uninvolved in your business) to serve on your board may be advisable. Outside directors with open minds will consider board proposals from a fresh perspective. They also may insulate management’s proposals to the board from second-guessing.
  6. Counseling in-house. In-house attorneys are tremendous resources. With business minds and legal backgrounds, they can help members of your management team navigate through decisions big and small. But business advice can be closely related to legal advice, and only legal advice is protected under the attorney-client privilege. Consider carefully what you ask your in-house lawyers to do.
  7. Keep shareholders informed. Information is power, and it is expected to be imparted to the shareholders, particularly in a closely-held business. Informing shareholders of a major corporate action only after it’s been taken may lead to arguments about the action’s propriety.
  8. Full disclosure. Closely scrutinize transactions between a director or major shareholder (or another business they own) and your corporation. A failure to ensure that a deal is fair to all, and especially to the corporation, invites a claim that the director involved in the transaction breached his fiduciary duty. It also may result in a claim that the other directors let their colleague take advantage of the corporation, and by doing so breached their own fiduciary duties.
  9. Good policies are a good policy. Business records take all forms – monthly accounting data circulated on spreadsheets; emails on a server; individual files in drawers throughout the office. Having a well-thought-out policy on document retention, email usage, and documents that simply shouldn’t be removed from the building helps you manage risk. If a problem arises, you don’t want to have to explain why you have some records dating to your company’s inception, but you’ve permanently purged an email sent ninety days ago, unless you have a written policy on point.
  10. Insure your risks: Internal disagreements may result in claims against directors or officers when they make a decision that a shareholder doesn’t like. While courts afford deference to a board’s decisions under the “business judgment rule,” directors may face personal liability on these claims, and the costs to defend themselves, in the absence of commonly-acquired Director & Officer (“D&O”) insurance. D&O coverage is simply a must.

Avoid the corporate divorce before it happens. A little advance planning can go a long way.

As seen in Business Lexington.

© 2012 Dinsmore & Shohl LLP.

Supreme Court Invalidates Biotech Method Patent in Mayo v. Prometheus

Recently an article by Richard G. Gervase, Jr. and Daniel W. Clarke, Ph.D. of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. regarding Biotech Patents recently appeared in The National Law Review:

On March 20, 2012, the United States Supreme Court handed down a groundbreaking decision in the field of biotechnology; however, the repercussions of this decision will be felt throughout the patent community. In a highly anticipated decision, the Court reversed the United States Court of Appeals for the Federal Circuit in Mayo Collaborative Services and Mayo Clinic Rochester v. Prometheus Laboratories, Inc., unanimously finding that process claims directed to optimizing the dosage of a drug for treatment of an immune-mediated gastrointestinal disorder are invalid because they effectively claim no more than an underlying law of nature.

The two patents at issue are exclusively licensed to Prometheus, who sells diagnostic tests that employ the patented processes. At first, Mayo bought and used these diagnostic tests; however, in 2004, Mayo decided to use and sell a slightly different diagnostic test. Prometheus responded by bringing an infringement action in the United States District Court for the Southern District of California, which found that although Mayo infringed a claim of a Prometheus-licensed patent, the asserted claims were invalid for being drawn to non-statutory subject matter. The District Court reasoned that the patents claimed “natural laws or natural phenomena,” which are not entitled to patent protection. Specifically, the District Court opined that the correlations between metabolite levels and the toxicity and efficacy of drug dosages are patent-ineligible laws of nature. The Federal Circuit reversed, and held that the claims were directed to patent-eligible subject matter because they “transform an article into a different state or thing,” and the transformation was “central to the purpose of the claimed process.” The Federal Circuit subsequently reaffirmed this decision on remand from the Supreme Court for reconsideration in view ofBilski v. Kappos.

The question presented to the Supreme Court in Mayo v. Prometheus was “whether the claimed processes have transformed unpatentable natural laws into patent-eligible applications of those laws.” The Court recognized that the threshold inquiry to determine whether a claim is directed to patent-eligible subject matter is governed by 35 U.S.C. § 101, which provides “[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.”

The representative claim analyzed by the Court was directed to methods of calibrating the optimal dosage of a thiopurine drug by administering the drug, and determining the level of subsequent metabolites, where certain metabolite levels correlate with certain results. The Court relied on case precedent, including Diamond v. Diehr and Gottschalk v. Benson, for the proposition that the meaning of “process” in § 101 has been limited to exclude fundamental principles, such as “laws of nature, natural phenomena, and abstract ideas,” but noted that “an application of a law of nature or mathematical formula to a known structure or process may well be deserving of patent protection.” The Court concluded that the claims were not patent eligible, reasoning that the claims were merely instructions to apply a natural law, i.e., a natural correlation.

Specifically, the Court stated that the additional steps of “administering” and “determining,” along with the “wherein” clauses, “add nothing specific to the laws of nature other than what is well-understood, routine, conventional activity, previously engaged in by those in the field.”

Although the Court recognized that in determining whether additional claim steps are routine or conventional, a § 102 novelty inquiry and a § 101 statutory subject matter inquiry “might sometimes overlap,” Justice Breyer repeatedly emphasized that from a policy perspective, a patent should not preempt natural correlations, thereby improperly inhibiting future innovation. The Court also warned that a non-statutory law of nature cannot be transformed into subject matter that is eligible for patent protection by mere clever claim drafting that amounts to no more than “insignificant post-solution activity.”

How the Supreme Court’s decision will impact medical diagnostic patents and patent applications in the future remains to be seen. We note that the Court declined to opine on the desirability of increased protection for diagnostic correlations, inviting Congress to develop “more finely tailored rules” for patent eligibility should the legislature disagree with the Court’s conclusion.

©1994-2012 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.