Intellectual Property Archives - Page 18 of 58

USPTO Issues Examination Guide on Trademark Applications for Cannabis and Cannabis-Related Goods and Services

On May 2, 2019, the United States Patent and Trademark Office (“USPTO”) issued Examination Guide 1-19 (“Examination Guide”), which outlines the path to registration for trademark applications covering hemp-based goods and services. The issuance of the Examination Guide serves as a departure from the USPTO’s longstanding bar to the registration of cannabis-related marks, and signals the potential for further relaxation of the USPTO’s prohibition on federal registration of trademarks and service marks for cannabis and cannabis-related goods and services as state legalization of cannabis continues to crop up across the country.

To obtain federal registration for a mark, a mark’s use in commerce must be lawful under federal law. See generally Trademark Manual of Examining Procedure §907. The USPTO will not issue registrations for marks covering goods or services that violate federal law – even if such goods or services are legal at the state level. Despite the legalization of cannabis for medical use in 33 states and the legalization of cannabis for recreational use in 10 states, cannabis has been deemed illegal by the federal government under the Controlled Substances Act (“CSA”⁾¹. Cannabis-related marks have therefore been ineligible for federal trademark registration.

On December 20, 2018, the Agricultural Improvement Act of 2018, better known as the 2018 Farm Bill, was signed into law. In relevant part, the 2018 Farm Bill removed “hemp”²from the CSA’s definition of marijuana, thus removing “hemp” from the list of controlled substances under the CSA and creating an avenue for federal registration of marks covering some goods and services derived from hemp. Now, marks covering certain hemp-derived goods and services with less than 0.3% tetrahydrocannabinol (“THC”⁾³may be eligible for federal registration. However, the USPTO will continue to refuse registration when the identified goods or services in an application involve cannabis that meets the definition of marijuana and encompass activities still prohibited under the CSA.

To assist in the prosecution of trademark applications for these newly registerable goods and services, the USPTO outlined the requirements an application must meet before it may be eligible for registration for hemp-derived goods and related services. First, the USPTO advises that only applications covering hemp-derived goods and services with less than 0.3% THC are registerable. Second, an application’s identification of goods for all goods derived from hemp must explicitly state that the hemp-derived goods contain less than 0.3% THC. Third, only applications for marks covering hemp-based products and related services filed after December 20, 2018, are eligible for federal registration. Any applications filed prior to December 20, 2018, must be amended or refiled^.4. Specifically, applicants must request the USPTO amend their filing date to December 20, 2018, or withdraw their application and submit a new one. Notably, the USPTO will also examine applications to register service marks for compliance with the CSA and the 2018 Farm Bill; and, as such, an application’s identification of services must also specify that the involved cannabis contains less than 0.3% THC on a dry weight basis. Moreover, there are additional requirements for applications that include services involving the cultivation or production of hemp.

Restrictions still remain on the registrability of marks for hemp and hemp-derived goods. For example, applications to register marks covering hemp-derived foods, beverages, dietary supplements, or pet treats will still be refused as unlawful because the use of hemp in items for human or animal consumption has not yet been approved by the Food and Drug Administration (“FDA”)⁵.

While Examination Guide 1-19 signals the budding federal registrability of marks for certain hemp-derived goods and services, applicants should consider the stringent requirements placed on the same. Mark owners should think critically about whether their trademarks for cannabis and cannabis-related products and services are potentially eligible for federal protection, as we expect to see a significant influx of applications covering these types of offerings in the near future. Filing applications for eligible products and services now may help mark owners gain a foothold in what will likely be a competitive business field going forward.

¹ Under the Controlled Substances Act the drug class “Marihuana” (also referred to as “cannabis” or “marijuana”) is defined as “all parts of the plant Cannabis sativa L., whether growing or not; the seeds thereof; the resin extracted from any part of such plant; and every compound, manufacture, salt, derivative, mixture, or preparation of such plant, its seeds or resin.” 21 U.S.C. §802(16). Cannabidiol (“CBD”), a chemical constituent of the marijuana plant is included in the Controlled Substances Act’s definition of “Marihuana.” See id.

² Hemp is defined as “the plant Cannabis sativa L., and any other part of that plant, including the seeds thereof an all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol (“THC”) concentration of not more than 0.3% on a dry weight basis.” Agricultural Improvement Act §297A

3 THC is the main psychoactive ingredient of cannabis.

⁴ The USPTO takes the position that any applications filed before December 20, 2018 lacked a valid basis to support registration at the time of filing because the applied-for goods violated federal law. See Examination Guide 1-19: Examination of Marks for Cannabis and Cannabis Related Goods and Services after Enactment of the 2018 Farm Bill.

⁵The 2018 Farm Bill specifies that the FDA retains its authority to regulate goods containing cannabis and cannabis-derived compounds, and the FDA has taken the position that cannabis-infused items for human or animal consumption require the FDA’s approval before they may be sold to consumers. The FDA is conducting clinical investigations into the safety and efficacy of such products for human and animal consumption.

This post was written by Virginia Wolk Marino and Emily Kappers of Brinks Gilson & Lione

Read more USPTO & Trademark news on the National Law Review Intellectual Property page

Mission Products v. Tempnology: SCOTUS Holds that Rejection of Trademark License in Bankruptcy Does Not Terminate the Right to Use the Mark

On May 20, 2019, the U.S. Supreme Court held by a vote of 8-1 that a trademark licensor’s rejection in bankruptcy of a trademark license does not terminate the licensee’s right to use the licensed mark.Mission Products Holdings, Inc. v. Tempnology, LLC, No. 17-1657, 587 U.S. ___ (2019). In so holding, the Court resolved a circuit split on the issue. The Court reversed the decision of the First Circuit, which held that Tempnology’s rejection of a trademark license under the Bankruptcy Code had the effect of terminating Mission Products’ right to use the licensed marks. The Court expressly affirmed the reasoning of the Seventh Circuit in Sunbeam Products, Inc. v. Chicago Am. Mfg., LLC, 686 F.3d 372 (7th Cir. 2012), and held that rejection of a trademark license constitutes a pre-petition breach of the license agreement but does not otherwise terminate the licensor’s and licensee’s rights and obligations under the license agreement.

The Court’s opinion, authored by Justice Kagan, considered section 365 of the Bankruptcy Code, 11 U.S.C. §365. Specifically, the Court considered section 365(a), which permits a debtor in bankruptcy to reject any executory contract¹, and section 365(g), which provides that the debtor’s rejection “constitutes a breach of such contract.” 11 U.S.C. §365(a), (g).

In this case, the licensor, Tempnology, manufactured clothing and accessories designed to stay cool when used in exercise. Tempnology sold those products under the name “Coolcore” with related logos and labels. Tempnology entered into a license agreement with Mission Products, which granted, among other things, a non-exclusive license to use the Coolcore trademark in the United States and elsewhere. In 2015, less than a year before the license was to expire, Tempnology filed a petition for bankruptcy under Chapter 11 of the Bankruptcy Code. Tempnology exercised its option under section 365(a) to reject the license agreement, as it was still executory, and the Bankruptcy Court approved the rejection. The parties agreed that the rejection had two effects. First, Tempnology could stop performing under the license agreement, and second, Mission Products could assert a pre-bankruptcy petition claim for damages².

Tempnology argued that its rejection of the license agreement also terminated the rights it previously granted Mission Products to use the Coolcore marks. Tempnology based its argument on a negative inference it drew from the fact that, over the years, Congress had adopted provisions in section 365 that allowed the other party in a rejected contract to continue exercising its contractual rights. Of particular relevance was section 365(n), which provides that if the licensor of certain intellectual property rights, such as patents, rejects the license, the licensee can continue to use the patented technology as long as it makes the payments required under the license. 11 U.S.C. §365(n). Section 365(n) specifically excluded trademark licenses. See 11 U.S.C. §365(n). Tempnology argued that, because section 365(n) excludes trademark licenses, a negative inference should be drawn that Congress intended for trademark licenses to terminate upon rejection.

The Court rejected Tempnology’s arguments. In so doing, the Court first relied on the language in section 365(g), which provides that a rejection constitutes a breach. While a breaching debtor can stop performing its remaining obligations under the license, it cannot rescind the license. The Court went on to note that the section 365(n) provision allowing a licensee to continue using licensed intellectual property other than trademarks was a reaction to a Fourth Circuit decision – Lubrizol Enterprises v. Richmond Metal Finishers, 756 F.2d 1043 (4th Cir. 1985) – which held that a patent licensee’s rejection of an executory contract had the effect of revoking the grant of a patent license. The Court in Mission Products explained that “Congress’s repudiation of Lubrizol for patent contracts does not show any intent to ratify that decision’s approach for almost all others. Which is to say that no negative inference arises.” (emphasis in original).

The Court also rejected Tempnology’s arguments based on a trademark licensor’s duty to monitor and exercise quality control over licensed goods and services. Tempnology argued that if rejection does not terminate the license, the debtor-licensor is forced to choose between expending scarce resources on quality control, or forgoing expending such resources and thereby risking the loss of a valuable asset, presumably because use without quality control would lead to a naked license. The Court observed that these concerns, while possibly serious, “would allow the tail to wag the Doberman.” The Court explained that the ability to reject a contract under section 365 allows a debtor to escape its future contract obligations, but it does not exempt the debtor from all burdens that generally-applicable law, in this case the law on trademarks, imposes on the owner of the trademark.

Tempnology also argued that the case is moot because, it claimed, Mission Products could not recover damages.³The Court held that the case is not moot, as Mission Products would be able to recover damages.

The Mission Products decision is important for several reasons. First, it resolves the split that had developed between those courts holding that rejection results in a breach and those holding that rejection terminates the right to use a licensed mark. Second, resolving the split removes uncertainty faced by trademark licensors and licensees who are forced to consider what might happen if a licensor declares bankruptcy. Moreover, resolving this uncertainty avoids the need to use expensive and complex steps, such as placing licensed marks in a bankruptcy-remote entity, in order to avoid the effect of a licensor’s bankruptcy.

^[1] An executory contract refers to a contract that neither party has finished performing.^[2]In its opinion, the Court noted that pre-petition creditors often receive only cents on the dollar of their bankruptcy claims.

^[3]The lone dissent, by Justice Gorsuch, also argued mootness on the ground that the license had already expired by the time the bankruptcy court confirmed the rejection and declared that Mission Products could not use the mark.

This post was written by David S. Fleming and Emily Kappers of Brinks Gilson Lione.

Trademarks, Bankruptcy, and Leverage: What Manufacturers and Other Trademark License Parties Should Know About A Potential Landmark Case Before the Supreme Court

On February 20, 2019, the United States Supreme Court heard oral arguments in the case Mission Products, Inc. v. Tempnology, LLC. The case has important implications for manufacturers and other parties to trademark licenses when a trademark licensor files, or threatens to file, bankruptcy. Lower courts including the First Circuit found that, in the event of a trademark licensor bankruptcy filing, the licensor may reject the trademark license, prevent the licensee from further use of the license, and leave the licensee with the sole remedy of filing a claim in the bankruptcy case. Other courts have disagreed with the effect of a trademark license rejection in bankruptcy, finding that a trademark licensee may retain certain rights following a licensor rejection. When the Supreme Court rules, the Tempnology case is slated to be a landmark decision both on the general issue of what rejection truly means in bankruptcy and on the specific issue of whether a trademark licensee’s rights can essentially be destroyed in a licensor bankruptcy case.

The decision is likely to have broad implications for trademark license parties no matter which way the Supreme Court rules. If the court holds that the rejection of a trademark license effectively terminates the rights of a licensee, both licensors and licenses will know that such a “nuclear option” is available in bankruptcy and negotiating leverage will swing heavily toward a licensor. On the other hand, a decision finding that licensees retain rights post-rejection will make a bankruptcy filing a much less attractive option for a licensor as a solution for dealing with a licensee. Both trademark licensors and licensees should, therefore, be aware that the bankruptcy sword or shield (depending on your perspective) may be about to change.

The Tempnology case involved Tempnology, LLC, a company that manufactured athletic sportswear and licensed the right to use its COOLCORE trademark and related rights to a licensee called Mission Product Holdings, Inc. More details about the company, the bankruptcy court decision, and the First Circuit decision can be found here. In summary, Tempnology attempted to use its Chapter 11 bankruptcy filing as a means to terminate the rights of the trademark license to Mission. Normally, following the rejection of an agreement such as a license in a bankruptcy case, non-debtor parties are limited to filing a general unsecured claim. Depending on the case, general unsecured claimants may receive much less than the face value of their claims. However, some courts have held that rejection does not “vaporize” a licensee’s rights and the non-debtor licensee thus may retain certain post-rejection enforcement rights. To that point, outside of the bankruptcy context, a licensor’s breach of a trademark license agreement does not mean that the licensee no longer has any rights in the license. In fact, state law provides a number of licensee remedies short of termination.

On appeal to the First Circuit, the court disagreed with the characterization that refusing to permit post-rejection rights would “vaporize” a trademark licensee’s rights. The licensee continued to have rights, the court noted, but they were limited to filing a claim for rejection damages. The court further noted that the purpose of rejection under the Bankruptcy Code is to free a debtor of costly obligations and that this purpose would be thwarted if a trademark licensor debtor were required to deal with post-rejection assertions of rights by the licensee.

Mission appealed to the Supreme Court and certiorari was granted on October 26, 2018. While Mission requested review of several issues, the Supreme Court limited the matter to one issue: whether a debtor/licensor’s rejection of a license agreement terminates rights of the licensee that would survive the licensor’s breach under applicable non-bankruptcy law. In addition to the briefs filed by the parties, there were several notable amici curiae briefs, the majority of which adopted Mission’s position that a trademark licensee should retain certain rights post-rejection. Such amici curiae briefs in support of Mission included the United States, the New York Intellectual Property Law Association, a number of revered law professors, and the International Trademark Association. Moreover, the United States, as represented by the Assistant to the Solicitor General, participated in oral argument in support of Mission.

During the oral arguments, the Justices probed the issue of a trademark licensor’s obligations, including contractual obligations under the terms of a license as well as obligations to maintain the trademark under the Lanham Act. This is an important point because rejection is designed to relieve a debtor of its contractual obligations in order to unburden the bankruptcy estate. The Lanham Act, however, may impose continuing obligations on the licensor with respect to the rejected license. Mission argued that Bankruptcy Code section 365 and the concept of rejection speaks to contractual obligations and that the obligation to maintain a trademark is outside the agreement. Justice Breyer challenged the argument with an analogy of a landlord for an igloo whose obligation included air conditioning the premises: “You know, you break your promise to air condition, no more igloo.” There were also some notable statements from the United States, which called the Tempnology’s position “extortionate” because the threat of a rejection would put the licensee to the “choice between paying a higher royalty payment or shutting down their business and firing all their workers.”

Tempnology responded by arguing that a trademark license involves a special relationship that deals with the trademark owner’s reputation. The Justices challenged Tempnology on that point by asking how a licensor’s breach would be treated outside of bankruptcy. When pressed on the point, Tempnology could not point to any case law or other authority that would compel the licensee to stop using the license as a result of the licensor’s breach. Justice Kagan succinctly summarized the parties’ positions that Mission was arguing rejection means breach and Tempnology was arguing that rejection means rescission. The fact that the applicable Bankruptcy Code section – section 365(g) – uses the word “breach” suggests that the Justices may be leaning in favor of Mission in the case. Note, however, the issue of mootness may preclude a substantive decision in this case. Both Justices Gorsuch and Sotomayor asked pointed questions on why the case is not moot on a number of grounds, including the fact that no court actually entered an order specifically preventing Mission from using the COOLCORE trademark post-rejection. The United States responded that the effect of the bankruptcy court order was to prevent such usage. It is not entirely clear, but it seemed that the Justices were able to get past the issue of mootness.

The issues in the Tempnology case have broad implications on whether a Chapter 11 bankruptcy can be used as a sword by a trademark licensor to relieve itself of what it perceives as burdensome licensee obligations. Under the law as adopted by the First Circuit, the scales are tipped decidedly in the favor of a debtor/licensor. If the Supreme Court rules in favor of Mission, it will provide clarity on what exactly rejection means in these circumstances and it will constitute a significant readjustment of negotiating leverage.

This post was written by Jason B. Binford of Foley & Lardner LLP.

Read more in SCOTUS Litigation on the National Law Review’s Litigation type of law page.

Brexit: Bracing for IP Changes

The United Kingdom is due to leave the European Union on March 29, 2019 (Brexit day). If the UK does leave the EU under the currently proposed terms, then the UK would enter a so-called transition period ending on December 31, 2020 and the current status quo would effectively be maintained during this period. However, the UK Parliament recently refused to ratify the current terms of withdrawal and there remains a risk that there will be a “no-deal” Brexit that would not include any transition period. From an intellectual property perspective, these uncertainties and tentative changes should be taken into consideration in the upcoming weeks when developing international filing strategies.

Trademarks

A no-deal Brexit has substantial implications for the continued protection and enforcement of EU trademarks in the UK. However, the position as it stands under the current agreement will be as follows:

EU trademark registrations currently on the register will have a duplicate UK registration automatically added to the UK register (no new filing required);
Current EU applications will have the same procedure once registered, even if the registration date is post-Brexit; and
For trademark applications post-Brexit, two filings will have to be made to cover the former 28 countries of the EU (one UK direct application and one EU application).

Under these prospective events moving forward, it is not anticipated that the EU Intellectual Property Office will decrease their costs for an EU application (because the territories covered decrease from 28 to 27). Accordingly, it may prove cost effective to file any anticipated EU applications before the March 29, 2019 deadline to avoid the need to file two applications.

Patents

There will be no change to the application processes for UK and European patents. Patents covering the UK are granted by two organizations: the UK Intellectual Property Office (UKIPO) and the European Patent Office (EPO). Applications for patents can be filed directly with the UKIPO or EPO, or can be made pursuant to an international patent application filed under the Patent Cooperation Treaty. Neither of these organizations are EU institutions and they will continue to function after Brexit.

Domain Names (.eu)

To register an .eu domain name, a person or entity must reside in or be established within the European Union. As a result, effective from March 30, 2019 (in the event of a no-deal Brexit) to January 1, 2021 (in the event the withdrawal agreement is ratified), entities that are established only in the UK – and natural persons who reside in the UK – will no longer be eligible to register .eu domain names, or to renew .eu domain names registered if they are .eu registrants, before Brexit day.

EURid, the registry manager of .eu domain names, has published a notice on its website which states that a no-deal Brexit will have the following consequences:

UK registrants of .eu domain names will have until May 30, 2019 to update their contact details to an EU address or to transfer their domain names to an EU resident. During this period, their domain names will remain active but cannot be transferred to a UK registrant and will not be automatically renewed (but instead moved to “withdrawn” status).
As of May 30, 2019 all registrants that do not demonstrate their eligibility will be deemed ineligible and their domain names will be withdrawn (that is, they can no longer support any active services such as websites or email), but they will remain in the .eu registry database and may be reactivated if the eligibility criteria are satisfied. On March 30, 2020 all the affected domain names will be revoked and will become available for general registration (which gives rise to a risk of cybersquatting).

Read more about Brexit on our National Law Review Global Page.

Supreme Court Clarifies Copyright Law: “Application” v. “Registration” Finally Resolved

On Monday, March 4, 2019, the United States Supreme Court issued an opinion that clarified the long-standing issue of whether a plaintiff bringing a copyright infringement action has to have an issued registration or just a pending application. Justice Ginsburg, writing for a unanimous court, sided with the “registration approach,” which requires a litigant to have an issued registration, or a rejected application, subject to certain limited exceptions. For decades, copyright owners and their attorneys faced a patch-work of circuit and district court decisions that required either (i) an issued registration to institute an infringement action or (ii) merely have made an application to register the work(s) at issue. This decision provides certainty going forward.

In Fourth Estate Public Benefit Corp. v. Wall-Street.com, LLC, No. 17-571, the copyright owner Fourth Estate sued Wall-Street for use of news articles after a licensing agreement between the parties was terminated. Fourth Estate sued Wall-Street and its owner after it applied to register for copyright registrations for the news articles at issue but before any registrations issued. The District Court dismissed the action on defendants’ motion, the Eleventh Circuit affirmed, and the Supreme Court affirmed.

Under the Copyright Act of 1976, as amended, copyright protection attaches to “original works of authorship”— prominent among them, literary, musical, and dramatic works—“fixed in any tangible medium of expression.” 17 U.S.C. § 102(a). Before pursuing a claim for infringement, a copyright owner must comply with § 411(a)’s requirement that “registration of the copyright claim has been made.” Although rights exist before registration, the registration is a requirement that must be administratively exhausted before filing suit. An owner therefore must have an issued registration or a refusal to register from the Copyright Office. The Supreme Court referred to this as “an administrative exhaustion requirement.”

Limited exceptions apply. For example, for works that are particularly vulnerable to predistribution infringement, such as movies or musical compositions, an owner may apply for “preregistration” in which the Copyright Office conducts a limit review. Once a work is “preregistered” the owner may bring suit. However, the owner must also go on and fully register the work thereafter to maintain the action. Another exception covers live broadcasts. Suit may be brought before registration but must be made within three months of the first transmission.

For owners of copyright protected works, the take-away lesson from this decision is to register more of the works that could be subject to infringement. Strategies for protecting works, such as furniture, apparel, and musical works, have become more nuanced and strategic in recent years.

This post was written by Laura A. Kees and Jacob S. Wharton of Womble Bond Dickinson (US) LLP.

Read More IP news on the National Law Review’s IP Type of law page.

Adequacy of Explanation Remains Key Area of PTAB Reversal

In Vivint, Inc. v. Alarm.com, Inc., the Federal Circuit reversed a claim construction by the Patent Trial and Appeal Board (“PTAB”) which “suggest[ed] the opposite” of the teachings of the patents at issue, and gave guidance to practitioners on when the Board’s reliance on expert testimony entitles the Board’s construction to deference. The Court’s non-precedential opinion is consistent with a string of recent decisions stressing the PTAB’s obligation to adequately explain its decisions.

Vivint’s patents are directed to systems and methods for remotely monitoring home equipment, such as an HVAC system. “Communication device identification codes” are assigned to the user’s remote devices, and the system notifies a particular user in case of the equipment’s malfunction through “message profiles” (e.g., settings to notify different users if a malfunction occurs during the day versus at night). The Board construed “communication device identification codes” as “something ‘capable of uniquely identifying communication devices,’” which the Board found included either a device ID or a serial number of a device (variables from one of Vivint’s patent’s figures), but excluded phone numbers and email addresses.

The Federal Circuit reversed the Board’s construction, pointing out that Vivint’s patents did not define “communication device identification codes,” and that the exclusion of phone numbers or email addresses as identification codes “defie[d] the patents’ teachings” which “expressly [taught] that a phone number can uniquely identify a . . . communication device.” The Court explained:

Even assuming [the Board’s construction] is correct, however, the Board’s conclusion that a phone number or email address cannot uniquely identify a communication device defies the patents’ teachings. For example, both patents explain that a mobile identification number refers to a device in the same way that a phone number refers to a cellular phone, i.e. a communication device. . . . But the Board’s construction suggests the opposite. . . . That the ’123 patent includes “Device ID” and “Serial Number” variables in a particular figure, for example, suggests these variables might also be used to identify communication devices. It does not suggest that phone numbers and email addresses cannot also do so.

The Court also rejected Vivint’s assertion that the Board’s construction was “entitled to deference because it relied on extrinsic evidence,” Vivint’s expert testimony. The Court found that the Board’s construction was “without reference to any extrinsic evidence,” finding that although “[t]he Board did credit Vivint’s expert,” it did so “only in applying its construction . . . to the prior art.” As further support, the Court pointed to the Board’s statement that its construction was “[b]ased on [its] review of the claims and Specification of the ’601 patent.”

Takeaways:

Vivint clarifies for practitioners that expert testimony applying a construed term may not constitute a factual finding entitled to deference on appeal, as opposed to expert testimony that is cited in support of the proper construction itself. This distinction may be especially impactful in view of the Court’s “substantial evidence” standard of review for findings of fact, which is “such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.”

Vivint is also in line with a string of recent Federal Circuit decisions stressing the PTAB’s obligation to “set forth a sufficiently detailed explanation of its determinations both to enable meaningful judicial review and to prevent judicial intrusion on agency authority.” Rovalma, S.A. v. Böhler-Edelstahl GmbH & Co. KG, 856 F.3d 1019, 1024 (Fed. Cir. 2017). See, e.g., Icon Health & Fitness, Inc. v. Strava, Inc., 849 F.3d 1034, 1042-48 (Fed. Cir. 2017) (finding Board’s adoption of petitioner’s brief did not “transform [the petitioner’s] attorney argument into factual findings or supply the requisite explanation that must accompany such findings”); In re Van Os, 844 F.3d 1359, 1361 (Fed. Cir. 2017) (Board’s finding that it would have been intuitive to combine prior art lacked the requisite reasoning because “[a]bsent some articulated rationale, a finding that a combination of prior art would have been ‘common sense’ or ‘intuitive’ is no different than merely stating the combination ‘would have been obvious.’”); Emerson Elec. Co. v. SIPCO, LLC, No. 2017-1866, 2018 U.S. App. LEXIS 24499, at *1 (Fed. Cir. Aug. 29, 2018) (non-precedential) (“Because the Board did not adequately explain its reasoning on a point that was central to its analysis and its conclusion on that point was contrary to another Board opinion on nearly identical facts, we vacate the Board’s determination as to the appealed claims and remand for further proceedings.”). Practitioners preparing an appeal strategy would do well to keep in mind the Court’s focus on the PTAB’s obligation to fully explain its determinations.

Citation: Vivint, Inc. v. Alarm.com, Inc., ___ F.3d ___, 2018 U.S. App. Lexis 35817 (Fed. Cir. Dec. 20, 2018).

This post was written by Jafon Fearson and James Naughton of Brinks Gilson & Lione.

Federal Circuit Concurring Opinion Recommends En Banc Review of Prior Ineligible Subject Matter Decision

On October 9, 2018, the United States Court of Appeals for the Federal Circuit affirmed a grant of summary judgment of invalidity due to patent-ineligible subject matter in Roche Molecular Systems, Inc. v. Cepheid, No. 2017-1690, applying its prior holding concerning claims directed to similar technology in In re BRCA1- & BRCA2-Based Hereditary Cancer Test Patent Litigation, 774 F.3d 755, 760 (Fed. Cir. 2014). In a concurring opinion, Judge O’Malley recommended that the full court revisit the holding in BRCA1. If the full court decides to revisit BRCA1, this could strengthen patent protection for other biotech inventions.

Background

Roche’s U.S. Pat. No. 5,643,723 includes claims directed to a method for detecting a pathogenic bacterium using a short, single-stranded nucleotide sequence known as a “primer” and other claims directed to the primers themselves.

Roche accused Cepheid of infringing the ‘723 patent and Cepheid filed a motion for summary judgment of invalidity under 35 U.S.C. § 101. The U.S. District Court for the Northern District of California granted the motion, relying on the Federal Circuit’s holding in BRCA1 relating to primers. Specifically, the district court held that the claims were unpatentable under § 101 because “the primer claims in this case, which have genetic sequences identical to those found in nature, are indistinguishable from those held to be directed to nonpatentable subject matter in In Re BRCA1.”

Majority Opinion

The Federal Circuit affirmed the summary judgment of patent ineligibility based on its prior holding in BRCA1. Specifically, the majority noted that the primers of the ‘723 patent have identical nucleotide sequences as naturally occurring DNA, just like the primers in BRCA1. The majority rejected Roche’s argument that its synthetic primers differed from those in the naturally-occurring gene based on the presence of a 3-prime end and 3-prime hydroxyl group, noting that the “same argument was made in BRCA1.”

Concurring Opinion

Although Judge O’Malley agreed with the majority that BRCA1 compelled the conclusion that the claims of the ‘723 patent are not patent-eligible subject matter, she wrote separately to express her further view that the Federal Circuit should revisit en banc the holding in BRCA1 at least with respect to Roche’s primer claims. BRCA1 involved an appeal from the denial of a preliminary injunction motion brought early in that case. Judge O’Malley noted that the record in BRCA1 was underdeveloped and the Federal Circuit in BRCA1 did not have the benefit of certain arguments and evidence, such as those presented by Roche, which could support a finding that the primer claims are patent eligible. For example, Roche demonstrated the ways in which the claimed primers may differ structurally from anything that occurs in nature.

Judge O’Malley also distinguished the Supreme Court’s decision in Association for Molecular Pathology v. Myriad Genetics, Inc., 569 U.S. 576 (2013). In particular, unlike the claims in Myriad, which were neither “expressed in terms of chemical composition, nor” reliant “in any way on the chemical changes that result from the isolation of a particular section of DNA,” the primer claims in the ’723 patent are expressed in terms of chemical composition and are reliant on the presence of a 3-prime end and a 3-prime hydroxyl group at a nonnaturally occurring location.

Takeaway

Some of the alleged modifications that Judge O’Malley suggests might render Roche’s primers patent eligible and could save other patent claims directed to synthetic DNA. If the full court agrees with Judge O’Malley’s suggestion to revisit BRCA1, this may strengthen patent protection for other biotech inventions.

THis post was written by Robert S. Mallin and Jason Seung-Hyun Jang of Brinks, Gilson & Lione.

Permanent Injunctions for Non-Practicing Entities in Patent Cases

Many patent practitioners assume that non-practicing entities cannot obtain permanent injunctions in patent cases. This is attributed to the belief that NPEs fail the four-factor test set out by the Supreme Court in eBay. Given that belief, it is surprising for some to learn that a recent decision from the Northern District of California resurrected decade old case law indicating that non-practicing entities can get injunctive relief. Practitioners having cases involving NPEs would do well to study this line of reasoning to be prepared for arguments surrounding permanent injunctions.

The four-factor test identified by the Supreme Court in eBay for determining whether to award permanent injunctive relief to a prevailing plaintiff requires the plaintiff to demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law are inadequate to compensate for that injury; (3) that considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction. eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391, 126 S. Ct. 1837, 1839 (2006). After the eBay decision in 2006, it has been extremely rare for NPEs to be awarded permanent injunctions, but a recent district court decision has resurfaced the issue.

On July 3, 2018, Judge Chen from the Northern District of California denied a defendant’s motion to dismiss or strike a plaintiff’s prayer for injunctive relief where the defendant had argued for the dismissal given the plaintiff’s status as an NPE. Software Research, Inc. v. Dynatrace LLC, No. 18-cv-00232-EMC, 2018 U.S. Dist. LEXIS 111468, at *49-50 (N.D. Cal. July 3, 2018). The decision first questioned whether there was any proof that the plaintiff was in fact an NPE, but then indicated that even if the plaintiff were an NPE, the court could not find as a matter of law on a motion to dismiss that the plaintiff would fail to satisfy the eBay criteria. Id. The court then made the striking statement that “non-practicing entities have successfully managed to get injunctive relief post-eBay where they have shown potential injury to its licensing program.” Id. at *50.

As support for that statement, the court pointed to the decade old decisions of Commonwealth Sci. & Indus. Research Organisation v. Buffalo Tech. Inc., 492 F. Supp. 2d 600 (E.D. Tex. 2007) and Acticon Techs. v. Heisei Elecs. Co., 2007 U.S. Dist. LEXIS 100081 (S.D.N.Y. Aug. 1, 2007). Id. at *50 n.4. The citation to Acticon Techs. was surprising because as the court noted, even though an injunction was entered following a default judgment in that case, there were few facts in the magistrate judge’s report and recommendation to indicate that the plaintiff in that case was an NPE. Id. Judge Chen apparently took the initiative to review Acticon Technologies’ website, and then stated that “[b]ased on a review of plaintiff Acticon Technologies’ website, it appears that Acticon is involved solely in licensing its intellectual property and does not practice its patents.” Id.

The Commonwealth Scientific decision cited by the court was the subject of many articles back in 2007 speculating about its implications for permanent injunctions for NPEs, but has largely been forgotten over the intervening years. In that case, a research institution involved in licensing programs was granted a permanent injunction after the four-factor eBay test was found to have been met. Commonwealth Sci., 492 F. Supp. 2d at 604-07. Regarding the first factor to show irreparable harm, the plaintiff’s harm was explained to be not merely financial because its reputation was an important element in recruiting the top scientists in the world, and having its patents challenged via the courts not only impugned its reputation as a leading scientific research entity but also forced it to divert millions of dollars away from research and into litigation costs. Id. at 604. The harm of lost opportunities to start other research projects due to litigation costs was found to be irreparable because they could not be regained with future money as any opportunity that was lost would already belong to someone else. Id.

Regarding the second factor to show inadequate remedies at law, the plaintiff’s harm was found to be no less important than other recognized forms of harm a competitor might suffer to its brand name or sales position in the market, because its reputation as a research institution was found to be impugned just as another company’s brand recognition or good will may be damaged. Id. at 605. For the third factor, the balance of hardships was found to favor the plaintiff’s motion for permanent injunction because the harm that continued infringement would likely cause plaintiff’s research and development projects outweighed the harm that an injunction would cause the defendant in being excluded from competing in the market. Id. at 606-07. Finally, regarding the fourth factor, the public interest was explained as being advanced by encouraging investment by research organizations into future technologies, which served to promote the progress of science and the useful arts. Id. at 607.

The recalling of the long dormant Commonwealth Scientific decision by the court in Software Research breathes life again into the issue of permanent injunctions for non-practicing entities. It remains to be seen whether this is an isolated occurrence, or if this recent decision could spark a renewed interest by NPEs in permanent injunctions. Patent practitioners representing NPEs may see the potential for strengthened judgments, while those opposing NPEs should be prepared to respond to attempts for permanent injunctions.

This post was written by Justin M. Sobaje of Foley & Lardner LLP.

Read more Intellectual Property News on our Intellectual Property Type of Law Page.

What Start-ups Need to Know About Intellectual Property

As any entrepreneur is well aware, the early stages of a new business venture are an incredibly busy time. Entrepreneurs must focus on building the core team, structuring the company, attracting investors, developing the product/service, and developing key partnerships, sales channels and marketing plans. These tasks are typically all-consuming for the founders, taxing both their financial and time resources.

During this time, it may be a challenge to simultaneously focus on intellectual property issues. However, this early time period is also a critical time for ensuring that a business takes steps to protect its core intellectual property and avoids the risk of third party intellectual property issues. Today, more than ever, having a solid understanding of intellectual property and developing an IP strategy that aligns with the business is a crucial part of building a new venture on a solid foundation.

This article includes an overview of the different types of intellectual property and provides advice to start-up companies on how to secure their own intellectual property as well as protect against intellectual property risks from others.

The three basic types of intellectual property that startups should understand are:

Patents
Trademarks
Copyrights

Patents

Not every startup business will be best-served by investing its resources in building a patent portfolio, but the question of whether to pursue patent protection warrants a hard and early look. Knowledge of the role of patents is critical for two reasons:

To protect your own business and inventions from your competitors
To avoid the risk of being exposed to assertions of patent infringement by competitors and other third parties

It is important for startups to understand the different kinds of patent protection and how they fit into their business.

Utility patents can be obtained for processes, machines, articles of manufacture, or compositions of matter that are deemed new, useful and non-obvious. The traditional subject matter of such utility patents covers tangible, technical inventions, such as improvements to client-server systems, motors, radios, computer chips and various technical product features. For example, Boeing’s US Patent No. 6,227,447 is a patent that covers methods of remotely controlling a vehicle. Patents can also be directed at new product features and functions. As another example, Facebook’s US Patent No. 8,171,128, titled “Communicating a newsfeed of media content based on a member’s interactions in a social network environment,” protects its News Feed feature.

A separate category of patent, the design patent, may be sought to protect ornamental (non-functional) designs. Some examples of notable design patents include Apple’s D 604,305 covering the design of its iPhone interface and Lululemon’s design patent covering its yoga pants.

The role of patents

Although patents are the most expensive and time-consuming type of intellectual property to obtain, they also provide the best scope of protection. A patent provides its holder with the exclusive right to make, use or sell an invention. This means that it can exclude a competitor from making or selling the patented invention, irrespective of whether or not the competitor copied the invention or even previously knew of the patent. For this reason, a patent that covers an important feature that drives consumer demand and/or distinguishes one’s product or service from that of competitors, can be very valuable.

Benefits of patents for a young business

Patents may provide a number of benefits to young businesses. For example, a robust patent portfolio or a key patent can help attract investors, since it may serve as barrier to entry by competitors. Furthermore, the filing of a patent application will enable the company to advertise “patent pending” along with its product or service. In addition to potentially attracting investors, the “patented” or “patent pending” labels may deter would-be competitors, or force those competitors to adopt different designs and technologies.

As indicated above, once a patent issues it may be used to stop competitors from entering the field and allows for recovery of damages for infringement. Patents can also help the finances of a business by providing an opportunity to generate revenue from licensing.

How to obtain a patent

A patent is obtained by filing an application with the United States Patent and Trademark Office. The application includes a description of the invention accompanied by drawings, followed by a list of the elements that form the invention, called the patent claims. The patent claims set out the metes and bounds of the invention. Third-party products or services that practice the elements of a claim infringe the patent.

When a patent application is first filed, an examiner is assigned to it. The examiner will reject or allow claims based on an assessment of their patentability, and the patent applicant will have an opportunity to respond to the examiner’s decisions. This back-and-forth with the Patent Office, known as prosecution, can take a number of years and is best done by an experienced patent attorney who understands the procedures, the legal requirements and the art of drafting strong patent claims.

Impact of the America Invents Act

Changes in the patent law implemented by the America Invents Act (AIA) half a decade ago have impacted the leading practices for businesses looking to file for patent protection. First, the U.S. is a “first inventor to file” system. This incentivizes early disclosure of inventions and early filing of patent applications.

When two people independently come up with the same invention, the first inventor to file for a patent on his or her invention is awarded the patent, regardless of which actually invented first. For this reason, it is important for businesses to streamline operations to reduce the time from invention to filing of patent applications.

Early and cost-effective filing can be achieved through provisional applications, which are essentially invention disclosures that can be converted to full patent applications within one year.

In addition, the AIA also provides for a prioritized examination procedure, which expedites the patent examination process. While the use of prioritized examination is more costly up-front, it may reduce overall legal expenses, since a patent can be obtained within one year.

Avoiding infringement of other patents

A second important aspect that startups should consider with respect to patents is a defensive one, i.e., avoiding infringement of the patents held by others. As a matter of practice, startups should conduct a patent search to verify that their business is free of patents that could be asserted against their product or service. The up-front cost of performing this search and related analysis is relatively minor and is offset by the potential for huge savings, both in terms of litigation costs and wasted investment in an infringing idea. The cautionary tale of Vlingo underscores this point.

Vlingo spent years developing voice recognition technology that led to talk of partnerships with Google and Apple. However, another voice recognition company, Nuance, which held a patent on voice recognition, sued Vlingo for patent infringement. Although Vlingo ultimately won the lawsuit, by then the company had already lost its potential partnerships, and the cost of defending the suit forced Vlingo to sell its business to Nuance. An early patent search could have revealed the Nuance patent and may have allowed Vlingo to take appropriate strategic steps to address the issue. For example, they might have been able to adopt a different design to avoid a run-in with Nuance.