Tag: IP Law

Does a Valid Copyright Exist in the Song “Happy Birthday To You”?

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Ownership of a copyright in one of the most popular songs in the English language has recently been challenged in several lawsuits around the country.  At the heart of the dispute is whether the music publisher Warner Chappell legitimately owns a copyright in, and thus has the right to license (and enforce) the rights to, the ubiquitous song “Happy Birthday to You.”  Since it acquired a company in 1998 that claimed to own the rights in this song, some have estimated that Warner makes as much as $2M per year licensing the rights to use this song in various movies and television shows.  Two recently filed lawsuits are challenging this ownership claim and seek a ruling that the rights to the song have passed into the public domain.

The long and tortured history of the song, which has been methodically detailed by Professor Robert Brauneis in his excellent article on the topic, begins with the melody of the song which was originally written in the late 19th Century by two sisters, Mildred and Patty Hill.  Although there is still some dispute over the originality of the melody, Professor Bauneis’s research indicates it may have been wholly original even if loosely based on prior folk songs. What is undisputed, however, is that the Hill sisters’ melody was first published in a collection of children’s songs in 1893.  That melody (with different lyrics) was originally titled “Good Morning to All,” and was intended to be used as a greeting by teachers to their students.  What may be forever lost to history is who combined the current words with the Hill sisters’ melody and when. There is evidence from as early as 1911 that the current words and melody (i.e., the “Good Morning to All” melody) were being used together.

 Warner argues that its rights stem from two principal sources acquired over the years through many corporate mergers: (1) a 1935 piano arrangement of the melody of the song, which critics have noted is a specific arrangement of the song that is not the popular version known today, and (2) a copyright registration in a 1924 songbook containing the lyrics.

The suits challenge Warner’s claimed rights on several grounds. One is lack of originality. To be protected by copyright, a work must be sufficiently “original.”  Plaintiffs allege that Warner’s claimed versions of the song are not original enough, and do not protect the version of the song we know today.  Second, they allege that the version of the music in which Warner claims rights, the specific 1935 piano arrangement of the song, is not sufficiently similar to the current version to enable it to claim any rights in the current version. Finally, according to the Plaintiffs, any copyright in the prior versions expired long ago, either through term limits on copyright protection or through the failure of the original owners to properly renew those rights many years ago.

Since the license fees Warner charges for use of the song are not exorbitant, there has been little financial incentive for anyone to take Warner to court over the rights to the song. Since multiple litigations are now pending, there will likely be amicus briefs filed on plaintiffs’ side from many sources. This “crowdsourcing” of history, knowledge and effort (and cost) in re-creating as accurate a picture as possible of the history of the rights of this song is probably the best chance yet of getting to the bottom of the long open question regarding the ownership of “Happy Birthday to You.”

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America Invents Act – Practical Considerations for Portfolio Companies

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Private equity funds should familiarize themselves with recent changes to U.S. patent law that affect patent protection strategies for their portfolio companies.  In September 2011, the U.S. Congress enacted the America Invents Act (AIA) patent reform bill, which significantly overhauled U.S. patent law.  This article summarizes practical considerations that private equity funds should bear in mind when evaluating and managing the patent portfolio of their investments.

First Inventor to File 

In the broadest sense, the AIA converts U.S. patent law into a “first-inventor-to-file” system from a “first-to-invent” system.  This conversion harmonizes U.S. patent law with the rest of the world’s patent laws.  In practice, it means that businesses should not delay filing patent applications, as they can no longer antedate patent-defeating prior art with an earlier invention date.

Challenges to Patent Rights 

Effective September 12, 2012, the AIA provided businesses new post-issuance patent validity challenge options that may be exercised before the U.S. Patent and Trademark Office (USPTO).  The new post-issuance challenges provide businesses new and predictable avenues to test the validity of a competitor’s patent that is, or may in the future be, an impediment to commercialization.  These post-issuance challenges include post-grant review, inter partes review and the Transitional Program for Covered Business Methods.  Each of the three post-issuance challenges is defined briefly here.

Post-Grant Review

Someone other than the patent owner may file a petition for post-grant review challenging the validity of a patent within nine months of the patent’s date of issue or reissue on any statutory grounds for invalidity.  Thus, even if a patent has been grated to a portfolio company, it may be subject to challenge by third parties in the time period immediately following issuance.  Similarly, a portfolio company could elect to challenge a competitor’s rights, even after a patent has been issued.

Inter Partes Review 

Someone other than the patent owner may file a petition for inter partes review challenging the validity of the patent nine months after the date of issue or reissue on limited invalidity grounds.  Inter partes review may only be instituted after the time period for post-grant review has expired and offers only a subset of the challenges available in post-grant review.  This means that throughout the entire life of an issued patent, generally 20 years from the filing date of the earliest priority document, it may be subject to challenge and invalidation.  Private equity funds should closely consider any potential challenges that could be lodged against a portfolio company and should evaluate potential risk before investing.

Transitional Program for Covered Business Methods

With regard to business method patents, someone other than the patent owner may file a petition for covered business method review challenging the validity of a patent if (1) the petitioner has been sued for infringement or threatened with an infringement suit, and (2) the patent claims a financial product or service.  Practically speaking, this scope is broader than mere financial products or services, such that any patent claiming anything related to money may potentially be challenged using a covered business method review.  Versata Development Group Inc. recently filed suit against the USPTO in the Eastern District of Virginia alleging that such a scope is impermissibly broad.  Until the result of that case or guidance is issued by the USPTO, private equity funds should proceed under the broad definition of “financial product or service” when evaluating a portfolio company with patents that may be challenged under the covered business method review.

Conclusion

Whether used against competitors’ patents or in defense of a business’ own interests, the new post-issuance challenges available under the AIA are powerful new tools in a portfolio company’s strategic toolbox.

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Update on Advanced Micro Devices (AMD) Trade Secret Misappropriation Case: Judge Hillman Issues Narrow Interpretation of the Computer Fraud and Abuse Act (CFAA)

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As originally discussed on this blog back in February, a lawsuit brought by Advanced Micro Devices (AMD) against former employees accused of taking AMD trade secrets with them to competitor Nvidia has been ongoing and a recent opinion in the case highlights the uncertainty surrounding the Computer Fraud and Abuse Act (CFAA).

A recent opinion issued by Judge Timothy S. Hillman narrowly interpreted the CFAA in this case. Judge Hillman declined a broad interpretation of the CFAA and held that AMD’s allegations in its complaint are insufficient to sustain a CFAA claim.

The relevant portion of the CFAA provides that it is a violation of the CFAA to:

Knowingly and with intent to defraud, [access] a protected computer without authorization or [exceed] authorized access, and by means of such conduct [further]the intended fraud and [obtain] anything of value, unless the object of the fraud and the thing obtained consists only of the use of the computer and the value of such use is not more than $5,000 in any 1-year period.

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There exists a circuit split on the interpretation of this clause. As Judge Hillman noted, the 1st Circuit has not clearly articulated its position on the issue. The broad interpretation defines access in terms of agency or use. That is, whenever an employee breaches a duty of loyalty or a contractual obligation and acquires an interest adverse to their employer, then all subsequent access exceeds the scope of authorized access. Proponents of the narrower interpretation argue that the intent of the CFAA was to deter computer hacking and not to supplement common law trade secret misappropriation remedies and therefore fraudulent means must be used to obtain the information initially.

Judge Hillman utilized a narrow interpretation of the CFAA and held that AMD had not pleaded sufficient facts to maintain a cause of action under the CFAA. AMD had pleaded that the defendants used their authorized access to computer systems to download and retain confidential AMD information which they retained when they left to go work at Nvida. The complaint, while alleging the defendants had the intent to defraud AMD, provided no facts which support the allegation that the defendants obtained the information through fraudulent or deceptive methods.

Judge Hillman did not outright dismiss the claim given the truncated evidentiary record and has allowed AMD the opportunity to plead specific details indicating that some or all of the defendants used fraudulent or deceptive means to obtain the confidential information and that they intentionally defeated or circumvented technologically implemented restrictions to obtain the confidential information. If other judges in the 1st Circuit follow Judge Hillman’s approach, plaintiffs will need to ensure that they plead with sufficient detail that the defendants obtained the information through a fraudulent or deceptive method as opposed to simply obtaining the information through permissible access.

Defense of Marriage Act (DOMA) Goes Down – Copyright Goes Up – U.S. v. Windsor, Supreme Court, No. 12-307, Decided June 26, 2013

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The Supreme Court handed down a far reaching decision throwing out an attempt by Congress to deny the benefits conferred by federal law on same sex couples legally married under state law holding that the Defense of Marriage Act (“DOMA”), as so applied, constituted a deprivation of the equal liberty of persons protected by the Fifth Amendment. In so doing, and perhaps without realizing it, the Supreme Court was also writing an important copyright case.

Much of copyright law is devoted to legal protection for intellectual property under a social contract allowing authors to exclusively benefit for a limited time from the fruits of their creative endeavors in exchange for enhancing the marketplace of ideas. The presently effective Copyright Act of 1976, and its predecessors including the Copyright Act of 1909, further establish a mechanism for succession assuring that certain defined classes of individuals, the author’s “statutory heirs”, may continue to enjoy those benefits following the author’s death. These classes generally include the author’s surviving spouse and children and, in certain circumstances, the grandchildren next of kin and/or the author’s executor. Since copyrights are expressly solely a matter of federal law for the federal courts, any such federal benefits would have likely been denied by DOMA had it survived judicial scrutiny.

For example, the renewal copyright provisions allow the recapture of a deceased author’s original term copyright (copyrights secured prior to 1978) by an author’s surviving spouse and children as a class. Should there be no surviving spouse or child, the renewal right passes to the author’s executor, if there is a will, or to the author’s next-of-kin in the absence of a will. Clearly DOMA would have denied the benefits of renewal to a surviving, non-author, gay spouse even though such was legally married under state law. What would instead have happened is that an author’s children (possibly by a first marriage) would have enjoyed the entire renewal copyright to the exclusion of the legal, non-author spouse. It should, in this regard, be noted that, much to the surprise of many estate attorneys even today, the renewal and other copyright privileges flow directly from the statute to the statutory heirs without regard to the author’s plan of testamentary distribution or the state laws of intestacy.

Another example would have been the right of termination of transfers by which the author’s statutory heirs are allowed to serve Notices of Termination on prior transferees. In most cases, the author’s surviving spouse and children must jointly exercise the termination. Of course, if DOMA had survived instead of the non-author gay spouse, the children would have exclusively owned the termination rights with no legal obligation to a possibly disfavored second spouse who might be left with nothing from the estate of his or her devoted marital partner.

Neither of these scenarios will now happen…at least not from a direct application of DOMA to the provisions of the Copyright Act. Instead, the Copyright Act will continue to neutrally apply to all legally married spouses regardless of their sexual orientation.

The children, whatever their feelings may be about their father or mother’s choice of marital partner, should not feel deprived. The Supreme Court had already long ago shown favor to them. In an often forgotten decision, De Sylva v Ballentine, 351 US 570 (1956), the Supreme Court determined that even children born out of wedlock were entitled to the benefits conferred by the copyright laws on “children” as a class. However, the Supreme Court just as clearly stated that identifying who qualified as a “child” was a matter left to the states, hence, entirely consistent with the DOMA ruling. Following, De Sylva, the New York federal appellate court, the Second Circuit, applied the ruling of the Alabama Supreme Court to hold that Cathy Yvonne Stone, the out of wedlock daughter of the famous country singer, Hank Williams, was entitled to share the benefits of Williams’ renewal copyrights. Once Alabama state law identified Stone as a legal child, the Copyright Act then extended renewal copyright benefits to her as a member of the federally defined class of “children”. Stone v. Williams, 970 F2d 1043 (2d Cir. 1992).

Trusts and Estates attorneys, however, are not entirely out of business. The DOMA decision leaves substantial need for their services if only to determine the impact on pre-planned and future estates. The Supreme Court, both in De Sylva and Windsor, has made it clear that state law still governs who will be considered a legal spouse or child. In fact, Windsor expressly leaves intact the state law provisions of DOMA. If that were not enough, the Supreme Court’s companion decision, Hollingsworth v Perry, No. 12-144, decided June 26, 2013, leaves in place a determination, under California state law, that same-sex partners could not be denied the benefits of marriage. In short, DOMA is one piece in the same-sex marriage mosaic, but not the final piece…not close to it. Instead, the Windsor and Hollingsworth decisions will only increase the need to carefully examine the impact of state law on the effective and predictable management of literary and artistic estates.

Supreme Court Holds That Reverse Payment Patent Settlements Are Subject to Antitrust Scrutiny

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For over a decade, the antitrust enforcers at the Federal Trade Commission have challenged the type of patent settlement where a brand-name drug manufacturer pays a prospective generic manufacturer to settle patent challenges, and the generic manufacturer agrees not to bring its generic to market for a specified number of years. The lower federal courts have over the years rejected the challenges. However, on June 17, 2013, the Supreme Court addressed the issue in Federal Trade Commission v. Actavis, and in a 5-3 decision held that such settlements are subject to rule of reason antitrust scrutiny. However, beyond that conclusion, the Court left the questions of how to structure and resolve the rule of reason issue to the lower courts and future cases.

As Justice Breyer’s majority opinion summarized the issue and its holding:

Company A sues Company B for patent infringement. The two companies settle under terms that require (1) Company B, the claimed infringer, not to produce the patented product until the patent’s term expires, and (2) Company A, the patentee, to pay B many millions of dollars. Because the settlement requires the patentee to pay the alleged infringer, rather than the other way around, this kind of settlement agreement is often called a ‘reverse payment’ settlement agreement. And the basic question here is whether such an agreement can sometimes unreasonably diminish competition in violation of the antitrust laws.

In this case, the Eleventh Circuit dismissed a Federal Trade Commission (FTC) complaint claiming that a particular reverse payment settlement agreement violated the antitrust laws. In doing so, the Circuit stated that a reverse payment settlement agreement generally is ‘immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent.’ And since the alleged infringer’s promise not to enter the patentee’s market expired before the patent’s term ended, the Circuit found the agreement legal and dismissed the FTC complaint. In our view, however, reverse payment settlement such as the agreement alleged in the complaint before us can sometimes violate the antitrust laws. We consequently hold that the Eleventh Circuit should have allowed the FTC’s lawsuit to proceed. (Citations omitted.)

The Court reasoned that even if the settlement agreement’s anticompetitive effects fall within the scope of the exclusionary potential of the patent, that fact or characterization cannot immunize the agreement from antitrust attack. Justice Breyer found that “it would be incongruous to determine antitrust legality by measuring the settlement’s anticompetitive effects solely against patent law policy, rather than by measuring them against procompetitive antitrust policies as well” and that “patent and antitrust policies are both relevant in determining the ‘scope of the patent monopoly’ — and consequently antitrust law immunity — that is conferred by a patent.”

Justice Breyer acknowledged that a conclusion of antitrust immunity would find some degree of support in a general legal policy favoring the settlement of dispute. However, he concludes that this factor should not “determine the result here” but is offset by five sets of considerations:

First, the specific restraint at issue has the potential for genuine adverse effects on competition. To the Court, even though the settlement permitted the challenger to enter the market before the patent expired, the settlement also entrenched the patent holder for the period the challenger agrees to stay out of the market in exchange for a payment, delaying the potential for lower prices. As the Court put it, “The patentee and the challenger gain; the consumer loses.”

Second, these anticompetitive consequences will at least sometimes prove unjustified. To be sure, in some circumstances, the reverse payment may amount to no more than a rough approximation of the litigation expenses saved through the settlement, or compensation for other services the generic has promised to perform. In such circumstances, a patentee is not using its monopoly profits to avoid the risk of patent invalidation or a finding of no infringement. In the antitrust proceeding, the Court concludes, the patentee should have to show that such legitimate justifications are present.

Third, where a reverse payment threatens to inflict unjustified anticompetitive harm, the patentee likely possesses the power to bring that harm about.

Fourth, the majority believes that an antitrust action would be administratively feasible. The majority did not believe that it would be necessary to litigate patent validity to normally answer the antitrust question — an unexplained large reverse payment itself would normally suggest that the patentee has serious doubts about the patent’s survival. “In a word, the size of the unexplained reverse payment can provide a workable surrogate for a patent’s weakness, all without forcing a court to conduct a detailed exploration of the validity of the patent itself.”

Fifth, the fact that a large, unjustified reverse payment risks antitrust liability does not prevent litigating parties from settling in some other way, without the potential to maintain and share patent-generated monopoly profits.

The FTC advocated that the Court adopt a rule that reverse payments are “presumptively unlawful” and that they be analyzed under a “quick look” approach, requiring the patentee to show empirical evidence of procompetitive effects. The Court rejected this position, instead instructing the issue undergo a full rule of reason analysis. In doing so, it left to the lower court the structuring of this and other rule of reason antitrust litigation on the issue.

In practical terms, the decision leaves many difficult issues to be grappled with, and the majority’s apparent confidence that the antitrust question is answerable without getting into the patent issues themselves may prove more aspirational than practical. Chief Justice Roberts’s dissent exposes one flaw:

The majority seems to think that even if the patent is valid, a patent holder violates the antitrust laws merely because the settlement took away some chance that his patent would be declared invalid by a court. …This is flawed for several reasons.

First, a patent is either valid or invalid. The parties of course don’t know the answer with certainty at the outset of litigation; hence the litigation. But the same is true of any hard legal question that is yet to be adjudicated. Just because people don’t know the answer doesn’t mean that there is no answer until a court declares one. Yet the majority would impose antitrust liability based on the parties’ subjective uncertainty about that legal conclusion.

The Court does so on the assumption that offering a ‘large’ sum is reliable evidence that the patent holder has serious doubts about the patent. Not true. A patent holder may be 95% sure about the validity of its patent, but particularly risk averse or litigation averse, and willing to pay a good deal of money to rid itself of the 5% chance of a finding of invalidity. What is actually motivating a patent holder is apparently a question district courts will have to resolve on a case-by-case basis. The task of trying to discern whether a patent holder is motivated by uncertainty about its patent, or other legitimate factors like risk aversion, will be made all the more difficult by the fact that much of the evidence about the party’s motivation may be embedded in legal advice from its attorney, which would presumably be shielded from discovery.

The FTC has hailed the decision:

The Supreme Court’s decision is a significant victory for American consumers, American taxpayers, and free markets. The Court has made it clear that [reverse payment] agreements between brand and generic drug companies are subject to antitrust scrutiny, and it has rejected the attempt by branded and generic companies to effectively immunize these agreements from the antitrust laws. With this finding, the Court has taken a big step toward addressing a problem that has cost Americans $3.5 billion a year in higher drug prices.

The FTC’s “victory lap” is probably premature. To be sure, we now know that blanket antitrust immunity for reverse payment settlements does not exist. However, everything else remains up for grabs. Until there are additional decisions grappling with the actual issue of liability issued, and reviewed, the extent and circumstances of antitrust liability is unclear. The risk-averse patent holder to whom Justice Roberts alluded might well be motivated to avoid utilizing reverse payments in structuring settlements in the future. In addition, the Competition Office of the European Union actively continues to examine reverse payments settlements, and there have been renewed calls for federal legislation banning such settlements.

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Basic Guidelines for Protecting Company Trade Secrets

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Under the Uniform Trade Secrets Act (UTSA), “trade secrets” are generally defined as confidential proprietary information that provides a competitive advantage or economic benefit. Trade secrets are protected under the Economic Espionage Act of 1994 (EEA) at the federal level, and the vast majority of states have enacted statutes modeled after the UTSA (note that some jurisdictions, such as California, Texas and Illinois, have adopted trade secret laws that differ substantially from the UTSA; thus, businesses should research laws in the relevant jurisdiction(s).). Under the UTSA, to be protectable as a trade secret, information must meet three requirements:

i. the information must fall within the statutory definition of “information” eligible for protection;

ii. the information must derive independent economic value from not being generally known or readily ascertainable by others using appropriate means; and

iii. the information must be the subject of reasonable efforts to maintain its secrecy.

Trade secret theft continues to accelerate among U.S. companies, and can have drastic consequences. To combat this threat, Congress and certain state legislatures have recently enacted legislation to broaden trade secret protection. As a result, it is paramount that companies safeguard all proprietary information that may qualify as protectable trade secrets. This blog post explains some key trade secrets concepts, and offers pointers on how to identify and protect trade secrets.

(1) Determine Which Data Constitutes “Information”

The UTSA-type statutes generally define “information” to include:

Financial, business, scientific, technical, economic, and engineering information;

Computer code, plans, compilations, formulas, designs, prototypes, techniques, processes, or procedures; and

Information that has commercial value, such as customer lists or the results of expensive research.

Courts have similarly interpreted “information” to cover virtually any commercially valuable information. Examples of information that has been found to constitute trade secrets includes pricing and marketing techniques, customer and financial information, sources of supplies, manufacturing processes, and product designs.

(2) “Valuable” and “Not Readily Ascertainable” Information

To be protectable, information must also have “economic value” and not be “readily ascertainable” by others. Courts generally determine whether information satisfies this standard by considering the following factors:

Reasonable measures have been put in place to protect the information from disclosure;

The information has actual or potential commercial value to a company;

The information is known by a limited number of people on a need-to-know basis;

The information would be useful to competitors and would require a significant investment to duplicate or acquire the information; and

The information is not generally known to the public.

(3) Take Reasonable Measures to Maintain Secrecy

Businesses should implement technical, administrative, contractual and physical safeguards to keep secret the information sought to be protected. Companies should identify foreseeable threats to the security of confidential information; assess the likelihood of potential harm flowing from such threats; and implement security protocols to address potential threats. Examples of security measures might include restricting access to confidential information on a need-to-know basis, employing computer access restrictions, circulating an employee handbook that outlines company policies governing confidential information, conducting entrance interviews for new hires to determine whether they are subject to restrictive covenants with former employers, conducting exit interviews with departing personnel to ensure that the employee has returned all company materials and agrees to abide by post-employment obligations, encrypting confidential information, limiting access to confidential information through passwords and network firewalls, track all access to network resources and confidential information, restrict the ability to email, print or otherwise transfer confidential information, employ security personnel, limit visitor access, establish surveillance procedures, and limit physical access to areas that may have confidential information.

Conclusion

This blog post is intended to provide some broad guidelines to identifying and protecting company trade secrets. Most if not all companies have confidential information that may be protectable as a trade secret. But certain precautions need to be in place to ensure that the information is protectable. Because each company and situation is different, you should seek advice about your specific circumstances.

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New Data Breach Class Action has Two Million Plaintiffs

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Cyber breaches resulting in the release of personal identifiable information (PII) are increasingly common and now we are starting to see class action lawsuits filed as a result. In what will likely be the beginning of a wave of lawsuits filed as a result of cyber breaches, Schnucks Markets, operator of 100 supermarkets across the Midwest, recently removed a class action lawsuit filed against it to federal court stemming from a data breach that occurred in March in which 2.4 million credit card numbers were stolen.

The Class action complaint alleges Schnucks failed to properly and adequately safeguard its customer’s personal and financial data. In addition to common law negligence and disclosure, the plaintiffs allege a violation of the Illinois Personal Information Protection Act which requires a data collector of personal information to notify individuals in the most expedient manner possible and without unreasonable delay. The complaint alleges Schnucks waited over two weeks to notify its customers and then did so only through a press release as opposed to providing actual notice to individual consumers. Apparently Schnucks struggled to find the source of the breach and this delay may have continued to expose the PII of people who shopped at its stores.

cybercrime graphicSchnuck’s notice of removal to federal court states the grounds for removal include a class size of more than 100 people and damages at issue are greater than $5 million. Schnucks also explains that the data breach was the result of criminals hacking into its electronic payment systems at 23 stores. Further, during the relevant period, 1.6 million credit or debit card transactions took place at these stores. Schnucks calculates that 500,000 unique credit or debit cards were involved thus the putative class has at least 500,000 members.

Damages alleged by the plaintiffs include having their credit card data compromised, incurring numerous hours cancelling their compromised cards, activating replacement cards and re-establishing automatic withdrawal payment authorizations as well as other economic and non-economic harm. Given that data breaches are becoming increasingly common it is likely that there will be more lawsuits filed similar to Schnucks in the near future. Legal counsel experienced in cyber risk and insurance can assist retailers and insurance companies with handling such problems as they arise.

U.S. International Trade Commission Grants Injunctive Relief on Standard Essential Patent

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The U.S. International Trade Commission has issued an exclusion order barring importation of certain older model Apple products for infringing a Samsung patent.  The case is significant because the infringed patent was standard essential and encumbered by a commitment to license on fair, reasonable and non-discriminatory terms.  Patent holders and potential defendants should carefully monitor further developments regarding the availability of injunctive relief for infringement of standard essential patents.

On June 4, 2013, the U.S. International Trade Commission (ITC) issued an exclusion order barring the importation and sale of several older model Apple iPhones and iPads for infringing a Samsung patent.  This in itself is unremarkable, as the patent laws permit patent holders to seek monetary and injunctive relief against anyone who infringes their patents, and injunctive relief is commonly granted to prevailing patent holders.  The ITC ruling is noteworthy, however, because the infringed patent was essential to the 3G standard and was subject to a fair, reasonable and non-discriminatory (FRAND) licensing commitment.  The ruling therefore runs counter to views expressed by the U.S. antitrust enforcement agencies to the effect that injunctive relief should be disfavored when dealing with FRAND-encumbered standard essential patents (SEPs), underscoring the growing debate as to the appropriate balance between the rights of SEP holders under the patent laws and antitrust policy.

In September 2012, the presiding administrative law judge (ALJ) ruled that Apple had not infringed any of the patents-in-suit, and that one of those patents was invalid.  Samsung and the staff attorney from the ITC’s Office of Unfair Import Investigations petitioned for review of the ALJ’s decision.  The ITC then requested public comment on its authority to issue an import ban (which is in essence injunctive-type relief) on products that infringe SEPs.  (Monetary damages are not awarded in ITC cases.)  After receiving a number of comments, the ITC issued its decision modifying the ALJ’s construction of certain terms in one of the patents and holding that, as modified, Apple had infringed the patent.  The ITC determined that two of the three remaining patents were not invalid, but also not infringed, and the final of those patents was both invalid and not infringed.  Based on the infringement of one of Samsung’s patents, the ITC issued an import ban with one commissioner dissenting on public interest grounds.

The case arose as part of the broader ongoing intellectual property disputes between Apple and Samsung over popular consumer electronics devices.  The matter has been submitted to the White House and U.S. Trade Representative for a 60-day presidential review period, but it has been decades since an administration overruled an ITC exclusion order.  If the administration does not reverse the decision, Apple can appeal the decision to the U.S. Court of Appeals for the Federal Circuit.

In a recent policy paper entitled “Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments,” the U.S. Department of Justice Antitrust Division and the U.S. Patent and Trademark Office argued that the ITC and the courts generally should not grant injunctive relief for infringement of SEPs.  The Federal Trade Commission argued the point even more forcefully in a statement submitted last year in ITC investigation 337-TA-752, In re Certain Gaming and Entertainment Consoles, Related Software, and Components Thereof, asserting that on the basis of its mandate to consider the public interest, the ITC should not issue exclusion orders related to FRAND-encumbered SEPs.  In support of their position, these agencies have advanced two principal arguments.  First, they assert that the fact that the patentee voluntarily agreed to license the patent on FRAND terms implies that money damages are a sufficient form of relief.  They therefore argue that if the patentee’s first priority was excluding others from using the patent, it would not have bound itself to FRAND terms or tried to secure the patent’s incorporation into a standard.

Second, the agencies argue that injunctive relief may enable patent “hold-ups” by SEP holders.  At the time a standard setting organization is deciding what technology to adopt, patentees often compete with one another as to whose technology will be adopted.  But once a standard is adopted and large investments are made based on that standard, sunk costs often make switching to a different technology or innovating around the patent prohibitively expensive.  Thus, a company wishing to have its patent incorporated into the standard typically must agree to license that patent on FRAND terms.  The antitrust agencies fear that SEP owners can use the threat of injunctive relief to extract above-FRAND royalties from rivals, and that these additional costs are likely to be passed on to consumers.  The agencies therefore argue that the public interest, which the ITC is charged with taking into account, counsels against exclusion orders in these circumstances.

On the other side of the ledger, SEP holders point out that when a patent holder agrees to license its patent on FRAND terms, it is only making a commitment about the terms on which it will grant a license, not surrendering any remedy afforded by the patent laws.  They go on to argue that the position staked out by the agencies places them in an untenable position because prospective licensees may not accept a proposed license on FRAND terms or may disagree with the SEP holder about whether the terms are, in fact, FRAND.  When a dispute arises over the terms on which a SEP will be licensed, patent holders have a legitimate interest in wanting to ensure their ability to pursue all remedies authorized under the patent laws.  These remedies afford patent holders the ability to protect their intellectual property rights and thereby promote innovation.  Making it more difficult to obtain injunctive relief on SEPs would diminish their incentive to invest in innovation, which is one of the fundamental objectives of the patent laws.

The recent ITC decision represents a clear win for SEP holders, but as noted above, it is subject to further review and possible appeal.  And in all events, the underlying policy debate will most assuredly continue.  As a consequence, it is incumbent both upon patent holders and potential defendants to continue to carefully monitor developments in evaluating the availability of injunctive relief in the context of SEPs.

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Round Up – Intellectual Property and Cyber Security Things You May Have Missed (Including Some Good Summer Cocktail Banter Material)

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Cyber Security Report – Earlier this year, Verizon released its 2013 Data Breach Investigations Report.  The report analyzes and presents data regarding the current state of various data breaches and network attacks.  Some of the results are surprising.

  •             92% of breaches are perpetrated by outsiders
  •             19% of breaches are attributed to state-affiliated actors
  •             76% of network intrusions exploit weak or stolen credentials
  •             66% took months or more to discover

Do Trademark Lawyers Matter? – An empirical study, published in the Stanford Technology Law Review, provided the results of a grueling analysis of 25 years worth of data from the United States Patent and Trademark Office records on whether being represented by a trademark attorney makes a difference in the likelihood of success in getting your mark registered.  The results?  YES!  It turns out that, overall, trademark applicants who are represented by an attorney are 50% more likely to have their marks registered.  The results are even more dramatic when an application faces an obstacle (e.g., an office action).  In those instances, applicants were found to be 68% more likely to proceed to publication when represented by counsel.  Perhaps its time for a national trademark lawyer appreciation day! (I’m not holding my breath).

Does Keyword Advertising Really Work?  eBay recently released a study, entitled “Consumer Heterogeneity and Paid Search Effectiveness: A Large Scale Field Experiment” which analyzed the effectiveness of eBay’s keyword advertising efforts.  So does keyword advertising really work?  Not so much.  According to the study, for well known brands (like eBay), new and infrequent users may be more influenced by keyword triggered advertisements.  But more experienced searchers and otherwise loyal brand users are not influenced by the ads.  When eBay stopped its keyword advertising, almost all of the traffic lost from the absence of the ad was picked up in the native search results.  It’s important to note, however, that this study was focused on a single well known brand.  The results may be quite different for other brands or for less well known brands.  Moreover, the study says nothing about the use of a trademark by a competitor as a keyword to drive traffic to the competitor’s website.

Marketing Your Mobile App – The FTC has released guidelines for mobile app developers when advertising their software.  The plain language guide is very high level, but does include some helpful tid bits to remember.  Highlights include:

  • Advertising is everything a company tells a prospective buyer about its app (whether its in the formal ad campaign or in other communications).
  • Don’t bury key disclosures in “dense blocks of legal mumbo jumbo” or behind hyperlinks.
  • Build in privacy by design, including principles used in selecting default settings.
  • If you change your privacy policy, you need to get user’s consent.  Merely editing the language of the policy isn’t enough.

Effective Disclosures in Digital Advertising – The FTC also released guidelines for online advertising.  This new guidance focuses on the peculiarities and challenges associated with online advertising.  Where this adds new value is in its analysis and detail (with examples!) of the following areas:

  • Proximity and Placement – where disclosures have to be placed to be effective
  • Hyperlinks – including proper labeling and placement
  • Prominence – including use of size, color and graphics
  • Distractions – risks from graphics, sounds and links that may distract from disclosures
  • Multimedia – use of audio and video

Attack on “Happy Birthday” Copyright.  Salon.com reported yesterday that a class action suit has been filed to attack the copyright in the popular birthday celebration tune.  According to the report, the lawsuit was prompted by a documentary uncovering evidence that the song was originally published as early as 1893 and that the current copyright is based on a 1924 publication date which grants the work 95 years of copyright protection.  Based on my count, there’s only about 6 years left in the alleged copyright to begin with.  Hopefully the lawsuit gets resolved before then.

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Handbags and High-Heeled Shoes: Recent Trademark Disputes in the World of Fashion

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When Paul Simon first sang about “diamonds on the soles of her shoes” in the 1980’s, he was apparently more fashion forward than we realized.  Less than a decade later, in the early 1990’s, the fashion house of Christian Louboutin began selling women’s high-fashion designer footwear displaying a distinctive red, glossy sole on the bottom of high-heeled shoes. Legend has it, Louboutin came up with the idea when he painted red nail polish on a pair of women’s shoes because they “lacked energy.”  These shoes soon became highly sought after by celebrities and consumers of haute couture everywhere.

Louboutin federally registered its red-colored sole for footwear as a trademark with the U.S. Patent and Trademark Office in 2008. In 2011, Louboutin sought to enforce those rights by suing Yves Saint Laurent for selling red shoes that displayed red soles. In its Resort 2011 collection, the American branch of YSL featured purple, navy, green…and red shoes that all had soles of matching color. Louboutin took exception to the red-soled shoes and tried to stomp out YSL’s allegedly infringing activity.

At the district court level, a New York judge ruled against Louboutin’s request that YSL be enjoined from selling red-soled shoes. On appeal in September of 2012, the U.S. Court of Appeals for the Second Circuit expressly held that Louboutin could protect its iconic red-soled shoes, except when the entire shoe itself is red.  Therefore, YSL was allowed to continue selling its monochromatic red shoes. Both parties have claimed victory and the case was dismissed in December.

The defendant in a case brought by Coach, Inc., and recently decided, did not fare quite so well. In 2010, Coach sued the owner of the Southwest Flea Market located in Memphis, Tennessee for contributory trademark infringement, claiming he knew, or should have known, that some of the vendors at the flea market were selling counterfeit Coach Handbags and other infringing products. Prior to filing suit, Coach had sent letters to the defendant, putting him on notice of the infringement. Even after the filing of the suit, multiple raids were conducted at the flea market, and more than 4,600 counterfeit Coach products were seized.

In the case pending in the U.S. District Court for the Western District of Tennessee, the magistrate judge granted summary judgment to Coach in 2012, ruling that the owner of the flea market was contributorily liable for the infringement, and the jury awarded Coach more than $5 million in damages. The case was appealed and last month the U.S. Court of Appeals ruled, for the first time ever, on the question of whether the owner of a flea market can be held liable for contributory trademark infringement. The answer was a resounding “yes”, as the court upheld the lower court’s ruling and the $5.04 million damage award. In its ruling, the court admonished the flea market owner for engaging in “ostrich-like behavior”, willfully ignoring the infringing activities occurring at the market, showing that the high price of fashion applies not just to the cost of the merchandise, but also to not respecting the trademarks by which that merchandise is known.

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