Intellectual Property Archives - Page 15 of 58

HHS HIV Drug Lawsuit: Setting Precedent for Other High Priced Medications or Government Collaborations?

On November 6, 2019, the bonds between the U.S. government and pharmaceutical companies were stretched when the U.S. Department of Health and Human Services (“HHS”) filed a patent infringement lawsuit against Gilead Sciences in Delaware federal court regarding Gilead’s popular HIV drugs, Truvada® and Descovy®. HHS rarely sues for patent infringement. In fact, the U.S. government and pharmaceutical companies typically have collaborative relationships. For example, Gilead provided the Center for Disease Control and Prevention (“CDC”) with free drugs for government experiments to expand treatment for certain diseases. So, what happened?

In 2004, Gilead—after receiving patent protection—began selling Truvada® to treat people already infected with HIV. The CDC later investigated whether Truvada® could be used as a prophylactic to prevent HIV in monkeys and received patent protection for four key patents that “generally cover processes for protecting a primate or human host from a self-replicating infection by an immunodeficiency retrovirus, including HIV.” (Complaint, ¶ 196). Specifically, the claimed inventions provide protection “by a combination of nucleoside reverse transcriptase inhibitor, such as FTC, and a nucleotide reverse transcriptase inhibitor, such as tenofovir, or esters/prodrugs of tenofovir, such as TDF or TAF.” Id. Gilead donated the FTC, TDF, and tenofovir used in the CDC’s research, but its personnel do not appear to have otherwise assisted in the research.

The government alleges that first, it helped develop the drug with Gilead, and second, that Gilead “repeatedly refused to obtain a license from CDC to use the patented regimens” and “profited from research funded by hundreds of millions of taxpayer dollars[,]” without paying any royalties to the CDC. HHS seeks damages and royalties for Gilead’s alleged infringement. Many speculate that HHS’s motivation goes beyond royalties to something deeper: to increase access and decrease the price of Truvada® and Descovy® for pre-exposure prophylaxis (“PrEP”).

One goal identified by the Trump administration is to eradicate new cases of HIV and AIDS by 2030. In fact, the administration requested $291 million for this initiative in May 2019. Truvada® and Descovy® play a critical role in PrEP. PrEP is stated to be a highly-effective HIV prevention strategy that may play a vital role in ending the global HIV and AIDS epidemic. However, PrEP is not as widely used as it could be. Some allege that the limited use is related to limited access to the drugs—which in turn could be due in part to the high cost. In the United States, Truvada® costs roughly $1,782 a month.^[1] Some have speculated that this suit is part of the Trump administration’s initiative to lower PrEP prices and end the HIV epidemic in the United States. But is there more?

Political anger and public outcry over drug costs has increased over the years. Three years ago, a national controversy erupted over the price of EpiPen injectors manufactured by Mylan pharmaceuticals. In 2008, EpiPens cost about $100. In 2016, that price rose to $600. This price increase outraged customers and put the company at the forefront of the debate over drug costs. Public outrage, coupled with a whistleblower lawsuit, led Mylan to finalize a $465 million settlement with the U.S. Justice Department over claims that it overcharged the government for EpiPens.

The EpiPen controversy, coupled with the HHS lawsuit against Gilead, may signal to pharmaceutical companies across the country that the U.S. government is ready and willing to step in and demand lower drug prices. Accordingly, this case may be an important bellwether and should be followed by those with interests in these areas.

[1] Descovy® is new to the market, so the average monthly cost is unknown.

ARTICLE BY Aarti Shah and Kara E. Grogan of Mintz.

For more on drug patents, see the National Law Review Intellectual Property law page.

DOJ Seeking to End Movie Studio and Theater Antitrust Decrees amidst Streaming Competition – A New Opportunity in Theatrical Distribution?

For the film and media distribution industries, this year has been action-packed. Production budgets are skyrocketing and new digital services have been announced or are launching with each passing month. The streaming wars are upon us. Moreover, the FCC recently voted to treat streaming services as “effective competition” to traditional cable providers (or MVPDs), thereby triggering basic cable rate de-regulation in parts of Hawaii and Massachusetts.

The distribution landscape took yet another unexpected legal twist this week. On November 18, Assistant Attorney General Makan Delrahim announced that the Antitrust Division of the Department of Justice would ask a federal court to terminate the “Paramount Consent Decrees” (the “Decrees”), which have prohibited movie studios from engaging in certain distribution practices with movie theaters since the 1940s. The DOJ filed a motion to terminate the Decrees in federal court in the Southern District of New York on November 22, 2019. Notably, the DOJ cites streaming services and new technology as a few of the many reasons that the Decrees may no longer be necessary in what the DOJ official sees as today’s highly competitive, consumer-driven content market. Given the volatility of the content licensing space, film licensors and licensees will have to carefully consider how the DOJ’s actions will affect their content rights and options going forward.

By way of background, the Decrees emerged out of the landmark 1948 Supreme Court antitrust case, United States v. Paramount Pictures, Inc. Prior to the case, top Hollywood studios frequently owned movie theaters (thus, owning both the means of production and distribution). This vertical integration led to lower distribution costs for the studios and gave them pricing power and the ability to discriminate about which theaters distributed their films. Not surprisingly, smaller, independent theaters struggled to survive. The problem was exacerbated by studios engaging in practices such as “block-booking” (requiring theaters to distribute all or none of the studio’s slate of films) and overbroad “clearances” (restrictions on the time which must elapse between particular runs of a film), as well as alleged horizontal conspiracies between the studios and theaters on matters like minimum ticket pricing. As part of the Decrees, the defendant studios were restricted or prohibited from engaging in these practices and were required to divest certain interests in their theaters.

The DOJ’s November 22nd motion may not come as a surprise, as the DOJ first announced that the Decrees were under review in August 2018, after which several industry players, including the National Association of Theatre Owners (NATO), submitted comments. In particular, NATO argued, despite how streaming and technology might increase competition, that block-billing would still adversely impact independent or local chains that exhibit fewer films and may not be able to afford larger blocks of films.

Delrahim summed up the DOJ’s position, stating, “the [D]ecrees, as they are, no longer serve the public interest, because the horizontal conspiracy – the original violation animating the decrees – has been stopped. […] Changes over the course of more than half a century also have made it unlikely that the remaining defendants can reinstate their cartel.” In particular, the DOJ argued that the competitive concerns of the 1940s no longer exist because the movie marketplace has changed so drastically, citing how film distributors have become less reliant on theatrical distribution with the advent of streaming. According to the DOJ, colluding to limit theatrical film distribution in today’s market “would make no economic sense.” In addition to streaming services, Delrahim also cited new theatrical release business models (such as flat-fee multi-ticket pricing) as increasing competition and innovation in film distribution.

The DOJ acknowledged NATO’s concerns in part and asked the court to implement a two-year sunset on block-booking and circuit dealing (licensing to all theaters under common ownership, as opposed to on a theater-by-theater basis). Whether terminating the Decrees would decrease innovation, neither the motion papers nor Delrahim venture to guess. Delrahim noted that antitrust enforcers need not predict the future but need only recognize that changes are occurring. He added that practices covered by the Decrees would not become per se lawful, but would rather be subject to review under the rule of reason standard.

Commentators are split on whether termination of the Decrees that have shaped Hollywood for decades will lead to any significant change for the movie business. One thing that is important to note is that the Decrees did not outright prohibit vertical integration of studios and theaters – the defendant studios could (and did) acquire theaters after proving that such acquisitions would not unreasonably restrain trade. Further, only those studios party to the Decrees remain subject to their restrictions, meaning many of today’s top studios (that now typically own a vast portfolio of traditional and digital entertainment properties) were non-existent or much smaller in the 1940s and have not been subject to the Decrees.

While it remains to be seen how this development will play out, it is noteworthy for digital providers because it may breathe extra life back into the theatrical release window. With mammoth streaming deals inked every week, the value of the theatrical release window was seemingly diminishing for some films. But now that many studios are forgoing third-party licensing fees and instead retaining their content for their own streaming platforms, studios may begin to ask whether added revenues from ownership of a theater chain could be a potential new source of revenue and a way to gain additional control of the theatrical window. Meanwhile, the effect of lifting the Decrees may not necessarily lead to a flurry of acquisitions, as other studios involved in direct-to-consumer streaming campaigns may not have the capital or desire to exploit the termination of the Decrees. Major theater chains will likely seek to strengthen relationships with studios, while independent theaters will look for ways to succeed despite potentially rising costs.

With all of these developments, studios and media platforms will also need to carefully consider how to protect their interests when handling their licensing arrangements, given the volatility in this space and keeping in mind the two-year sunset (assuming the DOJ succeeds) on block-booking and circuit dealing. While some distributors may be looking for long-term, exclusive content deals as they roll-out their streaming services, studios and content providers may seek flexibility as their distribution options are changing day-to-day.

ARTICLE BY Kevin P. Milewski of Proskauer Rose LLP.

More on entertainment distribution on the National Law Review Entertainment, Art & Sports law page.

Ferrero Successfully Enforces the Tic Tac Shape Mark in Italy

Many of us had a Tic Tac box in our pockets as kids, no matter the country we grew up in. Ferrero Spa (“Ferrero”), the Italian manufacturer of Tic Tac (and lots of other delicious confectionary products) registered the Tic Tac box as a trade mark in several jurisdictions, including Italy.

After succeeding before the CJEU in the invalidation action against BMB sp. z o.o. earlier this year (click here), in a recent case brought before the Italian courts, Ferrero successfully defended its shape marks, despite the invalidity claim brought by S.r.o. Mocca spol. (“Mocca”), a Czech company selling Bliki-branded mints in an identical container.

Background

In 2017, Ferrero commenced proceedings against Mocca for infringement of its 3D reputed trade marks, the earliest of which was registered in 1973, as well as unfair competition.

Mocca, on the other end, argued that:

an Italian court had no jurisdiction, as Mocca’s mints were produced in the Czech Republic;
Ferrero’s trade marks would be invalid, as the shape would give substantial value to the goods or would be necessary to obtain a technical result; and
there would be no likelihood of confusion because the containers would carry different word marks and the shape of the mints is standard in the industry.

The court’s findings

The court of Turin determined that it did have jurisdiction to hear the case, as the claimant was enforcing Italian trade marks, irrespective of where the defendant resides. The court also noted that sales of the Bliki products had taken place in Italy, providing further reason for the Italian court’s jurisdiction.

With regard to the second argument brought by the defendant, the court found that Ferrero’s box shape is not necessary to obtain a technical result, although it had been previously registered as a patent. In fact, the patent was registered for the closing mechanism, which is not visible on the representation for the trade marks. Lastly, the court also denied that the shape gives substantial value to the goods, as Ferrero’s mints are also sold separately, and it has not been proved that the box influences the purchase experience.

In relation to the likelihood of confusion, the court noted that the only difference claimed by the defendant was the brand on the box. However, the brand (ie Bliki and Tic Tac) was irrelevant in this case, as Ferrero was enforcing its exclusive rights on the box shape rather than on the Tic Tac trade mark (which was not included in the 3D mark registrations). By contrast, the defendant box maintained the same shape and size of the Tic Tac mints.

As a result, the court determined that the Ferrero trade marks were valid and had been infringed. In addition, Mocca’s acts amount to unfair competition. Ferrero was awarded the legal costs of this matter, the payment of a penalty should any box be sold by Mocca after 60 days from the decision and the publication of the decision on a national newspaper. However, Ferrero was not awarded damages as no evidence was filed in this regard.

Implications

In comparison to traditional trade marks, protecting shape marks can be difficult, as their validity is likely to be challenged in the context of an infringement proceeding. Therefore, national registrations may be helpful tools to ensure an effective enforcement strategy. In addition, as shown in this case, trade mark holders should always consider registering shapes without brands or logos to achieve a greater overall protection.

ARTICLE BY Serena Totino and Niall J. Lavery of K&L Gates.

More on shape and trade marks on the National Law Review Intellectual Property law page.

Virtual Marking: Guidance on Doing It Right

Despite the fact that virtual patent marking was introduced nearly a decade ago, jurisprudence addressing virtual marking issues has been quite limited. Recent guidance from U.S. district courts, however, paints a clearer picture of the patent marking statute’s requirements to (a) associate the patented article with the number of the patent; (b) place either “patent” or “pat.” together with a website address on the product; and (c) ensure the marking is “substantially consistent and continuous.”

Since 1952, the patent marking statute (“Marking Statute”) has encouraged patentees to give public notice of a patented article through physical application of the patent number to the article, which assists the public and helps mitigate innocent infringement. 35 U.S.C. § 287; Nike, Inc. v. Wal-Mart Stores, Inc., 138 F.3d 1437, 1443 (Fed. Cir. 1998). Giving effect to this goal, the marking statute provides a financial disincentive for patent owners who do not mark their products (i.e., a patentee is precluded from recovering damages for infringement of unmarked articles prior to notice of infringement). Once marked, a patent owner’s marking must be “substantially consistent and continuous.” Id. at 1446.

Since the AIA’s passage in 2011, however, patentees have been able to inform the public that an article is patented through “virtual marking” (i.e., use of the word “patent” or the abbreviation “pat.” together with the URL of a website address where the actual patent number may be found). 35 U.S.C. § 287. As opposed to physically marking a patent number on a product, virtual marking allows a patent owner to quickly update its patent data website page without the costs of modifying product tooling or packaging (e.g., for newly issued, expired, or invalidated patents). In relevant part, the Marking Statute provides:

“Patentees . . . may give notice to the public that the same is patented . . . by fixing thereon the word ‘patent’ or the abbreviation ‘pat’ together with an address of a posting on the Internet, . . . that associates the patented article with the number of the patent.” 35 U.S.C. § 287(a) (emphasis added).

The Delaware District Court recently clarified what does, and does not, constitute adequate association, concluding that a “website itself must do more than simply list the patentee’s patents.” Mfg. Res. Int’l v. Civiq Smartscapes, LLC, Case No. 17-269, 2019 U.S. Dist. LEXIS 146060, at *3 (D. Del. Aug. 28, 2019)(emphasis added). Citing the statute’s “plain language,” the court reasoned that “[s]imply listing all patents that could possibly apply to a product or all patents owned by the patentee” “merely creates a research project for the public,” as opposed to giving public notice. Id. at *30-31. The court described why this would be the case by pointing to two examples lacking the association necessary “as a matter of law to meet the requirements of virtual marking”:

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Id.

The Court concluded that Plaintiff’s examples did “nothing to ‘associate’ any specific product it has marked with the patents which cover it.” Id. at 31. The Court was not persuaded by Plaintiff’s arguments that proper association was met in view of (1) Plaintiff’s statement that “[o]ne or more of the above listed MRI patents may be used by LG-MRI products under license from MRI, Inc.”, and (2) Plaintiff’s clarification of “the patent category (LCD Display Patents)”. Id. Accordingly, Plaintiff’s website failed to “provide ‘a ready means of discerning the status of the intellectual property embodied in an article of manufacture or design,” and no damages were awarded for infringement that occurred prior to the notice that was provided by the filing of the suit. Id., citing Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 162 (1989).

Beyond the association requirement, courts also have found that a website address lacking the words “patent” or “pat.” does not provide constructive notice, A to Z Machining Serv., LLC v. Nat’l Storm Shelter, LLC, 2011 U.S. Dist. LEXIS 149387 (W.D. Okla. 2011), and that evidence supporting consistent marking of substantially all products may include (a) documentary evidence concerning the timeframe in which the website has operated; (b) engineering and assembly drawings or the actual product depicting virtual mark placement; and (c) testamentary evidence concerning the frequency of the virtual mark’s use on products. See Asia Vital Components Co. v. Asetek Danmark A/S, 377 F. Supp. 3d 990, 1024-25 (N.D. Cal. 2019), citing SEB S.A. v. Montgomery Ward & Co., 594 F.3d 1360, 1378 (Fed. Cir. 2010).

Notably, the burden remains on the patentee to demonstrate that its patent marking practices are effective and appropriate. In view of recent court guidance, consider the following points for creating an effective virtual marking strategy:

Include either “pat.” or “patent” together with the website address where the actual patent number may be found.
Place the patent owner’s website address on all patented products and clearly correlate each product that is covered by at least one claim of a specific patent on that website address for a patented product.
Periodically review the patent website page to ensure that it is current, accurate, and complete (e.g. reflecting new products; updating issued, expired, or invalidated patents).
Create and preserve records that demonstrate that the virtual marking was consistent and continuous. This may entail keeping a written log of updates to the patent website address, and preserving evidence that it was continually maintained

ARTICLE BY William H. Frankel and Jafon Fearson of Brinks Gilson & Lione.

More on patent law on the National Law Review Intellectual Property law page.

Of Passion, Prejudice And Punitive Damages

Addressing an issue of damages, the US Court of Appeals for the Ninth Circuit vacated the district court’s grant of punitive damages in favor of the plaintiff, finding “passion and prejudice” mitigated finding of “malice”. Waverly Scott Kaffaga, as Executrix of the Estate of Elaine Anderson Steinbeck v. The Estate of Thomas Steinbeck et al., Case No. 18-55336 (9th Cir. Sept. 9, 2019) (Tallman, J).

The lawsuit related to decades of litigation among the heirs to John Steinbeck’s registered copyrights to his works, including The Grapes of Wrath, Of Mice and Men, East of Eden and The Pearl. When Steinbeck died in 1968, he left interest in his works to his third wife, Elaine. Steinbeck’s two sons by a previous marriage each received $50,000. In the 1970s, the sons obtained rights in their father’s works when interests in works were renewed pursuant to US Copyright law.

In 1983, changes in the law prompted Elaine and the sons to enter into an agreement that provided each of them with an equal share of the royalties and gave Elaine “complete power and authority to negotiate, authorize and take action with respect to the exploitation and/or termination of rights” in the works. In 2003, Elaine passed away, and her daughter, Waverly Kaffaga, assumed the role of successor under the 1983 agreement. The sons challenged the validity of the 1983 agreement, and the US Court of Appeals for the Second Circuit determined that the agreement was valid and enforceable. Despite losing in court, one of the sons, Thomas Steinbeck, along with his wife Gail and Gail’s media company, filed a lawsuit in California asserting rights to the works that the courts had already told them they did not have. The district court held, and the Ninth Circuit affirmed, that the Steinbecks’ claims were barred by collateral estoppel.

Kaffaga countersued Thomas and Gail for their attempts to assert various rights in the works despite having no rights. Those attempts led to multiple Hollywood producers abandoning negotiations with Kaffaga to develop screenplays for the works. The district court granted Kaffaga summary judgment on her breach of contract and slander of title claims, citing many detailed facts it believed supported those claims. The district court let the jury decide on her claim of tortious interference. The jury unanimously found for Kaffaga and awarded $5.25 million in compensatory damages and $7.9 million in punitive damages, including $6 million against Gail individually.

On appeal, the Ninth Circuit found clear support in the record for the lower court’s decisions, save for one—punitive damages. There, the appellate court noted that although Kaffaga had the better argument, and although there was ample evidence of defendants’ malice in the record to support the jury’s verdict, triggering punitive damages, Kaffaga missed one key piece of evidence.

Under California law, there is a “passion and prejudice” standard that measures the amount of punitive damages against the ratio between damages and the defendant’s net worth. It is the plaintiff’s burden to place into the record “meaningful evidence of the defendant’s financial condition” to support a defendant’s ability to pay.” Thus, for the punitive damage award to stand, the record needed to contain sufficient evidence of Gail’s assets, income, liabilities and expenses. Here, Kaffaga failed. Although Gail testified that she received approximately $120,000 to $200,000 per year from domestic book royalties, Kaffaga introduced no estimate of Gail’s potential income from the four television series and six feature films in development, nor did she introduce an estimate of the total value of Gail’s other intellectual property assets. The Ninth Circuit found that Kaffaga failed to meet her burden of placing into the record “meaningful evidence” of Gail’s financial condition showing that she had the ability to pay any punitive damages award as required by California law. The Ninth Circuit therefore vacated the almost $6 million punitive damages award.

Practice Note: When seeking punitive damages in California, the moving party must place “meaningful evidence” of the non-moving party’s financial condition and ability to pay any punitive damages awarded, including their assets, income, liabilities and expenses. If there are problems obtaining such evidence during discovery, procedures such as a motion to compel or proposing an appropriate adverse inference instruction at trial are in order.

ARTICLE BY Jodi Benassi of McDermott Will & Emery.

For more copyright inheritance, see the National Law Review Estates & Trusts or Intellectual Property law pages.

In The Weeds: Key Intellectual Property Takeaways For The Cannabis Industry

1. Patent Filings Are Rapidly Increasing

The number of patent filings at the United States Patent and Trademark Office (“PTO”) directly correlates to the rise of cannabis legalization. According to Magic Number, a data analytics company, between 2017 and 2018 the PTO issued almost 250 cannabis-related patents—more than in the previous seven years combined. These filings cover a range of inventions, including medical treatments and pharmaceutical compositions, cultivation techniques, vaporizers, and cannabis-infused products like toothpaste, coffee beans, and alcoholic drinks. With this uptick in patent filings, the volume of cannabis-specific prior art is on the rise as well. Those interested in obtaining patent protection in the cannabis industry should not fall behind their peers nor wait until the prior art field has fully developed. Early filing is critical.

2. Cannabis is Still Illegal Under Federal Law

Despite the growing number of patent filings, it is important to recognize that processing and distributing cannabis is still illegal under the federal Controlled Substance Act. Recent scholarly articles have argued that federal courts should not entertain most cannabis patent infringement suits due to illegality. Nonetheless, some courts have allowed these cases to proceed on the merits. United Cannabis Corporation v. Pure Hemp Collective Inc. is the first trial involving a cannabis patent in federal court. Specifically, the patent in dispute relates to the extraction of pharmaceutically active components from plant materials (e.g., liquid cannabinoid formula including THC). The plaintiff filed a patent infringement suit against a competitor maker of CBD products. In April 2019, a judge ruled in favor of United Cannabis Corporation by rejecting the argument that the plaintiff’s formulations are not patent eligible. Although the legal status of cannabis is not an issue in the case, it is important to remember that cannabis is not legalized at the federal level and that federal case law is still developing.

3. Design Patents can be a Valuable Component of an IP Portfolio

Design patents are a valuable form of protection in the cannabis space and are often a good alternative to utility protection. While 10 percent of patents issued overall are design patents, less than one percent of cannabis-related filings are designated as design patents. Design patents are quicker and cheaper to obtain; this may be desirable for fast-developing and/or cost-conscious companies and particularly for products having short life cycles. Design patents are particularly valuable for covering the ornamental aspects of well-known cannabis-related products, such as vaporizers, to deter wholesale copying. Business owners should consider the role design patents may play in protecting their products.

4. Trademark Filings are Similarly Increasing

Roughly 110 new cannabis-related federal trademark applications are filed each month since Congress approved the 2018 Farm Bill 11 months ago. Among other things, the Farm Bill removed “hemp” from the list of controlled substances under the Controlled Substances Act. This removal created an avenue for federal trademark registrations covering certain goods and services derived from hemp that contain no more than 0.3 percent THC. However, all other cannabis related products are currently ineligible for trademark protection due to its illegality. Namely, trademark law requires that the goods in connection with a particular trademark must be lawfully sold or transferred in commerce. To provide some flexibility given the tension between state and federal law for cannabis, trademark applicants should file applications using broad wording for the goods and services, which can allow applicants to narrow as needed to obtain a trademark registration. To register a cannabis-related trademark at the federal level, the cannabis-related business should be prepared to argue that the goods or services associated with the mark are not illegal under the Controlled Substances Act. Additionally, trademark registrations may be available in certain states for cannabis-related products and services. Although state registrations do not offer nation-wide protection, a company should consider filing for state trademark protection in conjunction with federal trademark flings. Companies should consider filing applications in states where cannabis is legalized.

5. IP Protection Strategy Beyond the United States

As of 2018, more than thirty countries have legalized cannabis, in one form or another, according to Marijuana Business Daily. The World Intellectual Property Organization notes that approximately 10,246 cannabis-related applications have been filed since 1978 under the Patent Cooperation Treaty, with 6,137 applications coming after 2008. Thus, the trends and recommendations above regarding domestic protection of cannabis are, likewise, relevant on the international stage. Likewise, companies should also consider foreign trademark filings in countries that have legalized cannabis. In particular, most foreign countries follow a first-to-file rule when it comes to trademarks. As a result, it is important to consider foreign trademark filings as early as possible.

Closing

With the drastic increase of cannabis-related patent and trademark applications, companies need to act quickly to protect their innovations in this rapidly growing industry. With cannabis-related patents, despite the uncertain legal landscape, early filings may be unexpectedly successful, given the infancy of the prior art field. With cannabis-related trademarks, companies should ensure that the goods or services associated with that trademark are not illegal under the Controlled Substances Act. Companies should also continue to monitor developments on a state-by-state and nation-by-nation basis. Given trends, it is expected that legalization will continue to expand to additional jurisdictions.

ARTICLE BY Matthew S. Dicke, Sana Hakim, Kevin T. McCormick and Brittany Kaplan of K&L Gates.

For more in cannabis industry news, see the National Law Review Biotech, Food & Drug law page.

No Copyright Case Too Small: Content Creators Rejoice or Casual Infringers Beware?

An office jokester emails a funny meme she copied off Google to a colleague. A tourist snaps a picture of a painting in an art gallery and posts it to his travel blog. A teacher prints copies of a recently published Internet article and distributes to his class. A teen reposts his friend’s Instagram picture on his own social media page. To these casual infringers, no harm has been done and there’s certainly no reason to “make a federal case out of it.” But to the copyright owners, these small acts of infringement mean something. Perhaps not enough to justify the expense and time required for a federal claim, but action may be worth pursuing on a smaller scale.

Enter the pending CASE Act, intended to protect the “creative middle class,” and a potential boon to small businesses and individual content creators, while simultaneously presenting a threat to the “micro-infringements” committed by the ordinary person throughout the day. Last week, the US House of Representatives approved the Copyright Alternative in Small-Claims Enforcement Act of 2019 (CASE Act) by a landslide 410-6 vote. The bill is intended to create a Copyright Claims Board within the US Copyright Office that would hear copyright claims of up to $15,000 per work infringed, with statutory damages capped at a total of $30,000.

If passed by the Senate, the CASE Act is likely to be a welcome avenue for graphic designers, bloggers, photographers, authors, vloggers, and other individual and small business copyright owners to protect their works. Currently, pursuing copyright infringement litigation is limited to filing suit in federal courts, the cost of which can be prohibitive for many small businesses. The proposed Copyright Claims Board provides a more affordable avenue—effectively, a copyright small claims court—to enforce copyright ownership.

Supporters say that small businesses have long needed a more efficient and affordable means to enforce their copyrights. To this point, much of the unauthorized exchange and use of Internet-based works or smaller-scale copyrighted works has been difficult to police. In fact, June Besek, the executive director of the Kernochan Center for Law, Media and the Arts at Columbia Law School, recently told the ABA Journal that many infringers knowingly exploit copyrighted material because they are confident they will never be challenged. (Anyone remember the flagrant use of Napster and LimeWire by teens in the late 1990s and early 2000s to illegally download music—excuse me, “file share”—with little fear of repercussions for their “small-scale” acts of infringement?). A number of organizations, including the American Bar Association, have expressed support for the CASE Act.

But that support, while widespread, is not universal. The American Civil Liberties Union opposes the proposed CASE Act on the grounds that it will stifle free speech and the open sharing of information. Other critics say that by lowering the threshold for infringement claims, lawmakers also are opening the door for “copyright trolls” to file nuisance infringement claims with the Copyright Claims Board. And many are less than keen on the idea that inadvertently unanswered copyright infringement complaints could cost ordinary Americans up to $30,000 in default judgments per proceeding—perhaps a small sum to a business, but potentially life-changing to many individuals—with very limited ability to appeal, under the currently proposed language of the Act.

Notably, as currently written, the small-claims tribunal established under CASE will be entirely voluntary, meaning the complaining party can elect to use the Copyright Claims Board, and the defending party may choose to opt out. But critics point out that the opt-out window is only 60 days long, and easily could be missed by an unwitting defendant.

Next, the Senate will consider the CASE Act, but observers believe it will pass with bipartisan support. The final language of the Act may be somewhat different from its current form, so stay tuned for more updates as the CASE Act makes its way through the legislature.

What the proposed CASE Act could mean for you:

Would-be plaintiffs (or defendants) appearing before the proposed Copyright Claims Board are encouraged to do so with licensed legal representation. Some have suggested that this small claims court format will allow parties to represent themselves without needing to incur the fees of legal representation. However, it is important to remember that, though the monetary stakes may be lower than in federal court, the complex legal nuances of copyright law, not to mention jurisdiction, service, discovery, evidence, joinder of parties, and expert testimony, remain the same and are best addressed by experienced legal counsel.

Owners of large copyright portfolios may find the CASE Act to allow greater leeway in defending their works against smaller-player infringers. Businesses with larger portfolios may wish to take stock of their protected works and develop an enforcement strategy, taking into account this more accessible avenue for enforcement.

Smaller companies or individual content creators, too, may find the proposed CASE Act to provide the freedom to assert their copyrights more aggressively than they have done previously. These companies and individuals also are encouraged to take stock of their copyright portfolios, and consider setting up infringement alerts through their legal representatives or third party vendors in order to take a more offensive stance.

On the opposite side of the court room, copyrighted work users are cautioned to think carefully about their use of protected works. Businesses and schools may want to consider updating policies on use and distribution of protected works, with a more conservative mindset. The relative ease of filing suit with the Copyright Claims Board may give rise to a more litigious “creative middle class.” And while the damages may be smaller-scale, the attendant legal costs may not be, and damages from multiple suits may add up quickly.

ARTICLE BY Kristin Lamb of Womble Bond Dickinson (US) LLP.

For more copyright infringement regulation, see the National Law Review Intellectual Property law page.

California Tackles Big Pharma’s Anticompetitive ‘Pay for Delay’ Practices That Slow Down Lower-Cost Generic Drug Development

California Gov. Gavin Newsom has signed AB 824, known as the “Pay-for-Delay” bill, blocking pharmaceutical companies from paying generic drug makers to not develop and bring lower-cost medicines to market. The law makes these so-called “reverse payment” settlements of patent disputes – which the Federal Trade Commission says cost consumers $3.5 billion a year – “presumptively anticompetitive.”

The new law provides that an agreement resolving a patent infringement claim is anticompetitive if the generic drug or biosimilar drug makers receive anything of value from the brand name company that’s claiming infringement, and if the generic maker agrees to slow-walk or stop research, development, manufacture, marketing, or sales of a generic product for any period of time. Exceptions are made in cases in which an agreement promotes competition.

The state Attorney General is authorized to seek civil penalties within four years of any violations of the law. Other remedies would be available under California’s Cartwright Act, Unfair Practices Act, or unfair competition laws.

Sidestepping Competition

The FTC has prosecuted brand name and generic drug companies and has sued to stop these reverse payment agreements which allow drug companies to “sidestep competition.” Earlier this year, for example, the FTC announced a global settlement of three separate federal antitrust lawsuits involving subsidiaries of pharmaceutical manufacturer Teva Pharmaceuticals Industries Ltd.

In one of the cases, Teva’s Cephalon company paid four generic drug manufacturers $200 million to back off on their plans to sell a generic version of Cephalon’s Provigil, a medication used to treat excessive sleepiness caused by sleep apnea, narcolepsy, or shift-work sleep disorder. Teva, which was able to delay the generic version for six years, agreed in its settlement to create a $25 million consumer fund and pay $69 million plus another $200,000 to cover the state’s legal fees. Teva was also barred from engaging in reverse-payment patent settlement agreements for 10 years.

In another instance, the FTC announced the settlement of its case against Endo Pharmaceuticals Inc., which paid Impax Laboratories $112 million not to go to market with a competing generic version of Endo’s Opana ER – a pain reliever in the opioid family.

Collusive Arrangements

Attorney General Xavier Becerra, AB 824’s sponsor, wrote that these kinds of pay-for-delay agreements are “collusive arrangements between brand-name drug companies and rival drug manufacturers” that allow the companies to charge monopolistic prices. “Pay-for-delay agreements hurt consumers twice – once by delaying the introduction of an equivalent generic drug that is almost always cheaper than the brand name and second by stifling additional competition because we know that when multiple manufacturers of generic drugs compete with each other, prices can be up to 90% less than what the brand name drug cost originally,” Becerra wrote.

Supporters of the bill included Health Access of California, the California Labor Federation, and the Small Business Majority. Another supporter, the California Public Interest Research Group, said brand-name drugs cost an average of 10 times and sometimes 33 times more than generics, adding that brand-name companies make billions in sales while generics are delayed.

All Those Opposed

The Association for Accessible Medicines (AAM) opposed the bill, saying it “penalizes procompetitive patent settlements that significantly expedite generic and biosimilar access.” Besides, the group argued, a federal framework already exists to review patent settlements, citing FTC v. Actavis, the 2013 decision in which the Supreme Court held that a brand drug manufacturer’s reverse payment to a generic competitor to settle patent litigation can violate the antitrust laws. The Supreme Court refused to call these agreements presumptively unlawful, instead saying the FTC had to prove its case as it would in any other “rule of reason” cases. The likelihood that a pay-to-delay settlement would have anticompetitive effects “depend[s] on its size, its scale in relation to the payor’s anticipated future litigation costs, its independence from other services for which it might represent payment, and the lack of any other convincing justification,” the Supreme Court ruled.

The pro-industry pro-tort reform Civil Justice Association of California called the bill “an enhanced, steroid infused codification” of the California Supreme Court’s 2015 decision in In re Cipro, which followed the U.S. Supreme Court’s FTC v. Actavis ruling.

Biopharmaceutical company Biocon opposed the bill for, it said, replacing the FTC with the State of California in the commission’s role as prosecutor of anticompetitive conduct.

The FTC’s Competition Bureau has been keeping track of the effectiveness of the Supreme Court’s FTC v. Actavis decision. In May 2019, FTC Chairman Joe Simons announced: “The data are clear: the Supreme Court’s Actavis decision has significantly reduced the kinds of reverse payment agreements that are most likely to impede generic entry and harm consumers.”

Commentary

There is simply no legitimate procompetitive justification for pay-for-delay settlements. They are explicit agreements between competitors to restrain competition and serve only to keep pharmaceutical prices unnecessarily high in this country. According to FTC data, pay-for-delay settlements cost consumers billions of dollars per year.

AB 824 simply aligns the law with the reality of this burden on the consumer, creating a presumption that such settlements are anticompetitive and requiring the settling parties to demonstrate why this is not the case. In fact, AB 824 essentially codifies the rule the FTC argued should govern pay-for-delay settlements in Actavis.

Critics of the law will challenge its legality, including its constitutionality under the dormant commerce clause. And while it may not withstand these legal challenges, AB 824 is an encouraging sign that lawmakers are beginning to understand the negative impact that pay-for-delay settlements have on competition in the pharmaceutical industry. We hope more states follow suit.

ARTICLE BY Jennifer M. Oliver and Timothy Z. LaComb of MoginRubin. Edited by Tom Hagy for MoginRubin LLP. Photo of “worried man” by Nik Shuliahin via Upsplash.

For more on pharmaceutical regulation, see the National Law Review Biotech, Food & Drug law page.

UKIPO Knocks Undefeated Reds off Their Perch: The Liverpool Trademark and Lessons for Brand Owners

To the interest of many a scouser and football fan alike, Liverpool Football Club’s attempt to register as a UK trademark LIVERPOOL has been rejected by the UKIPO on the grounds that the word is of “geographical significance” to the city. Liverpool FC had filed its application in regards to various goods in relation to football and the filing had attracted significant public attention.

Other English football clubs (Everton, Chelsea and Tottenham) have managed to register several trade marks for each of their respective area names. In addition Southampton Football Club has managed to register SOUTHAMPTON as an EU trade mark. As a result, it is not surprising that Liverpool FC would seek to register a similar mark to help protect its valuable brand.

However, as a result of the filing the club received significant backlash from the people of Liverpool, including their own supporters, and – probably in a related move – Liverpool FC has said that it does not plan to appeal the refusal and it has withdrawn the application. An additional trade mark application for LIVERPOOL with different claims has also been withdrawn.

The matter presents a great case study for brand owners on balancing the need to protect their brand whilst being considerate of the potential adverse PR that will come with the application for certain trade marks.

Innovation in protecting your brand

Brand owners certainly need to adopt innovative tactics when looking to fight counterfeiters and to protect their brand and Liverpool FC has shown a keen eye to identifying new brand assets.

Liverpool FC may have been unsuccessful with this application but they recently successfully applied to trade mark the phrase “LET’S TALK ABOUT SIX BABY” in the UK. The saying was coined by Reds Manager Jürgen Klopp when he ended his run of six successive final defeats and claimed a first trophy as Liverpool FC’s manager with the UEFA Champions League triumph earlier this year. No doubt will form an important part of the club’s merchandise moving forward and is a cunning registration.

Consideration of PR implications

However, all innovative steps in brand protection must be considered in their context.

Liverpool FC argued that the trade mark application was purely “in the context of football products and services” and to stop counterfeiters from benefiting from the sale of counterfeit Liverpool FC products. However, this does raise the question as to why the existing portfolio of club name, mottos and logos would not be sufficient to defeat the majority of inauthentic products that are currently on the market.

In addition, the vitriol with which the application was greeted raises further queries concerning the club’s decision to apply to register the trade mark. The Liverpool FC supporters group ‘Spirit of Shankly’ called the UKIPO’s rejection of the application a “victory for common sense” and declared that the word LIVERPOOL belongs to the “city of Liverpool”. Supporters also took the decision to wear non-official items of clothing carrying the club’s name and logo during a match against Newcastle in protest.

As a result, the case highlights the perils brand owners face when pursuing a robust approach to protecting their brand, particularly when looking to register terms as trade marks with cultural significance. Applicants must bear in mind the negative PR that can accompany any new filing strategy.

ARTICLE BY Simon Casinader and Niall J. Lavery of K&L Gates.

For more trademark law, see the National Law Review Intellectual Property law page.

A Dark Day for Franchising: Ninth Circuit Reinstates its Misguided Vazquez Decision, Undermining the Franchise Business Model

In the course of a politically-charged frenzy to eliminate the misclassification of employees as independent contractors, the franchise business model has been trampled without respect by both the courts and the legislature in California, disrupting commercial relationships that have been a vital driver of the state’s economy for more than fifty years. Only five years ago, the California Supreme Court acknowledged the vital importance of franchising to the California economy in generating “trillions of dollars in total sales,” “billions of dollars” of payroll and the “millions of people” franchising employs. Patterson v. Domino’s Pizza, LLC (2014) 60 Cal.4th 474, 489.

Taking into account the “ubiquitous, lucrative, and thriving” franchise business model and its “profound” effects on the economy, the Patterson court held that the usual tests for “determining the circumstances under which an employment or agency relationship exists” could not be applied to franchises. Id. at 477, 489 and 503. To avoid disruption of the franchise relationship and turning the model “on its head,” a different test that took into account the practical realities of franchising had to be applied to franchise relationships. Id. at 498, 499 and 503. The “imposition and enforcement of a uniform marketing and operational plan cannot automatically saddle the franchisor with responsibility.” Id. at 478. A franchisor is liable “only if it has retained or assumed a general right of control over factors such as hiring, direction, supervision, discipline, discharge, and relevant day-to-day aspects of the workplace behavior of the franchisee’s employees.” Id. at 497-98. The special rule for franchising has been commonly referred to as the “Patterson gloss.”

On September 25, 2019, a panel of the Ninth Circuit Court reinstated an opinion it had previously published on May 2, 2019, then withdrew on July 22, 2019, recklessly undermining the delicate framework of the franchise business model in derogation of the California Supreme Court’s “Patterson gloss.” Vazquez v. Jan-Pro, 923 F.3d 575 (9th Cir. May 2, 2019), opinion withdrawn, 2019 US App. Lexis 21687 (July 22, 2019), opinion reinstated, 2019 BL 357978 (9th Cir. September 24, 2019).

The “Patterson gloss” arose from the California Supreme Court’s subtle appreciation for the historical development of the franchise business model. At the heart of all franchise relationships is a trademark license. At common law, trademark licenses were seen as a representation to the public of the source of a product. An attempt to license a trademark risked the forfeiture of any right to royalties and the abandonment of the licensed mark. See Lea v. New Home Sewing Mach. Co., 139 F. 732 (C.C.E.D.N.Y. 1905); Dawn Donut Co. v. Hart’s Food Stores, Inc., 267 F.2d 358, 367 (2d Cir. 1959).

Although the Trademark Act of 1905 did not allow for the licensing of trademarks, the Trademark Act of 1946, the Lanham Act, 15 U.S.C. § 1051, did allow a trademark to be licensed, but only where the licensee was “controlled by the registrant. . . in respect to the nature and quality of the goods or services in connection with which the mark is used.” 15 U.S.C. § 1127. After the passage of the Lanham Act, a trademark could be licensed, as long as “the plaintiff sufficiently policed and inspected its licensees’ operations to guarantee the quality of the products they sold under its trademarks to the public.” Dawn Donut, at 367. After the Lanham Act had legitimized trademark licensing, the franchise model began to emerge in the 1950s, as the Patterson court noted (at 489), leading to the explosive growth of franchising over the last seven decades.

“Franchising is a heavily regulated form of business in California.” Cislaw v. Southland Corporation (1992) 4 Cal.App.4th 1284, 1288. Franchisors must provide prospective franchisees with detailed pre-sale disclosure documents under the California Franchise Investment Law, Corporations Code § 31000 et seq. and the FTC Rule, 39 Fed. Reg. 30360 (1974). There are criminal, civil and administrative consequences for failure to comply. Franchisees’ rights are protected by the California Franchise Relations Act, Business & Professions Code § 20000, et seq., which includes recently enhanced penalties for non-compliance.

Over the years, California courts have acknowledged the fundamental obligation of franchisors to impose controls over their licensees and have uniformly held that such controls do not create an employment or agency relationship. See, e.g., Cislaw, 4 Cal.App.4th at 1295 (the owner of a brand may impose restrictions on a licensee “without incurring the responsibilities or acquiring the immunities of a master, with respect to the person controlled.”); Kaplan v. Coldwell Banker (1997) 59 Cal.App.4th 746, (“If the law were otherwise, every franchisee who independently owned and operated a franchise would be the true agent or employee of the franchisor.”). This doctrine came to be known as the “Patterson gloss” and is the glue that holds the franchise business model together—allowing the franchisor to exert the controls necessary to license a trademark without incurring the responsibilities of an employer.

In its September 25, 2019 decision in Vazquez, the Ninth Circuit once again discarded the Patterson gloss like an extra part found in the bottom of an Ikea box after the hasty assembly of an end table. According to the Vazquez court, Patterson had no relevance because it was just a vicarious liability decision, not an employment decision. But Patterson was an employment case.

Patterson was a Fair Employment and Housing claim brought by a teenage girl after her supervisor had repeatedly groped her breasts and buttocks. Patterson, at 479. It is hard to understand why the Vazquez court considered the wage order claims before it to be more significant than Taylor Patterson’s right to pursue legal claims for sexual harassment.

Even more disturbingly, the Vazquez court disregarded the “Patterson gloss” because Dynamex [Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903] had favorably cited two Massachusetts decisions that applied the ABC test in the franchise context. Id. at 39. The Massachusetts cases were cited in Dynamex only as examples of cases where it had been more efficient to address “the latter two parts of the [ABC] standard” on a dispositive motion, rather than all three prongs. Dynamex, 4 Cal.5th at 48. The court never mentions franchising or the inconsequential fact that the parties in cited cases were franchises. The Dynamex court could not be fairly understood to have abandoned its stalwart embrace of the franchise business model in its 2014 Patterson decision, without ever bothering to mention the case or to make any reference to franchising. Yet the Vazquez court concluded that a passing citation to cases that happened to involve franchise companies in the Dynamex opinion—to make a procedural point that was unrelated to franchising in any way—was an occult signal from the California Supreme Court that the “Patterson gloss” had been abandoned by implication five years after its creation.

Nor was it valid for the Vazquez court to confine the “Patterson gloss” to vicarious liability cases. As Witkin points out, California law on vicarious liability and employment developed together, so that most “of the rules relating to duties, authority, liability, etc. are applicable to employees as well as other agents.” Witkin, Summary of California Law (10^th ed., Agency & Employment, § 4). The core obligation to control a trademark licensee—hard-wired by the Lanham Act into every franchise relationship—must be respected in both vicarious liability and employment cases if the franchise business model is to be preserved.

The Vazquez court had it right when it withdrew and de-published its original decision on July 22, 2019. When the court certified the retroactivity issue to the California Supreme Court that day, it could have also certified the franchise issue back to the court that created the Patterson gloss, but it did not do so. Franchisors are now left to wonder how they are to maintain existing long-term commercial relationships and to continue to sell franchises after the Vazquez opinion has taken from them the fundamental right to license trademarks without incurring the unintended liabilities of employers.

ARTICLE BY Jonathan Solish of Bryan Cave Leighton Paisner.

Read more on the topic on the National Law Review Franchising Law page.

Category: Intellectual Property

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