Category: Intellectual Property

Artificial Intelligence and Intellectual Property Legal Frameworks in the Asia-Pacific Region

Globally, governments are grappling with the emergence of artificial intelligence (“AI”). AI technologies introduce exciting new opportunities but also bring challenges for regulators and companies across all industries. In the Asia-Pacific (“APAC”) region, there is no exception. APAC governments are adapting to AI and finding ways to encourage and regulate AI development through existing intellectual property (“IP”) regimes and new legal frameworks.

AI technologies aim to simulate human intelligence through developing smart machines capable of performing tasks that require human intelligence. The expanding market for AI ranges from machine learning to generative AI to virtual assistants to robotics, and this list merely scratches the surface.

When it comes to IP and AI, there are several critical questions for governments to consider: Can AI models be protected by existing legal frameworks within IP? Must copyright owners be human? Does a patent inventor have to be an individual? Do AI models’ training programs infringe on others’ copyrights?

To begin to answer these questions, regulators are drawing from existing IP regimes, including patent and copyright law. Some APAC countries have taken a non-binding approach, relying on existing principles to guide AI regulation. Others are drafting more specific AI regulations. The summary chart below provides a brief overview of current patent and copyright laws within APAC focused on AI and IP. Additional commentary concerning updates to AI laws and regulations is provided below the chart.

Country Patent Copyright
Korea A non-human cannot be the inventor under Korea’s Patent Act. There is a requirement for “a person.” The Copyright Act requires a human creator. Copyright is possible if the creator is a human using generative AI models as software tools and the human input is considered more than simple prompt inputs. For example, in Korea, copyright was granted to a movie produced by generative AI as a “compilation work” in December 29, 2023.
Japan Under Japan’s Patent Act, a natural person must be the inventor. This is the “requirement of shimei 氏名” (i.e. name of a natural person). Japan’s Copyright Act defines a copyright-protected work as “a creation expressing human thoughts and Emotions.” However, in February 29, 2024, the Agency for Cultural Affairs committee’s document on “Approach to AI and Copyright” provided that a joint work made up of both human input and AI generated content can be eligible for copyright protection.
Taiwan Taiwan’s Patent Law does not explicitly preclude a non-human inventor, however, the Patent Examination Guidelines require a natural person to be an inventor. Formalities in Taiwan also require an inventor’s name and nationality. The Copyright Act requires of “human creative expression.”
China The inventor needs to be a person under Patent Law and the Guidelines for Examination in China. Overall, Chinese courts have recognized that when AI-generated works involve human intellectual input, the user of the AI software is the copyright owner.
Hong Kong The Patents Ordinance in Hong Kong requires a human inventor. The Copyright Ordinance in Hong Kong attributes authorship to “the person by whom the arrangements necessary for the creation of the work are undertaken.”
Philippines Patent law in the Philippines requires a natural person to be the inventor. Generally, copyright law in the Philippines requires the author to be a natural person. The copyright in works that are partially AI-generated protects only those parts that are created by natural persons. The Philippines IP Office relies on the declarations of the creator claiming copyright to provide which part of the work is AI-generated and which part is not.
Vietnam AI cannot be an IP right owner in Vietnam. The user of AI is the owner, regardless of the degree of work carried out by AI. In terms of copyright, AI cannot be an IP right owner. Likewise, the user of AI is the owner, regardless of the degree of work carried out by AI.
Thailand Thailan’s Patent law in Thailand requires inventors to be individuals. Copyright law in Thailand requires an author to be an individual.
Malaysia Malaysia’s Patent law requires inventors to be individuals. Copyright law in Malaysia requires an author to be an individual.
Singapore Patent law requires inventors to be a natural person(s). However, the owner can be a natural person or a legal entity. In Singapore, it is implicit in provisions of the Copyright Act that the author must be a natural person.
Indonesia Under Indonesia’s patent law, the inventor may be an individual or legal entity. Under copyright law in Indonesia, the author of a work may be an individual or legal entity.
India India’s patent law requires inventors to be a natural person(s). The copyright law contains a requirement of “originality” – which the courts interpret as “intellectual effort by humans.”
Australia The Full Federal Court in Australia ruled that an inventor must be a natural person. Copyright law in Australia requires the author to be a human.
New Zealand One court in New Zealand has ruled that AI cannot be an inventor under the Patents Act. A court in New Zealand has ruled that AI cannot be the author under the provisions of the Copyright Act. There is updated legislation clarifying that the ownership of computer-generated works is the person who “made the arrangements necessary” for the creation of the work.

AI Regulation and Infringement

KOREA: Court decisions have ruled that web scraping or pulling information from a competitor’s website or database infringes on competitor’s database rights under the Copyright Act and the UCPA. In Koria, parties must obtain permission for use of copyrighted work for training AI emphasized in guidelines. The Copyright Commission published guidelines on copyright and AI in December 2023. The guidelines noted the growing need for legislation on AI generated works. The English version of the guidelines was released in April 2024.

JAPAN: The January 1, 2019 Copyright Act provides very broad rights to use copyrighted works without permission for training AI, as long as the training is for the purpose of technological development. The committee aims to introduce checks to this freedom, and also to provide more protection for Japan-based content creators and copyright holders. The Japan Agency for Cultural Affairs (ACA) released its draft “Approach to AI and Copyright” for public comment on January 23, 2024. Additional changes have been made to the draft after considering 25,000 comments as of February 29, 2025. Also, the Ministry of Internal Affairs and Communications, Ministry of Economy, Trade and compiled the AI Guidelines for Business Ver1.0 in Japan on April 19, 2024.

TAIWAN: Using copyrighted works to train AI models involves “reproduction”, which constitutes an infringement, unless there is consent or a license to use the work. Taiwan’s IPRO released an interpretation to clarify AI issues in June 2023. Under the IPO interpretation circular of June 2023, the Taiwan cabinet approved draft guidelines for the use of generative AI by the executive branch of the Taiwan government in August 2023. The executive branch of the Taiwan government also confirmed that it is in the process of formulating the government’s version of the Draft AI Law, which is expected to be published this year.

CHINA: Interim Measures for the Management of Generative Artificial Intelligence Services, promulgated in July 2023, require that generative AI services “respect intellectual property rights and commercial ethics” and that “intellectual property rights must not be infringed.” The consultation draft on Basic Security Requirements for Generative Artificial Intelligence Service, which was published in October 2023, provides detailed guidance on how to avoid IP infringement. The requirements, for example, provide specific processes concerning model training data that Chinese AI companies must adopt. Moreover, China’s draft Artificial Intelligence Law, proposed on March 16, 2024, outlines the use of copyrighted material for training purposes, and it serves as a complement to China’s current AI regulations.

HONG KONG: A review of copyright law in Hong Kong is underway. There is currently no overarching legislation regulating the use of AI, and the existing guidelines and principles mainly provide guidance on the use of personal data.

VIETNAM: AI cannot have responsibility for infringement, and there are no provisions under existing laws in Vietnam regarding the extent of responsibility of AI users for infringing acts. The Law on Protection of Consumers’ Rights will take effect on July 1, 2024. This law requires operators of large digital platforms to periodically evaluate the use of AI and fully or partially automated solutions.

THAILAND: Infringement in Thailand requires intent or implied intent, for example, from the prompts made to the AI. Thai law also provides for liability arising out of the helping or encouraging of infringement by another. Importantly, the AI user may also be exposed to liability in that way.

MALAYSIA: An informal comment from February 2024 by the Chairman of the Malaysia IP Office provides that there may be infringement through the training and/or use of AI programs.

SINGAPORE: Singapore has a hybrid regime. The regime provides a general fair use exception, which is likely guided by US jurisprudence, per the Singapore Court of Appeal. The regime also provides exceptions for specific types of permitted uses, for example, the computational data analysis exception. A Landscape Report on Issues at the Intersection of AI and IP issued by IPOS on February 28, 2024 provided a Model AI Governance Framework for Generative AI, which was published May 30, 2024.

INDONESIA: A “circular,” a government issued document similar to a white paper, implies that infringement is possible in Indonesia. The nonbinding Communications and Information Ministry Circular No. 9/2023 on AI was signed in December 2023.

INDIA: Under the Copyright Act of 1957, a Generative AI user has an obligation to obtain permission to use the copyright owner’s works for commercial purposes. In February 2024, the Ministry of Commerce and Industry’s Statement provided that India’s existing IPR regime is “well-equipped to protect AI-generated works” and therefore, it does not require a separate category of rights. MeitY issued a revised advisory on March 15, 2024 providing that platforms and intermediaries should ensure that the use of AI models, large language models, or generative AI software or algorithms by end users does not facilitate any unlawful content stipulated under Rule 3(1)(b) of the IT Rules, in addition to any other laws.

AUSTRALIA: Any action seeking compensation for infringement of a copyright work by an AI system would need to rely on the Copyright Act of 1968. It is an infringement of copyright to reproduce or communicate works digitally without the copyright owner’s permission. Australia does not have a general “fair use” defense to copyright infringement.

NEW ZEALAND: While infringement by AI users has not yet considered by New Zealand courts, New Zealand has more restricted “fair dealing” exceptions. Copyright review is underway in New Zealand.

© Copyright 2024 Squire Patton Boggs (US) LLP
For more news on AI Intellectual Property Regulations, visit the NLR Intellectual Property section.

Arguing Internet Availability to Establish Copyright Infringement Is Bananas

In an unpublished opinion, the US Court of Appeals for the Eleventh Circuit affirmed a district court’s decision finding that a pro se Californian artist failed to establish that an Italian artist had reasonable opportunity to access the copyrighted work simply because it was available to view on the internet. Morford v. Cattelan, Case No. 23-12263 (11th Cir. Aug. 16, 2024) (Jordan, Pryor, Branch, JJ.) (per curiam).A plaintiff alleging copyright infringement may show factual copying by either direct or indirect evidence showing “that the defendant had access to the copyrighted work and that there are probative similarities between the allegedly infringing work and the copyrighted work.” To do so, however, the copyright owner must establish a nexus between the work and the defendant’s alleged infringement. Mere access to a work disseminated in places or settings where the defendant may have come across it is not sufficient.

Joe Morford’s Banana and Orange and Maurizio Cattelan’s Comedian both “involve the application of duct tape to a banana against a flat surface” (see images below from the court decision’s appendix). Cattelan’s Comedian went viral and sold for more than $100,000 at Miami’s Art Basel. Morford claimed that Comedian was a copy. The district court found that Morford failed to show that Cattelan had reasonable opportunity to access Banana and Orange and thus could not establish a copyright claim. Morford appealed.

Orange and Banana, Comedian

On appeal, Morford argued that because he could show striking similarity between Banana and Orange and Comedian, he was not required to proffer evidence of access to show copyright infringement. In the alternative, he argued that he could show substantial similarity and that Cattelan had reasonable opportunity to access Banana and Orange as it was widely disseminated and readily discoverable online.

The Eleventh Circuit explained that in circuits adopting a widespread dissemination standard, that standard requires showing that the work enjoyed “considerable success or publicity.” Morford showed that Banana and Orange was available on his public Facebook page for almost 10 years and featured on his YouTube channel and in a blog post, with views in more than 25 countries. But Banana and Orange’s availability on the internet, without more, was “too speculative to find a nexus” between Cattelan and Morford to satisfy the factual copying prong of a copyright infringement claim, according to the Court.

The Eleventh Circuit also found that Morford failed to meet the high burden of demonstrating that the original work and accused infringement were so strikingly similar as to establish copying. Such similarity exists if the similarity in appearance between the two works “is so great that [it] precludes the possibility of coincidence, independent creation or common source,” but identical expression does not necessarily constitute infringement. In this analysis, a court addresses the “uniqueness or complexity of the protected work as it bears on the likelihood of copying.” Morford argued that he established striking similarity based on the “same two incongruous items being chosen, grouped, and presented in the same manner within both works.” Although the two incongruous items in both works were similar (i.e., a banana and duct tape), the Court decided that there were sufficient differences between Banana and Orange and Comedian to preclude a finding of striking similarity. Banana and Orange had both a banana and an orange held by duct tape, while Comedian only contained a banana.

© 2024 McDermott Will & Emery
For more news on Copyright Infringement Litigation, visit the NLR Intellectual Property section.

Federal Circuit Weighs in on Exceptional Case Determinations in Realtime Adaptive Streaming v. Sling TV and Dish

A recent Federal Circuit decision provided some additional insight into exceptional case determinations in patent infringement disputes. In Realtime Adaptive Streaming v. Sling TV, the Federal Circuit reviewed an award of attorneys’ fees granted to DISH and related Sling entities (collectively, DISH) by the United States District Court for the District of Colorado. Realtime Adaptive Streaming LLC v. Sling TV, L.L.C. , Fed. Cir., 23-1035, vacated 8/23/24.

History of Events

On August 31, 2017, Realtime Adaptive Streaming LLC sued DISH and related Sling entities for alleged infringement of U.S. Patent Nos. 8,275,897; 8,867,610; and 8,934,535. Early in the case, the Defendants filed motions to dismiss and motions for judgment on the pleadings, asking the district court to find the asserted claims invalid under § 101. The district court denied these motions.

In October 2018, the Central District of California issued an order finding Claims 15-30 of the ‘535 patent ineligible under § 101 (Google decision). In December 2018, a magistrate judge in the District of Delaware found Claim 15 of the ‘535 patent ineligible (Netflix decision). Shortly after that, the district court stayed the infringement litigation pending IPR proceedings.

During the IPR proceedings claims 1-14 of the ‘535 patent were found to be unpatentable on obviousness grounds. Realtime then withdrew its claims under the ‘535 patent.

The district court lifted the stay on January 15, 2021. Shortly after stay was lifted the USPTO rejected claim 1 of the ‘610 patent as obvious as part of an ex parte reexamination.

In February 2021, DISH sent Realtime a letter conveying its belief the ‘610 patent was invalid and expressing its intention to seek attorneys’ fees.

On July 31, 2021, the district court granted DISH’s motion for summary judgment of invalidity, finding Claims 1, 2, 6, 8-14, 16, and 18 of the ‘610 patent directed to ineligible subject matter under § 101 and ultimately granted DISH’s Motion for Attorneys’ Fees, highlighting six “red flags” that Realtime’s case was fatally flawed.

On May 11, 2023, the Federal Circuit affirmed the district court’s order concluding that the asserted claims of the ‘610 patent are directed to ineligible subject matter under § 101. On August 23, 2024, it issued its opinion on the appeal of the attorneys’ fees award under 35 U.S.C. § 285, vacating the district court’s opinion and remanding for further consideration.

Federal Circuit’s Analysis of the District Court’s Red Flags

The Federal Circuit reviewed each of the six red flags identified by the district court:

a) Google and Netflix decisions: The Federal Circuit agreed that these decisions, which found claims of a related patent ineligible, were significant red flags.

b) Adaptive Streaming decision: The Federal Circuit found that the district court erred in treating this as a red flag, as it involved different technology and lacked sufficient analysis to show the patent infringement claim was exceptionally meritless.

c) Board’s invalidation of the ‘535 patent: The Federal Circuit found that the district court failed to adequately explain how these decisions supported a finding of exceptionality.

d) Reexamination of the ‘610 patent: The Federal Circuit found that the district court’s analysis was lacking and failed to adequately explain how these decisions supported a finding of exceptionality.

e) DISH’s notice letter: The Federal Circuit found that the letter alone was not sufficient to trigger § 285 and support an exceptionality finding.

f) Expert analysis evidence: The Federal Circuit found that the district court erred in its justification of Dr. Bovik’s opinions as a red flag.

Notice Letter Insufficient

The notice letter from DISH was not considered sufficient to trigger § 285 and support an exceptionality finding for several reasons:

  1. Limited analysis: The letter contained only two paragraphs dedicated to discussing the ineligibility of the asserted claims of the ‘610 patent. These paragraphs were described as “conspicuously short” and “riddled with conclusory statements” asserting similarities between the ‘610 patent claims and those of the ‘535 patent and the Adaptive Streaming patent.
  2. Lack of specific comparisons: The letter did not provide any further analysis or specific comparisons to support its assertions about the similarities between the patents.
  3. Insufficient notice: The court found that simply being on notice of adverse case law and the possibility that opposing counsel would pursue § 285 fees does not amount to clear notice that the ‘610 claims were invalid.
  4. Potential for abuse: The court noted that if such a notice letter were sufficient to trigger § 285, then every party would send such a letter setting forth its complaints at the early stages of litigation to ensure that—if it prevailed—it would be entitled to attorneys’ fees.
  5. Lack of follow-up: DISH did not follow up regarding its allegations after Realtime responded to the notice letter eleven days later.

The Federal Circuit concluded that without more substantive analysis or specific comparisons, the notice letter alone was not enough to put the patentee on notice that its arguments regarding ineligibility were so meritless as to amount to an exceptional case.

Conclusion

In conclusion, while the Federal Circuit agreed that some of the red flags identified by the district court were valid considerations, it found that others were not properly justified or explained. As a result, the court vacated the attorneys’ fees award and remanded the case for reconsideration consistent with its opinion.

The findings regarding the notice letter are not surprising. Patent cases may take a long time to develop and typically include an enormous amount of information. Both parties have a limited amount of information early in the case and so positions are staked out carefully. The court did not give an indication of what would be necessary to serve as adequate notice of the defects of a plaintiff’s patent assertion. It remains to be seen how the court treats the exceptional case analysis in light of the remand guidance from the Federal Circuit.

© 2024 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved.
For more news on Federal Patent Litigation, visit the NLR Intellectual Property section.

AI-Generated Content and Trademarks

The rapid evolution of artificial intelligence has undeniably transformed the digital landscape, with AI-generated content becoming increasingly common. This shift has profound implications for brand owners introducing both challenges and opportunities.

One of the most pressing concerns is trademark infringement. In a recent example, the Walt Disney Company, a company fiercely protective of its intellectual property, raised concerns about AI-generated content potentially infringing on its trademarks.  Social media users were having fun using Microsoft’s Bing AI imaging tool, powered by DALL-E 3 technology, to create images of pets in a “Pixar” style.  However, Disney’s concern wasn’t the artwork itself, but the possibility of the AI inadvertently generating the iconic Disney-Pixar logo within the images, constituting a trademark infringement. This incident highlights the potential for AI-generated content to unintentionally infringe upon established trademarks, requiring brand owners to stay vigilant in protecting their intellectual property in the digital age.

Dilution of trademarks is another critical issue. A recent lawsuit filed by Getty Images against Stability AI sheds light on this concern. Getty Images, a leading provider of stock photos, accused Stability AI of using millions of its copyrighted images to train its AI image generation software. This alleged use, according to Getty Images, involved Stability AI’s incorporation of Getty Images’ marks into low-quality, unappealing, or offensive images which dilutes those marks in further violation of federal and state trademark laws. The lawsuit highlights the potential for AI, through the sheer volume of content it generates, to blur the lines between inspiration and infringement, weakening the association between a trademark and its source.

In addition, the ownership of copyrights in AI-generated marketing can cause problems. While AI tools can create impressive content, questions about who owns the intellectual property rights persist.  Recent disputes over AI-generated artwork and music have highlighted the challenges of determining ownership and copyright in this new digital frontier.

However, AI also presents opportunities for trademark owners. For example, AI can be employed to monitor online platforms for trademark infringements, providing an early warning system. Luxury brands have used AI to authenticate products and combat counterfeiting. For instance, Entrupy has developed a mobile device-based authentication system that uses AI and microscopy to analyze materials and detect subtle irregularities indicative of counterfeit products. Brands can integrate Entrupy’s technology into their retail stores or customer-facing apps.

Additionally, AI can be a powerful tool for brand building. By analyzing consumer data and preferences, AI can help create highly targeted marketing campaigns. For example, cosmetic brands have successfully leveraged AI to personalize product recommendations, enhancing customer engagement and loyalty.

The intersection of AI and trademarks is a dynamic and evolving landscape. As technology continues to advance, so too will the challenges and opportunities for trademark owners. Proactive measures, such as robust trademark portfolios, AI-powered monitoring tools, and clear internal guidelines, are essential for safeguarding brand integrity in this new era.

Copyright ©2024 Nelson Mullins Riley & Scarborough LLP
For more news on AI and Trademarks, visit the NLR Intellectual Property section.

PTAB MTA Pilot Program to the Rescue

On review of a final written decision from the Patent Trial & Appeal Board in an inter partes review (IPR), the US Court of Appeals for the Federal Circuit found that all challenged claims were obvious but left open the possibility of the patent owner amending the claims under the Motion to Amend (MTA) Pilot Program. ZyXEL Communications Corp. v. UNM Rainforest Innovations, Case Nos. 22-2220; -2250 (Fed. Cir. July 22, 2024) (Dyk, Prost, Stark, JJ.)

ZyXEL Communications petitioned for IPR challenging claims 1 – 4, 6, 7 and 8 of a patent owned by UNM Rainforest Innovation (UNMRI). The patent relates to methods for constructing frame structures in communication systems using orthogonal frequency-division multiple access (OFDMA) technologies. The patent describes a method for constructing a frame structure with two sections, each of which is configured for a different communication system, where the second communication system is used to support high mobility users (i.e., faster moving users).

Before the Board, ZyXEL argued that claims 1 – 4, 6 and 7 were unpatentable in light of two prior art references (Talukdar and Li), and that claim 8 was unpatentable in light of Talukdar and another prior art reference (Nystrom). During the Board proceedings, UNMRI filed a contingent motion to amend if any of the challenged claims were found to be unpatentable. As part of its motion, UNMRI requested preliminary guidance from the Board pursuant to the Board’s MTA Pilot Program. In its opposition to UNMRI’s motion to amend, ZyXEL argued that UNMRI’s amended claims lacked written description support, and in its preliminary guidance, the Board agreed. UNMRI attempted to file a revised motion to amend, but the Board rejected the revised motion and instead permitted UNMRI to file a reply in support of its original motion. It also allowed ZyXEL to file a sur-reply. The Board determined that claims 1 – 4, 6 and 7 were unpatentable, but that claim 8 was not. The Board also granted UNMRI’s motion to amend and determined that the new claims were nonobvious over the prior art of record. Both sides appealed.

With respect to the Board’s decision on the obviousness of claims 1 – 4, 6 and 7, the Federal Circuit found that substantial evidence supported the ruling. UNMRI’s primary argument was that a person of skill in the art (POSA) would not have been motivated to combine Talukdar and Li, but the Court credited the Board’s reliance on ZyXEL’s expert, who demonstrated sufficient motivation to combine the two references.

The Federal Circuit reversed the Board’s finding that claim 8 had not been shown to be obvious, however. The Court noted that while the Nystrom reference may not explicitly state the benefit of the missing limitations, “a prior art reference does not need to explicitly articulate or express why its teachings are beneficial so long as its teachings are beneficial and a POSA would recognize that their application was beneficial.”

Regarding UNMRI’s motion to amend, ZyXEL argued that the Board erred in granting the motion because UNMRI did not satisfy the requirement that the motion itself contain written description support for all of the claim limitations of the substitute claims. The parties agreed that UNMRI’s reply contained the missing written description, but ZyXEL argued that this could not cure the procedural defect. The Federal Circuit acknowledged the procedural error but determined that “the core purpose of the MTA Pilot Program is to allow for the correction of errors in the original motion [and is thus] designed to allow reply briefs to address and correct errors.” The Court noted that ZyXEL had opportunity to respond in its sur-reply brief. The Court upheld the Board’s decision to grant UNMRI’s motion to amend and remanded the IPR back to the Board to determine, in light of the Court’s rulings on claim 8 and the fair teachings of Nystrom, whether the substitute claims were nonetheless obvious.

The Federal Circuit also reminded the Board that it may sua sponte identify a patentability issue for the proposed substitute claims based on any prior art of record in the proceedings.

© 2024 McDermott Will & Emery
For more news on PTAB’s Motion-to-Amend Pilot Program, visit the NLR  Intellectual Property section.

Relying on Noncompete Clauses May Not Be the Best Defense of Proprietary Data When Employees Depart

Much of the value of many companies often is wrapped up with and measured by their intellectual property (IP) portfolios. Some forms of IP, such as patents, are known by the public. Others derive their value from being hidden from the public. Many companies, for example, have gigabytes of data or “know-how” that may be worth millions, but only to the extent that they remain secret. This article discusses some ways to keep business information confidential when an employee who has had access to that information leaves the company.

Many companies traditionally turned to employment agreements, specifically noncompete clauses, to protect proprietary competitive information. The legality of noncompetes is in question following the Federal Trade Commission’s (FTC’s) ban on them, which is being challenged in court by the U.S. Chamber of Commerce, causing confusion and concerns about protecting information via noncompete agreements. As covered in Wilson Elser’s prior articles* on this subject, the timeline of the FTC rule in question was as follows:

  • The FTC promulgated new rules to take effect in September 2024 banning all noncompete agreements.
  • The U.S. Supreme Court overturned the 40-year-old method of reviewing agency rules (Chevron Deference), throwing all agency rules, including the FTC’s rule on noncompetes, into question.
  • The District Court for the Northern District of Texas preliminarily enjoined the FTC from enforcing its new rule banning noncompetes.

After this flurry of activity, noncompetes are, for now, not banned. But do they offer an effective solution for businesses seeking to protect their proprietary information?

Noncompete Clauses Are Not Always Effective
Vortexa, Inc. v. Cacioppo, a June 2024 case from the District Court for the Southern District of New York, illustrates the limitations of noncompete clauses in employment agreements. That case presents the familiar fact pattern of an employee leaving and going to work for a competitor. With some evidence of the employee’s access to proprietary competitive information in hand (but no evidence of actual misappropriation), the former employer sought a preliminary injunction to prevent the employee from working for the competitor for one year, the term stated in the noncompete clause in the employee’s contract with the former employer. The contract also included common non-disclosure and confidentiality clauses.

Absent evidence of actual misappropriation, the plaintiff employer relied on the “Inevitable Disclosure” doctrine, which assumes that a departing employee will inevitably disclose confidential information when they go work for a competitor. The court refused to apply this doctrine, explaining that inevitable disclosure may substitute for actual evidence of misappropriation only when the information is a trade secret. Here, none of the information about which the former employer was concerned was a trade secret.

The proprietary information that the former employee had was pricing data, marketing strategies and “intricacies of the business.” These types of information do not, in and of themselves, constitute trade secrets. In addition, the information was not afforded trade secret treatment because (1) some of it was ascertainable by the competitor without reference to the first employer’s information; (2) the companies sell different products; (3) some of the information was developed without the expenditure of a good deal of money and effort; (4) some of the information was provided to clients without a non-disclosure agreement; (5) some of the information was shared on company-wide collaboration channels; and (6) “google drive log records show that [the former employee] opened and viewed these documents, which underlines the lack of security protecting this purportedly confidential information.”

Most of these reasons for the information not being accorded trade secret status cannot be changed by any action of the employer. For example, if information can be generated by means independent of the first employer, that information cannot be protected by trade secret law and nothing the first employer can do will change that after the fact. However, any business seeking to protect its valuable competitive information can change the way that it secures, protects and manages access to its competitive information, and this may be enough to ensure that its information is protected by trade secret law.

What Businesses Should Do to Protect Their Proprietary Competitive Information
Generally, proprietary competitive information can be protected as a trade secret by operation of law or via contract. In many cases, the “boots and suspenders” approach is best – the information should be protected both by contract and by meeting the requirements for protection under trade secret law. As described, a contract alone is sometimes ineffective, so information that derives its value from not being generally known to the public should also be treated in such a manner that the courts would see it as being a trade secret.

Specifically, for something to qualify for trade secret protection under federal and state statues and common law, it must be securely kept and carefully protected from disclosure. Some easy ways to protect information are to (1) restrict access to folders on a company’s internal computer systems, (2) physically lock rooms that contain hard copies and (3) have computers lock automatically when not accessed for set time periods. Protecting information via noncompete, confidentiality and non-disclosure contractual obligations is another way to ensure that information remains secret, such that it is protected under trade secret law. Internal policies on how information may be shared with third parties, such as clients, also are helpful evidence of trade secret treatment. In addition, the business may consider maintaining records on the time, effort and monetary expenditures required to develop proprietary information, which should allow the business to demonstrate that making such information freely available to a competitor is fundamentally unfair.

In some cases, information protected as a trade secret may be the most valuable IP that a company owns. But the value can easily be lost if the company does not properly secure the information. Different scenarios call for different methods of security, and a good rule of thumb to protect information from disclosure by a departing employee is to protect this information both by contract and as a trade secret.

The first step for any business is to think through their overall data protection strategy and consult with experienced intellectual property counsel to put appropriate protections in place.

© 2024 Wilson Elser
For more news on Proprietary Business Data, visit the NLR Intellectual Property section.

Trademark Insights: What the First Precedential TTAB Expungement Decision Means for You

As a trademark applicant, encountering a prior registration that obstructs your path to registration is never a pleasant experience (nor for your attorneys who have to inform you about it). The frustration only intensifies when it becomes evident that the registered mark has never been used for the specified goods or services. Until 2021, the sole recourse with the USPTO to address this issue was filing a Petition to Cancel, with the hope that the registrant would not respond, leading to a swift default judgment. Unfortunately, this is not always the case, and a response means expending an appreciable amount of time and money before resolution can be obtained, often through a settlement agreement.

In late 2021, the landscape changed with the passing of the Trademark Modernization Act of 2020, which brought about two new ex parte proceedings: reexamination and expungement. The goal was to provide faster, more efficient, and less expensive alternatives to contested cancellation proceedings at the Trademark Trial and Appeal Board (the “Board”).

Expungement proceedings, in particular, offer a means to cancel trademarks that have never been used in commerce. “Any party can request cancellation [by the USPTO Director] of some or all of the goods or services in a registration because the registrant never used the trademark in commerce with those goods or services.” This action is available against all types of registrations, but must be requested between three and ten years after the registration date.

Now, after two-and-a-half years of these proceedings, on July 1, 2024, the Board issued its first precedential decision in an expungement proceeding: In Re Locus Link USA.

In July 2022, a third party filed expungement actions against Locus Link USA’s (the “Registrant”) two SMARTLOCK registrations, alleging nonuse of the marks for the specified goods: “components for air conditioning and cooling systems, namely, evaporative air coolers.” The USPTO Director found sufficient evidence of nonuse and proposed cancellation. The registrant responded with evidence of use in the form of specimens showing connectors for metal tubing and air condition components, arguing that this evidence was sufficient, and had been previously accepted by the USPTO during examination. The USPTO maintained the cancellation, noting that the subject registrations only covered the specific goods following the term “namely” in the identification, here “evaporative air coolers.”

On appeal, the Registrant argued that the SMARTLOCK marks are in use in connection with the goods identified in the registration because the identification of goods covers components for evaporative air coolers. The Board disagreed and affirmed the USPTO’s decision.

Goods and services in an application should “state common names for goods or services, be as complete and specific as possible, and avoid indefinite words and phrases.” TMEP § 1402.03(a), cited in In re Solid State Design Inc., Ser. No. 87269041, 2018 TTAB LEXIS 1, at *18 (TTAB 2018).

Applicants take notice: “the goods or services listed after the term ‘namely’ must further define the introductory wording that proceeds ‘namely’ using definite terms within the scope of the introductory words.” In other words, the goods or services that come after “namely” must specifically define the broader category mentioned before. Essentially, “namely” helps to clarify otherwise vague descriptions.

In this case, the broad category is “components for air conditioning and cooling systems.” The applications were only accepted for registration because they specified “namely, evaporative air coolers.” This means the SMARTLOCK marks cover evaporative air coolers that are components for air cooling systems. It does not cover component parts that go into making evaporative air coolers.

Key Takeaways

  1. Grammar Matters. Properly identifying goods and services in an application is vital. The USPTO continues to increase its specificity requirements for identifying goods and services, and applicants need to ensure not only original identifications, but also amendments to identifications proposed by an examiner accurately and correct reflect their goods and services. In Locus Link, was the Board, splitting hairs? Maybe, but the lesson is critically important for obtaining and maintaining trademark registrations.
  2. Specimen Acceptance Isn’t Conclusive. The acceptance of specimens by the USPTO does not control the ultimate question of use. Although not a new concept, one to keep in mind. It is more important to have multiple records of proper and consistent trademark use than to rely on a single specimen. It is wise to retain an attorney with experienced eyes to review your use specimens prior to filing for both registration and for maintenance of your registrations.
  3. File for New Marks as Necessary. While the SMARTLOCK marks were never in use for the goods, nonuse or lack of coverage can happen. Businesses expand and evolve over the years and so too should the portfolio of trademark registrations. It is important to occasionally audit your trademark portfolio to look for any gaps in coverage for certain marks and certain goods and services. Do not just think you have proper coverage, be sure so you are in the best offensive and defensive position possible for your brand. You never know who else is out there, looking to use your mark. If your registrations are in not order, your marks are vulnerable.

It is still early days for these new ex parte proceedings, but the hope is that they will prove a useful tool moving forward. This precedential decision although not groundbreaking does provide a good overview of the relatively new expungement proceeding and some good reminders for trademark owners.

Copyright © 2024 Womble Bond Dickinson (US) LLP All Rights Reserved.
For more news on Trademark Expungement, visit the NLR Intellectual Property section.

China’s Supreme People’s Court Releases Two Recent Patent-Related Typical Anti-Monopoly Cases

On June 24, 2024, China’s Supreme People’s Court (SPC) released five recent typical anti-monopoly cases, two of which relate to patents. The SPC stated that the cases were released so that Courts can “correctly apply the revised Anti-Monopoly Law and accurately understand the new judicial interpretation of anti-monopoly civil litigation issued today, fairly and efficiently hear monopoly cases, ensure the correct implementation of the Anti-Monopoly Law, and maintain fair competition in the market.”

Explanations from the SPC regarding the two cases follows:

Case No.:【案号】（2020）最高法知民终1140号

[Basic facts of the case] Yang XX Pharmaceutical Group Co., Ltd. and its subsidiaries (collectively referred to as Yang) are the manufacturers of the anti-allergic drug desloratadine citrate tablets with the trade name “Beixue.” Hefei Yi XX Pharmaceutical Co., Ltd. owns the relevant patents for desloratadine citrate. The company and its subsidiaries and affiliated companies (collectively referred to as Yi) are the only suppliers of the desloratadine citrate API required for the production of “Beixue”. In addition to producing desloratadine citrate API, Yi also produces desloratadine citrate hard capsules. Yi and Yang are both the supply and demand parties of the desloratadine citrate API involved in the case, and are also competitors in desloratadine citrate preparations. Yang believed that Yi used its dominant position in the market of desloratadine citrate API to restrict Yang to only purchase the API involved in the case from it, significantly raised the price of the API involved in the case, and threatened to stop supplying the API involved in the case to force Yang to accept other commercial arrangements unrelated to the API transaction involved, causing huge losses to Yang and therefore constituting an abuse of market dominance. Yang requested that Yi stop abusing its market dominance and compensate Yang for losses and reasonable expenses of 100 million RMB. The court of first instance found that Yi had abused its market dominance by restricting transactions, setting unfair high prices, and attaching unreasonable transaction conditions, and ordered it to immediately stop the above-mentioned behaviors and compensate Yang more than 68 million RMB. Both parties were dissatisfied and appealed to the Supreme People’s Court.

The Supreme People’s Court held in the second instance that Yi has a dominant market position in the desloratadine citrate API market in China, but its dominant market position has been weakened to a certain extent due to the strong indirect competition constraints from the downstream second-generation antihistamine preparation market. Based on the existing evidence, it is difficult to determine that it has abused its dominant market position. First, desloratadine citrate falls within the scope of protection of Yi’s patent rights. The time and scope of Yi’s restriction that Yang can only purchase the patented API involved in the case from it do not exceed the scope of the legitimate exercise of patent rights, and the resulting market blocking effect does not exceed the statutory exclusive scope of patent rights, so it does not constitute a restricted transaction behavior that abuses the dominant market position. Second, considering the internal rate of return after the price increase and the matching degree of price and economic value, it is more likely that the initial price of the patented API involved in the case is a promotional price, and the subsequent large price increase is likely to be a reasonable adjustment from the promotional price to the normal price. The fact that the price increase is significantly higher than the cost increase is not enough to determine that there is an unfair high-price behavior that abuses the dominant market position. Third, the existing evidence is insufficient to prove that Yi has explicitly or implicitly bundled the sales of the patented API involved in the case with unrelated products, so it is difficult to determine that there is an act of attaching unreasonable transaction conditions. Therefore, the judgment was revoked and the first-instance judgment was changed to dismiss Yang’s lawsuit request.

[Typical Significance] This case is the first monopoly civil lawsuit in China involving raw material pharmaceuticals. The judgment clarified the consideration of indirect competition constraints from the downstream market when judging the market dominance of intermediate input operators, the relationship between the market blocking effect of limited trading behavior and the statutory exclusive scope of patent rights, and the basic ideas and specific methods for judging unfair high prices. It has positive significance for promoting the accurate application of the Anti-Monopoly Law and effectively maintaining fair competition in the pharmaceutical market.

【案号】（2021）最高法知民终1482号

[Basic facts of the case] Ningbo XX Magnetics Co., Ltd. is an enterprise engaged in the production of sintered NdFeB materials in Ningbo, Zhejiang Province. A Japanese metal company has more than 600 sintered NdFeB patents in the field of rare earth materials worldwide. After licensing eight companies in China to implement its patented technology, it decided not to add new licensees. From March 2014 to March 2015, Ningbo XX Magnetics Co., Ltd. repeatedly requested a license from the Japanese metal company but was rejected. Therefore, it filed a lawsuit in December 2014, requesting that the Japanese metal company stop the abuse of market dominance such as refusal to trade and compensate Ningbo XX Magnetics Co., Ltd. for economic losses of 7 million RMB. The court of first instance determined that the Japanese metal company had a dominant position in the patent licensing market for essential patents for sintered NdFeB and that its refusal to trade had no legitimate reason. Therefore, it ordered the Japanese metal company to stop abusing its market dominance by refusing to trade and compensate Ningbo XX Magnetics Co., Ltd. for economic losses of 4.9 million RMB. The Japanese metal company was dissatisfied with the decision and filed an appeal.

The Supreme People’s Court held in the second instance that the evidence in this case was insufficient to prove that the sintered NdFeB patent of a Japanese metal company was irreplaceable, nor was it sufficient to prove that there was an independent licensing market for patents necessary for the production of sintered NdFeB. Therefore, it was difficult to determine that the relevant market in this case was the patent licensing market for patents necessary for the production of sintered NdFeB owned by the Japanese metal company. In this case, based on the demand substitution of sintered NdFeB material production technology, the relevant market in this case should be defined as the global sintered NdFeB material production technology market, including patented technologies and non-patented technologies with close substitution. Given that sintered NdFeB material production technology is used to produce sintered NdFeB materials, and the market share of sintered NdFeB materials (products) and other conditions can more accurately and conveniently reflect the market conditions of sintered NdFeB production technology, the market power of the technology owner in the relevant market involved in the case can be evaluated through the market share of the sintered NdFeB material market. Taking into account the evidence in the case, the Japanese metal company does not have a dominant position in the global sintered NdFeB material production technology market. Therefore, the court ruled to revoke the first-instance judgment and dismiss the lawsuit filed by the Ningbo magnetic company.

[Typical Significance] This case is a typical case in which intellectual property rights and antitrust are intertwined, and has received widespread attention. The second-instance judgment properly handled the relationship between the exercise of patent rights and antitrust, and through scientific and reasonable definition of the relevant market, revised the judgment in accordance with the law to determine that the foreign right holder’s refusal to license the patent involved did not constitute monopoly behavior. The judgment in this case demonstrates the judicial concept of Chinese courts to equally protect the legitimate rights and interests of Chinese and foreign parties and the trial ideas of antitrust cases involving intellectual property abuse in accordance with the law, and actively responded to the concerns of the industry at home and abroad.

The original text including three additional cases is available here (Chinese only).

© 2024 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved.
For more news on Chinese Patent Litigation, the NLR Intellectual Property section.

Supreme Court Upholds Refusal to Register Trademark Containing the Name of Living Individual – Donald Trump

In a recent unanimous decision in the case Vidal v. Elster (602 U.S. ___ (2024)), the U.S. Supreme Court upheld the refusal to register a federal trademark for the phrase “Trump Too Small” based on the fact that the Lanham Act prohibits the registration of the name of a living individual without their consent. The plaintiff in this case, Mr. Elster, filed a federal trademark application in 2018 for the mark “TRUMP TOO SMALL” for use on clothing as shown below, without the prior consent of former President Trump, arguing that the phrase was intended to be a criticism of Donald Trump and his policies and that the refusal was a violation of Mr. Elster’s First Amendment right of free speech. Mr. Elster claimed he wanted to register the mark to convey a political message about the former president.

The Supreme Court reviewed the matter based on the initial refusal to register issued by the United States Patent & Trademark Office, which was then appealed to the U.S. Court of Appeals for the Federal Circuit, who overturned the refusal holding that barring registration of “Trump Too Small” under a provision of federal trademark law unconstitutionally restricted free speech. The Court’s ruling upholds the “living-individual rule” established under the Lanham Act which requires the consent of the living individual prior to registration. Specifically, “No trademark … shall be refused registration … on account of its nature unless it…[c]onsists of or comprises a name, portrait, or signature identifying a particular living individual except by his written consent….” 15 U.S.C. §1052(c). Proponents of the law, including the International Trademark Association, argue that this provision of trademark law is consistent with the concepts of the right of publicity and privacy, and assists in preventing the unauthorized use of individuals’ names in commercial contexts. In explaining the rationale for the decision, Justice Thomas wrote: “This Court has long recognized that a trademark protects the markholder’s reputation, and the connection is even stronger when the mark contains a person’s name,” and further stated, “This history and tradition is sufficient to conclude that the names clause — a content-based, but viewpoint-neutral, trademark restriction — is compatible with the First Amendment.”

It is worth noting the Court’s decision does not affect the ability of Mr. Elster to offer goods or services under any particular name or brand – in fact, Mr. Elster’s T-shirts bearing the phrase “Trump Too Small” are still available online for $24.99, even though his trademark application was refused. But the ruling does uphold the prohibition of seeking and obtaining federal trademark protection where the mark contains the name of a living individual without their consent. This ruling from the Supreme Court joins a string of other First Amendment challenges to provisions of the Lanham Act, the main statute governing trademarks. The high court in 2017 struck down a section of the law that barred registration of disparaging marks and did the same for a provision prohibiting immoral or scandalous marks in 2019.

The key takeaway from this narrowly tailored decision is that, prior to seeking federal trademark protection for a mark containing the name of a living individual, consent from that individual must be obtained. In the context of protecting a name or brand focused on a living individual, or in the continuation of such use post-merger or other transaction, it is important to ensure that the consent of the living individual is secured in some manner.

© Polsinelli PC, Polsinelli LLP in California

Conviction Under China’s Version of the Economic Espionage Act for Theft of Trade Secrets

On April 26, 2024, the Shanghai Pudong Court released the “Typical cases of intellectual property judicial services provided by the Shanghai Pudong New Area People’s Court to ensure high-quality development of new productivity” (上海市浦东新区人民法院知识产权司法服务保障新质生产力高质量发展典型案例), which included a criminal case involving a newer provision of the Chinese Criminal Law that is somewhat analogous to the U.S. Economic Espionage Act. This is believed to be the first case in Shanghai under this provision and may be related to last year’s police raids on Bain and/or Capvision although the Court did not release information identifying the entities involved.

As explained by the Shanghai Pudong Court:

Case 12

Determination of the elements of the crime of illegally providing trade secrets to foreign countries – the first case of spying and illegally providing trade secrets to foreign countries in Shanghai

Judgment Summary

Article 219-1 of the Criminal Law states that “the crime of spying on and illegally providing commercial secrets for foreign countries” should be determined based on the following elements: first, the object of the perpetrator’s infringement is a commercial secret protected by China’s criminal law; second, the perpetrator objectively carried out the act of spying on and illegally providing commercial secrets; third, the commercial secrets were spied on and provided to foreign institutions, organizations, and personnel, and the perpetrator knew it. Among them, foreign institutions and organizations include not only institutions and organizations established in other countries or regions abroad, but also their branch (representative) institutions and branch organizations established in China, as well as institutions and organizations in Hong Kong, Macao and Taiwan. If the perpetrator is not clearly informed that the commercial secrets are spied on and provided to foreign countries, but subjectively should know and takes a laissez-faire attitude, it constitutes knowing.

Basic facts

From August 2017 to 2020, the defendant Zheng worked as a thin film equipment engineer in a storage company. He signed the “Employment Contract” and “Secrecy Commitment Letter on Resignation” and promised to keep the company’s trade secrets confidential. In August 2021, the defendant Zheng accepted the invitation of an information company and became the company’s industry expert consultant. From October 2021 to the time of the incident, the defendant Zheng violated the confidentiality agreement with the storage company where he originally worked, used the information he had mastered and spied on the employees of the storage company, and accepted the arrangement of the information company many times in the name of an expert of the storage company to provide paid consulting services to companies with similar or competitive businesses to the storage company. Among them, Zheng accepted a telephone interview with the consulting company (whose shareholders are foreign companies) in February 2022. Knowing that the actual consulting party was an overseas organization, he still illegally provided the trade secrets of the storage company that he had spied on and learned to overseas organizations and personnel through the information company, and illegally made a profit of 2,062.40 RMB. On September 17, 2022, the defendant Zheng was detained and summoned by the Shanghai National Security Bureau. After being brought to justice, he truthfully confessed the main facts of the crime and, with the help of his family, surrendered the illegal gains of 2,062.40 RMB.

Judgement

After trial, the Pudong Court held that the commercial information of the relevant products accused by the public prosecution agency was the result of a storage company’s creative labor and embodied the wisdom of many R&D personnel. The above-mentioned trade secrets have an important impact on the company’s competitiveness and future development in the international and domestic industries. The company has never publicly released it, and the defendant Zheng also confirmed that the above-mentioned information belongs to the company’s undisclosed information. Therefore, this information is not generally known and not easily accessible to relevant personnel in the field. The storage company has taken reasonable confidentiality measures for the commercial information involved by formulating the “Confidential Information Protection Policy Text” and signing the “Employment Contract” and “Resignation Confidentiality Commitment Letter” with the defendant Zheng. Therefore, the commercial information involved is the company’s trade secrets. After the defendant Zheng resigned, he violated the agreement on keeping trade secrets with the storage company and the company’s confidentiality system. Knowing that the consulting party was an overseas organization, he still provided the trade secrets involved in the case that he illegally discovered from his former colleagues, together with the trade secrets he possessed, to the consulting party. His behavior has constituted the crime of overseas espionage and illegal provision of trade secrets. Based on this, the court sentenced the defendant Zheng to two years and six months in prison and a fine of RMB 10,000 for the crime of spying and illegally providing trade secrets abroad; the illegal gains were confiscated.

After the first-instance judgment, the defendant Zheng did not appeal and the public prosecution agency did not file a protest, and the judgment is now effective.

Typical significance

This case is the first case accepted by the Shanghai court for the newly added crime of “stealing, spying, buying, and illegally providing trade secrets for foreign countries” since the implementation of the Criminal Law Amendment (XI). It involves former employees of key enterprises in China’s high-tech field, who, in the name of expert consultation, leaked important trade secrets they spied on and learned to foreign organizations through consulting companies and made profits, causing serious harm to the development and economic interests of the enterprises. The judgment in this case strictly grasps the constituent elements of the crime, severely cracks down on commercial espionage crimes of foreign organizations against key high-tech enterprises in China, protects the independent intellectual property rights of Chinese enterprises in accordance with the law, helps to enhance international competitiveness, and safeguards China’s national security and national interests.

The original text (with 14 other typical case summaries) is available here (Chinese only).

© 2024 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved.
For more news on Theft of Trade Secrets in China, visit the NLR Intellectual Property section.