IN THIS ISSUE

Patents

Appellate Decision Sets Stage for Next Skirmish In The Apple vs. Samsung Smart Phone Wars

No En Banc Review in Fresenius v. Baxter

Exhaustion Applies to the Entire Patent, Not Specific Claims

Exhausting Patent Rights Without a Sale

Prosecution History Estoppel Presumptively Applies to Narrowing Claim Amendments

Perils of Flirting with Means-Plus-Function Limitation

Later-Filed Claims Lack Written Description

Background Information Can Be Critical to Obviousness Analysis

TiVo Redux:  Is It Contempt or Just a New Infringement?

Infringing Circuit Enjoined … A Bit Later

“Screwed Up” Board’s Decision Included New Grounds of Rejection

Inequitable Conduct Still Has Bite After Therasense

Rule 36 Judgment Does Not Endorse or Reject Any Specific Part of the Trial Court Reasoning

One-Year Time Limit for IPR’s Includes Counterclaims

USPTO Adopts New Rules to Implement the Patent Law Treaty

The Eastern District of Texas Adopts a Model Order for Patent Cases in an Attempt to Reduce Litigation Costs

Trademarks

No Trademarking of Municipal Seals

eBay Customers as Likely to be Confused as Anyone Else

Old Claims/New Claims – Need a Psychic to Know What’s Covered and What’s Not

Copyrights

Invalidating a Copyright Registration? Not So Fast

Patents/Injunctions

Appellate Decision Sets Stage for Next Skirmish In The Apple vs. Samsung Smart Phone Wars
Apple, Inc. v. Samsung Electronics Co., Ltd.
by Paul Devinsky

A unanimous panel of the U.S. Court of Appeals for the Federal Circuit has concluded that the district court was within its discretion to deny Apple permanent injunctive relief in connection with its assertion of design patents against Samsung’s smartphone but, with regard to Apple’s utility patent, remanded the matter to the district court to determine if Apple presented sufficient evidence to establish a causal nexus between the claimed (infringing) features and consumer demand for the phones.  Apple, Inc. v. Samsung Electronics Co., Ltd., Case No. 13-1129 (Fed. Cir. Nov. 18, 2013) (Prost, J.). 

After a July 2012 jury trial, 26 Samsung smartphones were found to infringe on one or more of Apple’s six asserted patents.  Six of those smartphones were also found to dilute Apple’s iPhone trade dress.  Apple then requested, but was denied, relief in the form of a permanent injunction.  This appeal followed

In terms of the utility patents, the issue was whether there was a “sufficiently strong causal nexus” between the alleged irreparable harm (i.e., lost market share, lost future sales and injury to the Apple “ecosystem”) and the alleged infringement. 

Apple argued that in the context of a permanent injunction (as opposed to a preliminary injunction) there should be no “causal nexus” requirement.  The Federal Circuit disagreed, explaining that the causal requirement is part of the irreparable harm analysis and simply a way of distinguishing between irreparable harm caused by patent infringement and irreparable harm caused by otherwise lawful competition.  The panel, quoting its earlier decision in this case (IP Update, Vol. 15, No. 11) further explained “that the causal nexus requirement ‘informs whether the patentee’s allegations of irreparable harm are pertinent to the injunctive relief analysis, or whether the patentee seeks to leverage its patent for competitive gain beyond that which the inventive contribution and value of the patent warrant.’”  (emphasis in original)

The Court did, however, remand the matter for the district court to reconsider the request for injunctive relief, as the district court’s decision contained several errors in the irreparable harm part of the injunction analysis.  First, the analysis appeared to be predicated on requiring the causal nexus be a “sole” or “exclusive” reason (for consumer demand), rather than simply be proven to have a nexus or a connection to consumer demand.  The Federal Circuit also explained that on remand, depending on the circumstances presented, the district court could consider the causal nexus requirement viewing the patents in the aggregate (not necessarily on a patent-by-patent basis). 

In addition, the Federal Circuit found error in the district court’s equating Samsung’s ability to pay monetary damages with an absence of irreparable harm.  The Court explained that while an inability to pay damages is indicative that money damages are inadequate, the ability to pay damages does not make money damages adequate.  Rather, a court must consider all relevant considerations “to determine whether a damages award will adequately compensate the patentee for the harm caused by continuing infringement.”

Insofar as the trade dress dilution based claims were concerned, the Federal Circuit agreed with the district court that the “undisputed evidence” was that the products in issue are no longer sold and there was no evidence that Samsung might resume selling them so that the district court was within its discretion to deny an injunction based on all allegations of trade dress dilution.

Practice Note:  The Federal Circuit found the district court was well within its discretion in terms of its “balance of hardships” and “public interest” analysis, and declined to “reweigh” the evidence on those issues.  As to the public interest factor, the Federal Circuit did note that the injunction sought by Apple was very broad, while the asserted utility patents covered narrow smartphone features and cited with approval the district court’s observation that “[t]he public interest does not support removing phones from the market when the infringing components constitute such limited parts of complex, multi-featured products.”  Similar observations have been raised in terms of U.S. International Trade Commission § 337 actions where patent holders will often seek an order attempting to exclude large, complex and multi-functional downstream products (such as digital TVs) based on an allegation that a specific included component (e.g., a $5 integrated circuit) infringes its patent.  In ITC parlance, this is oftentimes referred to as an EPROMs analysis.

Patents / Parallel Proceedings

No En Banc Review in Fresenius v. Baxter
Fresenius USA v. Baxter International, Inc.
by Darryl J. Ong

Declining to reconsider its panel decision holding that reexamination proceedings at the Patent Office (PTO) binds subsequent district court litigation, the U.S. Court of Appeals for the Federal Circuit split 6-4 in denying en banc review.  Fresenius USA v. Baxter International, Inc., Nos. 12-1334; 1335 (Fed. Cir. Nov. 5, 2013) (per curium) (Dyk, J., joined by Prost, J., concurring in denial of petition for rehearing en banc) (O’Malley, J., joined by Rader, C.J., and Wallach, J., dissenting from denial of petition for rehearing en banc) (Newman, J., dissenting from denial of petition for rehearing en banc). 

On July 2, 2013, a divided panel of the Federal Circuit held that the Patent and Trademark Office’s (PTO’s) cancellation of Baxter’s patent claims in reexamination left Baxter without a viable cause of action, thus mooting the pending litigation over the patent.  Fresenius II, (IP Update, Vol. 16, No. 7).  The Court vacated the district court’s judgment, and remanded with instructions to dismiss.  This opinion followed two prior Federal Circuit opinions, one affirming the district court’s judgment that the patent was not invalid and infringed, and awarding past damages  (Fresenius I) (IP Update, Vol. 13, No. 5); and a second opinion affirming the PTO’s rejection of the asserted patent claims as obvious (In re Baxter) (IP Update, Vol. 15, No. 11).  As Fresenius I had remanded the case for an accounting of post-verdict damages, the case was still pending following In re Baxter.  In Fresenius II, Judge Dyk, joined by Judge Prost, wrote that the district court’s judgment of infringement was final for the purposes of appeal, but “not sufficiently final to preclude application of the intervening final judgment in In re Baxter.”  Judge Newman dissented, viewing the Court’s ruling as endorsing “administrative abrogation of final judicial decisions.”

Concurring in the denial of en banc review, Judge Dyk reiterated that a patentee’s right to damages for infringement is “founded on the validity of his patent,” citing Simmons and Mendenhall for the proposition that final decisions on infringement liability potentially sufficient to create collateral estoppel were not sufficiently final to bar the preclusive effect of a final judgment in another case.

Judge Newman dissented again, contending that subjecting Article III judgments to agency override violated principles of judicial finality.  Since the Federal Circuit had already affirmed the judgment of the district court on issues of validity, infringement and damages to the date of judgment, the only issue on remand was a determination of post-judgment damages.

Judge O’Malley wrote separately in dissent, stating that “the PTO’s actions cannot, and should not be permitted to, dislodge the judgment for past infringement . . .” “Although In re Baxter eliminated any rights Baxter may have against third parties, it does not extinguish Baxter’s vested rights in the final judgment on the merits of this case against Fresenius.”  Unlike in Mendenhall and Simmons, damages had been calculated and affirmed on appeal, and neither the district court nor the Federal Circuit had the power to disturb the judgment on the merits.  Finality for preclusion purposes sometimes differs from finality for purposes of appeal, but that is because “finality often may be applied less strictly for preclusion purposes than for purposes of appeal, not more so.”  Judge O’Malley noted that the majority’s opinion could render years of litigated decisions meaningless by later PTO decisions, and believes that stays pending reexaminations would be inevitable once trial courts realized the fragility of their decisions.

Patents / Patent Exhaustion

Exhaustion Applies to the Entire Patent, Not Specific Claims
Keurig, Inc. v. Sturm Foods, Inc
by Patrick Stafford

Addressing whether the defense of patent exhaustion precluded a finding of infringement of a method claim, the U.S. Court of Appeals for the Federal Circuit affirmed that the patent rights for a method claim are exhausted by the sale of a machine that substantially embodies the method.  Keurig, Inc. v. Sturm Foods, Inc., Case No. 13-1072 (Fed. Cir., Oct. 17, 2013) (Lourie, J.) (O’Malley, J., concurring).

Keurig brought suit against Sturm Foods alleging infringement of claims in two patents relating to a method for brewing a beverage from a disposable cartridge.  Keurig asserted that Sturm was liable for contributory infringement because the use of Sturm’s replacement cartridges “in certain Keurig brewer models” directly infringed its claims. In response, Sturm asserted the affirmative defense of patent exhaustion and moved for summary judgment of non-infringement.  The district court granted Sturm Foods’ summary judgment motion for non-infringement, finding that Keurig’s patent rights were exhausted by Keurig’s initial authorized sale of the patented brewer machine.  Keurig appealed.

The Federal Circuit affirmed the district court’s ruling, reasoning that the authorized sale of Keurig’s brewers exhausted the method claims at issue because the brewers substantially embodied the method.  Relying on Quanta (IP Update, Vol. 11, No. 6) and Univis (IP Update, Vol. 11, No. 6) the Court found that “Keurig sold its patented brewers without conditions and its purchasers therefore obtained the unfettered right to use them in any way they chose, at least as against a challenge from Keurig.” 

The Federal Circuit noted Quanta and Univis “emphasized the unpatented nature of the products sold.”  However, in this case, the product sold by Keurig was patented.  Additionally, “Keurig did not assert its cartridge patent against Sturm and does not dispute that its rights in its brewers were exhausted with respect to the apparatus claims of the asserted patents.”  Otherwise, the Court found, Keurig would be allowed to do an end-run around exhaustion by claiming methods as well as the apparatus to attempt shield the patented apparatus from exhaustion by holding downstream purchasers of its devices liable for infringement of the method claims.

The Federal Circuit agreed with the district court that a consumer’s potential use of different types of cartridges cannot save the method claims from exhaustion.  Specifically, the Court rejected Keurig’s argument that patent exhaustion should be adjudicated on a claim-by-claim basis.  Instead, the Court held that exhaustion jurisprudence focuses on the exhaustion of the patents at issue in their entirety, rather than on a claim-by-claim basis.  Allowing exhaustion on a claim-by-claim basis, the Court found, would produce uncertainty regarding the rights of both third parties and end users.

Concurring with the majority in the judgment only, Judge O’Malley commented on the majority’s finding that “exhaustion should not be assessed on a claim-by-claim basis … [b]ecause patent claims are independent of each other, it stands to reason that the legal doctrine of patent exhaustion should apply on a claim-by-claim basis.”   Therefore, O’Malley dissented “to the extent the majority purports to lay down a blanket rule affecting cases with facts that diverge widely from those we consider today.”

Patents / Exhaustion

Exhausting Patent Rights Without a Sale
LifeScan Scotland, Ltd. v. Shasta Technologies, LLC
by Darryl J. Ong

Addressing for the first time the issue of whether patent exhaustion applies to products distributed for free, a divided panel of the U.S. Court of Appeals for the Federal Circuit held that “patent exhaustion principles apply equally to all authorized transfers of title in property, regardless of whether the particular transfer at issue constituted a gift or a sale.”  LifeScan Scotland, Ltd. v. Shasta Technologies, LLC, Case No. No. 13-1271 (Fed. Cir., Nov. 4, 2013) (Dyk, J.) (Reyna, J., dissenting).

LifeScan manufactures meters for use with disposable test strips that allow individuals with diabetes to test their blood glucose levels.  LifeScan sold some of its meters, but gave away the majority of its meters for free, “in the expectation and intent that diabetic individuals will use the meters with its test strips.”  LifeScan owns a patent directed to an improved method of measuring blood glucose by comparing readings from two working electrodes on each test strip.  After Shasta made test strips for use with LifeScan’s meters, LifeScan sued Shasta for indirect infringement of its patent and sought a preliminary injunction. 

The district court granted the injunction, reasoning that exhaustion applied only to a “sale” involving consideration.  Shasta appealed. 

The Federal Circuit reversed the injunction and remanded, concluding that Shasta had established a patent exhaustion defense as a matter of law.  The Court found that under Quanta (IP Update, Vol. 11, No. 6) and Univis Lens (IP Update, Vol. 11, No. 6), LifeScan’s meter substantially embodied the patented method and had no reasonable non-infringing use.  LifeScan argued that exhaustion did not apply because LifeScan gave away its meters for free, thus it had not received the reward for its patented invention.  The Federal Circuit disagreed:  “[d]espite frequent references to ‘sales’ and ‘purchasers,’ the [Supreme] Court has more fundamentally described exhaustion as occurring when the patented product ‘passes to the hands’ of a transferee and when he ‘legally acquires a title’ to it.”  The Court found that the lack of a sale was no barrier to exhaustion, citing an early Supreme Court case where the patentee’s rights were exhausted upon authorizing the manufacture of the patented machine.  The Court also found persuasive a copyright case that held that the distribution of free promotional CDs exhausted the copyright owner’s rights.

The patentee could have sought its reward by demanding a particular price for the article embodying the invention, or it could give the article away for free in the hope of obtaining a future benefit, as LifeScan did here.  But “[w]here a patentee unconditionally parts with ownership of an article, it cannot later complain that the approach it chose results in an inadequate reward and that therefore, ordinary principles of patent exhaustion should not apply.”

In dissent, Judge Reyna argued that the inventiveness of the method lies in the test strips, not the meter, and stated that exhaustion should not apply where the essential features of a patented method are immediately consumed during performance of the method, whether given away or sold. 

Patents / Prosecution History Estoppel                                                               

Prosecution History Estoppel Presumptively Applies to Narrowing Claim Amendments
Integrated Technology Corp. v. Rudolph Technologies, Inc.
by Roozbeh Gorgin and Cary Chien

Addressing the issue of whether prosecution history estoppel presumptively applies when an amendment narrows the scope of the original claim in response to patentability rejections, the U.S. Court of Appeals for the Federal Circuit reversed a district court’s decision that prosecution history estoppel did not bar a finding of infringement under the doctrine of equivalents as a matter of law, a resulting finding of willful infringement and an award of attorneys’ fees.  Integrated Technology Corp. v. Rudolph Technologies, Inc., Case Nos. 12-1593; -1618 (Fed. Cir., Nov. 4, 2013) (Moore, J.).

The systems at issue in the case are designed to test the probe cards used by semiconductor manufacturers to determine whether wafers are producing chips that meet a set of predetermined specifications.  Integrated Technology Corporation (ITC) initially filed the suit in 2006 against Applied Precision and its acquirer, Rudolph Technologies, which made the disputed probe card testing systems.  ITC alleged that two categories of Rudolph products infringed the asserted claims.  The first were products where the probe tips make contact with the viewing window (contact products), which were argued to literally infringe.  The second were products where the probes did not make contact with the viewing window (non-contact products), which were argued to infringe by equivalence.

The district court granted summary judgment of literal infringement as to the contact products.  The parties proceeded to trial on three issues: whether Rudolph’s literal infringement with the contact products was willful, whether the non-contact products infringed by equivalence and damages.  The jury returned a verdict of no willfulness as to the contact products, willful infringement as to the non-contact products and awarded damages for the contact and the non-contact products, which were trebled due to the willfulness finding.  The court subsequently tacked on attorneys’ fees because it determined that the case was exceptional primarily due to Rudolph’s litigation misconduct as an indication that it lacked good faith basis for its defenses to infringement.  Rudolph appealed. 

On appeal, the Federal Circuit found that prosecution history estoppel presumptively applies when an amendment narrows the scope of the original claim in response to patentability rejections.  Accordingly, the Court determined that the district court erred in finding that Rudolph’s testing products willfully infringed because ITC surrendered the territory between the original and issued claims, including the equivalent, when it narrowed the meaning of its patent during prosecution to cover products in which a probe touches the chips.  The Court rejected ITC’s argument that the amendment was not narrowing and that the doctrine of equivalents should apply.  The Federal Circuit determined that ITC did not meet its burden to prove that an exception to prosecution history estoppel applied.   

Patents / Indefiniteness

Perils of Flirting with Means-Plus-Function Limitation
Ibormeith IP, LLC v. Mercedes-Benz USA, LLC
by Sarika Singh, Ph.D.

Addressing the question of indefiniteness of a claim limitation cast as a means for performing a specific function, subject to requirements of 35 USC § 112(f), the U.S. Court of Appeals for the Federal Circuit upheld summary judgment of indefiniteness, finding that certain algorithms disclosed in the specification did not adequately define the structure for performing the claimed functions. Ibormeith IP, LLC v. Mercedes-Benz USA, LLC, Case No. 13-1007 (Fed. Cir., Oct. 22, 2013) (Taranto, J.).

Ibormeith patented a device for monitoring conditions affecting a vehicle driver’s sleepiness and issuing of a warning to the driver before the driving is unduly impaired. The device may take into account multiple factors including natural body-clock (circadian) rhythm, the magnitude and number of corrective steering actions the driver is taking, the cabin temperature, the monotony of the road, and how long the driver has been driving.  The factors are weighted according to contributory importance, and combined in a computational decision algorithm, to provide the warning. Both independent claims of the patent recite a monitor comprising a sensor, a memory  and a “computational means” for weighing specified factors, deriving driver’s sleepiness condition and either providing a warning indication or producing an output for a warning indicator.

Ibormeith sued Mercedes for patent infringement for using a feature called Attention Assist in its vehicles.  To comply with § 112(f) (or the pre-America Invents Act § 112, sixth paragraph) as here triggered by the computational means limitation, a patent specification is required to disclose a specific structure for preforming functions claimed in the limitation.  The absence of such disclosure renders the claim indefinite, because there is insufficient definition of something which is incorporated into the claim by virtue of § 112(f).  At the district court, Ibormeith argued that the required structure was provided by algorithms disclosed in the specification.  The district court had concluded that the disclosure was inadequate because there was no algorithm or steps disclosed for weighing the factors according to their relative importance, deriving driver’s sleepiness condition, or providing an output or a warning indication.  After the district court granted Mercedes’s motion for summary judgment of invalidity based on the computational means limitation of the claims being indefinite, Ibormeith appealed.

The Federal Circuit reiterated that “for a claim to be definite, a recited algorithm . . . must be sufficiently defined to render the bounds of the claim—declared by section 112(f) to cover the particular structure and its equivalents—understandable by the implementer,” and (like the district court) concluded that the disclosed algorithm in this case did not adequately define the structure.  Ibormeith argued for a broader reading of the disclosure of algorithms in the specification so as to cover the accused device within claim scope, which the Federal Circuit adopted and deemed as a binding admission. The Court then found that the broad reading could not avoid invalidity because it left the disclosure without a defined and understandable algorithm as there was no indication which factors were to be used in what combination, and with what relative weights to determine driver drowsiness and arrive at warning threshold.

Practice Note:  Other limitations of the claims recited structures rather than the means-plus-function language. If the practitioner had avoided using the term “computational means,” and instead recited a computational device, there would be no presumption that the claim element was to be construed under § 112(f).  Even given the minimal support for such a device in the specification, the outcome might have been different. 

Patents / Written Description

Later-Filed Claims Lack Written Description
Synthes USA, LLC v. Spinal Kinetics, Inc.
by Gregory Yoder

Addressing whether claims amended during prosecution to cover a competitor’s product were supported by the originally filed written description, the U.S. Court of Appeals for the Federal Circuit affirmed a jury verdict invalidating the patent finding that the applicant improperly broadened the patent claims during prosecution to claim a genus where the specification only disclosed a species of the genus.  Synthes USA, LLC v. Spinal Kinetics, Inc., Case Nos. 13-1047, 1059 (Fed. Cir., Oct. 29, 2013) (O’Malley, J.).

Plaintiff Synthes sued defendant Spinal Kinetics (SK) for infringement of a patent directed to a spinal implant medical device. The patent’s parent application, filed in 2003, disclosed and claimed grooves in plates of the implant that were used to anchor fibers in the implant to the plates. Five years after filing the application, the applicant amended the claims to replace the grooves with a plurality of openings, even though the disclosure did not describe openings generally. The parties agreed that grooves are a species of openings, but disagreed as to whether disclosing grooves is adequate to claim all openings.

During claim construction, SK argued the key claim term “plurality of openings” should be limited to grooves. However, the Court agreed with Synthes that a broader construction “two or more openings” applied. At trial, the jury found the patent invalid for lack of written description of “openings.”  After the district court denied Synthes motion for a judgment as a matter of law (JMOL), this appeal followed.  On review, the Federal Circuit examined the jury’s verdict to determine if it was supported by substantial evidence.

Notably, Synthes amended its claims to cover openings only after SK’s commercially successful product utilizing slots, and not grooves, hit the market. The Federal Circuit noted that it is acceptable to broaden claims during prosecution to cover a competitor’s product, but the broadened claims must be supported by the written description. Whether a claim has adequate written description is a question of fact, and the test for sufficiency of description is whether the disclosure reasonably conveys to those skilled in the art that the inventor had possession of the claimed subject matter as of the filing date.

The Federal Circuit analyzed the specification and noted that every embodiment only disclosed grooves and never disclosed openings or slots.  The Court also reviewed SK’s expert testimony, which highlighted significant biomechanical differences between using groove sand slots. Another SK witness, SK’s product developer, testified that it is not a simple substitution to go from grooves to slots. Indeed, SK’s original, failed prototypes used grooves, and it required months to develop the final design that utilized slots.

Synthes provided no evidence contrary to SK’s witnesses’ testimony, but only cross-examined the witnesses regarding whether deeper grooves would improve the design. Given the evidence the jury had to consider, the Court found that there was substantial evidence for the jury to rely on to find the claim invalid for lack of written description. The Court noted that written description is a factual question that is case-dependent and predictability in the art is a key fact. Here, SK’s evidence that its early prototypes utilizing grooves were failures, and that it took months of work to develop the successful slot design, could lead the jury to determine the use of slots was not predictable.

Patents / Obviousness

Background Information Can Be Critical to Obviousness Analysis
Randall MFG. v. REA
by Sungyong "David" In

Addressing a decision of patentability by the U.S. Patent and Trademark Office (PTO) Patent Trial and Appeal Board (Board), the U.S. Court of Appeals for the Federal Circuit vacated the and remanded the case, finding that the Board failed to account for critical background information.  Randall MFG. v. REA, Case No. 12-1611 (Fed. Cir., Oct. 30, 2013) (Taranto, J.).

This case arises out of an inter partes reexamination of a patent assigned to FG Products, Inc.  The validity of the patent was challenged by Randall Manufacturing based on prior art including patents to Aquino and Gibbs and advertisements by ROM.  During reexamination, the examiner determined certain new and amended claims are unpatentable for obviousness over a combination of prior art references including Aquino, Gibbs, and ROM.

The reexamined patent was directed to movable bulkheads for partitioning cargo space in a shipping container.  The patent discloses the movable bulkheads that include two half-width panels independently mounted on the ceiling of the shipping container using rail-and-trolley assemblies, so that the panels can be strapped together to form a full-width partition that can be raised and stowed against the ceiling.  In rejecting the claims, the examiner relied on ROM for disclosing half-width panels with straps for positioning and joining the panels together to form a full-width partition, Aquino for disclosing movable half-width panels mounted on the ceiling of a container using rail-and-trolley assemblies and Gibbs for disclosing a panel that can be lifted by means of a lift mechanism and stowed near the ceiling of a container.  The examiner concluded that all of the elements of the rejected claims were well known at the time of the invention and it would have been obvious to one skilled in the art to combine the teachings of Aquino, Gibbs and ROM to arrive at the claimed invention.  FG appealed to the Board.

At the Board, FG argued that the lift mechanism of Gibbs would be incompatible with Aquino, that the panels of Aquino could not be lifted to the ceiling of the container without colliding with the rails on which they were mounted and that Aquino taught away from ceiling stowage. Therefore, FG argued, the claims at issue are non-obvious.  Randall argued that the state of the art and the level of skill at the time of the invention included well-known options for lifting movable, track-mounted bulkheads and stowing them against the ceiling, citing multiple references that had been considered by the examiner during the reexamination as evidence of the knowledge of one skilled in the art (background references).  In its reversal of the examiner’s determination, the Board “narrowly focused” on Aquino, Gibbs and ROM references in particular, emphasizing the difficulty to modify Aquino to allow ceiling stowage.  Randall appealed.

On appeal, the Federal Circuit reversed the Board’s determination of non-obviousness, noting that “[b]y narrowly focusing on the four prior-art references cited by the Examiner and ignoring the additional evidence Randall cited to demonstrate the knowledge and perspective of one of ordinary skill in the art, the Board failed to account for critical background information that could easily explain why an ordinarily skilled artisan would have been motivated to combine or modify the cited references to arrive at the claimed inventions.”  The Court found the Board’s failure to consider the additional background evidence was prejudicial, because they “constitute important evidence of the state of the art and the context” in which the combination should be evaluated.  In view of the additional background evidence, the Court found “the bulkhead design was nothing more than the ‘combination of familiar elements according to known methods,’ each performing the same function it had been known to perform,’ ‘yield[ing] predictable results.’”  Thus, the Court vacated the Board’s decision and remanded the case.

Patents / Injunctions

TiVo Redux:  Is It Contempt or Just a New Infringement?
nCUBE Corporation v. SeaChange International, Inc.
by Paul Devinsky

In a case involving a product design modified to avoid the scope of a litigated patent, the U.S. Court of Appeals for the Federal Circuit agreed with the district court, concluding the accused infringement was more than “colorably different” from the product previously found to infringe and there was no contempt of the injunction in issue.  nCUBE Corporation v. SeaChange International, Inc., Case No. 12-1066 (Fed. Cir., Oct. 10, 2013) (Prost, J.).

The plaintiff, nCUBE, now known as ARRIS, owns a patent directed to delivering streamed video purchased online. In earlier litigation, a jury found that defendants’ accused ITV product infringed, and the district court entered a permanent injunction that enjoined SeaChange from using or selling its ITV product or “any devices not more than colorably different therefrom.”  After the jury verdict, SeaChange modified its ITV device.  By the time the injunction issued (more than four years later) SeaChange was on the market with its design around which it viewed as outside the scope of the litigated patent.

The plaintiff disagreed and filed a motion seeking to hold SeaChange in contempt of the permanent injunction.  The district court however, found that plaintiff failed to prove contempt by clear and convincing evidence.  ARRIS appealed.

Citing its 2011 en banc decision in TiVo v. EchoStar (IP Update, Vol. 14, No. 4) the Federal Circuit explained that “on a contempt motion, the party seeking to enforce the injunction bears the burden of proving by clear and convincing evidence both that the newly accused product is not more than colorably  different from the product found to infringe and that the newly accused product actually infringes.”     

The Court further explained that “in determining whether more than colorable differences are present the court focuses on those elements of the adjudged infringing products that the patentee previously contended, and proved, satisfy specific limitations of the asserted claims.”  In TiVo the Federal Circuit explained that: 

Where one or more of those elements previously found to infringe has been modified, or removed, the court must make an inquiry into whether that modification is significant. If those differences between the old and new elements are significant, the newly accused product as a whole shall be deemed more than colorably different from the adjudged infringing one, and the inquiry into whether the newly accused product actually infringes is irrelevant. Contempt is then inappropriate.  (Emphasis added.)

With respect to the colorable-differences prong of the TiVo analysis, ARRIS argued that that while the modified system no longer meets the “upstream physical address” limitation, the differences between the ClientID in the original ITV and the SessionID in the modified device are not significant and, therefore, no more than colorable. 

In reaching its conclusion of a failure to prove contempt, the district court noted that while “the ClientID in the modified system performs the same task as it did in the old system … it does so in a way that all parties agree is non-infringing.”  The district court also found that “ARRIS could not rely on the [new] SessionID [of the modified product] to meet this prong of TiVo because it was not identified at trial as meeting this limitation.” 

ARRIS contended that the district court erred by ignoring the “removed” language of the TiVo holding and failing to analyze whether removing the ClientID was a significant change to the system when the SessionID remains. 

The Federal Circuit disagreed, noting that the difference between the infringing and modified systems “represents a modification rather than a removal of the accused [Connection Table] element” and that in the modified device, the ClientID still performs the same relevant functions in both systems, but does so in a way that all parties admit puts the ClientID outside the claim.”  The Court emphasized that the determination of whether more than colorable differences are present requires the Court to focus “on those elements of the adjudged infringing products that the patentee previously contended, and proved, satisfy specific limitations of the asserted claims.”

Patents / Infringement / Non-Obviousness / Permanent Injunction

Infringing Circuit Enjoined … A Bit Later
Broadcom v. Emulex
by Evan Boetticher

The U.S. Court of Appeals for the Federal Circuit affirmed a district court’s findings of non-obviousness based on motivation to combine and objective criteria, and the scope of the injunction that issued, including as sunset period to permit sell off of product.  Broadcom v. Emulex, Case No. 12-1309 (Fed. Cir., Oct. 7, 2013) (Rader, C. J.).

Broadcom sued Emulex for infringement of its patented circuit device for converting an analog signal to a digital signal.  Emulex appealed the court’s judgment as a matter of law (JMOL) of infringement, non-obviousness and its entry of a permanent injunction, that provided Emulex a sell off period to fulfill existing contracts.

As for the infringement issue, Emulex argued on appeal its product did not infringe because, inter alia, it did not always reduce the offset rate between the two claimed signals.  The Federal Circuit rebuffed that argument noting Emulex’s admission that their product sometimes infringes is enough to establish infringement.

As for obviousness, the Federal Circuit agreed with the district court that there was no motive to modify the teachings of the primary prior references, since they described a solution to a completely different problem without any suggestion for expansion to the patented invention.  Second, contrary to the defendant’s inherency argument, because the prior art did not produce any data to recover, a data recovery circuit was not inherent. Third, the Court agreed that there was no rationale for combining the primary prior art reference with other.

The Federal Circuit also agreed with the jury’s and court’s finding of objective indicia of non-obviousness noting that Broadcom had established the requisite nexus between the objective indicia and the claimed invention.  The invention produced a low-cost chip with high reliability and throughput and led to the commercial success of products incorporating it.  The invention also solved a long-felt issue concerning noise coupling that many, including Broadcom, had long tried to solve. 

Finally, the Federal Circuit approve of the court’s analysis of the eBay factors in light of the computer industry’s use of “design win” scenarios in which a component maker’s product is designed into a generation of a manufacturer’s product.  First, because the parties were admitted competitors, Broadcom never willingly licensed the patent-in-suit, and there were only four top-tier clients, Broadcom suffered irreparable harm.  Second, money damages were inadequate because the winning component maker’s immunity against competition and advantage in later bids denied Broadcom a fair chance to win back the market share. Third, the balance of hardships favored Broadcom because the infringing sales were only a small portion of Emulex’s overall sales.  Finally, an 18-month sunset provision protected the public’s interests by allowing Emulex to continue to provide components while manufacturers redesigned their products.

Emulex claimed that the district court had erred in determining irreparable harm in light of Apple v. Samsung Electronics (IP Update, Vol. 16, No. 9), because the evidence did not show a link between Broadcom’s change in market share or a nexus between the harm and the alleged infringement.  The Federal Circuit distinguished Apple based on the nature of the industries and injunction. Apple involved discrete sales to numerous consumers and a preliminary injunction.  However, this case involved an injunction against an adjudicated infringer in an industry with only four top-tier clients who integrate a component into a generation of machines.  Broadcom had lost market share from Emulex’s competition in a limited market.

Patents / Obviousness

“Screwed Up” Board’s Decision Included New Grounds of Rejection
In re Lutz Biedermann
by Nathaniel McQueen

Addressing whether the Patent and Trial Appeal Board (PTAB) relied on the same articulated reasoning and factual underpinnings as did the examiner in finally rejecting application claims, the U.S. Court of Appeals for the Federal Circuit vacated and remanded a decision by the PTAB, finding that the PTAB relied on a new ground of rejection.  In re Lutz Biedermann, Case No. 13-1080 (Fed. Cir., Oct. 18, 2013) (Linn, J.).

The instant application was directed, in part, to a bone screw having a locking element or screw with a square thread used to secure a rod.  In rejecting claims, the examiner cited a primary reference, Cotrel, which disclosed a bone screw having a locking element or screw, and a rod, and a secondary reference, Steinbock, which disclosed a screw with a square thread.  The examiner reasoned that it would be obvious to combine the square thread of Steinbock with the device of Cotrel, because Steinbock teaches that a square thread is most efficient for load transfer.  Biedermann argued that Steinbock taught against the use of a square thread.  The passage of Steinbock referred to by Biedermann recites “[t]he square thread is generally regarded as most efficient, but is difficult to cut because the thread form provides parallel sides.  It also cannot be adjusted to compensate for wear.  The Acme form of thread does not suffer from the disadvantages of the square thread form, it is stronger and only slightly less efficient.”

On appeal, the PTAB concluded that the combination of Cotrel and Steinbock made the application claims obvious because Cotrel taught avoiding splaying with saw-tooth threads and that saw-tooth threads are buttress threads.  Also, the PTAB concluded that Steinbock groups square threads and buttress threads together and that square threads also are used to avoid splaying. The PTAB stated that Steinbock’s treatment of the various thread forms suggests their interchangeability.  Finally, the PTAB cited a new reference, the Machinery’s Handbook, to support its findings.

Biedermann requested a rehearing arguing that the switch from an argument based on “efficiency” to one of “interchangeability” and the addition of a new reference constituted a new ground of rejection.  The PTAB denied the request, stating that it merely provided a more detailed rationale for the examiner’s rejection in its response to Biedermann’s arguments.  Further, the PTAB stated that the use of Machinery’s Handbook was simply as a technical dictionary.  Biedermann appealed to the Federal Circuit.

On appeal, the Federal Circuit found that the thrust of the rejection changed when the PTAB articulated a new factual basis for combining Cotrel and Steinbock.  The Federal Circuit found that when the PTAB changed the basis for the combination of prior art references, notwithstanding that it was responding to an appellant’s argument, the PTAB went beyond merely filling in gaps in the examiner’s reasoning and created a new ground of rejection. 

Further, the Federal Circuit found that the PTAB citation to the Machinery’s Handbook to associate buttress and saw-tooth threads supported only the PTAB’s position, not the examiner’s position (since the examiner’s reasoning was not concerned with any association between the two thread types) which additionally demonstrated the new ground of rejection.

Patents / Inequitable Conduct

Inequitable Conduct Still Has Bite After Therasense
Intellect Wireless, Inc. v. HTC Corporation
by Brad Wilson

Addressing a declaration that allegedly contained false statements about the invention’s alleged reduction to practice, the U.S. Court of Appeals for the Federal Circuit affirmed a district court’s ruling that two patents were unenforceable due to inequitable conduct, finding that the patentee made multiple material misrepresentations that resulted in overcoming prior art.  Intellect Wireless, Inc. v. HTC Corporation, Case No. 12-1658 (Fed. Cir., Oct. 9, 2013) (Moore, J.).

The patents in issue are owned and maintained by Intellect Wireless.  During the prosecution of the patents, the inventor submitted a Rule 131 declaration to swear behind and overcome a prior art reference, stating that “the claimed invention was actually reduced to practice and was demonstrated at a meeting … in July of 1993.”  A revised Rule 131 declaration was later filed in which this statement was removed, while other statements were added describing a “prototype now in the Smithsonian that was in development for a … demonstration” in July of 1993, an “actual reduction to practice” and “bringing the claimed subject matter to commercialization.” 

After issuance of the patents, Intellect sued HTC for patent infringement.  As a defense, HTC asserted that the patents were unenforceable on the ground that Intellect had engaged in inequitable conduct by submitting false declarations to the U.S. Patent and Trademark Office (PTO) and failing to correct the misrepresentations.  The district court agreed, and Intellect appealed. 

The Federal Circuit, applying the two-prong test for inequitable conduct, requiring both a showing of withholding material facts and an intent to deceive, found that Intellect committed inequitable conduct by filing a false declaration and then failing to cure the misconduct. The Court found that it is “undisputed” that the inventor’s “original declaration was unmistakably false” and that “the revised declaration obfuscated the truth.”  The Court focused on the fact that the revised declaration never expressly negated the false references to actual reduction to practice in the original declaration and therefore did not openly advise the PTO of the misrepresentations as required.  Accordingly, the Court found that the materiality prong was met.

The Federal Circuit further highlighted the fact that the inventor submitted a false declaration during prosecution of another patent in the family, as well as that the inventor submitted a misleading press release to the PTO during prosecution of yet another patent in the family.  The Court found that submission of the false affidavit in the asserted patents raised a strong inference of intent to deceive and that the pattern of deceit engaged in by the inventor makes the inference stronger.  The Court further found that the inventor’s intent to deceive could be affirmed based on the content of the two declarations, where the “the completely false statements in a first declaration were followed by a replacement declaration that, rather than expressly admitting the earlier falsity, dances around the truth.”  Accordingly, the Court found that the intent prong was also met.

The Federal Circuit explained that Therasense made clear that filing a false affidavit is material.  The Court also found that both the failure of the applicant and the attorney to tell the PTO the truth during the prosecution of the applications for the asserted patents and the pattern of deceit by the applicant in the prosecution of other patent applications evidenced intent to deceive.

Patents / Appeals

Rule 36 Judgment Does Not Endorse or Reject Any Specific Part of the Trial Court Reasoning
TecSec. Inc. v. IBM Corp.
by Alexander Ott

Addressing claim construction issues after having already affirmed a non-infringement holding as to one defendant under Rule 36, the U.S. Court of Appeals for the Federal Circuit largely reversed a district court’s ruling of no infringement as to the remaining defendants, finding that the plaintiff was not precluded from challenging the district courts’ claim construction because that holding was not essential to the earlier affirmance.  TecSec. Inc. v. IBM Corp., Case No. 12-1415 (Fed. Cir., Oct. 2, 2013) (Linn, J.). 

TecSec brought suit against IBM, PayPal and 11 others for infringing three of its patents directed to network data encryption.  Early in the case, the district court severed the claims against IBM and granted its motion for summary judgment of no infringement.  The court found that TecSec had failed to produce sufficient evidence of direct infringement because IBM sold only software, whereas the claims required both hardware and software.  The court also found insufficient evidence as to intent for inducement.  The district court set forth an alternate ground for no infringement by construing certain claim terms and holding that IBM’s software failed to meet the claims as construed.  TecSec appealed both grounds, but the Federal Circuit affirmed without opinion pursuant to Rule 36.

On remand, TecSec stipulated to non-infringement as to the remaining defendants under the court’s claim constructions and again appealed. 

As its first order of business, the Federal Circuit found that there was no preclusion from re-raising the claim construction arguments.  The Court reiterated that a Rule 36 judgment does not endorse or reject any specific part of the trial court’s reasoning and merely confirms the judgment.  The Court determined that the mandate rule did not apply because the district court’s claim construction was not essential to its affirmance under Rule 36.  The Court also concluded that there was no collateral estoppel because either of the alternatives in the district court judgment was independently sufficient to affirm a judgment of no infringement.

Turning to claim construction, the Court agreed with the district court that the term “multi-level multimedia security” requires multiple layers of encryption due to statements made by the inventors during prosecution, but disagreed that it was limited to multimedia objects.  On that basis, the Court affirmed the non-infringement judgment as to PayPal but reversed it as to the other defendants.  The Court also disagreed with the district court’s conclusion that the terms “system memory means” and “digital logic means” were means-plus-function limitations, finding that “system memory means” itself is already sufficient structure for the recited function of storing data and that the claims themselves specify what the “digital logic means” comprises.  Finally, the Court reversed the district court’s holding that 14 computer-implemented means-plus-function elements were indefinite.  While the district court had found that there was no corresponding algorithm, the Federal Circuit disagreed and found that the specification provided a sufficiently detailed prosaic description to implement the claimed functions.

Patents / Inter Partes Review

One-Year Time Limit for IPR’s Includes Counterclaims
St. Jude Medical, Cardiology Division, Inc. v. Volcano Corp.
by Charles Hawkins

The Patent Trial and Appeal Board (Board) of the U.S. Patent and Trademark Office (PTO) denied a petition for inter partes review (IPR) that was filed more than one year after a counterclaim alleging infringement was served on the petitioner, finding that the phrase “complaint alleging infringement of the patent,” as used in 35 U.S.C. § 315(b), is sufficiently broad to include a counterclaim that alleges infringement of the patent.  St. Jude Medical, Cardiology Division, Inc. v. Volcano Corp., IPR2013-00258, Paper 29 (PTAB, Oct. 16, 2013) (Kamholz, A.P.J.).

Petitioner St. Jude sued Volcano in federal district court alleging infringement by Volcano of St. Jude’s patents.  In response, Volcano filed and served a counterclaim alleging infringement its patent.  Subsequently, the parties stipulated to the dismissal with prejudice of all claims relating to Volcano’s patent. 

Over a year after Volcano served its counterclaim, St. Jude filed a petition to institute an IPR of the first 20 claims of that patent.  The Board denied the petition, concluding it was untimely as having not been filed within the one-year period set forth in § 315(b).

Section 315(b) states, in relevant part, that an IPR may not be instituted if the petition requesting the proceeding “is filed more than 1 year after the date on which the petitioner … is served with a complaint alleging infringement of the patent.”  The dispute continued on whether a counterclaim alleging infringement of a patent is a complaint for purposes of the statute.  The Board said it was.

The Board analyzed the legislative history and found that nothing in the history indicated that Congress intended the statue to bar some accused infringers but not others.  The Board also found that a contrary position would leave a patent open to serial attack, even after years of patent infringement litigation, if the accused infringer had only been accused via a counterclaim. 

The Board rejected all of St. Jude’s arguments for why a counterclaim should be treated differently from an original complaint.  The Board disagreed that the Federal Rules of Civil Procedure treated a complaint different from a counterclaim such that those pleadings should be treated differently under § 315(b).  Instead, the Board found that the similarities between a complaint and a counterclaim, noting that they both initiate causes of action against accused infringers, underscore their equivalence for purposes of § 315(b). 

The Board also rebuffed St. Jude’s attempts to look at different sub-sections of § 315 and at irrelevant portions of the legislative history.  Finally, the Board disagreed with St. Jude that dismissal of a complaint with prejudice purges the cause of action and negates the applicability of the time period in § 315(b).  The Board stated that service of a complaint (or counterclaim) alleging infringement triggers applicability of § 315(b), even if that complaint (or counterclaim) is later dismissed with prejudice.

Patents / Rules Changes

USPTO Adopts New Rules to Implement the Patent Law Treaty
by Bernard Codd

The U. S. Patent and Trademark Office (PTO) issued new rules to implement the Patent Law Treaty.  The new rules take effect December 18, 2013. 

The major provisions of the rule changes pertain to filing date requirements for a patent application, restoration of patent rights via the revival of abandoned applications and acceptance of delayed maintenance fee payments, and restoration of the right of priority to a foreign application or the benefit of a provisional application in a subsequent application filed within two months of the expiration of the 12-month period.

According to the new rules, a claim is not required for a non-provisional utility application to receive a filing date.  In addition, drawings that are not necessary to describe the invention are not required at the time of filing the application.  Design applications, on the other hand, still require a claim and a drawing in order to receive a filing date.  Furthermore, a specification is not even required if a new application is filed by reference to a previously filed application. 

Under the new rules, the filing date of an application is the date the specification and any required drawings or the reference to a previously filed application are received by the PTO.  However, although an application receives a filing date it does not mean the application meets the requirements of 35 U.S.C. §§ 112 and 113.

The new rules further provide that the PTO can accept maintenance fee and issue fee payments after the expiration of the payment due dates and can accept a late response by the patent owner in a reexamination if the delay in payment or responding is unintentional.  Applicants are no longer limited to a two-year window to revive unintentionally expired patents, and unavoidable delay is no longer an option for revival. 

In addition, with respect to an application claiming priority to a prior-filed provisional application or foreign application, if a subsequent application is filed after the expiration of the 12-month period (six-months for a design application), the right of priority may be restored upon petition if the delay in filing the subsequent application was unintentional.

The petition fee for requesting acceptance of a late issue fee, maintenance fee, reexamination response or restoration of priority will be $1,700 ($850 small entity).

Practice Note:  Applicants should timely file all documents and fees, as using the additional time periods in the new rules as “an extension of time” will be considered an abuse of the provisions.

Patents / Discovery

The Eastern District of Texas Adopts a Model Order for Patent Cases in an Attempt to Reduce Litigation Costs
by Charles Hawkins

The U.S. District Court for the Eastern District of Texas has now adopted a “Model Order Focusing Patent Claims and Prior Art to Reduce Costs” (Model Order), a supplementation to the court’s existing discovery rules and orders intended to promote a “just, speedy, and inexpensive determination of cases under Federal Rule of Civil Procedure 1.  The Model Order limits the number of patent claims and prior art references that can be asserted in litigation.

In a written statement from the Eastern District of Texas Local Rules Advisory Committee (the Committee or Texas Committee) issued on October 29, 2013 contemporaneously with the Model Order, the Committee stated that it began its work by reviewing the “Model Order Limiting Excess Patent Claims and Prior Art” prepared by the Federal Circuit Advisory Council’s Model Order Committee.  The Texas Committee determined that a revised version of the Federal Circuit’s model order could be helpful to practice in the Eastern District.

The Committee recommended including the Model Order as an appendix to the Local Rules, much like the version of the Model Order Regarding E-Discovery.  The stated objective of this approach is to allow flexibility both for the litigants as well as the court to tailor limits on asserted claims and prior art references based on differing facts of each case.

The Model Order calls for an election of asserted claims at the conclusion of claim construction discovery.  The patent claimant is entitled to assert no more than 10 claims from each patent and not more than a total of 32 claims.  Fourteen days later, the patent defendant is required to serve an election of asserted prior art which is limited to no more than 12 prior art references against each patent and not more than a total of 40 references.

The Model Order then calls for a final election of asserted claims wherein the patent claimant is limited to no more than five asserted claims per patent and no more than a total of 16 claims.  The patent defendant’s final election shall identify no more than six asserted prior art references per patent from among the 12 prior art references previously identified for the particular patent and no more than a total of 20 references.

Under the Order, the parties may modify the limits if they can reach an agreement on new limits.  Outside of an agreement, a party must show good cause to modify the limits.

Trademark / Misappropriation / Insurnce

Old Claims/New Claims – Need a Psychic to Know What’s Covered and What’s Not
The Zodiac Group, Inc. v. Axis Surplus Ins. Co.
by Natalie Bennett

The U.S. Court of Appeals for the Eleventh Circuit, ruling in favor of an insurance company that wrote a policy insuring against misappropriation claims, affirmed the dismissal of a suit to recoup attorneys’ fees for an underlying set of allegations for misappropriation of name and photographic likeness.  The unanimous panel interpreted the terms of a professional liability insurance policy and concluded as a matter of law that the insurer was not responsible for attorneys’ fees arising from wrongful conduct that occurred before the insurance policy was in place.  The Zodiac Group, Inc. v. Axis Surplus Ins. Co., Case No. 13-10941 (11th Cir., Oct. 22, 2013) (per curium).

The present action was bound up with earlier actions between the insured, the Zodiac Group (Zodiac) and a former business partner, Linda Georgian (Georgian).  In 2001, Zodiac, a family business marketing “1-800 number” psychic hotlines, entered into an endorsement deal with Georgian, a “renowned psychic.”  Under the terms of the agreement, Georgian agreed to endorse Zodiac’s telephone psychic services in her role as co-host of infomercials on the Psychic Friends Network.  The arrangement lasted until 2007, when the endorsement agreement ended.

Beginning in 2008, Georgian launched a series of actions alleging, inter alia, that after the endorsement agreement ended, Zodiac continued to use her likeness on its website, in print advertisement, and in national call solicitations.  The initial Florida state court action was dismissed for lack of prosecution, but Georgian filed a second, federal, suit in 2009, again alleging that Zodiac had misappropriated her image, invaded her privacy and falsely implied that she continued to endorse Zodiac’s services.  The Florida district court dismissed most of the counts in Georgian’s amended complaint and the parties settled the remaining claims.

In the midst of the misappropriation allegations, Zodiac secured professional liability insurance from Axis on October 1, 2008.  After renewing the policy, coverage continued until October 1, 2010 and was retroactive from March 6, 1998.  The policy stated that it would insure against claims such as those asserted by Georgian, including commercial appropriation of name or likeness.  As soon as Georgian filed the federal complaint in 2009, Zodiac requested that Axis indemnify the cost of defending the second suit.  Axis denied the claim because the second suit was substantially similar to the first state court action and arose from facts that pre-dated Zodiac’s insurance coverage.  In denying Zodiac’s claim, Axis explained that the claims in Georgian’s federal complaint were “first made” in the April 2008 state court action and could not be treated as new claims falling within the terms of the insurance policy because the policy did not cover claims arising from wrongful acts committed prior to the policy’s inception date.

Zodiac sued Axis for breach of contract.  After the district court ruled that Zodiac failed to state a claim upon which relief could be granted, Zodiac appealed. 

The 11th Circuit interpreted the terms of the insurance policy anew and agreed that dismissal was proper.  The appellate panel held that the plain language of the insurance policy precluded coverage based on the timing and substance of Georgian’s first action in April 2008.  Specifically, under the policy, all claims “arising from the same Wrongful Act” are deemed to be made on the same date.  Here, all “Wrongful Acts” related by “common facts, circumstances, transactions, events and/or decisions” would be treated as a single “Wrongful Act.”  Ultimately, the court concluded that the record and the language of the policy did not support Zodiac’s contention that the filing of the second, federal, suit constituted a new “Wrongful Act.”  Moreover, the policy further provided a formula for determining the date on which Axis would be responsible for indemnification.  Because Axis did not receive notice of Georgian’s claims until January 2010, and the wrongful Acts were committed prior to inception of insurance coverage, the formula excluded legal fees incurred as a result of Georgian’s federal misappropriation allegations. 

Trademark / Likelihood of Confusion

eBay Customers as Likely to be Confused as Anyone Else
Bose Corp. v. Ejaz
by Melissa Nott Davis

Finding that eBay buyers are just as likely to be confused as any other consumer, the U.S. Court of Appeals for the First Circuit upheld summary judgment in favor of Bose finding defendant’s unauthorized sale of gray market Bose products to be trademark infringement.  Bose Corp. v. Ejaz, Case No. 12-2403 (1st Cir., Oct. 4, 2013) (Lynch, J.).

As early as 2005 Salman Ejaz began selling Bose products through eBay.  He was not an authorized reseller or distributor for the products, rather he wanted to take advantage of the fact that the price of electronics vary significantly between countries making significant profits possible if one games the system.  Products sold outside the country they are intended for are known as “gray market goods.”  Gray market goods are legitimate and unaltered products of the claimed manufacturer sold outside their intended retail markets.  Throughout 2005 and 2006 Ejaz sold Bose products designed for the United States to customers in Europe.  Bose threatened Ejaz with trademark infringement and the parties ultimately settled as part of the settlement Ejaz agreed to a $50,000 liquidated damages provision for every violation of the settlement agreement.  Promptly after signing the settlement agreement, Ejaz violated it and began selling United States Bose products in Australia.  Bose sued for trademark infringement and violation of the settlement agreement.  After discovery Bose was granted summary judgment on both claims.To prove trademark infringement, plaintiff must demonstrate the trademarks are “entitled to trademark protection;” and “the allegedly infringing use is likely to cause consumer confusion.”  There was no dispute over the first element and the fight centered on whether eBay customers were actually confused by the gray market Bose products.  Ejaz argued that there was a genuine issue of material fact over whether his sales over eBay were likely to cause consumer confusion, claiming that any differences between the products suitable for the United States and those suitable for Australia were trivial and his customers on eBay would have been aware of the differences before making their purchases. 

The 1st Circuit noted that in a gray market goods case “a material difference between goods simultaneously sold in the same market under the same name creates a presumption of consumer confusion as a matter of law.”  The court agreed with Bose that there were material differences between the United States and Australia products, including region coding, power requirements, remote control capabilities, warranty duration and the design/functionality of the radio tuners.  Ejaz’ efforts to minimize the material differences by asserting that his actual eBay consumers were not in fact confused “misse[d] the mark.”  The court held the law required “only that the infringement is likely to cause consumer confusion, not that it actually does so.”  The fact that eBay customers were bargain hunters who knew they exchanged significant cost savings for some product differences did not mean they were unlikely to be confused by Ejaz’ selling of gray market Bose products.

Trademark / Municipalities

No Trademarking of Municipal Seals
In re City of Houston
by Rose Whelan

Addressing for the first time whether a city may obtain a federal trademark registration for a municipal seal, the U.S. Court of Appeals for the Federal Circuit upheld the Trademark Trial and Appeal Board’s (TTAB) decision that such registration is barred by the plain language of Section 2(b) of the Lanham Act.  In Re City of Houston, Case Nos. 12-1356, -1418 (Fed. Cir., Oct. 1, 2013) (Plager, J.).

Both the City of Houston and the District of Columbia separately sought to register their municipal seals as a trademark.  At the Patent and Trademark Office (PTO), the examining attorneys denied both Houston and the DC’s applications due to the prohibition set forth in Section 2(b) of the Lanham Act.  Section 2(b) prevents applicants from registering a proposed trademark that “[c]onsists of or comprises the flag or coat of arms or other insignia of the United States, or of any State or municipality, or of any foreign nation, or any simulation thereof.”

Houston and Washington, D.C., both appealed the examining attorney’s determination to the TTAB, which affirmed the examining attorneys’ rejections in each instances.  Houston and D.C. separately appealed. 

The Federal Circuit advancing different theories of why Section 2(b) does not bar registration of a municipal seal by a municipality.  The Federal Circuit issued a combined opinion addressing the issues raised in each of these cases. 

The City of Houston argued that it should be allowed to register its city seal because, as a government entity, it is not an “applicant” prohibited by Section 2(b).  According to Houston, the context of Section 2(b) suggests that Congress intended “applicant to mean something different than a government entity seeking to register its own seal. 

The Federal Circuit rejected this argument, finding that plain language of Section 2(b) prohibits registration of a municipality.  The Court also noted that Section 2(b) stands in contrast to other subsections of Section 2, which have express exceptions to the prohibitions set forth in those subsections.  The Federal Circuit also found unpersuasive Houston’s arguments the Board construction of “applicant” is at odds with the Lanham Act’s goal of protecting the public from “pirates and cheats,” pointing to prohibitions in Section 2(e) that also do not align with this objective.

The District of Columbia made an entirely different argument based on its contention that Congress intended the Lanham Act to implement and the treaty rights prescribed by the Paris Convention and that Section 2(b) must be construed to be consistent with the language of the Paris Convention to give effect to congressional intent. 

As a threshold matter, the Federal Circuit held that the language of Section 2(b) was not ambiguous, and thus it would be improper to consider the proffered legislative history.  However, even assuming that the Lanham Act was intended to implement the obligations of the Paris Convention, the Federal Circuit found nothing in the Paris Convention to justify a departure from the plain language of Section 2(b) and affirmed the TTAB’s decision.

Copyright

Invalidating a Copyright Registration?  Not So Fast
DeliverMed Holdings, LLC v. Schaltenbrand
by Ulrika Mattsson

The U.S. Court of Appeals for the Seventh Circuit vacated a lower court decision invalidating a copyright registration because of inaccuracies made in the application for copyright explaining that prior to invalidating a copyright registration, a federal court must first consult the Copyright Register to determine if the application would have been rejected had the inaccurate information been known.  DeliverMed Holdings, LLC v. Schaltenbrand, Case Nos. 12-3773, -9774 (7th Cir., Oct. 17, 2013) (Williams, J.).

Marketing firm DeliverMed Holding and its owner Mark Swift (plaintiffs), entered into an informal partnership with Joey Siddle and Michael Schaltenbrand, employees of Medicate Pharmacy (defendants).  The agreement was to provide mail-order pharmaceutical services. 

DeliverMed hired Deeter Associates to design a logo for use by the partnership.  The advertising company in turn hired an independent graphic designer, Allan Kovin, to finalize the “house and pestle” logo design.  The oral agreement covering this relationship did not transfer the ownership of the copyright from Kovin to either the advertising company, Swift or the partnership.

After the partnership dissolved, the plaintiffs filed suit against the defendants for trademark and copyright infringement and other claims.  The plaintiffs had filed an application (to the Copyright Office) to register a copyright in its “house and pestle” logo.  The application stated that Deeter Associates had designed the logo and then assigned the ownership of the copyright to the plaintiff.  The defendants filed a counterclaim seeking a declaratory judgment invalidating the plaintiffs’ copyright registration.

The district court found against the plaintiffs’ claim for copyright infringement, determining that plaintiffs had failed to demonstrate that it owned the copyright to the logo.  The district court also granted the defendants a declaratory judgment invalidating the registration, finding that the application contained false statements and therefore should not have been issued in the first place.

Section 411 of the Copyright Act requires that a work be registered with the Copyright Office prior to the filing of a complaint for copyright infringement.  In addition, the Prioritizing Resources and Organization for Intellectual Property Act (Pro-IP Act), enacted in 2008, added § 411(b), which states:

(1) A certificate of registration satisfies the requirements of this section and section 412, regardless of whether the certificate contains any inaccurate information, unless:

(A) the inaccurate information was included on the application for the copyright registration with knowledge that it was inaccurate; and

(B) the inaccuracy of the information, if known, would have caused the Register of copyrights to refuse registration.

(2) In any case in which inaccurate information described under paragraph (1) is alleged, the court shall request the Register of Copyrights to advise the court whether the inaccurate information, if known, would have caused the Register of Copyrights to refuse registration.

The 7th Circuit concluded that that the district court failed to comply with the statutory requirement that the Copyright Office be consulted to opine as to whether there was inaccurate information in the application such that, if known, would have resulted in a refusal to register.